Why IFAs Need To Set The Right Expectations While On-Boarding Investors
Sep 18, 2019

Author: Aditi Murkute

(Image source: Photo created by yanalya - www.freepik.com)

IFAs will agree that investors are the backbone of their business that is built on a solid foundation of "trust". It is the most crucial aspect for strong adviser-client relationship development, as when a client trusts the adviser, the IFA's business grows through recommendations.

[Read: Earning Trust - The Only Thing That Can Get IFAs Going In Challenging Times]

But one of the hurdles to gaining a client's trust is setting and managing expectations - on paper and face-to-face. This involves providing value-added, research-based support to clients by handholding them through their investment decision-making process and financial goal setting/planning.

Given the volatile market and dynamic economic conditions, coupled with the lack of financial literacy, many investors do not understand that several factors impact the overall performance of the investment portfolio. And we have seen that their "unrealistic expectations" are primarily driven by two emotions, greed and fear.

A good IFA understands the client's psychological challenges around investments and ensures that their approach is unbiased, ethical, and research-based. The pernicious result of a biased approach leads one to shift completely in or out of any asset category, leading to the poor performance of a folio, and, in turn, losing the investor's trust. Instead, an IFA must work smarter and more diligently in dealing with their clients' expectations realistically.

[Read: How IFAs Can Overcome Hurdles In Their Practice]

  1. Make the investors aware of what you have to offer.

    In terms of expectations, from the very beginning, you as an adviser must set it right, i.e. you should educate clients. You need to clearly explain to your clients that what you offer, you are their financial partner and your guidance should provide them value through expertise.

    Tell the investors about an IFA's limitation, which is that you cannot control the performance of an investment avenue or a portfolio. Make them aware, that as an adviser you are there to provide value-based research-backed guidance. Always tell potential/new clients in the initial conversations about what you can and what you can't do.

  2. Make the investors aware of reality.

    Keep them grounded about the return expectations from the very beginning. Explain about volatility and that it's a normal part of the investment journey. Use graphs, charts or figures to explain the risk/return relationship. This can include showing the benchmarks that compare returns.

    Explain to clients, fluctuations in various asset categories are highly unpredictable. And that the price movements across different asset categories do not move together.

    So, help them understand the importance of diversification to maintain a balanced portfolio that will not have overexposure to any one asset class. This will give the investors a realistic, true picture of their risk-related returns.

  3. Dealing with unhappy investors' when their portfolios are underperforming.

    Agree at the outset what the investors' long-term goals are so you are both on the same page. So, when their expectations are not met or when clients get upset with the underperformance of their portfolio over short-term volatility and the returns they are getting.

    Remind them of how their portfolios are performing compared to the overall markets and explain that the performance of their investments is almost always relative.

    Be a counsellor to console them, tell them to think long term because of a short-term fall in performance will destroy their well thought out investment plan - and eliminate their hopes and dreams of a comfortable retirement or debt-free future.

  4. Be transparent and keep communication open.

    Clients appreciate transparency and openness, so if you're earning commissions through your advisory practice, transparently disclose it to your clients. It will help build trust and confidence in your relationship with all your clients.

    Ensure that from the beginning of the relationship, advisers engage in two-way, transparent, communication with their clients consistently and continually. Always assure them that you will be the most committed adviser and will do whatever it takes to keep them on track on their financial journey.

    Always be transparent as the role of the advisor has evolved from one of recommending products to one encompassing a more holistic approach, examining the client's entire financial situation.

    Help the investors understand that there is no guarantee of success and clients must keep their expectations in check. For the responsibility is on both parties, and clients need to look at the entire picture, including the value of all services you have provided as their adviser throughout the entire relationship, over a longer period, to avoid surprises or disappointments.

  5. Listen carefully for a holistic understanding of financial situations.

    Understanding clients' circumstances and investment goals are crucial, as they may be unsure of what they want to achieve, or they may not articulate it properly so be attentive and have sharp listening skills so you can identify their specific goals (short and long term).

    Do ask relevant questions to help you understand both your clients' conscious and unconscious beliefs and expectations. Engage in a detailed discussion to make sure you're clear on what they want and confirm what you've understood after your conversations with them.

    Leave no room for any discrepancy that might undermine their expectations in the future, and provide holistic, unique, and insightful solution-based advice.

  6. Be methodical in providing financial solutions.

    Be methodical in getting accurate information about the investors' personal and financial circumstances to fully understand their investment objectives, risk tolerance, time horizon, investment knowledge, and tax situation by asking a relevant set of questions

    Use your investment experience to consider the information, do a thorough analysis before offering any recommendations, and drawing out an investment plan suitable for the investor, making them aware of their risk profile and reasons for your recommendations.

    This will lead to keeping the investors aware of the realistic returns they can expect from their portfolio.

  7. Dealing with unrealistic after-sales support service expectations.

    Today, clients also expect the right infrastructure and value-added services when evaluating relationship continuity. Offering tools and calculators for online tracking of investments vide a portal and timely response with accurate information to their queries is perceived to be of immense value. Hence, offer value-add-ons to keep the clients' engaged and satisfied.

    Ensure that you show integrity and adopt the utmost care and diligence. Always provide accurate information to the clients, help them even during rough times, have additional support and backup staff, adhere to your timelines in providing advice to clients, and respond to their queries promptly.

    But sometimes the clients' expectations may not be feasible, like expecting you to report back to them every day, and try as you might, you may not always be able to return their call right away. Set clear boundaries around your service standards and offering. Assure them you will always do your best for they are your valued client, in this way there will be no place for dissatisfaction later.

    Do tell them that you understand your responsibility towards an investor, and hence you will provide periodic portfolio reviews and statements as well.

Conclusion:

Imagine going to a doctor who gives you a prescription without taking cognizance of your physiology and medical history - the results would be disastrous! Hence as a Certified Financial Guardian, you ought to stand out from those who have the knowledge as one who holds wisdom.

As an IFA, assess your strengths and limitations to build the business on your strengths and within the limitations.

At the same time, as an IFA your business can become stable if you recommend products representing different asset categories. What products should be recommended to an investor and in what proportion are part of an investment plan - part of your recommendations based on the investor's needs. Incidentally, such an approach helps your business too.

Always follow fiduciary standards with integrity and strengthen the client-adviser relationship by placing the investor's/ client's interests above your own. Remember, building trust and gaining the respect of investors/clients is a process; IFAs need to earn their goodwill.

[Read:  How IFAs Can Gain the Trust and Respect of Their Clients]

Be a 'Financial Guardian' and empathetically address your clients' financial concerns. It will not happen overnight; you must consistently be there for them throughout. Most importantly, IFAs must build a relationship founded on ethics and prudent business practices.

To grow your financial advisory business to the next level, become a "Certified Financial Guardian" today!

This article first appeared on Certified Financial Guardian.  



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