Banks have now become financial supermarkets that sell all kinds of financial products. Under the ‘Universal Banking’ system, banks sell insurance, mutual funds, online trading services, etc.
Many customers are preferring to buy all the financial services needed by them from a single bank where they have an account.
The main reason for this preference is the ease of dealing with a single entity. But should you buy all the services from your bank or choose to approach different financial service providers for different products?
I suggest you to approach different financial services companies for buying different products.
Let me explain why.
Disadvantages of Buying all Financial Services from Banks
Expensive Products
The products sold by banks are generally expensive. They mostly focus on selling products on which they can earn a good commission.
This puts you, the consumer, at a disadvantage. Choosing an independent financial adviser who charges a fixed fee and buying cheaper products such as direct mutual funds or index funds/ETFs will reduce the costs and boost your returns.
Limited Variety
Banks offer a limited variety of products. They enter into tie-ups with a few insurance and mutual fund companies and offer only their products to consumers.
In some cases, banks even focus on selling products offered by their subsidiary companies. For example, ICICI Bank sells insurance and mutual fund products offered by its subsidiaries.
Lack of variety will result in you opting for products that may not offer the best returns. There were cases where unsuspecting customers were sold the worst performing mutual fund schemes and insurance policies offered by subsidiaries of banks.
Misselling
People who buy financial products from banks risk becoming victims to misselling. Bank staff sell financial products to meet their sales targets.
Selling products such as insurance to people who do not need them is widely practiced by banks. This will not only lead to lower returns on your portfolio but even loss of initial investments made.
Poor Service
Banks do not provide any after sales service on third party products sold by them. They will simply ask you to contact the concerned financial service provider (insurance company or mutual fund company) if you face any kind of problem after the purchase.
Since you would not have dealt with the concerned company from the beginning, you will find it difficult to contact its service staff and get the issue resolved.
Worse, if you are a victim of misselling as specified above, you will end up fighting with the support staff of the third party service provider as you will find that product features and terms of service are different from what was explained to you by your bank staff.
While it might be convenient to utilize multiple financial services from a single bank, you will be deprived of the many benefits of utilizing services from multiple financial service providers.
You can purchase the financial products that you actually need and earn higher returns on investments if you do not rely on a single financial outlook such as a bank.
In the age of internet, you can purchase any financial service from the comfort of your home.
Gain some basic knowledge regarding financial products and start making your own decisions or seek advice from an independent financial advisor.
Mutual funds platforms like Funds India and Zerodha Coin make it possible to buy direct mutual funds at a minimal cost.
Similarly, term insurance products could be purchase from the websites of insurance providers at a cheaper price than through banks and insurance agents.
Moreover, since these companies are not tied up with a single bank, you can move your investments to another platform easily.
