Advisor Speak

6th June 2012

What can I tell my clients now?
Ashish Modani, SLA Investment Centre, Jaipur
 

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Rarely have advisors faced more challenging times in answering this basic question : what can I tell my clients now? Investor confidence in mutual funds is at a low, patience levels with equity markets are running thin and reassurance of advisors is beginning to be looked at sceptically by worried investors. Data tables of long term equity performance are ringing hollow with clients who look at their own 4 and 5 year old investments that are yet to bear fruit. What can you tell your clients now? How do you convince clients to stick to their long term plans? How do you convince them to allocate fresh money into equities at this time - when valuations are cheap? Ashish Modani - one of North India's SIP and retail champions - faces this dilemma every day - like most of you do. In this very insightful piece, Ashish shares with us exactly what he is telling his clients now. He has seen considerable success with these efforts and has willingly agreed to share his thoughts through this article, for the benefit of his fellow advisors across the country.

There is only gloom all around

If we look at the investment charts, returns from Equity are at the bottom when compared to any other investments avenue, may it be fixed deposit, Gold, or any other investments. News all around is bad, whether domestically or globally. Nothing seems to working, neither govt in India or govt in Greece. Every news seems to be bad news - high inflation, high fiscal deficit, high interest rates, de-rating of India, slowing economic growth and what not.

Equity market is mirroring what is happening all along and has been wobbling between 16000 to 18000 index from last 2-3 years now. It was way back in Sep-2007, when sensex touched 16000 for the first time and from then, it is on the same index today as well. 5 years is not a small time at all. It is testing investors nerves and now patience is breaking for many retail investors. The participation of retail investors in direct equity market is at record low of 7 years. The average participation of retail investors in direct equity market is below its 2005 levels. Even in mutual fund space, there is tremendous pressure of redemption and just in the month of April alone, over 3 lacs equity folios have been closed; since January this month over 11 lacs folios have been closed.

What can I tell my clients now?

Am I writing something new...No! not at all...these all are very well known facts to all of us. So what is happening to distributor fraternity now-a-days? Being a distributor myself, let me share that every day I get up, I ask myself - what will I say investors now? Every day, there are redemptions out of equity and that too at a loss or at very low returns. SIPs are being stopped ruthlessly and confidence of investors is breaking with every news that comes in. What should I explain the investor about this equity market now - especially those to whom I explained 6 months back? How should I convince an investor who is behind me to close his SIP from last 1 year now? The same old story - "Long Term - Long Term" is really not working now - its getting very tough indeed!!

How convinced are we about the plans we have made for our clients?

But this is the time when men are differentiated from boys, these are the times where the importance of Financial Advisor takes the 5th gear, it is the time where not only we have to keep our own motivation high but also the spirits of our investors alive.

How do we do it? What should we share with investors now? One thing is pretty clear in my mind, if we ourselves are not confident on equity market, it is next to impossible to convince investors. If we ourselves are not running our SIPs in this bear market, our investors are not going to understand the importance of it. So first of all, I have to ask myself - Am I convinced with equities giving good return in long run? Am I going to continue the SIPs even in bad markets like this?

In my case, I am fully convinced that I will continue my SIPs. If you too, like me, have the conviction, that is half the battle won. Now, the other half is about how to communicate this to our clients - how to reassure them to stick with the plan through ups and downs. I am sharing here some of the thoughts that I share with my clients, and which often work for me in helping clients stay with their plans and hopefully make correct investment decisions. These are the top three issues that I face everyday and this is how I try to respond to my client queries. I hope some of these ideas will also be useful for my advisor friends across the country.

1. Why should I continue with these SIPs which are not making any money so far?

This is one of the biggest issues that all of us are facing - we have created 10 year, 15 year plans for various needs of our clients. They have been regularly investing in the SIPs we started 3-4-5 years back and are now getting impatient with the lack of returns.

What I tell my clients is that I too think about the SIPs I have created for myself and my family. I too look at what is the best possible way to invest my hard earned savings. But, I am very clear that I am not stopping any of my SIPs. The reason is simple - I keep reminding myself that I am not going to make the behavioural mistake which almost everyone does. I don't want to be one among the crowd.

I know the rule of 80:20. Eighty percent people hold 20% wealth and 20% people hold 80% wealth. There was a time in 2007, when Dalal Street was celebrating Diwali and everyone was crazy about market. Investors were breaking their FDs and investing in equities and today, the reverse is happening. Today people are ignoring equities and investing in FDs and Dalal Street is more or less a deserted place. Majority people did not make money that time and even today they are not going to make it.

The reason is simple - people come to stock market with very less time in hand. In 2007, mostly people invested in the greed of short term gain and today also they are not investing in the fear of short term loss. I am not going to do what the majority is going to do.

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I am very clear that I am the person standing at Counter 1. I do not want to be part of the crowd standing at Counter 2. And that is the message that I urge my clients to take on board - if you give yourself enough time and cut away from the crowd, you WILL be a successful investor. The crowd rarely makes money only because they act as if they don't have time, when in fact most of them really do have the time. If we are all able to understand this basic fact, we will all become successful investors.

2. Why should I invest now, when the market scenario is so bad?

The second big challenge is to convince clients that this is THE time to invest in equity markets. All that clients see around them is bad news about Indian economy, Europe recession, Greece Bankruptcy, lack of Government Initiatives etc. As an advisor, I understand business cycles, I understand market cycles, I understand that good news and cheap prices never go hand in hand - its always bad news and cheap prices that go hand in hand. And I also understand that investing when there is bad news around is the best way to make money in the long run. And I very well understand that investing when there is a lot of good news around is also the time when prices are at their highest and is therefore the time when you will more likely lose money than make money. But, explaining business and market cycles to clients is always a challenge - especially when they can only see gloom around..

One simple fact that I communicate to my clients is what every farmer in our country understands, and every investor can easily relate to :

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A farmer sows his seeds under the blazing summer sun, under very harsh conditions - before the onset of the rains, in anticipation of rains. If he waits until it has already started raining, and then sows his seeds, the seeds will get washed away and will not yield him any crop.

Successful investing is similar to successful farming. If you invest in bad times, in anticipation of good times ahead, you will make money when the good times come. But, if you wait until the good times have already arrived and then invest, your money will get washed away, just like the seeds sown after the onset of monsoons.

3. You are an expert - show me something that can give me high returns, quickly

When you meet prospective clients, they sometimes test you with this line : You are supposed to be an expert. Show me something that can give me high returns, quickly. Don't talk to me about 10 and 20 years - show me something that can make me good money in the next 1 year, not in 10 years.

I often humbly submit to such clients that I have understood one basic law of nature :

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In Nature, every good thing takes time - only devastation comes quickly.

I often find that clients settle down after this and are more willing to discuss long term wealth creation strategies.

To conclude

There is no doubt that times are tough. For all those of us who believe that there are only dark days ahead for us in this profession, here is something for you to think about :

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Once, Akbar asks Birbal, "What is it that will give me sorrow in joy and make me feel happy when I am sad?". The wise Birbal said, "It is the realisation of the true statement - this too shall pass".

There was a time back in 2004-2008 when our business was the best one to be in. There was much joy around us - and in that joy were sown the seeds of our current sorrows. Now when we see only sorrow around us, let us understand that in the same sorrows are sown the seeds of the joys of tomorrow - because this time too shall pass. As long as we maintain our equanimity in times of extreme joy and sorrow, we will all become stronger and wiser advisors, capable of guiding our clients financial futures with a lot more confidence and conviction, and therefore make successful careers for ourselves in the process.