Expert advice

Oct 31, 2014,17.17 IST

Clients need to have open mind to receive financial advice

Suresh Sadagopan
Ladder7 Financial Advisories

You might have heard of the series of sarcastic exchanges between man & wife, where a fight ensues at the end. You don’t remember?  Let me jog your memory with a couple of them…

When I was channel surfing on TV, my wife asked what is in on TV. I replied – dust. And then the fight started.

Another one…

My wife was hinting that she wanted something shiny & goes from 0 to 150 in 3 seconds for the anniversary. I bought her a weighing scale. And then the fight started.

You get the drift, right. For a complete collection, search for - And then the fight started. You will end up with some real gems!

What happens to couples can happen with others too – Others whom we interact with closely.  For advisors, it can be clients. And the fight can start with clients. Sometimes, these fights are not rooted in the household setting of a man & wife. It would rather be regarding what they want to do, but should not be doing. Or other such matters.

We find clients who come to us for advice and then start advising us!  Some of them come with fixed ideas of what they would want in the plan, irrespective of whether it is desirable or not.  It is in those cases, we have friction.  We may not know about it in the first consultation or when they send the information. But the innocuous goals which they put up can become contentious issues.  We will be left to deal with it as the plan progresses.

And then the fight started -  It is never a fight, really. But then, if the client’s positions are too entrenched for their own good and we are not able to change it with reason, data or counseling, it acquires the overtones of a fight.  What would happen in each case could be different. Sometimes, we would have to back off and in some cases clients do climb down. In others there is an uncomfortable compromise. What are these fights about, you may want to know.

They know not, what they want – We find that some of the goals that the clients have, are not rooted in realism. We have clients wanting to buy homes worth Crores of Rupees, though they do not have much surpluses or a corpus to even to pay the upfront advance. However, the client would want to hang on to the quixotic idea.  Why? For no other reason but to live in their own home.

Property buying is a problem area. Everyone wants properties and lots of it. We find that almost everyone is also convinced that it is one of the best investments. Many among them have not heard of diversification and would not want to hear about that from us too!
The other place where the temperatures soar is in terms of expenses. Some of the clients feel that everything they do is a necessity.  A foreign vacation, flying around within the country, multiple cars, exhorbitant entertainment / lifestyle expenses are all seen as normal, regular necessities.  We would not have a problem if these ”necessities” can be met, without jeopardising their longterm goals.  But, in many cases we find that they do. Then we start questioning about some of these necessities, which bring with it some heart burn. At the end there may be grudging acquiescence or a scrappy exchange about the merits of a financial plan!

Learning to live with disagreements -  There are other areas where frictions can arise. For instance, we construct a portfolio with different asset classes and sub-classes. We construct a portfolio that would be suitable to their situation, their risk profile and so that their goals may be achieved.

Many clients are uncomfortable when some of the asset classes or sub-classes under perform. We are of the firm opinion that there is a place for various asset classes and sub-classes within a client portfolio. However, this is a potential area for friction as we have found out.  

We have arguments with clients who do not like an asset class that give less than FDs. But, assets which give variable returns are going to offer both high and low returns at various points. What one needs to consider is whether the asset class can offer good returns overtime & whether it is suitable to have in their portfolio. But, that does not satisfy a client always!

Clients always want to be invested in products which offer maximum returns.  That involves getting the timing right – always! Wish we could do that. However, that would be next to impossible. The good news is that it is not necessary that the portfolio is always invested in what is doing well right now. Rather, the portfolio should have investments that take into account liquidity, taxation, holding period, returns, risk, loads etc.  and not just returns… else client goals cannot be met due to mismatches  in product conditions & client requirements.

In summary –
•    Clients would need to have open minds to receive advice and not insist on having it their way always
•    Having pet asset classes or strong convictions of what will work or otherwise is against their interests
•    Clients need to show accommodation on expenses, in the interest of achieving their long-term goals
•    No one can get the timing right. Consistent investing should be given more weightage.
•    Understand that their advisor offers advice that is unbiased & with their interest in mind. Need to be willing to consider new view points and embrace them on merits.

Agree to disagree -  There are going to be differences and arguments… there has to be some give and take between the client and advisor. The advisor has to allow the client his/her way, if it does not majorly impact the plan. The client should trust the advisor enough to heed to the advice, if the advisor insists on some course of action.

Accomodation & adjustment are important. Each should have enough respect for the other.  Like in a marriage, the client-advisor relationship too, should be made to work. Left alone, it atrophies. We need to keep the flame alive for the relationship to work! 

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