What can I do when my client changes the goalpost?


Consider the following four situations:

Case I

Its been a tough year for markets - in India as well as globally. Markets that were anyway running on stretched valuations, took an unexpected black swan event as a trigger to send equities into a sharp correction. Ensuing currency volatility impacted bond markets as well. Sensex is down 12% on a full year basis and bond market volatility has whittled down annual returns to only 3%. You have been very agile in managing Mr. Roy's portfolio: you took some profits from equity funds when valuations were uncomfortably high for you, you moved it into liquid funds, you stayed with largecaps as markets ran up, which turned out to be less volatile in the correction compared to midcap funds. On a one year basis, Mr. Roy's diversified portfolio shows a gain of +1.5% in what has been a very difficult year. You believe your advisor alpha is +4.5%, and feel satisfied about a good job done under difficult conditions. But when you meet Mr. Roy for your annual review, he takes one look at the bottom line: +1.5% and expresses his disappointment. "Even a bank deposit would have got me better returns", he tells you, much to your disappointment. You talk about the challenging market conditions, but he retorts, "What good of having an advisor if he could not pull out my money in time and protect it?" You are frustrated with the huge gap in performance expectations between your client and you.

Case II

Its been a good year for markets, you are happy to see your client Mr. Kulkarni's portfolio up a very healthy 16% for the year. You maintained a diversified portfolio across equity and debt, and you tactically increased equity exposure 18 months ago, after seeing promising fundamentals. That tactical call seems to have paid off rather well, you tell yourself. You go for your annual review to Mr. Kulkarni's house, but to your complete surprise, he is disappointed with your performance. Upon probing, you find out that he met his neighbour yesterday, who revealed how his advisor generated a 27% return on his portfolio last year. You try in vain to explain that every portfolio is different in terms of objectives, risk profile, asset allocation and that it is not appropriate to compare apples with oranges. But Mr. Kulkarni says, "Look, bull markets don't happen every year. Isn't it your job to make the most of good market conditions, like my neighbour's advisor has done? Markets may or may not be favourable next year - wasn't your job to get the best returns in a rising market?" You are once again frustrated with the gap between your and your client's expectations from the portfolio.

Case III

You go for your annual portfolio review meeting with your client Mr. Iyer, armed with the portfolio statements, the signed risk profiler, the agreed asset allocation and data on how all your recommended funds have delivered alpha and continue to be top quartile performers over 5 year and 10 year periods. You feel confident that this time you are not going to be ambushed by a gap in performance expectations. You walk into the meeting and see Mr. Iyer poring over the list of funds in his portfolio and comparing it with a front page news item in ET showcasing the best funds of the year. He looks up and the first thing he comments is, "How come out of the 5 funds that ET says are the best funds, I don't have even one of them in my portfolio?" You get that sinking feeling of getting ambushed once again and your shoulders drop.

Case IV

Your client Samir had inherited a large chunk of shares in Reliance Industries that his father had accumulated over the years and left behind for him in his will. When Samir hired you as his advisor, he agreed that a portfolio worth Rs.10 crores, concentrated in only one stock is not a great idea. He accepted your idea to sell a large chunk of it and invest in diversified equity funds. It also helped that when the decision was made last year, RIL was going nowhere and was a market underperformer in recent years. A year later, when you are sitting in front of him for the annual portfolio review, he looks at what's left of his RIL holding, he observes that it has jumped up some 55% in the last year, while the huge chunk that you invested in equity funds have moved up by 24%. He punches numbers in his calculator and sighs wistfully at the amount of money he would have made by simply holding onto his RIL shares instead of listening to you. He says, only half joking, "You know, meeting you last year and taking your advice has cost me over a crore! My dad was smart - he never went to an advisor!" You look at him flummoxed, searching for an appropriate response, but find yourself at a loss for the right words.

So, are you really wrong?

In all four situations, when you ask yourself as an advisor whether the advisor has done anything wrong, you would instinctively say "No, the client changed the goalpost. Not the advisor's fault." Well yes. The client did change the goalpost during the game, and you continued aiming at the old goalpost - which you thought was the agreed one. But at the end of the day, you have a dissatisfied client and that does not put you in a strong position. So what's really the point in blaming the client and potentially losing him to competition? Is there a better way out of this situation?

Behavioural scientists suggest that varying performance expectations are often at the heart of unsuccessful advisor-client relationships. At the heart of this goalpost shifting is regret - your client's regret that the other alternative turned out better in hindsight than the one he agreed with you. When you regret, you feel pain. You instinctively look at someone as the cause of your pain - someone other than yourself. Your advisor is whom you tend to pin this blame on. And then you rationalize that he ought to have known better - after all he is the expert, not you.

So, how should you as an advisor deal with such situations? There are no easy answers to this, except

  1. clearly agree upfront what benchmarks you will be evaluated against and how often

  2. put yourself in your clients' shoes all the time to see whether there may be a potential goalpost shift happening in their mind with evolving market conditions, and

  3. maintain high levels of engagement with them throughout, including prompting discussions around the goalposts - just to make sure both of you continue to be on the same page.

If you do this, you may still not wipe out some of the regret that your clients may have in their minds, but at least you can prevent that regret from getting converted into blame.

Share this article