A Higher Alpha Is The Most Prominent Reason Of Why A Client Should Have You

In the Indian market, there is dearth of financial advisors, because almost 65% of the country's population is young, and a majority of which has been investing in traditional fixed income investments. However, with the challenges posed by inflation as well as increasing awareness about modern and better return yielding investment products, people are looking to extend increased exposure to their money, so that it is able to generate better returns for them over the long term. The quest for good financial advisors is on the increase. Although there is a huge demand and supply gap, yet the road is not vanilla, the advisors need to compete with Robo Advisors, Direct Plans and other established advisors, to make a mark in the industry.

Robo advisors and direct plans in Mutual Funds offer a cost advantage to the investors, so why should an investor foot your bills. The reason they'll shell out those extra bucks lies in the value you add, the positive impact you can create on their financial life.

So, to get the answer to, if you are adding any value, or how much value you are adding to the client, you need to revisit your advisory skills.

To begin with, the most important reason of why anybody would invest is to get returns, the higher the better. The quality of your advice determines the Alpha, i.e. the difference between the returns generated on the client's portfolio as per your advice and the returns generated on an unadvised Portfolio. A higher Alpha is the most prominent reason of why a client should have you. There are a number of factors which can contribute to creation of Alpha:

• 1. Right Asset Allocation: A very important factor that determines the success of a portfolio is it's asset mix. It is essential that you devise a suitable asset mix for the investor, as per his income and risk profile, and as per his goals and time period remaining to achieve the goals.
• 2. Product Selection: To get the maximum out of Asset Allocation, it is imperative to select quality products within those asset classes. If your client's ideal equity allocation is 40%, so you need to do a thorough research and suggest him the best equity funds, along with maintaining an ideal mix of small, mid or large caps, again depending upon the risk and return profile of the investor. This step is very crucial for determining the Value contributed by your advise because there is a significant difference between the returns generated by the best performing and the worst performing funds. So, an investor who is seeking expert advice expects a recommendation to buy above average products only.
• 3. Rebalancing: Once the asset mix and assets are set, and the investment is done. The next important factor that adds to the Alpha is Rebalancing. The fund you are selecting may be a good performer today but may lose its sheen after a year, so it is essential to delete the poor performers and make way for the new superstars. An unadvised client have minimal chances of being enlightened with such digressions and that explains the importance of having you.
• 4. Control their emotions: A financial advisor plays a very important role in the investors' life, and that is controlling their emotions and not letting them commit mistakes. Whenever there is turbulence in the market, the investor experiences sudden flow of emotions, he wants to do something, book losses or book gains. You need to provide him an emotional support during these times, to ensure that his Portfolio is going in the direction as decided. Controlling the missteps that could be taken by the investor, increases your Alpha.

Secondly, an investor has a financial advisor because he expects him to sort his financial life so he can have peace of mind. He expects that whenever need arises, his investments are planned in such a way that he has the money without incurring losses. So, as an advisor the portfolio you devise should be a foolproof masterplan of the investor's financial life. Whenever a life goal of the investor is approaching, his financial plan should provide for the means to achieve it. Or if there is crisis, the financial plan should have the provision of a Plan B to fight the crisis. A peaceful financial life will enhance the investing experience of the investor, and will endorse the need to have you.

Apart from the money factor, the investors craving for the extra knowledge on financial planning and various financial products is another factor that augments the value you add to the client. A well read advisor is often placed with a higher level of trust and respect. The client will be more comfortable relying on your decisions and will be more confident about his portfolio. So, in order to add more value to the client, you as an advisor should be regularly upgrading yourself by adding more certifications, by being updated with the latest industry developments, and by constantly brushing up your subject and products' knowledge.

So, the bottomline is, the Alpha i.e the extra return that the client yields on his investment, a sorted financial life for your client and the knowledge he imbibes from you, determines the value you add to him. The logic behind ascertaining your value addition to the client is, when the client does a cost benefit analysis of having an advisor, the latter must outweigh the former, and this factor alone determines your success in business.