Many clients expect their advisors to generate the
maximum possible returns, irrespective of the market conditions. The way to
overcome this is proper asset allocation and client education, says Amit Trivedi.
recommendations have underperformed the index”.
would have been better off investing in fixed deposit, but you insisted that I
invest in equity.”
times, different arguments, same emotions!
the years, investment advisors have heard these lines very often – in both bear
markets and bull markets. These statements cause a lot of stress for the
advisors. But, can something be done about this? What is the reason behind such
frequent encounters? What makes investors ask such questions and what can you
do to nip the problem in its bud?
issues need to be resolved, or else, they can result into loss of business for
the advisor. And that is definitely not a pleasant situation.
order to get the answers, let us first understand the psychology behind the
questions. What does the investor expect from the advisor?
extensive interaction with investors and investment advisors indicates that the
investor expects the advisor to generate highest return on the investments
irrespective of what happens in the various investment markets. This is where
the questions originate – in rising markets, the investor expects the portfolio
to generate higher return than the market average, and in falling markets, they
expect the portfolio to at least generate higher than fixed deposit returns.
fact is, such results are impossible to get. I have, so far, not come across
anyone who has exhibited the ability to build such portfolios or the ability to
shift from one investment avenue to another at the most appropriate moment.
advisors know that.
that is so, this looks like a communication problem. There is a gap between
what the investment advisor can do and what the investor expects from the
advisor. The only way this gap can be removed is that the advisor communicates
this very clearly to the investor.
it is impossible to every time get highest positive returns on the portfolio,
it is easy to get average and reasonable returns. This can be easily achieved
through a balanced portfolio – investing across various investment avenues.
Such an approach is also known as asset allocation.
Nick Murray, veteran US advisor and the author of several books on personal
finance puts it, “Through asset allocation, one will not make a killng, but one
will not get killed, either.”
properly balanced portfolio will ensure that in rising equity markets, the
portfolio can generate higher than fixed income returns and in falling equity
markets, it will protect the value through investment in other than equity
good advisor is then one, who
- Understands the benefits of asset allocation,
- Communicates these benefits properly to an
this approach it might take a little longer to acquire clients; but once
acquired, it will result into long-term relationship.
Amit runs Karmayog Knowledge Academy. The views expressed
here are his personal views. He can be reached at email@example.com