New Delhi, Sept. 3: A government appointed panel has suggested a complete phase-out of upfront commissions on investment products such as insurance, mutual funds and pensions.

"The spirit behind the recommendations is the idea that customers must be treated fairly," said the report of the nine-member panel headed by former finance secretary Sumit Bose.

The report, which has been put on the finance ministry website, said a recurring complaint about the three investment products had been their inability to increase their reach to Indian households.

"Related to this has been that the sale of these products is fraught with mis-selling," it said. It added consumer interests would be served by more transparent disclosures that enabled consumers to understand products, compare them, and choose those that serve their interests.

"Upfront commissions in investment products and investment portion of bundled products skew seller behaviour and cause mis-selling and churning. These should be phased out completely," the report recommended.

However, upfront commissions for pure mortality should continue since selling pure life cover is relatively difficult.

Retail financial products must have product structures that allow costs and benefits to be easily understood by a retail investor. "Costs for similar functions across product categories should be the same. There are three basic functions that a financial product serves - protection, investment and annuity," it said.

In all products, including closed-end and open-ended products, besides pension products, the choice of withdrawal should remain with the investor. The regulator should determine a surrender cost that the investor may bear in such products. "The cost of surrender should be reasonable. The remaining money should belong to the exiting investors," it said.

The panel suggested that product disclosures should be such that a customer could understand what it costs and what the benefits were.

PROPOSALS

• End of upfront commission to agents
• Cost-benefit of products to be made transparent
• Investors should decide on withdrawing from a product. Surrender cost reasonable
• Disclose returns from products
• Tax regime uniform for similar products
• Agent fees should not be shown under other heads