Mr. Husaini Kanchwala,
Head - Product - Investments. NJ Group
Husaini Kanchwala is the Product Head for Investments, having been a part of sales earlier. With an experience over 12+ years in the financial services industry, Husaini is responsible for investment product promotions and tie-ups with manufacturers.
Investors in Equity markets are at the happiest when markets are on a roll, their risk appetite goes up and they are willing to put all their money into Equity assuming it is always going to deliver outstanding returns. But Equity Markets have their own way, they go up and then for no reason, they go through sharp corrections. Nobody likes markets going down. Investors become jittery. An investor who was tom tomming Equity until yesterday is belwildered today. His portfolio starts showing negative returns. He stops investing further. If the correction gets prolonged, he starts contemplating running away to “safer” “less volatile” investment options. Everybody he talks to starts telling him “nobody makes money in Equity”. All TV channels keep spewing bad news and keep forecasting further fall.
This is where the role of the advisor holds utmost importance. An advisor is the key person to handle client emotions to help him navigate through the tough time. Most advisors become proactive and start talking to their clients addressing their concerns and dilemmas, pacifying them to keep their financial planning on track. However, it is not as easy as it sounds. Many investors refuse to listen to their advisors. Even after multiple discussions, they pull their money out of Equity and move to other asset classes. Patience in Equity Markets is a virtue, which is limited in nature. It is when investors experience going through a rugged phase, that make them much more confident about Equity investing in the longer term.
Advisors, however, can use some simple methods to deal with this situation in a better manner.
1. Be transparent from the first meeting
It is very important to be transparent with the investor from the first meeting itself. Talking to him about the risks of Equity investing and getting him prepared for the negative returns in the short term gives a fair understanding to the investors. It is important to keep investor expectations low rather than being swayed by 20-30% returns which the markets might have delivered in the short term in the past. Investors will be happy with 12%+ return as no other asset class is delivering such returns, and it is always better to talk less and deliver more.
2. Make rules and letter them
As simple as it sounds, it is a very effective strategy to control clients' emotions. At the time of Final investment, the advisor should freeze some rules with the investor about the investment. These rules can be as simple as increasing your SIP at frequent intervals, not making redemptions to buy a new I phone or car, investor is ok with 20% fall in his portfolio, Money invested for kids is going to stay for 15-18 years depending upon the tenure of the goal etc, etc. Just make these simple rules, pen them down on piece of paper (preferably a single page), give it a title, say, “Investment rules for Mr Akash Saxena”, consummate it with signatures of both investor and advisor, keep a copy for yourself and handover a copy (laminated, if possible) to the investor.
Anything which is written, increases the commitment value. Any time the investor is swayed by emotions, the advisor can just ask him to refer to the rules as finalised.
You may have different rules for different investors, depending on their needs and risk appetite. Also, though you should be open for redefining the rules over a period of time, make sure that this decision is not influenced by markets.
3. Delay the decision Making
Many a times investors become impulsive in the decision making process. Their decision might be swayed by any global/national event (eg. elections) or advice/bad experience of a friend, high volatility in the market etc. In such a scenario, a simple thing to do is, don't say no the investor, just ask him if he/she can we wait for 3 days to do the transaction (be it redemption or SIP stoppage). This way you are not saying no to him, just delaying the decision will give him time to think through.
Research shows that in more than 80% cases, the clients will go back on their decisions and continue with the advice of their financial advisor. Many times in the heat of the moment, we take some decisions which we tend to regret later. Just by delaying the decision making process, with more time in hand we are able to analyse things in a better manner. Also, Equity markets are a funny place to be in. A market which might be falling continuously for a week can jump sharply in the next 3 days and recover all the losses, changing the investor perceptions.
4. Involve the spouse
Investing most of the times tends to be a man's arena. It's very important to engage investor's spouse in the process of investment. If both the partners are jointly involved in the decision making process, it helps in keeping financial planning on track. So any decision for investment should be endorsed by both the partners. Though asking their spouse every time may hurt ego of some of your clients, the situation can be best avoided by involving the spouse in investment decisions from the initial stages of investment and all the future decisions being made in the presence of the spouse.
Making money from Equity Markets is simple but not easy. The advisor needs to guide his investors at all times through the journey. By using some of these techniques, we can guide our investors in a better way and ensure minimum deviations in the financial plan on account of market. You need to keep in mind though that at the end of the day money belongs to the investors. And even after best of your efforts some investors might still not heed your advice. But as an advisor it is important to have that satisfaction that you have tried all you can to keep investor on track. However, with a disciplined approach from your end, with time all investors will get aligned with your investment philosophy.