While you are advised not to argue with your clients, you must ask questions to understand the situation and the mindset better.
“How can I stop redemptions? The clients may have genuine requirements. I agree that sometimes the clients panic and redeem their money, but on many occasions, the redemptions are for genuine needs – to fund some of their goals.” An IFA was sharing these thoughts. “What can I do? I have no argument to offer.”
Well, at the outset, there is never an argument that can be offered to a customer. Arguments are not appropriate in a client – service provider relationship. Whether you win or lose the argument, you lose the client. That is a completely different matter.
Let us come back to the frustrations of the IFA. He could not find any way of stopping redemptions.
While you are advised not to argue with your clients, you may ask questions to understand the situation and the mindset better.
Let us go back to the IFA, who shared his thoughts.
We would be tempted to ask the IFA, “At what point did the client raise this discussion of the goal? When did you first hear about the goal – at the time of redemption?” Our guess is that in most cases, the client has mentioned the goal only at the time of the redemption.
This highlights the weakness in the client-advisor relationship. We have come across many cases where the client discusses each financial decision with the advisor.
The advisor can use the same question. Let us phrase the question for the benefit of the advisor: “Dear Mr. Client, at what time did you decide on this goal? I am just curious to know since we did not have this discussion earlier. There is a possibility that funding this goal may come in the way of achieving some of the important goals that we had agreed to pursue.” This question should be enough for the client to realize that one has deviated from the agreed plan of action.
We have also come across cases where the client has requested for redemption from financial investments only to buy some real estate. This is also a deviation from the plan – the agreed asset allocation. If real estate was not a part of the original asset allocation, what are the reasons? What has changed now for the client to shift the asset allocation? In most cases, the answer would be nothing but market timing based on the recent past performance of various asset classes. This would happen if the client were not involved in the discussion of asset allocation.
It is important for an advisor to educate the client about the various asset classes. It is important to highlight the advantages and limitations of various investment options – individually as well as in a portfolio.
The change in asset allocation should also be discussed – when to do and why.
Considering and asking these questions would only help strengthen the advisor’s proposition and hence the relationship with the client.
The author runs Karmayog Knowledge Academy. He can be reached at amit@karmayog-knowledge.com.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
