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God, Give Us A Better Year in Financial Planning

Suresh Sadagopan CFP IndiaBy Suresh Sadagopan, CFP

A new year has dawned on us.  It’s a relief that 2011 is out of the way! But is 2012 going to be a better year? If you go by what the Mayans want you to believe, you don’t have to worry – as the world will come to an end, anyway!  If however you believe that this is just another 1984 scare and nothing more than the periodic Armageddon predictions, then we have work to do.

Financial Planners especially have a lot of work to do, considering that 2012 has the potential to look like Armageddon itself! The Europe crisis is looming and the US is not in the pink either. Various other emerging markets are also feeling the chills at this point and the forebodings are dark.   So, what do we planners do?

God, Give Us Patience

First, we will have to take special care of our clients. Their frayed nerves have to be smoothed. They aren’t going to feel great after getting double-digit negative returns, last year. If they don’t see the prospect of any improvement and their investments are going to be underwater, you can’t expect them to be enthusiastic investors.  God, give us patience – patience to deal with distraught clients who want to divest all funds and invest in government bonds.  There are clients who want to do this in spite of the fact that various assets invested are clearly for long-term goals. They understand at an intuitive level that things will have to improve, like it did after the Great Depression, the oil crisis, or the dotcom bust… but there is still a little bird sitting in the inside corner of their head, feeding pessimistic ideas.

The important resolution for 2012, for all those in the financial planning business, is to keep clients deeply engaged, enough to keep them from taking any rash actions. A hasty act now can impact the fulfillment of their long-term financial goals.  We need to engage them and keep reinforcing that even this will pass.  We need to focus on the goals and keep working towards them rather than indulging in churning of portfolios. We need to educate the clients about:

  • The merits of asset allocation
  • The rich rewards patience usually brings in
  • Keeping their regular investments on, and
  • Not seeing the stock quotes every day and keeping their sanity intact

God, Give Us Serenity

We need to communicate to our clients that some tactical changes in their asset allocation can be done, but the asset allocation itself cannot be turned upside down.  God, give us the serenity to not get carried away by the market frenzy and act in ways that jeopardizes the long-term objectives of our clients.

Clients also need to play their part. Financial services firms will keep launching products according to the changing dynamics – they will launch debt-oriented capital protection funds, gold funds etc. as per what does well at that point.  Clients fall for it. Many times they do not consult their planner and inform them that they have purchased these products.  It has an impact on their plan and sometimes adversely. There have been times when clients have committed substantial amounts in such products or even in insurance products, putting the plan on skids.

Clients’ Interests First

Financial services firms should resolve to act responsibly and sell products which dovetail with the client needs.  The regulations which are now coming up in the financial domain are due to the mercenary operating style which many firms have adopted. Client’s interests have to be kept upfront and care needs to be taken to properly match the client’s needs with the products, in the light of their goals and what they have done in the past. This takes more time and effort, but it is worthwhile. Putting clients’ interests first will bring appeal to clients, who are scarred from 2011 and as a result, scared for the upcoming year.  If we don’t put them first, it will result in more onerous regulations in the future.  Financial Services firms need to focus on what is good for the clients and focus on earning a lot more in a responsible manner.

New Year resolutions are notoriously evanescent.  We need to make an exception this time and commit to them indelibly in our consciousness and follow through on them. In keeping these resolutions lies our redemption.

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