If banks continue to act like brokers, customers will be duped | india | Hindustan Times
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If banks continue to act like brokers, customers will be duped

india Updated: Jan 02, 2011 22:09 IST

Hindustan Times
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There are two kinds of reactions that I’ve heard about the case of Citibank’ rogue relationship manager. On the one hand, there are those who sympathise with the victims. And on the other, there are those who basically say that a fool and his money are soon parted. I think the truth lies in between. They were people who could be expected to know that the way the financial world worked and yet they believed the incredible ‘special scheme’ that Puri was peddling.

I think there are two problems here. One is the a belief that magical returns can be guaranteed in the stock markets, if only one could find the right magician to cast the right spell. The basic defence that a sensible investor has against relationship managers’ fraudulent claims is the understanding that getting a guaranteed and sustained 2% a month is simply not possible. Such claims are like those graffiti ads scrawled on the walls in small towns promising sure-shot cures for AIDS and Cancer. You don’t have to go and examine the clinics to know that they are fake.

There’s a second reason why people believe such claims, and that’s the halo that banks deliberately create around these so-called wealth management services. The banks’ sales pitch for these services propagates the notion that there is a different level of returns that are available to their wealth management customers that are not accessible to ordinary mortals. These claims actually make it easy for scamsters like Puri to lure their victims.

The root cause for the losses that bank customers have faced is the halo that market-risk bearing investments are wearing because they are being offered by a bank. As long as an entity can call itself a bank and yet act like a broker, customers will continue to be duped.