What to ask your bank relationship manager when he pushes investment products, loans

RM provides investment advice too, besides banking related services. But he may not tell you everything you need to know. Here’s what to ask him

Kavya Balaji Oct 31, 2019

Bank advisorBanks typically assign a relationship manager for all those customers who have a privilege or premium account. This manager will try to be in touch with you to understand if you need any banking products such as loans, deposits or mutual funds. He would be knowledgeable, confident and will help you understand how things work at the bank.

These relationship managers typically meet you at home or at the office. Just a few signatures are all that is needed to invest or get the loan from the bank. However, understand that he is an employee of the bank and has best interests of the bank in mind rather than your own interest. So, he might deliberately miss sharing some information with you. This information might be details about the risks involved in an investment or terms related to the closure of the loan that you need. Not all relationship managers do this but there are some who might just look at only pushing the product. So, here are some things that you should ask your relationship manager when they meet you to sell banking products.

Funds comparison

Relationship managers come with a chart that helps compare two or three mutual funds. They might say fund A is better than fund B. When they compare two funds, ask your relationship manager whether they belong to the same category. You can find this out from the mutual fund website if you are not sure. SEBI has made it mandatory for Asset Management Companies (AMCs) to bring the equity funds under 10 major categories apart from some exceptions like Index Funds and ELSS. Equity Funds have categories like Large Cap, Mid Cap, Large & Mid Cap, Multi Cap, Focused Funds, Small Cap etc.

Your relationship manager should always compare funds that are in the same category. For example, mid-cap funds cannot be compared to small-cap funds. Why? Small-cap funds invest in small-cap stocks and mid-cap funds invest in mid-cap stocks. So, a small-cap fund is volatile and riskier than a mid-cap fund. So, their returns will also differ accordingly. It is best to use the category average provided by mutual fund websites to compare returns of a fund.

Checking long term returns

Another point is that these relationship managers tend to recommend funds based on their one-year or two-year returns. If the idea behind equity investments is long term return, then the measure needs to be checked with long term returns – 3-year and 5-year returns. If there are suggestions on funds on the basis of better performance, take time to question on the alpha of return of the specific fund over its benchmark index. This tends to expose the funds which are just mirroring the index performance. Among such funds, the fund with the highest alpha can be considered.

Expense ratio

One of the most important questions that you need to ask a relationship manager regarding mutual fund investment would be on the expense ratio. If there are two funds of similar performance under the same category, then the fund with the lower expense ratio needs to be chosen but in lot of cases this is not done. The expense ratio might not get discussed by the relationship manager as there would be a direct negative impact on the commission received by his/her bank if he switches to a fund with lower expense ratio.

NFO recommendations

New Fund Offers of Mutual Funds are presented positively by relationship managers as an opportunity not to be missed. The most important question that needs to be asked would be regarding the existing funds of similar objective and their performance record. If there are similarly structured funds with proven performance, why do we need to enter into an unknown new fund based on just promise?

Portfolio churn

Another frequent advice of relationship managers would be to redeem certain existing funds from the portfolio and to replace it with certain other funds. Even if the rationale given is under-performance, take time to question whether the replacing fund is of similar objective and portfolio composition so that it does not alter the overall asset allocation. If the churn in the portfolio is too frequent, you need to be extra cautious. Again question on whether the portfolio composition of the suggested fund is markedly different from the existing fund. If the funds have similar portfolio composition, question what would be the rationale to switch to a fund which might perform in a similar fashion.

PMS, AIFs and private equity funds

Apart from mutual funds, bank relationship managers also advise on investing in PMS funds, Alternate Investment Funds (AIF) and some private equity funds which tend to have a higher initial allocation from the investor. In the case of AIF, the minimum amount of investment is Rs. 1 Crore. When an AIF is recommended, find out from the relationship manager regarding the proportion of allocation for this fund in view of overall portfolio. If it is a highly skewed percentage of allocation, ask the relationship manager if the investment is prudent considering portfolio concentration risk on a single product.

Also, when such recommendations are made, question the relationship manager on the annual maintenance charges and other associated charges like initial setup fee etc. Prompt the relationship manager to provide the performance of the fund net of all charges. Always question the exit clauses and the cost involved in case of early withdrawals for emergency purposes.

RM’s popular recommendation – ULIP

One of the most recommended products by relationship managers from banks would be the Unit Linked Insurance Plans (ULIPs). Typically these products would be presented as a great vehicle which combines the insurance cover with growth of equity investments. Also the tax free benefit of the maturity amount would be highlighted as a positive vis-a-vis mutual fund which have a long term capital gains taxation currently. The most important question to ask would be the cost of a simple term cover wherein there is pure insurance benefit in place.

Another significant question to ask would be the clarity on various charges levied on the invested amount before it is deployed in the market. If the charges are much higher than that of an average equity mutual fund’s expense ratio, then question whether it would make more sense in opting for a pure term plan for life cover and simultaneously investing in an equity mutual fund for growth. Also question the liquidity timeline of the ULIPs as there are policies with a relatively longer 15 – 20 year maturity timeline.


All the banks offer competitive rates of interest for retail asset products like home loan, auto loans etc. You would have noticed relationship managers offering better home loan rates and approaching you for a balance transfer of your existing loan from another bank. It would be a tempting offer to ignore but always find out the finer print in terms of the duration of the rate offered and charges associated with initiating a balance transfer. Also you might have to shell out a penalty to the existing bank for initiating balance transfer. Understand from the relationship manager the cost benefit analysis for the decision to switch considering all these factors.

A dedicated relationship manager provides a one stop solution for banking and investment related queries which is of great convenience. At the same time, be alert, aware and prudent in decision making regarding the suggestions from them by understanding the rationale behind the recommendations.

Kavya Balaji

Kavya Balaji is a senior contributing writer with RupeeIQ. With more than 14 years of experience in the finance space, Kavya loves everything to do with personal finance. She feels financial literacy is important for every household and likes to stick to simple language for explaining personal finance stories. She is a consultant with investment management companies. In spare time, she reads murder mysteries.

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