A regulator retires and an industry insider takes over

Expense Account, Mint

India’s third insurance regulator J. Hari Narayan demitted office last week and it would be no exaggeration to say that Indian insurance rules were rewritten during his tenure in the teeth of very strong opposition and lobbying by the industry. The regulator worked at turning an institution that looked at market development as its key role to one that focussed on consumer protection in a very short period of just over two years. But it took him the first half of his tenure that began in 2008 to understand the ground realities of insurance. By the middle of his tenure, Hari Narayan figured out that the industry was running rings around him and it is to his credit that he took a U-turn on his world-view of insurance and how it should run in India and put in a consumer-first structure.

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Forget about tax rates, look at a different set of numbers

Expense Account, Mint

Despite the budget-day hysteria, in which there has been an increasing focus on the household and its reaction to the event, the average Indian home has very little to do with the annual expenditure and revenue statement of the government, also known as The Budget.

I also think that attention has been focused on the wrong part of the budget speech, as far as the household is concerned. The part that gets the most attention is the one that deals with the revenue side of the budget, where the focus is on income tax. We worry about tax slabs, exemption limits and tax rates. But there has been no big change for the last 14 years in the marginal rate of income tax that has stayed at 30%. The only changes have been more of a tinkering in the form of a cess here, a surcharge there, of differential tax thresholds for men, women, or the introduction of a “very senior citizen” category in the last budget (this one still baffles me).

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Smart Money Episode 2

Segment 1: http://www.youtube.com/watch?v=wAwpqSRs2aE

Segment 2: http://www.youtube.com/watch?v=JUOtMiNilF0

Segment 3: http://www.youtube.com/watch?v=Q3_M8fZgHZA

 

The problems of long-run data results and medium-term living

Expense Account, Mint

I like to talk about the efficacy of having equity in the portfolio because that is an asset class, I have been led to believe, which gives an inflation-plus return. But equity’s image as a super asset class beating the stuffing out of inflation has been under attack for a long time, specially so since 2008. Then last week a colleague sent across some disturbing news. The Economist has a story (http://econ.st/VqMcNA) which says that global bonds have outperformed equities since the start of the 1980s. The story is based on a book, “Triumph of the Optimists: 101 Years of Global Investment Returns,” written by London Business School professors Elroy Dimson, Paul Marsh and Mike Staunton. The colleague’s unasked question: “But you said…”

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Smart Money Episode 1

Segment 1: http://www.youtube.com/watch?v=u0jz2V657J8

Segment 2: http://www.youtube.com/watch?v=eMwe0Qe7TII

Segment 3: http://www.youtube.com/watch?v=gScVQpSioQI

How to steal a trillion

Expense Account, Mint

When one lives in a country of over a billion people, big numbers seldom come as a surprise. But when I looked at the number of Rs.1.5 trillion, I was astounded. That’s about 1.5% of the Indian gross domestic product, was the first thought. But the number in the excel sheet looked back with the certainty of coming out of a formula run on actual premium data sourced from the regulator: that’s the money retail investors have lost from mis-sold life insurance policies over seven years. Knowing that the industry will come after this number, as my colleague in this work so graphically put it, with their bazookas, we did the numbers again. And again. And several times again. Checked and re-checked the methodology with insurance industry experts, actuaries and academics. We used another, totally different method to see if we were way off the mark. But the final number refused to back down. Retail investors lost a minimum ofRs.1.5 trillion to the insurance industry and its agents over a period of seven years that ended in the financial year 2011-12. You can read the full story of this lost money that appeared in Mint on 6 February 2013 here: http://bit.ly/X3YJDY.

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‘Who are you?’ asks Sebi’s adviser regulation

Expense Account, Mint

It is not often that one finds an existential question in a dry piece of financial sector regulation. But read the Securities and Exchange Board of India (Sebi) Investment Advisers Regulation 2013 (http://goo.gl/4b5RK) carefully and you find the question “who am I?” being asked of the financial intermediaries who face the retail investors. This piece of long-awaited regulation puts in place the grid that will define all future regulation in retail financial intermediation by making a strong distinction between a person who simply sells a financial product and one who advises the buyer. This is the same distinction that we make between a doctor and a chemist. We do sometimes seek the advice of a chemist on what to take for a simple headache, but we know we’re doing something wrong to take a strong course of antibiotics on the over-the-counter advice of a vendor. We know that we’ll have to pay the doctor’s fee to get an expert opinion on a medical condition. Retail-facing financial intermediaries need to decide who they are: sellers or advisers.

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