Source/Contribution by : NJ Publications
Our clients: Our biggest challenge as well as our biggest strength.
The most prominent challenge faced by investment advisors in their practice is handling clients' emotions and their behavioral patterns. Advisors dilemma is, at times the clients' actions are regulated by their fear and impulse rather than your advice.
One major challenge faced by financial advisors is high customer expectations, especially in Returns context. Investors cannot imagine of a situation of loss on their investment, and when it happens they are devastated, and generally the fault is put on your shoulders.
When you recite Equity's potential to the client, supported by literature, graphs and tables; the client is actually seeing the bright side only and tends to visualize a replica of the successful examples in his/her case too. And when the flip side comes to play, it comes as a huge setback, and the client feels cheated.
Therefore, it is very important that the investor should be familiarized with the other side of the coin too, it is essential to attach disclaimers before he/she invests. The client, prior to investing, must know of the following:
- Not all funds are the same, the investor can get above average, average or even below average returns. There are no guarantees.
- Equity investments can be very risky if the investment horizon is short.
Once the investor is acquainted with the inherent nature of the investment, understands the risk attached, he/she will be more reasonable in their expectations from the advisor and the investment.
Another roadblock on the advisor's path is clients' lack of trust. The principles of sound advising lays delivering investment advice in alignment with the investors unique needs, goals, financial position, and risk profile. However, based on the above standard, the advisor quite often is unable to deliver quality advice, owing to the fact that this advice is based on half baked ingredients. Most times the picture we have in mind of the client's profile is distinct from reality. This happens because investors generally do not reveal complete data to their advisors for lack of faith. There are instances when investors ask advisors to devise a financial plan for them, without revealing an expected inflow of money from inheritance, or without mentioning about a second source of income, like a rental income, so in these cases the advisor underestimates the financial position of the client, and hence would advise accordingly.
Most advisors have to go through the trust trial, and the solution to this challenge lies in:
Realization: The investor must be made aware of the criticality of his personal and financial data in his financial plan and the repercussions that evasion of facts may have on his financial health. And, Confidence: The investor must be confident that his info will not be divulged. The advisor must practice and assure of utmost secrecy to the clients.
Gaining the trust of clients isn't a piece of pie, you need to put in efforts, you need to give some time and space to the client, and your words and actions must coincide.
And lastly, Response to Volatility, Investors' intense attachment to their money, pose a challenge for their financial advisors. Investors are scared of volatility, their hearts can skip a beat when markets are giddy. They at times commit investment sins in a state of panic, by basing their buy and sell decisions on market movements, and bothering their entire financial plan. And all we advisors can do is clinch our teeth, looking at the state of dismay.
The answer to the dilemma is the Equity story presented to the investor must include the volatile nature of the asset class and the ripples that the volatility can create on the investment in the short run. The idea is to keep the investor mentally prepared for any bumps that may come on the way, and refrain him from taking impulsive decisions. Also, the investor looks up to his advisor for support during turbulent markets, it's a crucial part of the advisory practice to handhold the investor, to prevent him from fumbling.
The bottomline is, client handling pose as the biggest challenge for most advisors. Clients become difficult because of their perceptions and behavioural patterns. However, Customer education, Awareness of Risk associated, and Confidence in their investment can turn your biggest challenge into your biggest strength.
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