Advisors are in the business of managing expectations such as return and service expectations.
For a healthy advisor – client relationship, it is important that you set realistic expectations right at the beginning. A well-informed client is likely to be more reasonable when it comes to investment performance. Likewise, clearly outlining the services offered by you is likely to reduce unrealistic demands.
Here are a few tips which will help you manage client expectations like a pro.
Share the complete picture
At times, investors approach you after hearing glowing reviews about you from your clients who may have shared their experience (‘I received 20% annual returns on my portfolio because of this advisor’s recommendations”). Hence, the new investor too might assume that you will help him generate 20% returns every year. But, we all know that returns are a function of market and can be volatile.
Advisor tip: Before advising a client on investments, do tell him about the nature of investments and market dynamics. Share data on flat, bull and bear market phases with the client to make them see that wealth creation is not a linear process. Educate them about market risks so they are better prepared to handle corrections.
Build a perspective
Often clients think of returns in absolute terms; however, we all know returns are relative. In a bear market, if scheme A falls by 3% when markets correct by 7% then it is a good scheme. Similarly, in bull market, if scheme B delivers 20% return against 30% market returns then it is may not be such a good investment. However, a client may view scheme B as good and scheme A as bad.
Advisor tip: Explain the concept of benchmark. Share market data with your clients to help them build a better perspective.
Set conservative targets
Clients seek financial advice to achieve financial goals. If their targets are too aggressive, they may be difficult to achieve. If it is a crucial goal, and the client ends up with a shortfall at the last moment, he is likely to lose his trust in you. It is better to give conservative estimates to clients so that they have some buffer to achieve their target corpus.
Advisor tip: Historically, equities have earned around 12-15% returns over long term. However, while estimating your client’s portfolio returns you may take a conservative estimate of 10%. This will create a cushion in case the market turns unexpectedly.
Be clear about services offered
As advisors, you go over and beyond your call of duty to serve your clients. However, it is better to talk with the client about services offered to prevent any dissatisfaction later. Not only will it help keep your client’s expectation in check, it will also let you service him better. It will also help you understand the client’s expectations. Sometimes, a client may want services in addition of investment planning. For e.g. if a client expects you to help him in tax filing along with investments, he may be disappointed if you do not talk about taxes at all. Instead, if you know he wants your help in tax planning, you can either offer the service at a fee or recommend him to a tax professional.
Advisor tip: List down the services offered by you. Share the list with your clients and enquire if they are looking for any additional services. Based on your expertise you can either offer the additional service in-house or have a tie-up with other professionals. This will ensure that there is no mismatch when it comes to service related expectations.
Key takeaways:
- Educate clients about investment risks
- Explain market volatility to your clients
- Help them see that returns are relative
- Give conservative return estimates
- Discuss services offered; understand what the client expects from you
Note: This article was first published in Tata Mutual Fund's monthly newsletter.
