8 ways to help clients achieve their financial goals

Jimmy Patel, MD & CEO, Quantum Mutual Fund, on how advisers can help clients stick to their financial goals.
By Guest |  31-01-20 | 
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Morningstar invites thought leaders from the investment community to share their insights. Views expressed are personal and should not be construed as investment advice.

Everyone intends to start the New Year, every year, on a positive note with renewed energy, resolved to implement changes for a better life. People make new-year resolutions including ‘Financial Resolutions’ such as:

Resolution #1: I will increase my savings every month

Resolution #2: I will start SIPs to achieve my financial goal/s

Resolution #3: I will diversify my investment portfolio

Resolution #4: I will review my existing investments

Resolution #5: I will insure optimally, and protect my family’s financial future

Resolution #6: I will attempt to maximize tax saving

Resolution #7: I will maintain enough contingency reserve

Resolution #8: I will reduce my debt burden

Resolution #9: I will handle my paperwork related to banking, investments, insurance etc. prudently

Resolution #10: I will reach to an expert in the interest of my financial well-being

But often many individuals fail to keep up with many of these financial resolutions by the year-end --- a commonly observed fact in the advisory business.

“No one's ever achieved financial fitness with a January resolution that's abandoned by February”, says Suze Orman an American author, financial advisor, motivational speaker, and television host.

Therefore, everyone must follow New Year Financial Resolutions conscientiously to lead a healthy financial life and achieve your financial goals.

With the New Year’s Eve nearly a month away, while introspection on the different facets of life is probably being done, every individual should even contemplate on the financial decisions to improve their financial situation.

Financial advisers, to serve the clients better, should conduct a regular review -- as it is an indispensable part of the advisory practice for their financial well-being. This helps the clients/investors to be grounded in terms of expectations, stay in sync, keep up with financial resolutions and achieve the envisioned financial goals.

Here are eight key things a financial adviser needs to do:

  1. Help clients to set SMART goals

Encourage investors/clients to revisit their financial goals and assess what they have in mind. That means they will have to reconsider to set Specific, Measurable, Adaptable, Realistic and Time-bound goals (SMART goals).

The process of a goal-setting exercise will give incredible insights to understand the investors/clients themselves better and the things they value. It is a simple exercise of readjusting the goals and plan depending on changes in the client’s circumstances, risk appetite, the performance of the investment portfolio, and/or in the investment objectives.

Based on these goals, as an able financial guardian, handhold investors/clients to achieve their envisioned financial goals by drawing a financial plan prudently assessing their risk profile, broader investment objective, the types of financial goal, the time horizon in hand to achieve the goal, and setting the asset allocation right.

  1. Review investor’s portfolio

Once the financial plan is drafted, the asset allocation is set, investments are done; a portfolio review is necessary. Investors/clients highly appreciate it when their financial advisor deals with their investment with care, caution, alertness, and astuteness.

With a portfolio review, financial advisers can ensure the investor/client is on-track to accomplish his/her financial goal, rebalance the portfolio if necessary (based on the change in risk profile and time to goal), and weed out the underperforming investments.

  1. Encourage investors to SIP into mutual funds

If the investors/clients have discontinued their monthly Systematic Investment Plans (SIPs) installment, understand as their adviser why this step was taken. Explain to them that it’s not the right approach, the objective of maximising savings and investment will be lost, and in turn, it will prevent from achieving their financial goals.

Investors/clients need to be reminded that SIP is a rewarding strategy in itself, and if mutual fund schemes are selected on a need-basis and recommendations are backed by thorough research; it can serve to be in the interest of their financial well-being and build the desired corpus to accomplish financial goals.

Ensure the focus is on the long-term and the investors/clients do not fall prey to the short-term undercurrents -- provided the schemes in the mutual fund portfolio are some of the best.

  1. Explain why over-diversification is bad

Diversification is one of the basic tenets of investing. It helps to reduce the investment risk of the portfolio.

That being said, often investors in the zeal over-diversify and invest in almost every mutual fund scheme available. But that is not always the best approach.

Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett.

Financial advisers, while recommending and building a portfolio of best equity mutual funds, need to explain to investors/clients that over-diversification may not always be in their best interest.

Make clients realise that having too many mutual funds and other investment products does not really help achieve return expectations. Plus, the risk will not necessarily reduce.

One needs to hold an optimal number of best mutual funds in his/her portfolio with a fair diversification to earn optimal risk-adjusted returns to achieve the financial goals.

  1. Stress upon maximizing tax saving

Tax planning is a holistic exercise, whereby one can avail of the permissible exemptions, deductions, and reliefs available under the provisions of the Income-Tax Act, 1961. Ideally, investment planning and tax planning need to complement each other.

Financial advisors should engage in a holistic tax planning exercise with their investors/clients since the beginning of the financial year, with the focus on encouraging investors/clients to make tax-efficient. Remember, a penny legitimately saved from tax axe is a penny earned!

  1. Importance of a rainy-day/contingency fund

An observational fact is, when life throws a curveball, most people pull out funds from their other pools of investment, impacting personal finances and their peace of mind.

Clients will appreciate if their financial advisor can help them build an emergency (also known as a rainy day fund or a contingency fund). Ideally, counsel investors/clients to maintain a minimum of 6 to 12 months of regular monthly expenses including Equated Monthly Instalments (EMIs), as a contingency fund. This money can be parked in a separate savings account, a bank fixed deposit or a pure liquid fund.

You see, in the financial advisory practice, apart from helping investors/clients plan for a bright financial future (emphasising on saving and investing prudently), preparing them for the worse by building a sufficient contingency reserve is essential.

  1. Explain about minimizing debt

Availing of loans for car, homes, or even vacations is quite common these days. But while loans provide access to a sum of money, over time they could prove detrimental to the financial health. They may have a bearing on the credit score and future borrowing capacity.

So, advising investors/clients, as a financial guardian, treat the investors’ money as one’s own with enough care and prudence. Explaining the pros of reducing debt obligation can help save them money and invest wisely to live a comfortable life.

  1. Empathetically discuss the need for optimal insurance cover

As a financial guardian, empathetically explain the investors/clients the need for having optimum insurance. Sudden, untimely demise of the breadwinner can be emotionally and financially traumatic for family members.

Hence, to safeguard the interest of clients’ loved ones and dependents, do take the time to assess the investors’/clients’ insurance coverage, because having life insurance cover is fundamental to financial planning and financial health.

To conclude…

With integrity, following high fiduciary standards, a prudent approach, financial advisers can help investors/clients to keep up with their financial resolutions, ensure their well-being, and enable them to accomplish financial goals. Further, this will earn the trust, respect, and goodwill of investors/clients, strengthen the client-adviser relationship, and can go a long way in building a sustainable financial advisory practice.

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