COVID-19 pandemic — 8 learnings for financial advisors

COVID-19 pandemic — 8 learnings for financial advisors

Difficult times have the innate ability to get the best out of people affected by it. This time it is no different. The financial advisory community has weathered many storms in the past and stayed afloat. I see you coming out even stronger, wiser, and more mature on the other side of this pandemic.

This is also the time for you to think through, reflect harder and introspect. While at it, there are some lessons to be learned as well.

1. Holistic financial planning, the way forward

At IFANOW, we have seen more inquiries from IFAs wanting to sign up for our Financial Planning offerings. What does it tell us? It tells us that deep down they have realized that their clients don’t just need investments. What they need is a holistic planning service from you.

I’ve personally called up many financial planners and asked them about how the financial planning clients are responding to the current situation. The consistent reply I get is that while there is some panic, NONE of the financial planning clients have called for redemptions.

Below, I have highlighted some of the things that you can cover to do holistic financial planning. There are more things you can do, but this should be a good start in itself.

2. Shift the focus from Returns to Goals

If your language with your client revolved around financial goals, the questions from them would be around financial goals. If your language revolved around outperformance and alpha creation, the questions will now be around returns. And mind you, these questions will be tough to answer during these times.

When you follow the goal–based planning approach, the onus is on the client to ensure he is saving and investing what is suggested by you. In the other approach, the onus is on you to outperform and deliver alpha at all times.

Think hard on this, which approach is better? Which approach will give you peace of mind? Which approach will make you feel like you are in control of the situation?

3. Emergency planning isn’t just theory

Visualize this. You’ve been approached by a client to help him sort out his finances. Having reviewed his data, you insist that he should build an emergency corpus that covers at least 6 months of non–discretionary expenses, insurance premiums, and EMIs that fall due in this period.

You insist he does this before you start on other investment matters. With such a practice in place, you will ensure there are no panic calls during such difficult times. Also, ensure that if the corpus is used up at any time, it is also topped up regularly.

4. Risk management before investment management

There is a reason why insurance planning along with emergency planning forms the base of the financial planning pyramid. Before you begin the investment planning process, help your clients undergo a thorough insurance planning process. Again, with this. you are putting the onus on your client to ensure they are covering the basics.

By the way, Insurance is not just about Terms or Health. Think about personal accidents, critical illnesses, cancer care, householders, etc. Tie up with someone if you do not have the expertise or the resources. Idea is to ensure the client is not just taking advice but also implementing it. Next, ensure you are sending timely reminders when premiums are due. More interactions mean more stickiness.

5. Understand the risk appetite of the client

A vital aspect before you take a single rupee of investment is to ensure you understand the risk–taking capacity of the client. This exercise is equally important to you and to the client. As it sets the expectations right for both parties.

If you have to spend 30 minutes doing this exercise, please do. It’s that important.

6. Help your clients consolidate all investments in one place

The normal excuse the client gives you when you ask about their current investments is, they do not have the time. With the current lockdown, now is the best opportunity to go back to them. The current pandemic will raise alarm bells and they will be more likely to listen to you.

I have started seeing my friends and close relatives starting to collate investments in one place. They want to ensure that their family members know what investments they have made, god forbid something unfortunate happens to them.

7. Help them write a Will

Now is also an opportune time to educate your clients about the importance of having a Will in place. If you have never got a Will drafted before, get in touch with an expert.

Reach out to the clients you think will benefit from this. And it need not be just the senior citizens. Even someone as young as a 40–year–old who has accumulated enough wealth could benefit from this. Remember, the timing is right. They’ll listen.

8. Begin the transition to a Fee–based model

The above things requires setting up a process in place. If you have a bigger team, create SOPs (standard operating procedures). When you do the above things in an orderly manner, you are bound to get the fees you want to charge. No questions asked.

A fee–based model will go a long way in making your income less susceptible to market falls. By decoupling your income from market movements, you will be in control of your destiny. RIA is the way forward.

There will be challenges. Aplenty. But if you start now, in 1–2 years you will come out much more stronger.

Experts say that while you are practicing social distancing during the lockdown, one important thing is to build strong immunity. With a strong immunity system you do not just avoid the virus but even kill it. I hope the above measures will help you not just sustain but grow your practice manifold in the years to come.

Lastly, before I end my post, I want to leave you with a question. Take a pause, close your eyes and visualize a client family for whom you would have done such planning. Will he be your client for life?

Stay home, stay safe