A whitepaper released by HD Vest tries to explore how advisors can handle the various challenges in managing their client’s money.
In the study, HD Vest has identified the top three challenges that advisors face while offering investment advisory services. It then has tried to give actionable solutions to these challenges faced by most advisors.
Challenge 1: Educating clients and managing their expectations
An advisor’s top worry is that clients will have unrealistic expectations about markets and investment returns. This is not surprising with the markets performing well. Advisor need to manage the expectations of clients who think the market rally will continue.
The report says that investors may overestimate their risk appetite during market rally. “A client does not ascertain his level of risk tolerance until he loses money,” says the whitepaper.
So how can advisors manage such expectations? One way to do it is to discuss risks associated with various asset classes. D Muthu Krishnan, a Chennai based advisor said that advisors should educate clients on how various products perform across market cycles. “We need to tell our clients how much volatility they can expect during bear markets. Keeping them informed about the risk involved will help in gauging their risk profile,” he says.
Challenge 2: Building a portfolio that can handle life changes
Another major challenge faced by advisors is building a portfolio that will factor in various changes in the client’s life. According to the whitepaper, as clients send a young child to school, experience a change in employment or take care of aging parents, their investments priority changes.
Deep knowledge of what is happening in clients’ lives can help incorporate necessary changes to client’s portfolio. Therefore, advisors need to review their recommendations on a regular basis. “Reach out regularly so you’re more likely to become aware of life events of clients,” says Navi Mumbai-based Suresh Sadagopan of Ladder7 financial advisors.
“As advisors we need to ask about key life events each time we speak to the client. We should make it a part of our client conversation. We can forecast changes in advance and make necessary correction to the portfolio. It is also better to fix a quarterly appointment to understand the latest developments in a client’s life,” he says.
Challenge 3: Identifying client goals
One of the biggest challenges for advisors is to make your clients identify financial goals. Mumbai-based RIA, Kavitha Menon says that clients often are unable to articulate their goals. “As advisors, we need to prompt them to speak about what they look forward to in their future. Instead of asking to define their goals, just prod them about their responsibilities. Ask questions like what they plan to do during various life events and so on. It will give advisors a better understanding about client needs,” she says.
It is also important to quantify financial goals. Advisors must ask them how much they plan to save towards a goal. This will give a specific number to abstract goals, he says.