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I started my investment advisory practice in 2015 with three decades of work experience under my belt. I equipped myself with the necessary training and passed the relevant certification exams. I also acquired the technical expertise to calculate goals, assess clients’ resources and risk-taking abilities, and recommend the appropriate asset allocation. Experience, however, has taught me that these otherwise important technical tools and skills have their limitations.
Kiran approached us in the early days of my investment advisory practice. He had excellent resources. He had no children and his primary goal was a comfortable retirement, apart from buying a farmhouse outside the city and a high-end car. He wanted us to provide a financial plan which he would execute himself. Since financial resources weren’t an issue, I assumed Kiran wanted us to streamline the investments he held outside his business entity. We studied his investments and made a number of recommendations. He kept asking us to work using more conservative estimates.
After many discussions it dawned on me that Kiran was not really looking for investment advice. What he really wanted was validation of his decision to buy a high-end car.
This early experience taught me there is a world of planning that lies beyond the numbers and neat excel sheets. Emotions, fears, biases and greed often overrule an otherwise well-crafted financial plan. The investment advisor will not even be aware why a client is refusing to act upon a plan prepared after careful deliberation.
My experience with Yogesh is another case in point. He was the classic upwardly mobile client in his late thirties, with excellent income and frugal spending habits. He had been investing regularly even before he approached us. He had recently got married. His spouse was also working, and her income (and existing investments) meant that more resources were available to meet their goals. One of their goals was to buy a house.
We worked on a plan and recommended that they buy the house at the earliest. Yogesh raised a number of points. The discussions dragged on, with Yogesh not implementing the plan, especially the recommendation to purchase a house. It was clear he was not telling us something.
Upon some prodding, he revealed that they (Yogesh and his spouse) were staying with Yogesh’s parents in the latter’s house. Yogesh’s parents were financially dependent on him. “They are already feeling insecure after my late marriage. If I buy a house of my own, they will become even more insecure,” he told me. Yogesh’s parents had made many sacrifices while bringing him up and he was extremely attached to them. He did not want them to feel insecure under any circumstance.
This was a stunning revelation for me on the limitations of technical tools and skills while creating a financial plan. No excel sheet in the world can factor in the social cost of causing insecurity to one’s parents.
These and many more such experiences have taught me to probe more and work closely with clients to find out their real motivations, desires and fears. The financial plan must fit the client’s requirement, and not the other way around.
Truth be told, while it is important to be technically proficient in the investment advisory profession, it is even more important to understand that there are limitations to technical expertise. However, the joys of finally understanding clients’ motivations and helping them plan their lives according to them has to be experienced to be believed.
The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor Twitter: @harshroongta
(A slightly different version of this column first appeared in the Business Standard on October 24, 2022)