“The investor’s chief problem—and even his worst enemy—is likely to be himself,” said Benjamin Graham, the prolific author and mentor of market wizard Warren Buffet.
What makes investors behave this way? When the markets are bullish, the investors want to take even risky chances, but the moment they are bombarded with negative news, most of them behave in an irrational way, lose sight of the facts and react emotionally. So, what can we advisors do? During the upbeat economic conditions, you can talk numbers and facts to convert a prospect into a client. But what most advisors miss is that during a downside is that they fear facing their clients, and instead shut off communication with them.
Why communication is important
Unless you communicate with them and earn their trust, you will lose your clients, and your growth will get affected badly. Belief and trust, two magical words that marketing gurus like to tell us about all the time, are associated with faith.
Belief is something that is accepted as a statement or existence. Trust, on the other hand, is a firm belief in reliability, truth and the ability of the person.
Let us use a story to understand the difference. A man carrying a heavy load was walking on the 20th floor sunshade and everyone was cheering him to climb a few more floors up the building, believing that he can do it. The man looked down and asked them to join him on the sunshade, saying he will lift them along with him to the next floor, but no came forward as they did not trust him. They felt he would not be able to go up carrying them. Yet, they believed that he could walk up to the next floor and even above that easily by himself.
So, unless you communicate in right way, clients may believe you, but will not trust you. They will start selling their mutual fund units or keep asking for your opinion to avoid a loss.
Since we all listen and interact with fund management teams, do share details of the meetings and emails with your clients. This will earn you the client’s respect.
Takeaway: Investment being a long-term game, trust works better than returns.
Booking profits keep clients happy
As advisors we keep talking about the long-term and but we know that the market undergoes a cycle every couple of years. When the market is over heated or the PE is close to peak and you sense that the market likely to deliver less return for a year or so, try to book some profits for clients and move the fund to liquid assets. This will keep clients happy and ensure that they are not taking money out. You have to convince them that unless their goal is reached, money cannot come out of the system and you are booking some profits only to reinvest and prop up the overall return in the portfolio.
Once the investors see the profits, they will believe that you are working for their welfare and this will further improve the trust quotient with you.
Portfolio review is important
By and large we notice several financial advisors don’t periodically review the portfolios of clients and instead keep holding the same funds for ages. We know that fund managers sometimes lose track of their goal or there is an issue with the management team. By reviewing the portfolio once a year, we also find out if the schemes we recommended did well or not. This will help to weed out the laggards from the portfolio. Alternatively, at times we will have option to stop the SIP and just hold the investments till the market recovers. This exercise will help you to meet clients at regular intervals and help you to understand the change in their financial condition. By advising that they increase inflows incrementally, you will be able to grow the wealth of your clients and help them reach their goals comfortably.
Takeaway: Review and realignment will help to create wealth for both the client and us.
Why you must concentrate on millennials
One of the surveys conducted by Morning Brew in the United States and Europe among people below the age of 35 years found that millennials have disposable incomes and they see the value of investing them but lack the financial expertise. This clearly shows we have greater role in fine-tuning their investment behaviour.
An interesting finding was that their top three priorities are buying a car, spending on a wedding, and buying a house. To nurture the millennials, we advisors must embrace technology and change our priority by engaging with them and helping them build wealth because their earning life will be less than that of their predecessors. Such investors need to be taught how to allocate assets and to expect realistic returns.
A long-drawn investment strategy will help them to be risk tolerant to the right amount. With the middle class rising both in number and in wealth, if advisors handle their behaviour biases properly by helping apportion assets correctly, they can help turn clients into crorepatis.
Takeaway: Catch them young and change their priorities. Help them to become crorepatis and build your profession for the long-term.