Managing client’s wealth during turbulent times

By Ravi Samalad |  27-03-20 | 
 
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About the Author
Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

The consequences of COVID-19 outbreak cannot be overstated. Economies around the world are bracing for a recession. Stock market investors have been on a rollercoaster ride. To allay the fear on the street, central banks around the world have swung into action by announcing timely measures to stem a collateral damage.

Akin to previous market falls (dot com bubble, 2008 meltdown), the current scenario presents an opportunity for advisers to nudge investors to increase allocation towards equities. And that’s what most advisers are doing. Interestingly, advisers say that most investors are showing signs of maturity by not pulling out of funds.

While the markets have risen in the last two consecutive trading sessions, this does not mean we are out of the woods yet. Many investors might be wondering that they might have missed the opportunity but sometimes not doing anything can also work in your favour.

“We are suggesting increasing SIP commitments for those who can. For others, we are not recommending investing at these levels. Neither are we recommending exits. We are suggesting that let the lockdown get into April and then we will see how things shape up. We are in wait and watch mode,” says Kolkata based adviser Bharat Bagla.

Stagger investments

Similarly, Mumbai-based RIA Melvin Joseph is recommending clients to start SIP for a short duration (six months) to stagger their lumpsum corpus into equites as he expects markets to remain volatile in the near term. “If you have a surplus of 1 lakh to invest for long term (7 years and above), start investing Rs 20,000 per month for five months from this month across the same equity funds where you have SIPs. Markets can be highly volatile for many months depending on how corona is going to pan out. I have asked my clients to not to exit from any exit funds now and not to pause SIPs. If you are planning to consolidate your mutual funds, wait for it for the market to stabilize. Even the ultra-short-term debt funds can show small correction due to huge selling by foreign portfolio investors. But don’t worry about this.”

Educating clients pays off

In these trying times, communication is the key to assuage investors’ fears. Advisers say that client education should be an ongoing exercise rather than a one time exercise during bad times. It is best to prepare clients mentally for the volatile ride when onboarding them so that market corrections don’t come as a surprise later. This will also help in retaining clients and grow wallet share. Also, research has shown that educated clients are less likely to leave their adviser. “Out of 360 clients we manage, only 1% investors have reached out to us worried about their investments. One of the reasons is that during initial engagement with a client it is essential to set proper expectations regarding market movements and possibilities of negative returns. Any unrealistic expectations are done away with from the client mind. This not only strengthens your relationship with the client but also automatically and cuts off chances of any misunderstandings later. Proactive communication and prioritizing client communication especially when the markets are seeing a downturn is a must since most of us are always on the defence mode and reduce communication at such times,” says Shifali Satsangee of Funds Ve’daa.

Tactical allocation helps

Mumbai-based RIA Kavitha Menon felt that the valuations were too stretched during December 2019. Thus, she had had advised clients to prune equities in their portfolios. “We took a call to prune equities in December 2019 and it has paid off well. I had not anticipated about this pandemic. It was purely a valuation call. Most clients now have robust debt balances which they are utilising to invest in equity. They are spreading the investments over the next few months. I have not received any panic calls from clients so far.”

Stick to asset allocation

Whatever the Sensex level may be, sticking to asset allocation and life goals is the key. “Our advice to clients is to stay away from the behavioural biases of greed and fear and focus on their goals and not markets since the DNA of the market is to be volatile. We are advising to increase the SIP amount or stagger their investments over a period of time through the STP route and to rebalance in favour of equities,” adds Shifali.

Summing up, being proactive in client communication, apprising investors of their behavioural biases and guiding to overcome them can ensure a smooth ride for your clients in this bumpy market.

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