So, you are finally working as a financial advisor! Something that you have been looking forward to for a long time.
You dive right in, giving your new clients the cookie cutter protocols that you learnt during your days in a B-School or when you opted for a certification course. You are excited about this opportunity especially knowing that you will help several individuals build a strong financial portfolio so that they can achieve their dreams. However, after working with your clients for weeks at a stretch, you do not see any positive results. In fact, two or three clients of yours avoid getting back to you in terms of seeking financial advice.
You are frustrated; your clients are frustrated and you both are probably ready to give up! However, is giving up the solution? Definitely no. Then how do you go about dealing with it?
Well, the first step towards helping your clients in their financial journey is to avoid the cookie cutter style at any cost. It really is as simple as that. While many of us keep falling back on this style, it is actually not a great idea as it can have “not-so-good consequences” for the client. The problem with the extensive use of this style is that there is no one-size-fits-all financial solution for anyone. This is because, every individual is different and so are his or her financial earnings, needs and of course financial goals. This means that an individual’s financial plan has better chances of being successful if it is customised and reflects the idiosyncratic risk and return profile of the individual.
Most advisors and investors follow a very simplistic approach to portfolio building. After determining the risk profile, assets are suggested using very broad factors. Low risk means a majority of government securities, moderate means a mix of debt and equity with a skew towards debt and high risk means equity. However, this is not necessarily always optimal. A debt investment can be high risk, while an equity investment could be moderate risk. Along with the risk profile of the investor, every investment instrument also carries a certain degree of risk. It is important that the risk profile of the investor is aligned with the risk of the investment instrument.
As a financial advisor, you will need to keep all these aspects into consideration and then eventually chalk out a customised financial plan. Each individual will have a unique financial journey that requires equally unique solutions and suggestions.
The major reason as to why you should avoid the cookie cutter approach as an investor or as a financial advisor is that human beings naturally tend to be emotional in nature. When it comes to money management, many either become emotional or are too cautious. As a financial advisor, you have to cultivate the factor of compassion, which can help you understand your client’s financial situation first and then develop a plan accordingly. The plan should be developed keeping in mind the current financial status followed by his or her future goals and inherent risk profile.
