Lessons for the IFA from the advice given to clients

By Guest |  27-05-19 | 
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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.

Bible refers to a phrase said by Jesus, “Physician, heal thyself.” The phrase alludes to the readiness and ability of physicians to heal sickness in others while sometimes not being able or willing to heal themselves. This can also be applied to another situation, where one is unable to heed one’s own advice given to the clients. How many would be comfortable going to an obese dietician? This is the beauty of scriptures – small phrases, only three words, in this case, carry so much meaning. The same message could be applied in multiple situations and interpreted in many ways.

We would take the liberty to apply this phrase to an IFA’s business. How does the advice given to clients for their investments apply to an IFA’s own business? Let us look at some advice that many IFAs give their clients, and how the same could be applied to an IFA’s own business.


Most IFAs recommend that the investor’s portfolio should be diversified across different investment avenues, and across securities within an asset category. This is prudent. As is said, “Diversification is the only free lunch in the world of investing.” The big advantage of diversification is that when something goes wrong with one part of the portfolio, the other unrelated component does not go down.

Now let us apply this to your business. Is your book of business diversified? How? Clients or assets? You may consider diversifying your business across different categories of clients, based on income profile, age group, family size, geographical locations, etc. You may also ensure that the assets under your management are also diversified across asset categories. However, please do not diversify just for the sake of it. Like in case of a portfolio, there must be a logic behind how you approach this issue.

Goal based advice

In the last few years, the conversation between majority of the IFAs and their clients has moved away from markets and towards the client’s financial goals. It is always considered to be a good approach, since the purpose of investments is to help a client fund the family’s financial goals. The first step in this exercise is to help the client set the financial goals. The next step is to plan to achieve these goals, and then the process of regular review and rebalancing should ensure that the goals are comfortably reached.

If setting the financial goals of the family is important for the clients, it is equally important for any business owner to set the goals for one’s business. Once the goals are set, only then can one plan to reach there. Having clear goals also ensure that one’s focus is not diluted, or efforts are always in line with the plan prepared to achieve the goals.

Once the IFA sets the client’s goals, one goes on to suggest the steps the client has to take to reach the goals, e.g. you need to start an SIP of a certain amount for such-and-such financial goal. Similarly, for the purpose of achieving your business goals, the plan must be broken down into steps or activities or tasks.


This is among the most favourite recommendations by many IFAs to their retail clients. And why not? The regular investments instil discipline and take away the pain of making decision every now and then. It also helps one grow the corpus to a substantial amount though the regular investment amounts could be small.

In the IFA’s business, the SIP is required in client meetings, prospecting activities, client communication, etc.

The IFAs insist that the SIPs must continue, especially when the markets are down, and the portfolio is bleeding. When the client continues the SIP in bad times, the rewards in good times are very high. Doesn’t that also apply to an IFA’s business? Think about it. The efforts you put in – the client call you make, the communication you continue, the efforts you put in to acquire new clients in lean times do not show any immediate results. The emotion is very similar to what the clients go through when they receive account statements showing losses. There is a very strong urge to stop the SIPs. Similarly, among IFAs, there could be very strong urge to stop the efforts. If the bear markets continue for long, some IFAs may even think of quitting the business of distribution.

In fact, IFAs recommend that when the markets are down, the client must consider increasing the SIP amount or make some lump sum investments, if the cash flows permit. Well, this applies to the business, too.

Invest for the long term

Especially when it comes to equity investing, IFAs recommend that the investments be made for the long term. Even when the short term movements are unpredictable, lending volatility to equity prices (and returns), the long term trend is upward. Hence, investors are advised to stay invested in equity in spite of volatility.

The same principle applies to an IFA’s business. After all, it is a business, and every business goes through ups and downs. In this business too, the short term would be uncertain and volatile, but the long term trend is upwards. Stay invested. Keep investing. Keep your efforts on.

Amit Trivedi is the Founder of Karmayog Knowledge Academy which trains financial advisers.

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