WF: Getting conservative investors to allocate to equity funds must be quite a challenge, especially in the HNI segment, where clients tend to have clear views of their own. How do you get such clients to agree to make what you think is an appropriate allocation to equity? What strategies / communications have worked best for you over the years?
Sangeeta: Converting a sceptic to a believer is a long and gradual process. It follows a classical try -buy- re buy sequence with positive outcomes being the reinforcer.Two sets of data have been the basis for convincing clients -i) data showing that Indian markets have always recovered from the worst of crashes and ii) data demonstrating long term outperformance of equity vis-a-vis other asset classes. Another strategy is to offer only large cap funds and highlight the fact that though an individual company may not recover, large cap diversified funds consisting of a basket of well-researched stocks will recover. At the same time, certain clients despite being fully aware of the performance of equity are happy with the returns on debt. I consider it inappropriate to push them into equity against their will.
WF: It is often said that an advisor's "hand holding" during volatile times is what helps investors realise the full potential of equity funds. In your experience, is this "hand holding" for HNI/mass affluent investors more a case of presenting quality data on the benefits of riding out volatility, or is it more of emotional rather than rational support? How does this differ when dealing with more retail investors?
Sangeeta: Laying out a rationale for optimism in difficult times is the most important component of hand holding. Frequent contact, personal meetings and keeping the client abreast are the others. Handholding is a mix of emotional and rational support. HNIs tend to need more emotional support whereas retail investors look for more rational support.
WF: Regular portfolio rebalancing is said to be one of the biggest services that an advisor renders towards her clients. Do clients readily agree to rebalance (buy when markets and market sentiment is low, and vice versa) functionally? What are some of the challenges you face when trying to get clients to execute periodic rebalancing and how do you try to overcome these challenges?
Sangeeta: Clients with very long term perspective do not look to rebalance their portfolios even when the markets have significantly run up. If markets fall moderately, they may increase their allocation at lower levels. But if the market fall is severe, the shock itself prevents them from acting even at lower levels. However, they may increase the allocation after they see a revival in the market.
WF: We often say that investors indulge in "rear view mirror" investing - investing based on recent performance. In selecting equity funds for your recommendation list, what are the parameters you look at, to give a good mix between "rear view" and "front view"?
Sangeeta: The purpose of the combined rear view and front view is to assess whether schemes which have done well in the past will continue to do well in the future or schemes (especially sectoral funds) which have languished because the sector was facing difficult times, will see a change in fortunes because of a likely turnaround in the future. Enduring factors are philosophy and processes employed by the fund, pedigree of the fund house and track record of the fund manager. Assessment of macro environment and relative prospects of various industries vis-a-vis current positioning of the funds would form the basis of expectation of future performance.
WF: As a corollary, when do you decide to take out an equity scheme from your recommended list?
Sangeeta: Continuous under performance of the scheme calls for a re-appraisal. When the reason for under performance is likely to persist in the future then the scheme does not merit to be in the recommendation list.
WF: For an equity fund portfolio of say Rs. 1 crore, which has a time horizon of 5 years, how many equity schemes would you consider as adequate diversification? What is your experience with new clients you sign up - how many schemes on an average do you see in their portfolios?
Sangeeta: For a Rs. 1 crore portfolio, we would recommend investing in 4 schemes. However earlier our approach was more diffused. We have seen, on an average, 10-15 schemes in the existing portfolio of new clients.
WF: In the HNI world, do clients expect advisors to deliver alpha over market on a year-on-year basis to demonstrate value add or are they happy with goal based long term investing and the discipline you bring into executing these plans? Does goal based investing actually work in the HNI space?
Sangeeta: HNIs do not need returns from investing for meeting goals. Their purpose of investing is simply to grow their wealth. They expect schemes selected by the advisor to give superior performance compared not only to benchmark but also to the schemes which are talked about in their social circle or suggested by other advisors.
WF: It is observed that world over, more information flow is tending to make investors more short term oriented. What is your experience with your clients and how do you deal with such expectations?
Sangeeta: Generally we specify 5 years as the minimum duration for investment in equity hence the client is prepared to stay the course in spite of short term volatility. However adverse information flow does cause anxiety and hand-holding is essential to pass through such phases.
WF: From your rich experience in helping clients navigate through different phases of equity cycles, what would you advice new IFAs who are coming into the profession now on managing clients and their expectations?
Sangeeta: (1) Use gentle persuasion rather than pushing aggressively, (2) adopt data based approach, (3) emphasize probabilistic nature of outcomes, (4) moderate expectations in bullish phases, (5) do rational and emotional hand-holding in downturns and most importantly (6) do not suggest what you won't do with your own money.
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