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When I started off on my journey as an advisor, I studied markets and asset classes as also investor behaviour quite closely and came to some key conclusions that shaped my philosophy - and these haven't changed in all the years that I have been an advisor. Once you are clear about your philosophy and your approach, you are in a much better position to talk to your clients with full confidence. And, one of the biggest jobs of an advisor is to give a client confidence in a course of action that he or she recommends. Here are some observations that have helped me in my journey as an advisor :
1. Equity is underowned because risk perception is high
Most investors - whether HNIs or retail - have very little equity in their portfolios. The biggest issue playing on their minds is the perception of equity being a high risk asset class. The biggest opportunity for any advisor is therefore to help investors deal with this risk perception, so that they have a much better chance of really creating wealth over the long term. This became a central aspect of what I do, and continues to be one of the most important aspects of my job even today.
2. Equity markets are cyclical
This sounds so simple to understand - equity markets - like all other businesses - are cyclical, and go through their up and down phases. Having consulted many experts and studied several long term trends, I developed a firm belief in the cyclicality of equity markets. When you understand that equities are cyclical, you automatically resist the herd mentality of believing that markets will always remain good when the times are good or that markets will always remain bad when times are bad. Cyclical means that there will be up phases followed by down phases and the cycle will keep repeating. If one can just keep a calm head and keep reiterating this simple truth to clients, you will find it far easier to help them stay invested through bad times and take some money off the table in good times.
Even in 2008, when clients and so many of my IFA friends became nervous about markets, I just kept reiterating this simple truth : markets are cyclical. What we are seeing is the down cycle now, and we will in due course see the upcycle as well, which will be followed by another down cycle.
3. The difference between making money and creating wealth
One of the biggest aspects of my job is to help my clients distinguish between making money and creating wealth. Anybody can make money - even a vegetable vendor makes money - on a daily basis. Bank deposits also make money. But, there is a crucial difference between making money and creating long term wealth. I tell my clients that I am not here to help them make money - there are enough avenues to help them achieve that - with or without me. But, when it comes to creating genuine wealth over the long term - few opportunities can be better than systematically investing in equity funds over a long period - and that is what I can help them do. Getting your clients to understand where you can add value and where you will not, is absolutely critical to your success as an advisor.
4. Set realistic timeframes and return expectations
Whenever I ask a client to allocate some money into equities, I make him promise to me that he will not touch this money for at least 10 years. My clients are all HNIs, they have substantial portfolios and equity is typically 20% to 40% of their overall portfolios. Its important to allocate only so much into equities that your client can forget about for the next 10 years. I never push them to allocate any money into equity which may have an alternate use within the next 10 years. It has to be genuinely long term money, if it goes into equities.
Apart from getting the time horizon right, the other key aspect is to align return expectations, before taking money to be invested in equities. I always tell my clients that if you are getting 8% in fixed income, you should aspire to get 12-13% in equities on a CAGR basis over the long term. If you get anything above that, in a sooner time frame, think of that as a bonus. Don't go in with an assumption that you will get that bonus. I tell my clients that the reason they should invest in equities is not with an intention to make a lot of money - they must invest in equities with the confidence that over the long term, this is one of the best and most convenient ways to beat inflation and actually create wealth. If you get a 12-13% CAGR over 10 years, you should be comfortably ahead of inflation - which is the main reason to invest in equities.
5. Dividend payout is a great way to get clients comfortable
Regardless of how sophisticated an investor is, most of them actually like to see dividends coming in from their investments. We can keep educating them about growth vs dividend payout option in equity funds, but the reality is that it takes a while to get a client to evolve into the growth option. When dividends have come in, patience with staying invested in bad times automatically rises, for those investments. I make it a point to show them how much dividends they have received over the years from these investments. This helped me considerably in 2008, when clients became nervous about markets.
6. Get clients to at least sample, when they are not fully convinced
If you are convinced that an asset class should be included in your client's portfolio, you must be willing to make a strong case and stick your neck out. In 2005 and 2006, I had to literally beg my clients to add gold into their portfolios. I was fully convinced and when no other logic worked, I told them simply this : invest at least 5 lakhs because I am saying so. In that manner, I ensured that my client portfolios got at least some gold holdings. As they saw gold starting to perform, they were more than happy to increase gold allocation to the desired level that I had been recommending. If you are convinced, stick your neck out and show your conviction.
7. Be there when they need you and you will grow with them
I always make it a point to be much more in touch with my clients whenever markets turn downwards. We have to understand that when clients need our reassurance most, if we make ourselves unavailable, clients will stop trusting us. Whenever there's been a particularly bad day in the markets, I call up my clients, appraise them of what happened, why it happened and what we need to do in the portfolio - which very often is - do nothing. But, if I don't make that call in the evening, when they see the morning papers next day, worries and fears can set in - which can lead them to make blunders with their portfolios.
The related point that I have seen over the years is that by doing this job well, I have ensured that I grow along with my clients. If you are an advisor for any successful person - whether in a job or in business - his wealth will grow over the years. You have a great opportunity to grow your business by growing with them. You really don't have to run around getting more and more clients - work with a few successful clients, do a great job, be there when they need you - and you will automatically grow.
8. Be proud of the profession you are in
This is one thing I want to communicate very strongly to all IFAs across the country. You are in a very noble profession - where your advice makes a tangible difference in the financial lives of your clients. Few professions give you an opportunity to make a real difference to your clients. Few professions give you a chance to earn respect. This profession gives you a great chance to do so. Be proud of being an advisor - let that pride in your work show up in the way you interact with everybody - clients, AMC people, everybody. If you have conviction in what you do, and take pride in what you do, the sky is the limit for you - believe me.
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