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How advisors can beat their own benchmark

Financial Advisory

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Financial Advisory article in Advisorkhoj - How advisors can beat their own benchmark
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I constantly see financial advisors share information about various Funds performances, Funds beating their respective benchmarks by huge margin and funds giving 80-100 times return in X no. of years. That leaves me thinking how does it have anything to do with the investors and what role did the advisors play in the fund’s performance, unless that’s the only fund they have advised to the client.

But the advisors persistently keep sharing the historical performances of different mutual funds that means they may or may not have advised those funds. Then why it needs to be shared with the client and how does it help in managing client’s expectation? Secondly, is it an advisor’s job to talk about funds in this way? For example I haven’t come across any doctor who tells the patients that Paracetamol ‘A’ has worked in 6 hours and Paracetamol ‘B’ has worked in 4 hours! In fact, it is best left to the doctor which medicine to prescribe to which patient depending on patient’s history of illness etc. Doctor’s don’t treat their patients in a group.

Then whose job is it?

Is it an advisor’s job to talk about a fund’s performance? Is an advisor part of the sales and marketing team of the AMCs? Is an advisor client centric or manufacturer centric? If the answer to first two questions is ‘NO’ and to the third is Client centric, then there is no reason for an advisor to talk about fund’s performance. Instead, a Financial Advisor should talk about fund’s characteristic if at all.

What is the harm in doing so?

Even if the advisor doesn’t talk about the fund performance, a ‘savvy’ investor will anyway find out, therefore, the advisor is not doing a great value addition to the client by sending such bulk e-mails. But what’s the harm?

The harm is, advisor is making such client’s belief stronger that by riding on the performance of these funds their objective can be met and therefore he or she doesn’t need the services of an advisor anymore. Only future may tell whose profit or loss it might be.

What is an advisor’s benchmark?

An advisor’s benchmark has nothing to do with fund manager’s benchmark which is defined through regulation. For an advisor, the benchmark is different for each client based on their respective risk profiles and goals. For instance if a client needs 10 percent returns to achieve the goal in say 12 years then it becomes the advisor’s benchmark and how smartly the advisor over achieves this number without taking extra risk and that is where the advisor’s expertise should be. Here the role of advisor comes into play and the advisor can showcase his performance of beating the benchmark.

Remember, the world around us is changing must faster than one can anticipate. It is very essential for financial advisors to showcase their expertise and promote it in a manner that actually helps the investors in achieving their life goals, not just once but consistently.

How can this be done?

Few may find it difficult initially but that’s the need of the hour. Like, when we asked the fund managers about their stock selection processes, they start showcasing it to us, they also made us understand that it is not only performance, one needs to understand the processes behind the delivery of the performance.

Similarly, it would be very important for an advisor to have systems and processes in place for achieving the goals of the investors and then showcase the same to their clients. It’s important for investors to know that they need to chase their goals and not the returns. And only you as a financial advisor can make them think like that.

For example - If one’s goal is 15 years away and you are able to help him or her achieve the same, in say 12 years, without taking any undue risks that’s beating the benchmark for you. However, it shouldn’t be confined to only numbers, during this period how you as an advisor educate the investor or bring in maturity to handle the market volatility also matters.

Unfortunately it can’t be quantified, but keeping a record of such discussions and how you did the hand holding in such times which led to achieve the goal makes a lot of sense. It’s important to showcase it to the client that how the advisor manages the emotions in the extreme situations, panic as well as euphoric, which eventually helps in achieving the client’s goal.

Hope, you now know what is your benchmark and how you can beat it!

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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Vinayak Sapre

Vinayak Sapre runs an advisor coaching firm called 'Insights'. A graduate in Management with over 10 years of work experience in the financial industry. Worked with some of the world's leading Finance companies like Franklin Templeton Investments and AIG Investments. During his tenure at AMCs he has interacted with more than 5000 distributors/advisors across all channels i.e. IFAs, NDs and Banks and has worked very closely with IFAs.
The views expressed in his articles here are his own and not necessarily endorsed by Advisorkhoj.

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