Clients pay us when they see us improving their financial lives, believes Deepali and cites three examples
“Life will always be to a large extent what we ourselves make it” – Samuel Smiles
Can’t help but quote this. I firmly believe that, we will collect fees if we ask for it. We will ask for it if we are convinced we bring value to the relationship. And, we will get paid when the client too perceives value addition. Sounds simple but it’s true all the way.
Clients pay us when they see us improving their financial lives. They are willing to shell out money for any core or related financial advice. The advice could be on the lines of the following unconventional value propositions like
· Organizing and streamlining their financials better. Providing them better control and visibility about one’s financial situation and tying up the loose ends
· Planning and outlining seamless transmission of wealth. This includes preparing a will with an exhaustive index of assets at that point of time
· Suggesting belt tightening measures or life style changes, wherever needed, so as to meet one’s goals as planned
The traditional parameters could include:
· Evaluating their currently held insurance policies and making recommendations on the future course of action
· Assessing the investment portfolio and suggesting changes if needed
· Ensuring that assets, liabilities , inflows and outflows all work coherently and symbiotically towards his financial well-being and aspirations
Experience suggests that these clients are more amendable to paying up for the services offered
· Those who have suffered ill advice
· Those who fear inadequate resources for their impending goal(s) or
· Those who want to cross check their financial situation/ decisions.
While all of us know that “prevention is better than cure” clients are seen to turn to professional advice only when they hit a road block.
Before starting my practice, I was tempted to believe that clients are averse to sharing their financial details. However, I’ve been pleasantly surprised as nearly all my clients/ prospects are more than willing to share their complete financial information.
Let’s share few real life situations wherein the clients were convinced to change their course of action while making few financial decisions (names have been changed to maintain confidentiality)
Case study 1
Ms. Angelina Kaur had taken a home loan of Rs.20 lac through a home loan account which allowed her to take an overdraft on it. It also meant that if she maintained a balance in the savings account attached to the home loan, her EMI would be calculated on the outstanding loan amount minus balance maintained in the bank account. She had kept the same amount in the savings account and was therefore not paying any EMI. Her logic for doing this was:
· Provides liquidity of funds if any emergency were to arise
· Not being charged for this amount, therefore it doesn’t hurt
She was finally persuaded to pre pay on a large amount of home loan. Reasons were:
Create a separate contingency fund equal to 3-4 months of expenses. This would provide peace of mind as well as equip her to deal with any nasty surprises. Her fear of having inadequate funds in an emergency could be traced to her dependant parents not having a medical insurance cover. This was tackled by buying them a family floater plan.
Also, it was impressed upon her that while she wasn’t paying any EMI, she still had an outstanding loan and she was not earning anything on maintaining a surplus.
Case study 2
Mr. Srinivasan Haque had taken life insurance policies for his kids who were studying and for his wife who was a home maker. He wanted to be fair and equitable to all the family members (since he too had policies). It wasn’t difficult to persuade him to discontinue these policies. He realized that since the other family members did not have any dependants and did not contribute financially the discontinuation of policies would not hamper the family financials in any way
Case study 3
Mr. Abdul Chatterjee was a top level management employee working for a private company. He used to invest Rs.7 lacs annually in whole life policies. These policies would mature when he would turn 83 years of age (his beneficiaries would be 45 years of age) and provide him a life cover of around Rs.2.7 cr. His idea behind buying these policies was to cover his family members adequately in case of his untimely death and to leave a handsome legacy for his kids if he were to survive till maturity. Undoubtedly a noble thought.
However, what did not get considered by him was that during his most productive and highest consumption years he was locking up his resources and rendering them illiquid. And indeed; he was soon forced to take a loan against these policies to make a down payment for his dream house and his wife often complained of tight finances.
It was a catch 22 situation. If he continued paying premiums, he’d keep locking up his future cash flows too and if he surrendered the policies, he would only get around 30% of the premiums paid since inception.
Eventually suggestions were made to make his policies paid up. This helped in:
· Not having to buy a life cover. Even with the reducing value of the cover it would ensure that he was adequately covered.
· Two wrongs don’t make a right. No point throwing good money after bad. The annual premiums so far paid can go towards investing sensibly.
In a nutshell, it’s not tough to charge fees to a client, and if one keeps providing such pockets of value-add the clients eventually end up earning more than what they would have paid for. This completes the cycle of Karma “what goes around, comes around”
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.