11

Presentation on Report of The Committee to Recommend Measures for Curbing Mis-selling and Rationalising

Distribution Incentives in Financial Products

-By S.B. Mathur24th November 2015

• To suggest policy measures that do not favour any particular financial product and prevent mis-selling.

• The study would address issues with regards to hidden costs and identical financial products across regulators.

• To suggest measures to rationalize incentive structure across financial products.

Mandate of Committee

1- Retired Union Finance Secretary - Chairman

2- Retired Chairman, LIC of India

3 & 4 - Officials (Capital market Division)

5 & 6- Academicians

7 - Retired MD SBI – Capital Markets

8 - Investment Expert

9 - Investment Analyst /financial media

Composition of Committee

• Investment portion and risk portion to be separated in bundled products.

• Upfront commission not allowed on investment portion- allowed on pure insurance products and in insurance portion of bundled products as these products are difficult to sell.

• Exit should be simple and less expensive.

• For similar products, there should be a similar structure with regard to service tax, stamp duty and rural and social sector norms.

• One page disclosure form explaining key benefits and features to be signed off at point of sale by buyer and seller.

Broad Recommendations

• To bring uniformity and proper oversight -harmonising of regulators.

• Enforcement to be strengthened to prevent over payment of commissions.

• Banks tend to oversell. Additional disclosures requirement:-

– Group company products to be compared with similar products from other manufacturers.

– Respective regulator to regulate distribution of products by banks.

Generic Recommendations

• To bring uniformity and proper oversight -harmonising of regulators.

• Enforcement to be strengthen to prevent over payment of commissions.

• Banks tend to oversell. Additional disclosures requirement:-– Group company products to be compared with similar products from

other manufacturers.– Respective regulator to regulate distribution of products by banks.

• Tax benefit only on insurance portion and not on saving. Pure insurance products to be encouraged.

Generic Recommendations…..contd

Mutual Funds

• Regulator should consider measures to increase retail participation.

• Regulator should put in a free look policy and define the period for which it will hold.

• Extra commission in B15 should be removed and a level paying field created in the country.

• Regulator should lower caps over period of time.

• Trail commission to be disclosed at point of sale

Specific Recommendations

ULIPS

• Manner of disclosure of mortality costs.

• Cost of surrender value should be reasonable.

• Many suggestions relate to disclosures – asset allocation to be disclosed on website.

Specific Recommendations …..contd

Traditional Products• Premium to be split into mortality and savings.

• Lapsation profit ,if any, not to accrue to insurance companies.

• Costs of surrenders to be reasonable.

• Current structure of paying commission on single premium should be continued.

• No trail commission on single premium policies.

Specific Recommendations …..contd

Thank You