MasterMind: Advisor Insights

Scold your clients if necessary to keep them on track

Neeraj Chauhan, The Financial Mall, Delhi

14th September 2015

In a nutshell

One of the most challenging tasks for an advisor is finding a way to tell clients that their actions are perhaps doing more harm than good to their portfolios and their financial futures.

Fear of offending your clients often comes in the way of plain speak and delivering blunt messages where required.

Neeraj says his experience suggests that delivering messages bluntly where required, and scolding clients where you think they are doing harm to their financial plans, actually enhances your credibility in their eyes rather than in you losing the client. Neeraj shares two client examples of how he did this and brought clients successfully back onto their agreed plans.

MasterMind, a joint initiative between Sundaram Mutual and Wealth Forum, aims to provide useful inputs to distributors and advisors on understanding client behavior, on mastering their mind and on this basis, improving your client communication in a manner they can relate to better, to enable you to become a more successful and effective advisor.

Education is the best way to build lasting client relationships. Like I had mentioned earlier about our education initiatives (Click Here), we focus a lot on helping clients understand and appreciate the basics of saving and investment, the importance of goal setting, the relevance of practical prioritizing of goals within limited means, the concept and importance of real returns and so on. Our experience has been that when you provide honest and unbiased inputs, clients are willing to adopt this approach, and discard methods that were short term oriented and which focused primarily on past returns. When we begin our relationship on the basis of education, we automatically become a sort of mentor or guide to our clients.

Clients agree to a plan, but sometimes.....

But, its not always so simple. Clients agree enthusiastically, because they see a lot of merit in a goal based long term approach to wealth creation. But somewhere along the line, things sometimes start going wrong. Let me share a couple of examples with you.

We have a client who started a SIP based on goals that we agreed. After some time, and after several instalments of the SIP had been invested, he came one day and said he wanted to borrow against these investments. He said he had a business order to execute, for which he needs some money, he wasn't getting a business loan and therefore he was looking at borrowing against his investments.

I told him that instead of borrowing and paying interest, he can redeem his investments, use it for his need and when his cash flows improve, start a SIP with a higher amount. Think of it as a repayment of a loan, I said. The higher amount will enable him to catch up on what he had to redeem for his need.

He agreed and we went ahead with the plan. A few months later, I overheard a conversation between my staff member and the client about purchasing a travel insurance policy. Upon enquiring, I found out that this client and his wife were going on an overseas holiday. I decided not to say anything until the returned, but when they came back, I insisted on a meeting with both of them.

I started the meeting by saying that I have a few thoughts to share which they may not like to hear, but that I thought it my duty to share anyway, in their best interests. After getting their consent, I gave them a piece of my mind, in no uncertain terms, about what I considered was irresponsible behavior. I told them that on one hand you are breaking your savings plans for your future due to present tight financial situation, and on the other hand, you are spending large amounts on an overseas vacation! How will this irresponsible behavior help you successfully meet your commitments towards your children's education and your retirement? You have stopped the SIP meant for your future, haven't yet restarted it as agreed, and are now spending on this? If this is your approach towards your own future, how can I work with you to help you secure your future?

This rather blunt talk actually worked wonders. Both realized their mistake and promised to behave more responsibly. They understood that what I was saying was for their own good. They didn't mind me ticking them off, because they realized that they were going down a wrong path and I was attempting to bring them back on track.

Scold your client if necessary

I believe that when we begin our relationship on the plank of education, we advisors become mentors and guides to our clients. It is the job of the guide to pull clients back when they go astray. By being afraid about whether your client will get offended if you "lecture" him, you are actually doing him a dis-service. If you are a mentor or a guide, behave like one.

Similarly, I have a client who at one point lost his job. Recognizing his changed circumstances, we realigned his portfolio to produce a monthly cash flow, and put some amount into a balanced fund, for long term capital appreciation. We agreed that this portion is meant for long term, and is designed to help the overall portfolio stay ahead of inflation, even as other components were geared to provide him a monthly cash flow.

Markets turned a little volatile, and he started calling me almost every day saying, "This balanced fund went down by so much today or this balanced fund went up by so much today. Why is this happening? Is everything ok?" I could understand his anxiety, especially in his circumstances. I patiently discussed with him almost every day, when he would call to enquire about his balanced fund investment.

After a few days, when his call came again on a day when the market went down, I told him plainly, "Sir, I think it is best we pull out this money from the balanced fund and put it into something less volatile. There is no point in holding on to an investment which is causing you to lose your sleep every day. Either you should give it the time we agreed for it to do its job and create wealth in the long term, or if that is too painful for you, lets get out right now and at least ensure you sleep well from tonight. There could be long term implications for your portfolio if we do that, but I can see that by staying invested in this balanced fund, it is creating short term implications on your health."

That straight talk got my client to understand where he was going wrong. He agreed to give it the time we had initially agreed on, and not to keep worrying everyday about it. Today, the same client is one of my most active referrers, and has referred me to many of his friends.

Getting scared to talk bluntly is actually a dis-service to clients

The point I am making is that in dealing with clients, one of the most important aspects is to help them understand where they are going wrong, in a manner they can appreciate and relate to. I firmly believe that if we have taken on the mandate to guide them on their financial journey, we must not hesitate to talk bluntly and deliver clear messages, if we think their actions could cause damage to their financial plans. That's what is the job of a mentor and a guide. Very often, we hesitate to do this, we hesitate to tick them off or talk bluntly to them out of fear that we might lose the customer. Being polite and watching the client do something wrong is far worse than telling him the plain truth and losing the client. And my experience is that by telling them the truth, by being blunt where it is required, our credibility in our clients' eyes goes up and not down. I don't think we lose customers by telling them the truth - we lose customers eventually by not telling them that they are going wrong, when they are going wrong.

All content in MasterMind is created by Wealth Forum and should not be construed as an opinion of Sundaram Mutual Fund.

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