Ensuring that your client has the right set of expectations ensures harmonious relationship, says Arnav Pandya
The financial planning process starts with knowing the client and establishing the necessary trust, so that the relationship can progress further. This is essential because mutual trust is a pre-requisite for any relationship in financial planning to succeed and become strong over a period of time. One aspect that requires ensuring clarity is the scope and the nature of the work between the distributor and the client.
Understanding
The financial planning activity is a very innocuous sounding term but it involves a lot of intense and disciplined effort to ensure it works successfully. It is always better to discuss the details of what will be done and the manner in which the work will be carried out before the process actually starts. This is essential to ensure that there is no confusion among the two parties about what will or will not be done. Every act gives rise to different expectations in the mind of different people, so clarity on this front will help in making things clear.
For example, the distributor may recommend various investment options as he might think that this will involve helping the client reach his goals. The client on the other hand might expect that the distributor will undertake his investments across the entire spectrum and also help him with all operational issues such as opening and maintaining his trading account and help with the paperwork, which might not be the actual case.
Action Point
It is vital that the exact activities to be covered are specified and listed out so as to avoid any confusion and bitterness at a later stage. There should be a clear discussion of all the details and if possible this should be stated in writing that can be referred to at some point in the future if required.
Working on targets
One of the areas of the financial planning activity relates to the targets that need to be achieved. Every individual has different goals and each goal would require some specific effort for it to be achieved. The distributor has to ensure clarity about the goals that have to be achieved and what would be required in the process. So the first step in this particular direction would be to ensure that there is ranking of the various goals, and deciding which have priority. After this the routes that they would be adopting for the purpose of the achievement of the goals can be fixed along with the amounts that would be channeled to each investment area.
For example consider a situation where a client wants to save some money for his child’s education. There are various ways in which this activity can be achieved and this could include the use of both mutual fund options as well as some insurance options or even the use of direct equities and bonds. This makes the choice extremely wide and hence this would need some work on the part of the distributor to ensure that effective planning is taking place.
Action Point
Even when goals and targets are being worked out they have to be ranked and then the areas for investment to achieve them decided.
Focus on conservative numbers
The other aspect is about the achievement of the targets in numerical terms. Often there are very high rates of returns that are proposed and brought into the calculations by advisors and intermediaries. In such a case there is a chance that the client will not have a pleasant experience if things do not work out as expected. Usually, it is better that there is an element of conservatism in the planning process so that things are always shown less rosy than what they might turn out to be. This might seem to be a disadvantage at first sight but it will always help in raising the real chances of success.
Action Point
Under promise, over deliver! Numbers are an important part of the process but it pays to be moderate in expectations and not promise something that might not be possible to achieve so that the end result has a better chance of success.
Services offered
There also has to be clear distinction of the services that are being offered under various areas. A mutual fund distributor need not restrict services to this particular area. Helping the client with other aspect of debt investments like small savings or bonds or even helping the client in structuring and completing their tax saving investments are a couple of examples of how distributors can add value in their services. These should be offered only when there is the ability, expertise and legal possibility of doing so. These can lead to higher fees but the extra services can gradually be added by the distributor over a period of time.
Arnav Pandya is a well known Financial Planner, Trainer & Columnist.
