You can't guarantee returns. Then, what can you guarantee?

imgbd What makes an investor choose an advisor or a money manager and stick with him through the rollercoaster ride that markets take him on? What begets trust in the eyes of an investor? A simple one word answer : dependability. Mr.Dependable - a joint initiative between Religare Invesco and Wealth Forum - aims to help you explore all the dimensions of what it takes to be seen by investors as Mr.Dependable, and thus build your financial advisory practice on a robust foundation of trust. After all, dependability is finally what money management is all about.

In the inaugural article of this series, we introduced the 4 pillars of dependability: consistency, integrity, responsiveness and diligence. In this article, we explore different facets of the 1st pillar : consistency - and discuss why it is pivotal to the success of your practice.

To know more about the 4 pillars of dependability, Click Here

Consistency is defined by the Oxford dictionary as follows: "The quality of achieving a level of performance which does not vary greatly in quality over time". The word "consistency" owes its origins to the Latin word "consistentia" which means "standing firm". In the business world, consistency is about providing predictable, reliable results, time after time.

You can't guarantee returns. Then what can you guarantee?

Why is consistency important for financial advisors? For one simple reason : the products you recommend invariably transfer market risk to your clients and you have no real control on the outcome of individual products. If you don't have absolute control on the outcome of individual products, if you cannot guarantee returns, how will your clients trust you and depend on you to get them to their destination? The only way is by having absolute control on every aspect of the journey and by giving them the confidence that if the journey is undertaken responsibly, they will reach their destination. Having absolute control on the journey calls for consistency in every aspect of your proposition.

3 aspects where you need to demonstrate consistency

Financial advisors need to demonstrate consistency in three broad spheres of their activities:

Consistency in fund selection: Do you have a well defined fund selection methodology which you are in a position to showcase to your clients? Can you assure them that all recommendations you make will always flow from the results of this proven methodology?

Consider an example where you have a policy that dictates that every fund that comes into your radar for consideration:

  1. Will have at least a 3 year performance track record

  2. Would have been in the 1st or 2nd quartile of performance in its category in each of the last 3 years

  3. Will have a corpus not less than Rs.100 crores

  4. Will have the same fund manager managing the fund for the last 3 years

Do you think clients will feel comfortable that you are putting in rigourous filters to try and weed out obvious lemons? Will this inspire confidence in them? Now, when implementing this policy, how consistent are you? Do you scrupulously adhere to these parameters and ruthlessly stay away from any product that does not pass these filters? Or do you try to find reasons to justify why an exception needs to be made this time, for a particular fund? When clients come and ask you about a "hot" fund - either a well promoted NFO or a fund that's hit the top of the league tables in the last 1 year but has an uneven record previously, and you know that it would be an easy sale if you simply nodded your head, do you maintain consistency of your process or succumb to the occasional nod with a wink?

You may get a sale in the short run, but by maintaining consistency in your fund selection process at all times, you are probably gaining much more in the long run, as a consequence of the trust that your clients will start reposing in your recommendations - because they trust your process, and not the actual recommendations.

Consistency in advisory process: Have you articulated an advisory process that you will follow through market cycles and have you clearly communicated this to your clients along with reasons why you have confidence in this advisory process? There can be many advisory processes you can adopt - and there is clearly no right or wrong one - but there is clearly only one right way : which is to remain consistent with your chosen strategy. Some advisors may swear by goal based planning, others may swear by a combination of strategic and tactical asset allocation and yet others may follow a core and satellite approach. What's your model - and more importantly, do you stick to your model through market cycles? If you are an advocate of an asset allocation model, have your clients seen you talk to them unfailingly every quarter with rebalancing advice? Do they always see you singing only the rebalancing tune, even at the height of a bull market or the depths of a bear market? Do they see you consistently following your chosen strategy, your chosen advisory process at all times - irrespective of market moods? Clients are not expected to be experts in advisory processes - they won't trust you because they have insights into which advisory model is superior - they trust you when they see your confidence in adopting an advisory process and the consistency with which you adhere to it at all times.

Consistency in client engagement and service delivery: A crucial part of the journey that you are embarking on with your clients is the manner in which you engage with them during this journey. Do clients know exactly how often you will review their portfolios? Do clients know how often they can expect a meeting with you and how often they can expect an update call from you? Do they know what service issues they can depend on you to handle for them and what turnaround times to expect for resolution? Do they know when to expect monthly consolidated portfolio statements from your office? Do they know a date by which you will send them annual tax computations to help them file tax returns? Knowing what to expect is the first part - delivering consistently on these expectations is the key to building trust - is the key to becoming Mr.Dependable. Are you the variety who ducks client calls when there is bad news or are you the one who ensures that you are the first person to give him the bad news?

Consistency is key to success

As discussed earlier, you are not in control of the performance of the investment products you recommend. All that is in your control is the process by which you will work towards getting clients to their financial destinations. Articulating how you will take this journey and consistently sticking to your process is what will in all likelihood get your clients to their destination. But much before that, maintaining consistency will anyway earn you the trust and confidence of your clients that they can depend on you to get them to their destination. Maintaining consistency is what will give your clients confidence to refer you to their friends - much before they have actually reached their destinations. Maintaining consistency is key to your business success.

All content in Mr.Dependable is created by Wealth Forum and should not be construed as views of Religare Invesco MF.

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