The Retiree and the Ten-Year Plan
At a Karachi branch of an Islamic bank, the branch manager is 12% short of the quarter's bancatakaful target with two weeks left. A 68-year-old retired schoolteacher comes in to roll over a PKR 4 million fixed deposit; she says she will need the money 'within a year or two' for her husband's cardiac treatment. The relationship officer sells her a 10-year family takaful savings plan with an annual contribution of PKR 1.2 million, first-year commission 40%, telling her it is 'exactly like your deposit but with free medical cover - and you can take the money out any time'. He does not mention the free-look period, the surrender scale, or that the bank is only a distribution agent. The form records her occupation as 'businesswoman' and income as PKR 9 million. She signs without reading.
1. List the breaches in this sale, distinguishing conduct failures from product-suitability failures and from record-keeping failures.
Read the worked answer
Suitability failures
- Horizon mismatch: funds needed in 1–2 years placed in a 10-year contract whose early-year surrender value is materially below contributions paid.
- Age and liquidity: a 68-year-old buyer with a known medical contingency is the classic unsuitable profile for a long-dated savings takaful plan.
- Affordability: PKR 1.2 million a year against a retirement income, with the entire PKR 4 million committed as the first three contributions, leaves no liquidity buffer.
Conduct failures
- Misrepresentation: 'exactly like your deposit' - it is not a deposit, is not covered by deposit protection, and carries investment and surrender risk.
- Misrepresentation of liquidity: 'take the money out any time' conceals surrender deductions.
- Non-disclosure: no mention of the free-look period, the surrender scale, charges, or the bank's role as distribution agent rather than risk carrier.
- Inducement: a 40% first-year commission alongside target pressure is the root cause, not a coincidence.
Record-keeping / CDD failures
- False occupation and inflated income on the proposal form - the customer did not supply these.
- No documented needs analysis or signed suitability declaration.
Aggravating factor: every one of these is on a written record the customer signed, so the bank cannot argue the customer chose freely.
2. Three days later the customer calls to cancel. What must the branch do, and what must it not do?
Read the worked answer
Do
- Treat the call as a valid cancellation request and confirm it in writing the same day. Three days is inside the free-look period, so the cancellation right is unconditional.
- Process the free-look refund promptly and in full, less only deductions the policy documents expressly permit for that period (for example the cost of any medical examination actually incurred). No surrender-scale deductions apply.
- Inform the takaful operator immediately so the risk cover is cancelled and no further contribution is collected.
- Log it as a complaint, retain the call recording, and record who handled it.
- Escalate to compliance: the sale is now evidence of mis-selling, and the relationship officer's other bancatakaful sales need review.
Do not
- Do not tell her she has missed the window, or quote a surrender value to discourage cancellation. That would compound the misrepresentation.
- Do not delay to protect the branch's target or commission; commission must be reversed.
- Do not ask her to sign a fresh form or 'reconfirm' the purchase.
- Do not quietly close the file. The complaint record and root-cause review are what protect the bank when the same officer's other cases surface.
Refund mechanics: paid to the customer's own verified account, in line with the source of funds.
3. Design the control changes the bank should make so this sale cannot recur at other branches.
Read the worked answer
Point of sale
- Mandatory documented needs analysis: age, investment horizon, liquidity requirement, existing protection, income evidence. Hard blocks in the system where horizon is under three years or the buyer is above the approved age for the plan.
- A one-page key-features and disclosure sheet signed by the customer, separately acknowledging: not a deposit, no guaranteed return, surrender penalties, free-look period, bank is agent not insurer/operator.
- Scripted prohibition on comparisons with deposits or fixed returns.
Remuneration and targets
- Remove or cap front-loaded 40% first-year commission; move to a trailed structure with full clawback on free-look cancellations and lapses in the first two years.
- Stop measuring branch managers purely on volume; add suitability, complaint ratio, persistency and free-look cancellation rate to the scorecard.
Verification
- Independent call-back to every customer above a set contribution threshold, within 48 hours, using a standard verification script; record the outcome.
- Mystery shopping in high-volume branches.
- Periodic file review of each relationship officer's book, not just a sample of the branch.
People
- Certification before any staff member may discuss a takaful product; refresher training on suitability and misrepresentation.
- Disciplinary consequences for falsified proposal forms, applied to the supervisor who signed off as well as the seller.
Product governance
- A product-approval gate that states the target market and exclusions for each bancatakaful product before it is released to branches.