May 112011

Many a times, we are dragged into a bank fraud and by the time we realize, it is too late. The following precautions can help you prevent those frauds:

  1. Know your Relationship Manager (RM): Be watchful when it comes to investing your money and even more of the conduct of your Relationship Manager.
  2. Look where you sign: Check the papers you are signing on and keep a photocopy of the forms. You may have called your RM to put your money in a certain investment product, but he may take your signature on another product for which the bank’s revenue-flow is higher. Usually banks assign higher targets for such products to RMs.
  3. On a cheque, fill payee name of yourself or the product, and make it A/C payee (strike off the Bearer):

    Crossed Cheque. Click for higher resolution image

    Investors should keep in mind that an investment is always made in the name of yourself, a product from a bank, mutual fund or an insurance company. The payee is never your RM, bank manager or any other person. A/C (account) payee and striking off Bearer will ensure that your cheque can be encashed only in an account (a fraudster cannot encash your cheque)

  4. Double-check the investment product you have been recommended: Seek the advice of an independent financial advisor who charges a fee on the total investment being managed and is not looking to earn commissions on investments routed into specific products and schemes. On the other hand, your RM may have targets assigned by the bank to sell certain investment products.
  5. Be watchful when the RM asks you to redeem certain investments: Relationship Managers keep churning your portfolio in a bid to generate revenue from your pool of money. So, if your investments are doing well and your RM approaches you saying that you must redeem a particular investment and invest in something else, it is time to get watchful. He may be doing this in order to generate additional revenue for his bank or for himself.
  6. Revisit your portfolio and bank statement every three to six months: Check your bank statement and your portfolio regularly to see if your RM or Financial Advisor is doing what you have instructed. Also, make sure that your investments (both your stock investments and the mutual fund portfolio) are moving in the right direction.
  7. Pose a few basic queries before handing over the cheque for an investment. Also evaluate the RM’s experience, educational qualifications and additional professional certifications such as Certified Financial Planner or Chartered Financial Analyst for selling mutual funds and other capital market products. These will let you assess the depth of the knowledge the individual has and whether she/he will be able to manage your money.
  8. Quiz RM on conflict of interest. How is he compensated or how much commission does he get? Is he getting a flat fee on the money managed or commissions based on individual products sold. This will reveal if the individual is recommending products that offer him the most revenue. These needn’t necessarily be the ones that best suit you.
  9. Be careful in Jan, Feb and March: Better known as JFM (January, February, March) in the banking industry, it is the period when banks push high-revenue products under the garb of tax-saving instruments. Your RM may approach you to invest in these products. Evaluate such products carefully. Refer to Mutual Funds and how to ride sensex on more information about this period.

I extracted many of the points in this article from I liked that article and I hope many of you can benefit as well.

Did I miss any point or should I refine any point? Please do not hesitate to give your opinion.

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