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Are you sharing agents commission ? Its Illegal

by Manish Chauhan · 111 comments

“Discount kitna doge ! Mishra ji mujhe 35% de rahe hain ” , as per Rakesh ,this is exactly how a lot of customers ask their agents commission to be shared with them in Insurance or Mutual funds. Have you ever asked your agent how much discount he can give you on the premium? This happens a lot with LIC agents and other insurance and mutual fund agents. Many times, even agents offer discount or some gift in return, if you buy the policy or mutual funds through them. This practice is illegal and totally against the laws of Insurance Act and SEBI. The agent can even face cancellation of his license if he is found to share his commission. (Read about agents commission in Insurance and Mutual funds)

Insurance, mutual funds Commission passback to customers by agents is illegal

It kinda works like this. Suppose, an Insurance agent sells you a policy with a sum assured of Rs. 10 lacs, with a  premium of about Rs. 50,000/- per year. An agent will make around 15,000 in commission for that year, out of which he might offer you a discount of Rs 5,000-10,000 for the first year or he offers you some gift! A lot of insurance agents do this to make sure they do not lose the business or get more and more business . In the same manner, if you have Rs. 30 lacs invested in mutual funds, your agent will get around Rs 10,000/- in trail commissions. It might happen that he can offer you 50% of that commission to make sure you stay with him .

Why you should stop asking share in Agents commission ?

Mutual funds : As per SEBI mandate,  sharing the commissions received from AMC  is illegal and should be avoided . Pass-backs, the practice of sharing a part of the distributors’ commission with the investor, have been made illegal under the code of conduct issued to distributors. “Intermediaries will not rebate commissions back to investors and avoid attracting clients through temptations of rebate/gifts etc” – As per a SEBI circular.

If a mutual fund agent shares his commission with others, it opens a big hole, not just for mis-selling, but also dilutes the whole industry atmosphere. There have been rampant cases, when an agent asks customers to leave their current agent and transfer their funds with them as a new agent (link) and they are ready to transfer a part of agent commission to them (the customers). For example, if a person has Rs 30 lacs invested in a mutual funds, an agent would get around Rs. 10,000/- as trail commission in a particular year. A lot of agents offer 5,000 (50%) back to the customers to attract them. A lot of agents pass back a part of commission and customers get into wrong & ill-suited mutual funds because of their greed!

Insurance : Other than the fact, that it’s illegal, you should not encourage or engage in sharing the agent commissions because, for one thing, it hampers your relationship with agent. Don’t forget that your agent will be the one to help in claim settlement when you are dead. If you snatch his share of commission today, it might leave him with a bitter taste in the mouth and not result in a healthy relationship. So please live and let live! The other important reason, you should avoid asking for agents commissions, is that it leads to mis-selling. If you ask for a share in commission, it will leave agents with less earnings and that would encourage them to sell more by any means, which in turn fuels mis-selling. So in a way the whole “asking commissions back” will hamper investors in the long run. What you sow is what you reap!

As per section 41 of the Insurance Act, “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to  take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out OR renewing  or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer.”

Real Life experience

As per Dhawal Sharma, a Delhi based agent shares his experience

I face this problem day in and day out and many a times have to miss out on prospective clients because they want “passback of commission“. This practice (Sorry to say, but started by LIC agents) is so much part of the Insurance selling culture that 99.9% of the public thinks that it is obligatory on the part of an agent to part with his commission. But even LIC agents were quite smart at that time as they use to pass back comission mostly on ENDOWMENT or MONEYBACK policies which generate hefty renewal commissions as well (Unlike ULIP) and reversely, would be of little or practically no use to the client in the long term. This practice is actually pound foolish , penny wise approach..

I know at least 100 people, regularly buying insurance for their entire family (father , mother, brother,uncle, aunty) for last so many years from SHARMA JI or OFFICE WALE CLERK who passback 20% commission, and if we make a thorough study of their Insurance portfolio, they are underinsured (No term plan), not properly equipped to handle retirement (their agent never knew that annuity fund is tax exempt only upto 1/3 amount), and no proper child planning (In many cases, child plans where child is life insurand and not father).


Violation of law using Multi-level marketing in Insurance Policies

For some years now, a new way of selling is evolving. It’s called MLM. Here a big agent sells a policy to some one and makes him a customer. Now, this customer also acts like an agent and starts adding new people in the network and sells them policies. This goes on to many levels, a person earns a part of commissions earned from every person under his personal network. This whole idea of multi-chain selling violates Insurance law and is illegal.

As per Section 41 of the Insurance Act, “A licensed agent, whether individual or corporate, can’t appoint a sub-agent and pass on a commission to another person or entity. Any passing of commission by an agent is construed as rebating and is prohibited under the Act.”

There are many companies operating in different part of our country like TLC Insurance (India) in Bangalore, RMP Infotec in Chennai, Golden Trust Financial Services in Kolkata and SecureLIFE out of New Delhi (read more here and  here)

Responsible Investor = Health Industry

We as buyers, shape this whole industry based on how we act. Over the years, we expected and asked for share in agents commissions, without realising that it will one day work against us resulting in misselling. So please do not support it! A couple of hundreds or thousands is not going to make you rich or poor, but it sure dilutes the whole environment!

Have you ever experienced a situation where agent has tried to give back his commission? Do you think if everyone stops asking for any agents commission back, it can really have any impact?

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{ 111 comments… read them below or add one }

1 Hemant B November 30, 2010 at 8:27 am

Hi Manish

Valuation of law is a different thing & getting right advice is different. People think they are smart but their agents are smarter – if they know that client will ask for kick back they actually introduce most expensive products.

Few readers may not believe that mutual agents are still passing the upfront. But they are suggesting only those schemes that give them a foreign trip on Rs 25 Lakh of investment. :( So who is the looser.

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2 Manish Chauhan November 30, 2010 at 3:18 pm

Hemant

Yea .. Agreed . There has been cases when agents have gone beyond means to sell that last policy which will help them win a foreign trip , The problem lies in the way even agents are lured to sell more and more policies from AMC’s or companies

Manish

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3 Avinash November 30, 2010 at 8:36 am

Manish,

There are a lot of LIC agents who offer this service, i was not aware this is illegal , Thanks for educationg me. It is surprising, when somebody gives a discount how we just dont think from where is he cutting it.

But yes , i agree this must be stopped to stop misselling of insurance & other financial products. A lot people buy wrong products due this & endup repenting after sometime.

We the so called educated ppl should question such things coz there’s nothing free in life. everything comes at a cost! if not now then maybe after sometime but one has to pay for it either initially via money or later on via inconvinience,

One more great article Manish, Keep it up.

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4 Manish Chauhan November 30, 2010 at 3:19 pm

Avinash

Thanks , have you ever encountered such a situation when some one offered you commissions cut ?

Manish

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5 Raghavendra November 30, 2010 at 8:38 am

Manish,

Giving back a part of the commission to the customer happens very regularly in Life Insurance, MFs, and even in Post Office schemes. You would be surprised to know that in some small towns, agents even offer to pay half of the first year’s premium. This is apparently because an agent needs to have a certain ‘minimum amount of new business’ for a few years to qualify for trail commissions throughout the life of the policies sold by the agent.
Our neighbourhood postal agent offers 0.5% (presumably 50% of his commission of 1%) to everybody in our locality.

Raghavendra

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6 srg November 30, 2010 at 9:46 am

This is true of postal agents even in cities

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7 Manish Chauhan November 30, 2010 at 3:21 pm

Raghavendra

Yea .. I know this commission sharing happens everywhere ! . Even bigger cities has this as pointed by “svg” . But there are many consumers who do not buy from agents who do not share their commissions . This has to be fixed from both the sides

What are your views ?

Manish

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8 Srikanth November 30, 2010 at 9:52 am

Good, important article. Thanks, Manish!

Such practices have a corrupting effect on the whole industry. As you rightly point out, neither the advisor nor the customer comes out a winner in such dealings.

However, the sad fact is that a lot of people are not aware that this is illegal and think that this is fair practice. At FundsIndia, I have received several mails asking about “how much pass-back” the investor will get. And people get offended when I tell them that they won’t get any. They think we are taking them for a ride by not giving money back to them.

Honestly, the issue is one of regulation implementation. SEBI and other bodies are very good at writing sound regulations. But enforcement of such regulation takes feet on street efforts that have been non-existent. It was a tacit admission of their inability to enforce this regulation when they abolished entry loads last year. However, such situations are unlikely to improve until the regulatory bodies put effective enforcement mechanisms in place as well.

Regards,

Srikanth

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9 Manish Chauhan November 30, 2010 at 3:24 pm

Srikanth

people who ask for pass-backs and get offended when when not given , have very hallow financial life , their relation ship with money has deteriorated to such an extent that rather than making sure they make best use of their money and investments , they roam around finding out these kind of deals which only makes situation worse ! .

You are better to know things from regulatory point of view, What solutions do you suggest to curb this practice ?

Manish

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10 Srinivas November 30, 2010 at 10:02 am

Good article. Informative as usual.

Till now i didnot know that it is illegal to share commissions. This was a normal practice (i observed) in LIC. Have never thought where the share is comming from. (Enlightened of “No free lunches” in the past few years).

For the last 10 odd years i was not using services of agents as i am directly applying for the financial products. However, this article reminded me about the past and the illegality of the practice.

Thank you for the nice piece of info.

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11 Manish Chauhan November 30, 2010 at 3:25 pm

Srinivas

Thanks for the comment, nice to hear that you have been buying things on your own , but what about insurance products ? How can you buy those without agents other than online term insurance these days !

Manish

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12 Srinivas November 30, 2010 at 10:12 pm

For insurence, now i opt for term policies and in those policies, unlike in endowment policies, there are no great commissions hence no discounts.

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13 Srinivas November 30, 2010 at 10:23 pm

Here i would like to mention an incident that happened recently when i opened a new PPF account in SBI. One agent was sitting near the counter and told me to write her name as agent so that the bank will give her 1% commission of which she told she will pass on .5% to me. When asked, if i dont mention any agent, what happens to commission, i was told that it will not be given to anyone.

I thought it to be perfectly valid to mention the agents name and take the money back instead of leaving it to SBI. (However i didnot get the promised money till date and i was not pursuing it too).

Thus i feel, the law may have to be seen case by case basis. In my case, the agent didnot do anything to earn her commission but for the request.

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14 Manish Chauhan December 1, 2010 at 1:25 am

Srinivas

hmm.. Yea .. your case gives a feeling that this whole commission sharing thing should be ok , but it was mainly a passive approach where you went yourself to buy a product and PPF unlike Insurance or MF is less prone to mis-selling .

Manish

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15 raj December 11, 2010 at 2:57 pm

Immediately Get The Agents name removed. Otherwise SHE will Always Get Commission on ALL YOUR NEW INVESTMENTS Plus Trail Commission on Your Total Investments in PPF Account.
That Too without your knowledge.

Plus my agent in Delhi asks-
1. Why sharing commission on PPF is illegal or why it is unethical?
2. As we give it willingly otherwise we will loose the business & costumer. Because earlier Once the Agent was chosen he/she was permanent/fixed and Changing was impossible. BUT now a simple request letter to Post Office or Bank leads to Immediate CHANGE/Removal of Agent.
3. People get upto 0.75% as commission from him- depending upon
a) By forming a group – may be in their family
b) By helping him by collecting passbook or giving post dated cheques
c) do not asking him to come repeatedly to your home

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16 Ashutosh November 30, 2010 at 10:26 am

This pratice became rampant with the advent of ULIPs a few years back. At that time since ULIPs were not very well regulated, it resulted in a lot of mal-practices. Agents were getting 30-40% comission and hence were more than willing to offer kickbacks.

Now with the Insurance industry becoming more regulated and the rising awareness of customers (Jago Investor is one platform which is doing a great job of doing so) I am sure such pratices will start to decline in the years to come.

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17 Manish Chauhan November 30, 2010 at 3:27 pm

Ashutosh

I am not sure how much ULIP’s contributed to this mal-practice , but Insurance was always there to support this and this has been always there in LIC policies . There are many cases when agent share even first year commissions ..

Manish

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18 Vas June 22, 2011 at 10:43 pm

An agent sold SBI ULIP to me. I never asked for any share of commission. I have never seen him after that. And I am still paying premiums. What do I do with the agent?

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19 Manish Chauhan June 23, 2011 at 8:25 am

Vas

Agent never asks the commission from the buyer , the gets it from the company directly ., Sadly , u are in a bad shape now and left with the policy . Agent has got his commission and thats maximum in first year . So now he might be searching for more “bakra”;s . Sorry to use that word , but thats how a lot of agents look at customers !

Manish

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20 Sandesh Goel November 30, 2010 at 10:26 am

It is good to know that this is an illegal practice.

But, frankly I don’t buy the argument that this practice will cause mis-selling. In fact, it is quite naive to suggest this. An agent who mis-sells lacks ethics and I don’t think that has anything to do with whether I ask him for a part of the commision. An agent who is unethical will mis-sell to maximize his profits no matter what, that’s basic greed. To say that he will be less greedy if I pay him a higher commission is a myth. Some of the most greedy people I know are the filthy rich. The only way to curb mis-selling is by punishing those who do it.

In my opinion, agent commissions should be subject to market laws of demand-supply just like everything else. If agents are willing to work at lower commissions, then mutual fund companies should figure out a way to pass on the benefit to customers through a legal means. if there are enough agents out there who are ready to pass on 50% of their commissions to customers, this tells me that the commissions are inherently over-priced and mutual fund companies should be reducing them.

The sad thing in this whole discussion is that this way of doling out commissions seems to be defying the spirit of entry load ban by SEBI. The whole point of the ban was to make the commissions transparent and negotiated directly between the customer and the agent. We should really all strive to make that happen rather than dwell too much on this legality.

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21 Manish Chauhan November 30, 2010 at 3:45 pm

Sandesh

While I agree with your point that commissions should be more transparent and should be decided in some other way . I dont quite agree when you say “commissions are inherently over-priced and mutual fund companies should be reducing them.” in case of mutual funds (not insurance) . We are talking about trail commissions here in case of mutual funds , and the trail commissions are near .20% or .30% on average which is decent enough for some one to make living .

I would say the sharing of commissions happens due to the intense competition .

Also I am not sure why you feel this practice and not fuel or help in misselling, I agree that its many a times ethical issue ,but there are quite a number of agents who want to sell in right way , but because of their competition who pass-back commissions ,they loose the business and hence, even if they dont want , they have to mis-sell and share commissions . Any person who can make his living by not sharing comissions , will have to double his selling if he starts sharing commissions , which would lead to pressure of meeting targets .

So I feel that it can fuel misselling, I would like to know others views also .

Manish

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22 raj December 11, 2010 at 3:03 pm

I feel mis-selling arises :-

1. When Investor himself is unaware.
2. Doesn’t practices what is being preached by Sh. Manish through Jago Investor. A wonderful education based initiative.

I have query is it really unethical to share commission with PPF agent? Who willingly gives me 0.5% and as revealed above parts upto 0.75% for retaining the customer

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23 Manish Chauhan December 22, 2010 at 1:33 pm

Raj

I am not sure about PPF , but its illegal in Mutual funds and Insurance, for PPF i dont know the rules. Its upto you and the agent to decide if you consider it unethical or not !

Manish

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24 S S November 30, 2010 at 2:37 pm

Thats a very common practice. I did know its illegal. Infact when I was searching for LIC policy a colleague advised me to bargain for it. Obviously peope dont know that this is illegal practice besides they think they are saving some money.

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25 Manish Chauhan November 30, 2010 at 3:46 pm

SS

Yea .. as you have put it, a lot of times its called “bargaining” , when one does that ,he is doing nothing but asking for his earnings !

Manish

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26 S S November 30, 2010 at 4:02 pm

Thats a very important article, I didnt know it was illegal and nobody ever told me!

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27 Manish Chauhan November 30, 2010 at 7:23 pm

SS

Why will some one tell you that unless they are either educating or have some advantage by telling you . Forget telling you , they themselve dont know many times :)

Manish

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28 pravin November 30, 2010 at 2:58 pm

illegal, maybe.unethical -not at all. the silly law needs to be scrapped. all fees are up for negotiation. forget misselling -if i,the intelligent investor can actually boost my returns because of the competition between agents then I WIN. clearly the folks who framed the law think of consumers as idiots or little infants who need to be told what to do. i am disappointed you endorse this blatant law which is against consumers. the agent is supposed to help in getting the stuff redeemed BECAUSE IT IS HIS JOB.he has the job because of US.if everyone got upset because competition makes them drop prices,well good luck -lets go to socialist price controls

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29 Manish Chauhan November 30, 2010 at 3:49 pm

Pravin

Yes , its unethical agree , and illegal because of the law, the article focus is on awareness that its illegal , not endorsing it .

Dont you agree that this practice of sharing commissions has diluted the attitude of many customers the way they look at the whole process and industry ?

Manish

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30 Krish November 30, 2010 at 3:11 pm

Recently I have seen this situation in post office schemes. I am not able to understand why regulation is issued to bar the commissions. There is no process to monitor the piece of regulation that it had written. This has 2 elements to it.

Frankly never an investor is informed of what commission an agent gets out of the investment. Investor has to rely on agent words. The application form should disclose this information or agent should produce commission disclosure form and take investor approval along with the application form.

The second element is, You decide on the investment amount and scheme and go to market to find out what’s on offer as like inviting tenders which is an accepted practice in corporate parlance. Depending on your investment amount, am sure various agents comes with different offers. Obviously the larger the amount, the better is the deal. Some agent closure to the annual target would offer more than the beginner. In such case, the deal would put him into next league and would entitled to next round of benefits.

With all such loopholes, blaming the ordinary investor for cut in commission of the agent is not an appropriate one. The agents are smart and no one would sweaten the deal if he is going to get peanuts. As per SEBI or Insurance circular, it may be wrong to demand the cut in commission but is silent about voluntary offer.

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31 Manish Chauhan November 30, 2010 at 3:52 pm

Krish

As per the IRDA rules, an agent has to disclose the commission he earns ,it was not their earliar . For an informed and alert investor , there wont be much issue as you mentioned .

Regarding your suggestions , its debatable that how it should happen . I would like others to comment on that .

Manish

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32 Amit December 5, 2010 at 5:26 pm

I think an investor should only think about what return he may get from the investment, and not how much commission the agent is earning. If the return on investment is okay, investor should go ahead and invest. If the investor is so concerned about the agent making any money out of his investment, then he should also be concerned about the salaries of all employees starting from the doorman to the manager of the investment company (LIC or others), as their salaries also come due to his investment. Then investor shoul demand something from them also!

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33 Manish Chauhan December 6, 2010 at 8:35 am

Amit

Haha . thats a very valid point you have made ! there are senior management like MD or CEO making literally crores of rupees , but no one is worrried about that !

Manish

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34 DK Bhardwaj January 24, 2012 at 5:42 pm

Amit,

Very well said. Does anyone eye the income of a person or does one pay the accounts clerk on receipt of pay. Does one ask a shopkeeper, how much money he/she makes in a deal. Does anyone question a property agent as to why doe she charge 2% commission on a deal of crore/s who may be totally uneducated and without a regulator and all money is in black.

Come on folks, look at your requirements being met and let the things be between company and agent as regulated by IRDA.

Feel proud of you Amit

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35 dhawal sharma November 30, 2010 at 3:26 pm

Superb post MANISH, hats off..I face this proble day in and day out and many a times have to miss out on prospective clients because they want PASSBACK of COMMISSION…This practice (Sorry to say, but started by LIC agents) is so much part of the INSURANCE SELLING culture that 99.9% of the public thinks that it is obligatory on the part of an agent to part with his commission..But even LIC agents were quite smart at that time as they use to pass back comission mostly on ENDOWMENT or MONEYBACK policies which generate hefty RENEWAL COMMISSION as well (Unlike ULIP) and reversely, would be of LITTLE or PRACTICALLY NO USE to the client in the long term (I think HEMANT will endorse this point)..This practice is actually POUND FOOLISH, PENNY WISE approach..

I know at least 100 people, regularly buying insurance for their entire family (FATHE, MOTHER, BROTHER, UNCLE, AUNTY) for last so many years from SHARMA JI or OFFICE WALE CLARK who passback 20% commission..and if we make a thorough study of their INSURANCE PORTFOLIO, they are underinsured (No term plan), not properly equipped to handle retirement (their agent never knew that annuity fund is tax exempt only upto 1/3 amount), and no proper child planning (In many cases, child plans where CHILD is LIFE INSURED and not father)..

My only question to everybody on this forum who are supporting this practice is that do you know there is commission for everything, let alone INSURANCE or MUTUAL FUND agent..Even doctors get commission for prescribing perticular drugs, sales executive pushing you a particular car, lawyer getting his fee etc..and would you believe, even vegetable vendors get their commission to push tomatos and onions..So do you hackle with DOCTOR that either give me 40% of your fees or i’ll go to other doctor??

You have started a very timely thread and i hope & pray that this cancer of COMMISSION ASKING by the client and PASSBACK by the agent stops at the earliest..

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36 Manish Chauhan November 30, 2010 at 3:39 pm

Dhawal

Good comment and experience from your side . I have included your comments and experience on the main post as its some good thing to share , have a look again at post .

Were you serious when you said, even vegitable vendors endorse potatos and tomato’s ? Really ?

Manish

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37 pravin November 30, 2010 at 4:01 pm

well doctors arent selling the same thing as insurers. doctor A and doctor b are different because of their diagnostic ability,empathy with patients and a whole lot of other things including providing cheaper medicines to senior citizens with no insurance .many doctors already pass on the discount,automatically.
our friendly insurance agent does not.
and subziwallas -we kill them with our demand for discounts.

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38 dhawal sharma November 30, 2010 at 5:39 pm

@Pravin/Manish – Yes, agreed Doctor A and Doctor B are different but so is Mr X, an insurance agent of company A and Mr Y, an insurance agent of company B..One is practicing his agency for last 5 to 10 years, servicing 200 clients at present, has helped about 12 – 15 families in his tenure to procure DEATH CLAIMs and advicing when to buy child plan or when to invest for retirement planning..and another one is running his agency on part-time basis, mostly covering his initial market (His circle of relatives, friends, or neighbourhood). If you ask him what CRITICAL ILLNESS RIDER is or what are the EXCLUSIONs under his mediclaim, he goes blank..But even then he is running his agency decently because he is selling his policies by 40% to 50% passback of his commission..This is what i called UNETHICAL or DISGUISED LOOTING or as Manish put it, MISSELLING..Insurance agent also helps you in lot many ways, most common being picking cheque from you and depositing it for RENEWAL purpose (Its there in IC-33, the course book by IRDA to clear AGENCY EXAM that its not the duty of the agen to do so)..He is doing it just to help you with small things..Doctors are insured against professional negligence(Yes, there is such policy under GENERAL INSURANCE) insurance agent is not..where has public abuse insurance agent for practically anything (Name spelling is not correct, adress is not correct, haven’t got the papers etc.) By the way, i like your example wherein DOCTOR provies cheaper medicines to senior citizen and sometimes free medicines to poor(That is done by charging extra from Rich patients) and so there should be a system that COMMISSION from people with higher income group should be higher as compared to someone purchasing insurance from middle income group ;-)
And yes, WE KILL SUBZIWALLA FOR DHANIYA AND MIRCHI :-)

Manish – In our insurance sector, be it for LIFE or GENERAL, we always say that there are AGENTS and then there are FINANCIAL ADVISORs..Agents, who just sell policies by passing on the part of or full commission to the clients without understanding the needs of the clients and ADVISORs, who sit with client, do fact-finding, understand and advice the product suitable for them, and then do business..

So its upto public at large to distinguish if they are dealing with AGENT or FINANCIAL ADVISOR…

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39 Manish Chauhan November 30, 2010 at 7:27 pm

Good points !

Manish

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40 prabeesh November 30, 2010 at 4:06 pm

Its funny to see few people who commented endorsing the payback practice.
Remember even by giving back the money its the agent who is winner,whom as got u in his account and will get trail commison over the years from you through which he gets back the money you got initially as payback

Also the policy in which he can payback are those endowment policy from LIC which are not worth even considering in almost all cases.

@Manish… i was expecting a article like this from you. can i request you to explain clearly in post, for those people, how they wont benefit even when they are paid back as discount

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41 Manish Chauhan November 30, 2010 at 7:29 pm

Prabeesh

I already told in post that taking discounts is against their own good as it leads to misselling and in turn affects them badly ! , not sure what you want me to put in the post ?

Btw, I replied regarding your question doubt on Forum , stamp duty and registration comes under 80C : http://www.jagoinvestor.com/forum/house-registration-and-tax-rebate-in-section-80c/687/

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42 Prasanna November 30, 2010 at 4:07 pm

This indeed is something new to the ears. I too have been a part of this “bargaining” with my LIC agent till I stopped buying investment linked insurance !
I have a doubt on how actually the law works. Assume that I have done this illegal practice. Firstly – Who is likely/expected to complain about this ( the buyer or the seller ) & Who will face the music ??

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43 Manish Chauhan November 30, 2010 at 7:32 pm

Prasanna

The legality part is on agent and not buyers , so the music will not be faced by you . However as a good practice , we buyers should not support it !

Manish

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44 Sundar November 30, 2010 at 5:50 pm

Manish:
You should give a list of such investments and sort them in the order of commission the agent receives from the Fund Houses. You will then know which are the most popular investments people are hooked into. I can tell you most clients get carried away by agents sales talk and commissions either due to ignorance or due to ego boosting techniques.

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45 Manish Chauhan November 30, 2010 at 7:32 pm

Sundar

Yea .. I knew a few only like Insurance , Mutual funds , PPF , Post office products , NSC also . Not sure about rest !

Manish

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46 Rakesh December 1, 2010 at 12:40 am

Manish,

Excellent post as always.
Not on LIC agents but also private insurance agents pass on the commission to the customers. I had encountered such a scenario with Ageon Religare few years back. The agent promised to give me a discount of Rs. 500 on a term plan if i took it before a specific date.

rakesh

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47 Manish Chauhan December 1, 2010 at 1:26 am

Rakesh

Thanks for sharing your views :) . What did you do in your case ? Did you buy the policy or not ?

Manish

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48 Rakesh December 1, 2010 at 5:56 pm

Manish,

Yes I did buy the policy that time, however the agent took over 6 months to give my commission. Also their customer service was not good so i did not renew the policy next year.
I have lost hope with private players. I prefer to be under-insured rather than taking insurance from private companies.

Rakesh

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49 Manish Chauhan December 3, 2010 at 7:22 am

Rakesh

Not sure who was right ! . Closing the policy should not be the answer here ! . Are you still underinsured ?

Manish

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50 Ajay December 1, 2010 at 10:02 am

I had some different experience.
I had bought LIC policy from my father’s dear friend (it was my decision which policy to buy so effectively, I just needed means of getting that policy)
Now, uncle told me that I can make profit from your father’s money but not yours and he gave me some 50% back at that time (he calculated his commission for entire policy life, I think).
I didn’t realized that I was forced to do illegal thing :)

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51 Manish Chauhan December 3, 2010 at 7:24 am

Ajay

It might be a personal matter and he might have passed it as “family” , Good you got a gift ! , just see if you want to support it in future !

Manish

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52 Kumar December 1, 2010 at 1:22 pm

If Politicians(2g,CWG,Adarsh Sociaty scam,Rotten Food scam,Bofors scam etc.) and Journalists(Radia tapes or Barkhagate) can involved in many Corruptions, then Why not others?

The Agents and Common man are very very poor than comparable to these politicians. Misuse of law in India is nothing new. Thing is that , Politicians are highly benefited than others.

In this context, These commissions are very or extremely less than Other Big scams.

Any way, I hope ,laws should be respected and followed not only by Common Men but also by our Politicians.

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53 Manish Chauhan December 3, 2010 at 7:25 am

Kumar

Yes , I agree with you from that point , lets not blame agents here , This article is meant to make sure we consumers understand what is not right and act on that , it was not written to yell on agent on the first hand .

I also hope, things change , it will some day , slowly !

Manish

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54 bhupesh December 1, 2010 at 5:05 pm

How responsibly these big institutions like ICICI and HDFC has severed their customer when it comes to MF and Insurance selling, even after not sharing hefty commission.
Now when all these are offering online selling and buying as agent, are not they pocketing same commission with out accessing customer need or to say where is advisory function here?

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55 Manish Chauhan December 3, 2010 at 7:27 am

Bhupesh

With online term plans , they do not take the commission from you which goes to agent ,thats why they are cheaper . But I take your point that they have not served customers even themselves , but thats a different issue .

Manish

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56 bhupesh December 3, 2010 at 4:47 pm

I think I did not came that clear in my comments.

When customer goes to these big institutions like ICICI Bank, HDFC Bank, those also acts an insurance advisor and sell policies from ICICIPru or HDFCStandard , they offer no better advisory function then any other individual advisor even after pocketing full commission.

Now there are two choices for customer 1) go for a agent who does not pass back any commission or 2) who pass back some commission, when there is no difference is service where he should go?

Second point which is not related to Insurance as such but MF: example : ICICIDirect or ICICI selling Mutual Fund scheme through their web portal. What advisory function they are fulfilling through those automated portals? (still pocketing trail commission and other fee.) . How well they know their customer and their need?

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57 Manish Chauhan December 3, 2010 at 11:07 pm

Bhupesh

I got your point , its called Bancasuurance model of selling policies , where company use Banks infrastructure to capture clients , thats the reason you will see many companies selling policies specifically to XYZ account holders etc ! .

One major point is , They really do not provide much of advisory and even a agent who shares commissions wont provide much of quality , becasue anyone with a great quality mindset is generally not involved in sharing commissions !

Manish

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58 srinivasu December 1, 2010 at 9:01 pm

dear all !
wellcome.Kindly remember insurance is sold never bought (this is clearly written in our ic 33 agent exam book ), if some one comes to a life insurance company and asks for policy, he/she must be looked with doubt, may be with wrong intentions. even the british rulers made it compulsary to witness and identify his personal details.
even after paying his entire commissions to policyholders life insurance agents can benefit due to other incentives.
some of the above bloggers have very rightly said it.But some customers asks for a pay back because they believe any how this agents will dis appear once the deal is made !
thanks

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59 Manish Chauhan December 3, 2010 at 7:29 am

srinivasu

Well , you have introduced a new concept :) . What are the “other benefits” which insurance agents enjoy? can you tell us ?

Also it was interesting to know that clients ask for commission as they feel the agent will go away ! :)

Manish

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60 srinivasu December 6, 2010 at 11:45 am

dear all,
wellcome again !
kindly go to a nearest life insurance office in case you want to know the fine print of any ulip.
the best way is tell your agent, if any that your also interested to WORK as a financial planner (agent ) in his company.
He may be loosing business for the day but very happy to introduce you.
there are nearly 10 schemes like agent referals, business leaders etc…
you will have a first hand experience how money can made in your PART time.
i sofar reffered 10 people so far and got 17, 700 rs plus 1 % commission on their business.
kindly check my statements above
who told life insurance companies to spend lot of money on sales promotion while launching new ulip or presently capital protection polices in star hotels/ resorts ?
whoose money is this ?
club memberships for regular performers gives additional bonus like silver /gold coins, electronic items, cash vouchers etc
thanks

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61 Raja K December 2, 2010 at 12:28 am

Manish,

Very controversial subject indeed. I am an insurance advisor as well as financial planner. In addition to this I myself an investor. So, I like to see this problem from all angles.

1) From a general insurance advisor point of view : Anyone would hate to see his earnings split. Whether he likes it or not, the practice of rebating has become very common and if one does not want to split his earnings with ‘informed’ clients, he wont get business. The ‘informed’ client will always find another agent who is ‘willing’. In the end the market forces will win. You have to go with the flow.

2) From insurance buyer point of view: I feel I am robbed when I read about commission paid to these agents. And I don’t have choice to control my costs. I need insurance, cheap and efficient. How can I get it ? Even if I go to an insurance company, they wont sell it to me directly, skipping the commission part. [ I know only recently some pure term policies are sold online. But that is not a solution. ] So, I do shop around for look for “better pricing”. what is wrong about it ? I dont care what SEBI or IRDA says about commission rebates. If they are not batting for me, why should I listen to them. I play hardball with agent. Because that is the only way I can “protect my interest”.

3) About mis-selling : I don’t agree with your view that splitting the commission will cause mis-selling. If all the parties – buyer, agent and insurance company read terms and conditions and sign the papers, where is mis-selling ? Agent don’t design the product. In my humble opinion, mis-selling is created at the time of product design by the company and by IRDA who gives approval for so low quality products. So, mis-selling does not happen at the time when agent is explaining to the customer. He is merely selling what is given to him by the producer to sell.

4) SEBI and IRDA have made several regulations. But are they really policing these issues ? I doubt. In my opinion, both of them are sleeping at the switch and doing a lousy job as regulators. How could IRDA approve policies with 40% commissions and say the agent should not cut deal with customers ? As a regulator how can they allow such a high level compensation ? Were they protecting the interests of the insurance buyers ?? What moral right do they have ? It took a letter from SEBI to push IRDA to do what they should have done first themselves.. And yet they have not got it right ! And you want us to listen to these slow-learners..

5) Last but not least, there is no glory or appreciation for insurance agents role in product distribution. He is the main engine, without him the sale can’t happen. The industry knows that, yet there is no respect for the role. When things go bad, he is the one who takes the heat. Do you know any one at any time paid an insurance agent and asked him to suggest a good insurance policy ? When that day comes, agents don’t need to split their earnings.

6) Selling wrong products : In my opinion, even today, the insurance companies are churning out bad insurance products. Almost all endowment products and Jeevan* products are created for misselling. They neither offer adequate insurance nor offer good investment options.

Who in right mind would recommend 5-6% ROI products for 15-25 years of investment when historical Indian inflation is around 8% ? [ Answer: IRDA] Why can’t they put “Not Approved” stamp on these designs. And these products are still paying 20-30% commission. And we want the customer to pay without asking any question and “not negotiate” the commission. In another side, we want to increase the awareness of the customer and educate him !

Manish, I thank you for taking this subject and handling it very well.

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62 dhawal sharma December 2, 2010 at 1:00 pm

@MANISH/RAJA – I myself is an insurance advisor..so found your reply very interesting and could’nt stop myself from replying..

1) Yes, its very difficult to survive in the insurance market without passback but NOT IMPOSSIBLE..I think its only upon us advisors to make the client realise the importance of the product, its usefulness over the long term, and OUR SINCERITY/COMMITMENT..According to my, an average client can very well make out that this agent is a “PART-TIME AGENT”, wont be around when i’ll be needing him after 4-5 years or this agent is not knowledgable enough to settle my queries..So why not take out some FLESH OFF him now..But if he finds that this client is in the business for last so many years, sounds knowledgable and sincere, and would be there to help my anywhichway related to my policy anytime, he can very well understand my REMUNERATION part and not ask for payback (I suppose)..What to do you say??

2. I am buying an insurance, be it term plan or pension plan, at the rate which is quoted by the company to me..Now how does it metter to me how much money out of that PREMIUM PAID by me is distributed by the insurance company to the AGENT as COMMISSION..It should pinch the buyer where the insurance company says that PREMIUM for your child plan is Rs 20000 and you have to pay Rs 4000 extra as agent’s commission..It does not work that way..You are paying Rs 20000 as client might himself have decided to pay yearly and he is paying Rs 20000..So why is he bothered that this much amount is taken out as commission and this much as administrative cost of the company etc. Pay the PREMIUM which YOU YOURSELF has decided to pay for any given plan and dont bother about the COMMISSION the agent is making..Nobody is looking after the kind of effort the agent is putting in to make even that much amount (About 20 calls, 5-6 follow up meetings, 2-3 times commuting to and fro to the client’s place and in lieu of that he is getting approximately Rs 3k for ticket size of 20 k, is it TOO MUCH on client’s part to even ask for payback??

3. I fully endorse MANISH’s view that this practice is a significant contributor to MISSELLING..If i want to push a particular plan, out of three given plans (CHILD PLAN all for eg), i can say to the client that this particular plan A from company X is better than other two companies and i will be able to passback 35% too on this particular plan..Now this common tendency of human beings resurface and ask how much on other plans..I say, CHILD PLANs are all actually the same but only on this product i can give you 35% not on rest of the two..The client will automatically opt for this plan..My purpose is solved, client is happy that he got maximum pay back..but is it not MISSELLING??

4. No sir, IRDA and SEBI are very much on the prowl..There is hardly any policy in the market with 40% commission, even traditional..ULIPs use to have such policies but they are the great source of WEALTH CREATION if the client is willing to stay put for 10 to 15 years..All the funds through ULIP are put into the market and building up CAPITAL STRUCTURE of the economy..But nobody has the time to look at these facts..They are only interested that an AGENT got Rs 7000 on Rs 25000 policy (Again nobody is bothered that this commission is only for FIRST YEAR..RENEWALs are never more than 5%, as per IRDA rule)..What about the remaining term?? Should client compensate or company pay out of its pocket, or client will reimburse that now you are getting only 1200 for next 14 years, i will be giving you Rs 1000 out of my pocket??

5. I myself is waiting for such a day to dawn where public at large will appreciate the role of an agent and pay him the consultation fee for recommending a proper product..

6. BAD insurance products with return of only 6-7% and who in his right mind would invest in such a product?? There are 10 crore people putting there hard-earned money in bank account with 6 to 7% interest or FDs with 7-8% interest..So GOVERNMENT is churning out or allowing bad options to prevail..No, its not like that..These are safe bets and safe bets always carry low rate of interest..Ask those who are cribbing with low returns of 6 to 7% in endowment to put there money in equities or take MF, and they will be first ones to SHRINK..Its actually INDIAN MINDSET who is at fault..

NEGOTIATING COMMISSION is not the solution..As someone earlier in the thread puts it, its always the AGENT who wins, even if the client has got some PAYBACK..

For me, MANISH has raised an absolutely vital issue to help change the average indian POLICY BUYING public’s mindset..JAGO INVESTOR JAGO..

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63 Manish Chauhan December 3, 2010 at 7:19 am

Raja/Dhawal

Thanks for the reply Dhawal . Here are my comments on Raja’s comment

1) I agree with both of you , but more with Dhawal . The problem lies in consumers side and the way they see it ,they dont respect agents and their work and hence ask for cut back , You can see the people here reading this blog, they “understand” that asking for commissions back is wrong and should not be encourages, this has happened with lot of time and lot of effort and is possible , there will be segment of people with whom it would more more tougher , but it can happen and take lots of time . So the transformation would happen slowly.

And as Dhawal said , If agent is serious in what he does , customer will take him seriously .

2) I agree with Dhawal on this , agents on term insurance and other kind of policies do not earn hefty if you consider the overheads and the “magajmari” involved , I wonder how mutual funds agents make anything when they come for 1000 SIP or 5000 one time investment without any commissions, there is hardly any commission there and all might go in commuting only ! . However on the other hand ULIP’s and LIC guys might be earning faster as its easy to sell those policies , with LIC , the name itself sells ! .

3) Raja , I would like to again stress on the meaning of MISSELLING here , its selling some policy not in the best interest of the client , now I dont say that sharing of commission is the mother of Misselling which gave birth to it , but it contributes to misselling in a way , Obviously its a intention and the issue of Ethics , but even a good person ethics can go for a toss , if his commissions are being asked for and he is not able to make that much monthly which he might have made incase there was no commission sharing .

4) Raja , Regulatory bodies function slowly and yes, its a problem area . however as Dhawal said , the product is not bad , its the way people use it . Mutual funds commissions are very high if you see how they are structured in long term ,power of compounding applies in MF commissions , not in ULIP or Insurance policies .

5) Yes , I agree both of you that , there is no respect or less respect for the agents , but that true for any profession , as sales is an area which has always been considered pushy and bad and with the attitude Indian public has towards financial issues ,Its agents because of whom some people can be proud of callign their financial life OK , other wise no one damn cares to even spit on financial products on their own . So there is good and bad part of the story , Sales is important and agents are the backbone in it , in a country so big which can only be reached masses through agents only !

6) Yes, Public has been sold things from decades in such a way that looks GREAT. “You will get money every 4th yr” , “You will also get Bonus at the end” , “You can even take the LOAN on this” .. What the HELL , so what ! .

manish

Manish

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64 Minesh December 2, 2010 at 12:41 am

Even if it is illegal but what is wrong if I get some money back from the agent.
As I took a term plan from LIC and the agent gave me some money as commission.. However he did try to sell other policy but I always denied..
So here in this case I won at the end.

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65 dhawal sharma December 2, 2010 at 1:21 pm

MINESH – Let me narrate your story with an example..Lets say your age is 32 yeas and you have taken a SUM ASSURED of Rs 40 lakhs..For this, you have to pay Rs 16,766 for LIC’s AMULYA JEEVAN..But for same SUM ASSURED, you could have paid only Rs 6,340 for KOTAK’s PREFERRED TERM PLAN or even lesser if opted for ICICI PRUDENTIAL’s IPROTECT..But your LIC agent will never tell you that..

Now lets assume that you wanted only LIC for yourself..Then your agent should have told you about certain facts that LIC TERM PLAN did not offer you any RIDERS (ACCIDENTAL DEATH BENEFIT – PERMANENT DISABILITY RIDER – CRITICAL ILLNESS), which i am sure he did not..

And he passback some MONEY to you by pocketing rest of the money..Sorry MINESH, in the end your LIC AGENT won :-(

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66 Raja K December 2, 2010 at 10:27 pm

dhawal sharma,
Excellent response and good analogy.

This is another problem that need to be fixed by IRDA. SEBI allows mutual fund agents to sell any mutual funds. why can’t IRDA do the same thing ?

Since LIC agents are not allowed to sell ICICI policies, he would not recommend those plans even if he knows they are good.

If IRDA allow this freedom and flexibility, then most of the mis-selling can be avoided. Customer would win in the end.

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67 Manish Chauhan December 3, 2010 at 7:35 am

Raja

On the other hand , i feel why not allow insurance agents sell any company insurance ! . What will happen if its allowed ?

Manish

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68 Raja K December 4, 2010 at 9:43 pm

There is no clear reason why this is not allowed. Given reasons are far from satisfactory. I am clearly against this policy of “One agent – One insurance company”.

Reasons given are like this :

1) Insurance policies are long term products. Customer needs personal service; so the agent should stay with the company for long term.

2) Agent is sponsored by the Insurance company, to complete the exam and get certificate an agent has to complete certain hours of training, an insurance company “invest” its time and resources for the agent. And like to have hold on the agent for long time.

(1) This is hardly true. The same agent and company tells insurance buyers that they can surrender it after “x” years. So, where is the question of long term. If you look at the lapse rate published by insurance companies you will see hardly the policies are renewed after 3 years.

(2) Agents can be treated like employees. Companies invest time and resources to train even employees. If they can be let go, why they can’t let the insurance agent go.

I think IRDA should change its one OAOC policy in current environment. It doesn’t fit in current time. Agents should be released and made independent completely and should not have a label attached to one insurance company.

(1) Agents earning have come down. If they have to continue in the business they need the flexibility to recommend any insurance products they like.

(2) It will increase competition among the companies and they will design good products, fearing otherwise their products will not be recommended by any agents.

(3) Agents need not cut corner or compromise themselves in selling only what is manufactured by one insurance company. For example, if I know ICICI has good education plan compared to HDFC or Aviva, I should be given freedom to recommend this to my clients in their interest. Now most of the agents don’t do this right thing, because if they recommend another insurance company product, they are not paid commission. LIC agents still sell their Amulya Jeevan still knowing fully well it is not the cheapest term insurance.
(3) If mutual fund industry has no problem with this model, and we know it is working fine. What is special about insurance products ?

IRDA got several bugs to fix. This is not one on the top of the list. Further Agents themselves have not much say and not organized properly to fight for themselves. They don’t lobby hard to get these archaic regulations changed. IRDA listen to the insurance companies more than to the customers and distributors. It is another subject of blog.

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69 Manish Chauhan December 6, 2010 at 8:15 am

Raja

I agree with you on this ! . As you said insurance agents should get liberty to sell any company insurance. I think this practice of One Agent one company is there becausse from the start LIC was in existence and there have been dedicated agents for pushing the products .

Manish

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70 srinivasu December 12, 2010 at 3:09 pm

yes, every word is true
recently i told my branch manager (i work in a life insurance co. for a living ) that my earlier policyholders who are paying their annual premiums for the last 6 policy years (example= dream plan from birla sunlife ) are in a loss of 10 %, letus forget the profit.
u know what the shame less monkey said visit new customers, donot waste u time in being touch with old customers.
whenever a new ulip or any traditional policy is launched, these same persons like sales managers, relationship/unit managers and particularly so called trainers tells us to surrender earlier policy and take this CUSTOMER freindly very short term INVESTMENTS.
thanks

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71 Manish Chauhan December 3, 2010 at 7:33 am

Minesh

Dhawal has replied to you already , he is correct, now here is my reply .

If a client thinks at this level in his financial life, he is already ruining his financial life, one should be deciding on financial products thinking about what value its providing in his financial life and not concentrate on these silly things that how much commissions can be get back etc, one does not buy insurance because he can get couple of thousands back ! .

Agents give back only when they are winner at the end, thats very logical , they are real winners , clients might just “FEEL” they are winner , however thats just psychological ! .

Manish

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72 shashank kashettiwar December 3, 2010 at 3:41 pm

Manish,
This is one of the finest discussion I have ever witnessed. Many of the participants are amazingly knowledgible, passionate about the subject under discussion and so articulate about expressing their views! Especially Dhawal and Raja are simply outstanding(and so are you Manish!). There are very few occasions when I wouldn’t want to jump into a discussion and just stand on the sidelines and watch. But this is one! Almost all perspectives regarding this issue have been thrashed out so well by the participants. Great!!!!

shashank

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73 Manish Chauhan December 3, 2010 at 11:08 pm

Shashank

Great to know that. There are some really awesome readers who put their hearts out on comments , and if people like you also involve we can create some of the finest discussions on the personal finance area :) and thats already happening with forum :)

Manish

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74 srinivasu January 30, 2011 at 8:03 pm

sir,
if you ask for a pay back in agents commission then take it granted that u may never get any service from him.
SERVICE this is a widly used word.Right from receiving a policy bond from co. till maturity a timely advice is required in the age of technology also.
Any one having seen lic business may know , many policy holders make nominatin on parents name before their marriage,change of address/banks name must be recorded in co..
final point (do not laugh ) He will save you from other agents.
thanks for this service .
p. s in a recent incedent the nominee does not know his husbands investements including life insurance polices,great mental agony.

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75 Manish Chauhan February 2, 2011 at 12:38 am

srinivasu

yes , i can relate to what you are saying :) .

Manish

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76 kalpen December 4, 2010 at 11:55 am

hi manish,.
great article with great pictorial example.
keep up the good work.
i never liked insurance or mutual funds,
so every now an than i have debate with anybody who supports it,
YOU HAD GIVEN ME ONE GREAT ARGUMENT for my future debates,
now i can shut them up in no time ;-).
i think whole mutual fund and insurance industry (private) is crooked.
i live by only one motto : THERE IS NO FREE LUNCH IN THIS WORLD.

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77 Manish Chauhan December 6, 2010 at 8:11 am

Kalpen

Great! . I am confused if you are an agent or a consumer ?

Manish

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78 salman December 4, 2010 at 6:44 pm

hi manish, i wanted to ask u something regarding my carrer… as nw i m studing in bba 2nd year n i m very much intrested in learning abot stock market, mutual funds..etc.. and also i m workin as a insurance agent for sekking knowledge and also for my pocket money.. i do invest in stock market and mutual funds throung sip but very small amount… in future i want to do mba in finance.. n i also heard abt d ncfm modules.. is it good for giving dat modules.?? does it make ane impact on my resume aftr my mba whn i apply for a job in mnc? how much impact does it make??? if it is good to give dat modules exam, den pls tell me wich wich shuld i give first n so on..?? or else tell me some other courses or certification dat i should i go for for makin my resume much powerful n get a well sound pay job… thank u.. pls reply m waitnin of ur rep eagerly…

salman

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79 Vikas December 4, 2010 at 11:33 pm

Hi Manish,

One year back I have taken LIC Term Insurance and got around 40% discount on first year insurance. yes it was term insurance with discoutn which is rare.
I met insurance agent at LIC office, and negotiated discount with him.
I did all research of deciding which term insurance I should take and doesn’t get in any trap of agent, as he tried to sell various other insurance ULIP, endowmnet, pension etc. but I persisted on Term Insurance only.

Earlier I had some other insurance with some known agents/relative they provided No or lesser discount for endowment policy. and No discount for Term Insurance. So I prefer directly go to LIC office and try to best possible deal:).
I just made sure that agent at LIC is genuine, which I confirmed with His name mentioned at LIC office agent list.

As we have so many commission agents, so they are fighting to get max customer, healthy compitation is good for customer. Alternatively either govt. should fixed no of agents or reduced the commission. Also customers should be more educated and doesn’t get trap in these so call Agents.

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80 Manish Chauhan December 6, 2010 at 8:34 am

Vikas

Thanks for sharing your case . There have been discussion on this topic if its ethical or not , or will result in healthy competition among agents or not . What are your views on that ?

Manish

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81 Dhawal Sharma December 7, 2010 at 12:12 pm

Hi Manish,

Although out of context to this topic, please check the link below (I find it quite interesting)
http://www.policywala.com/content.php/157-Return-on-ULIP

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82 pratibha December 7, 2010 at 6:27 pm

There is a website which wants to enter the business of motor insurance.. By bringing in the insurance agent on a common platform.. In this case is the website iwner be considered as anagent themselves.. If so are there any loopholes or exception to evade being registered with the IRDA..?

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83 Manish Chauhan December 22, 2010 at 1:59 pm

Pratibha

Sharing of commissions between agents if fine , what is illegal is to share it with end consumer !

Manish

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84 Sandesh Goel December 8, 2010 at 1:56 pm

I feel one good way to address the issues and concerns raised in this discussion is to apply the MRP model to financial products.

For a consumer product, the seller marks the maximum retail price (MRP) , and the retailers are free to sell it at any price below that (not above that). If you buy it in a swanky mall, you pay the MRP, while if you take the inconvenience of buying it in a dusty, crowded local market, you pay less. The cut that the retailer keeps depends on the convenience he offers, and it is quite transparent. The buyer is free to decide where to buy from based on how much convenience he wants.

Similarly, financial products should have an MRP and distributors should be free to advertise discounts based on their target clientele and value-add that they provide. Then, it is up to the buyer to decide who to buy from based on his comfort level. e.g. if I am financially savvy and don’t need much education, I can go to a bulk distributor and get the product at a discount. But, if I need more “servicing”, I go to a retailer and pay a higher commission for the services.

What’s the problem with doing this? This way we ensure that the financially savvy investors don’t subsidize the cost of education of the novice investors.

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85 Sandesh Goel December 8, 2010 at 2:35 pm

As for mis-selling, I think it is a fundamental mistake to take advice about a product from the seller of the product. Anybody can see a conflict of interest there. If you need advise, go to an independent financial advisor. This is common sense!!!

So, the agent’s commission essentially needs to cover his administrative and marketing expenses, just like sale of any other retail consumer product. I don’t see why the commission needs to be fixed by SEBI or the seller, it makes sense to cap it (through MRP), but not fix it.

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86 Anand December 8, 2010 at 3:05 pm

5 years back, I went to post office; opened a NSC of 10k; and to my surprise the agent gave me 50 Rs back and told that I should go to her again for future investment.

Why should a common man refuse money if he is getting some? That too he is not asking for it. I think this will compensate all the bribes that we have to pay in government offices.

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87 Manish Chauhan December 22, 2010 at 2:12 pm

Anand

If you get it without asking , its not a issue ,but still its illegal for the giver !

Manish

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88 bhupesh December 12, 2010 at 7:26 pm

unethical and illegal are not same always, these are (bit) different things. It is administration who decide illegal and legal. It is society which judge what is unethical or ethical. It may be illegal to buy/sell liquor in Gujarat but not else where in India. Similarly marrying in same Gotra may be unethical in one society but not in other society, while it legal to do so.

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89 Manish Chauhan December 21, 2010 at 10:18 pm

Bhupesh

in the same manner , sharing commision is illegal , but might not be unethical for many agents as well as customer who support it .

Manish

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90 bhupesh December 23, 2010 at 2:27 pm

Yes, that’ what I meant. Things changes with time though.

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91 Jitendra Solanki January 19, 2011 at 10:56 am

Manish,

Fine, agents sharing commission is illegal.But lot of discussion and proposal has been taken place for making this practice legal.What do you feel??Legalizing commission sharing or pass back, as we call it, will make insurance industry more ethical.

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92 Manish Chauhan January 19, 2011 at 12:50 pm

Jitendra

The main intention of the post was to spread awareness , I feel if its made legal , It can be good move from competition point and sharing commissions with agents to win more clients . But at the end if its used with an intention of catching the clients just to make sure you can sell him unsuitable products , then it might be a good move .

I hope you agree with his thoughts . Overall it should be a win-win situation

Manish

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93 bin February 6, 2011 at 2:21 pm

There are a lot of LIC agents who offer this service, i was not aware this is illegal. But nobody is taking such action.

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94 Manish Chauhan February 6, 2011 at 4:00 pm

Bin

Yes .. regulators are not taking any actions on this

Manish

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95 vijay April 29, 2011 at 6:20 pm

I select and invest in mutual funds through online websites and also monitor my portfolio to make changes. If I don’t mention name of agent in PPF or MF investment no one gets commission. Without doing any work if an agent earns just for adding his name what is the harm to him and why should he not share this with the investor.
The article is written to support agent’s side only. What about the investor without whom there would be no agents. I strongly support the idea of mutually sharing the benefits instead of both loosing.

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96 Manish Chauhan May 2, 2011 at 12:02 pm

Vijay

Its good to have sharing implemented , but its tough to find advisors and even customers having a right mindset like yours . I hope IRDA/SEBI soon changes it

Manish

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97 Vijay May 3, 2011 at 7:30 am

Manish,
Let me first congratulate you for educating investors. All articles are very informative & useful.
In fact after reading ” Understanding Different commissions on Mutual funds ” I discussed about sharing commission with my agent. He was reluctant so I changed agent to stop his trail and then redeemed /purchased MF in a phased manner.
During this portfolio make over I learnt that previous agent was misguiding me for getting more commission. Now my investments give a better return also. It is necessory for all investors to study before investing and now I am confident that no advice is required from agent.
My point is therefore simple. I am not taking commission from agent but giving him his share just for mentioning his ARN code and do not expect any service as everything can be done online. If this is not done both will loose and AMC is benefitted.
“So sharing is win win for both”

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98 Manish Chauhan May 3, 2011 at 4:51 pm

Vijay

Yea , in thay way atleast agent will get something :)

Manish

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99 samrat roy June 2, 2011 at 2:17 pm

to all,
I am working with Insurance industry for last seven years and I have grown a bitter experience. I just want to leave this Industry whenever I get a suitable alternative. It has become painful.

It has to be kept in mind that Clapping needs two hands, not one.

No doubt that this is one of the most Corrupt Industries, even more so after the new regulations came into force about the ULIP policies. Now an Endowment Plan is projected as a Short Time Investment Product with TAMPERED DOCUMENTS,(Pls remember that almost NOBODY is ready to stay invested for a longer period), and more stunningly Prospective Buyerss tend to proceed without doing Cross-checking, often these Manipulated Offers are topped up with Passbacks/Gifts. IT IS GREED and sudden loss of REASONING that these Offers are gleefully Accepted. Most of the Representatives go gaga with their Volumes of Business and income as well. The process goes on. Be a part of it or get Damned. The whole Industry has become like this.

On the other hand, whenever I went to a Prospective client, I have seen that their NEED can only be met if they themselves Design a Product/tool for them. They want Everything, ranging from Guaranteed Return which is significantly higher than the Fixed Instruments offered by the Govt to Short Term Plans; Tax Benefits, Liquidity(can be withdrawn at any point of time), Loan, Flexibility(?) to Gifts or Passbacks. Moreover they need Service availibility 24*7, otherwise there is a personal stiff.

So, can Representatives only be blamed? Or the Customers, for that matter, whose hard earned Money is at stake? Its Both.

The main motto of the Industry is nowhere near where it should be. It has become a source to earn some Quick as well as Hefty Money-buyers expect it and Corrupt Representatives get it (exceptions are exceptions only, they are not Rules).

A whole new Approach is needed, otherwise, God saves….

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100 simanchal ratha July 2, 2011 at 2:00 pm

it is said that putting money in sectoral mutal funds should be avoided . but i have observed in last five years that pharma and banking sectoral mutual funds have outperformed all equity diversified funds . not only that any good diversified mutual funds constiture their portfolio taking a good number of banking and pharma funds . even in cases a portfolio might tilt towards these sectors by given a major chunk of the shares . so my opinion is why should not one be encouraged to put in an sip way his investments in banking and pharma sectors at large and to balance the act some fmcg sectors , instead of putting money in diversified equity funds . please throw ligh on my opinion si that i may save myself from becoming a bigoted holder of such opinion .

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101 Manish Chauhan July 2, 2011 at 2:25 pm

Simanchal

Its only discouraged for half-baked knowledgable people . peopel who dont have any idea of sectors . If you feel that you can catch a good sector and are confident about its movement in next few years ., then you can go for it .

Manish

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102 vijay July 2, 2011 at 5:16 pm

I agree with your view & I have invested in banking & pharma sector And have received good returns. How ever continuous monitoring may be necessary as these sector funds are volatile & face ups and down.

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103 kumar September 24, 2011 at 12:54 am

Hi All,

I Know a LIC agent who shares his 25% of full year first premium commission .I was able to save around 25k cause of this.

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104 Hemant Beniwal October 7, 2011 at 4:07 pm

Hi Kumar,
To me your statement is “I Know a LIC agent who shares his 25% of full year first premium commission. Due to this I lost Rs 75k & next year I will loose more” :(

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105 Chandan February 9, 2012 at 4:44 pm

A few LIC agents are cheaters!

A LIC agent of Najafgarh branch, Delhi sells LIC policy giving 50% of his commission. One of my close relative got benefit, when I introduced the agent to him. When, I tried he gave me wrong policy and also not giving commission discount. Can I withdraw or change policy?

Thanks!

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106 Shusheela May 7, 2012 at 3:46 pm

I totally agree with this article.Here in Hyderabad, customers ask me for 40-50% discount or else they move out.For lower premiums i have paid 100% for the 1st premium. I feel helpless as my D.O says its a business.And what do i get, 20-21% deducted commission and no bonus. And this is not enough, some customers expect that i should pay 50% of my every commission.This has been started by LIC & Lic agents and I’m stuck between them.
Shusheela

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107 Manish Chauhan May 8, 2012 at 1:08 pm

Hmm.. this is really a sad thing . If you are a commission based agent or some advisor who earns on that, you will really face issues like this

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108 vamshi gupta October 4, 2013 at 10:59 pm

Hi Manish,

I don’t like to take any insurance policy from a agent, and would rather prefer buying policy directly from the company.
Reason
1. Every penny invested in any insurance is hard earned and I would prefer utilizing that to improve my insurance but rather giving it to any agent.
2. Any policy suggested by agent would be something which would be in his own interest (keeping max commission in mind) rather keeping customers requirement in mind.

Please let me know if there is any such facility by LIC.

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109 Manish Chauhan October 7, 2013 at 7:48 am

There are lots of term policies and ULIPS which you can buy online directly. but some policies which are of endowment plan or money back plan nature, they have to be bought through agents only

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110 vivek October 5, 2013 at 10:53 pm

What happens if the same is reported to IRDA about sharing of commission ?

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111 Manish Chauhan October 7, 2013 at 7:43 am

The agent will be disqualified and barred from his licence

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