Power of Incentives

We got a call from a banker who works for one of the "Supermarket" banks.  The point of his call was to find out if we needed any "products" they could offer.  We talked about our needs - pension for old age being one of them.  I told him we planned to settle in India for our retirement and asked him to quote something appropriate to cover our baseline expenses then.  He said we would need to start a relationship with him by opening an offshore account (forget that the reason for his call was that we HAD a relationship onshore, if you can call India that) before he can talk further about his products.  It was a fair request - considering the account was a no minimum balance dollar account.  So far good.

This all happened middle of June, we opened the account and the bank mailed us their paperwork.  We were scheduled to go on a long planned travel the last week of  June and had started our leave of absence.  Now, we started getting more frequent calls to update the form, follow-up and what not.  Fine, we have a wonderful banker who cares for our needs and wants to close fast or so we thought.  Then he started insisting that we start the pension plan relationship right away, send the forms.  He was very forthcoming about it - it would be counted towards his June quarter's quota.  We got repeated calls right till the afternoon of the day we were leaving even after telling him that we don't want to rush to the product and would take our time deciding.

A couple of weeks later, after returning from the trip, I studied the proposal at my leisure.  Here were a few things that stood out:-
1. The bank had nothing to do with the product.  It was just a middle man.  The application said it was from an insurer we were talking to for other products.  Since I am in the habit of reading smallest print first, it said that the Supermarket bank was only a distributor for the product.
2. The product was in US Dollars.  My future requirement is in Indian Rupees.  In addition to the credit risk of the underwriter, I am being asked to take on a currency risk here for a product that is supposed to protect me at a time of my need.

Now, the banker I met is a fine person.  The Supermarket bank is an excellent bank and has one of the best customer service in India.  What is wrong with the above story?

Look at it from the banker's point of view - admittedly he was chasing his quarterly quota.  He probably has higher incentive for making a number or disincentive for not making it.  This incentive turns a Relationship Manager to a pesky Telemarketer.  Even if you put a very intelligent person at this job, his incentives put him in a difficult spot.

The Bank - Its traditional business of borrowing deposits and lending it out has lost its strategic reasone de etre.  It became a supermarket offering its "space" selling wares of others.  Nothing wrong with it - just that managing a banking relationship and retailing business are two different ball games.  I am wondering about how banks measure the impact of chasing fees on their ability to operate as traditional banks.  Does anyone do that?
Besides, here's something unique about the financial product retailing - when a retail product turns out to be poorly manufactured or just plain poor fit, you can return it and get 100% of your money back.  Not so for most of your insurance policies, pension plans or mutual fund products.  The other distinction is akin to buying a voltage stabilizer.  When there's a power surge or a voltage drop, it is there to protect your precious TV and refrigerator from long term damage.  If a voltage stabilizer doesn't work, you lost two products at one go and you may have a claim on the stabilizer manufacturer for the two.
Look at it from the management of a the bank - you keep on piling up commissions and fees from cross selling the product until something goes wrong.  Either the management may have retired or fled the ship, or then blame the underwriter or asset management company for the defective product and rinse and repeat.
This sets up incentives for the Supermarket bank to sell potentially defective products.  In my view, the bank is lending out its good name (whatever is left of it, that is) at a very cheap price for some short term profit boost.