Are you buying a financial product that you shouldn't?

Have you ever come across a situation where a close relative of yours is trying to sell you a financial product? How often do you say 'yes' for buying a product, when you should have actually, said a firm 'no'? This is a problem we all face in our life almost every second day.

However, if we understand a few things and ask questions to those approaching us to sell a product (as well as yourself) like personal loan, credit card, mutual fund, insurance, etc, a lot many of us will have lesser worries.

Here are a few questions that immediately come to my mind:

• Do I really need the product being sold?
• Is the person giving me the complete information about the product s/ he is selling? There are a lot of instances where we come to know some important things about the product only after we have purchased it. Sometimes we are put in a discomfort due to this.
• Is the person genuine in her/ his intentions? Analyse from where s/ he is getting his revenues (Salary, Commission, etc). If there are two products which a person is selling and the commission that s/ he will get by selling one product (which is less beneficial to you) is far greater for the seller then which product is s/ he going to sell you?
• Does the seller first ask you what your needs are and then suggests a product which satisfies that need?

There is always a shade of grey for the seller. Benefit to her/ his client vs earning from her/ him. It would depend on the guilt level in the seller.

• How to choose the best insurance policy 

We also need to understand as to who are these sellers. I like to classify them into groups:

~ Relatives: The first rule of insurance selling is to target the natural market. And relatives are the first to get targeted among this natural market. Most of the sellers are not experienced and are guided by their agency managers. They sell what they are advised to sell by the agency manager (mostly the ones that generate fat commission, which motivates the new seller for working harder). The sale is easy as most people find it difficult to say no to a relative.

~ People in our network: That is, people with whom we come across in our daily life. I generally consider references given by someone too in this category. When we want to buy something, we generally look to buy it from a person that we know or a person who has been recommended by a close acquaintance.

~ Professional organisations with whom we deal. Each one of them is in a business to make money. If they do not earn from you then they will soon be out of business or be taken over by a competitor. So their focus would be to make maximum money from a customer. And this focus of theirs ensures that you maybe sold the products that are more beneficial to them than to you.

~ Complete strangers: These are people whom you don't know or have not met before. They generally move from door to door or from office to office trying to sell their products. Even telesales (which is a pain for most of us) forms a part of this group.

I have spent a lot of time trying to understand intricacies of how people are sold products which they do not need.

People who sell products are very good at their job and hence we -- most of the times -- fall prey to their charm and purchase something which we do no need. There are also a lot of cases where we as individuals look for a specific investment product (probably influenced by friends, media, etc) before understanding our needs.

• How to identify best mutual funds 

In such a case we come across sellers for our need. This too is a leading cause of us getting sold a product we do not need. Suppose we purchase/ invest in a product we do not need, then we will have to base our needs on the amount of money (returns) that the product would give us. If we make a mistake we will realise pretty late in life about it and then, would most probably not be in a position to take corrective action.  How do we avoid this and more importantly what should be our approach?

There is a very simple thing that you must do: Understand what your needs are. 

This is the first step that would help us in making the 'Best Plan' that would meet those needs. This plan would help us find the suitable investment options so that those needs/ objectives are met. If we can cultivate this habit then no one will be able to sell us a product, which we do not need.