The Indian equity markets witnessed a lot of commotion lately. Both major Indian indices, the Sensex and Nifty are being erratic, sliding downwards for the past few weeks. The Sensex was trading at just below 39,000 at the beginning of September, after a month it's down more than 4,000 points, trading at less than 35,000.

Naturally, investors are worried because their investments are falling in value. Their anxiety is further augmented by a negative sentiment around, triggered by media reports and opinions of family, friends, neighbours, colleagues, and possibly everybody in the vicinity as falling markets is the hot topic currently.

So, amidst their shrinking investments and societal pressure, how do you explain to the poor investor, that there is absolutely no reason to be worried about, things are going perfectly as per the financial plan.

And this is not uncommon that you are encountering terrified investors, over your career everytime there is volatility, there is media and peer pressure, the investors are worried, they want to redeem their investments to cut further losses, they might even blame you for their loss.

With markets slumping, this scenario is a test of time for you as a financial advisor. One of the most crucial roles of an advisor is handholding the client in turbulent times. So this piece concentrates on how you can pacify your clients and not let them take a decision out of fear of loosing money.

1. Volatility doesn't mean Loss. One thing that you need to make your investor understand is, volatility doesn't translate into losses unless he sells his investment at a low price. The risk arising out of volatility in prices, is limited to the time being, the risk subsides as the investment period increases to long term. Say for instance, the investor invested in a fund when the NAV was Rs 100, after the upsurge it went upto Rs 140, post the market crash it went down to Rs. 90, so you must convey to the investor that this fall in NAV is not a permanent phenomenon, it can upto Rs 100 or Rs 120 in the coming days, and there is also a possibility that it can do down further to Rs 80 or Rs 70. Sentiment and external factors can influence the NAV, but temporarily, over the long term, the NAV will grow because of the underlying companies' potential.

2. Data: Statements won't work until you back them up with numbers. So, have your historical facts and charts handy, show to the terrified investors the historical numbers of global equity, Indian Equity history, and explain to them that it's not the first time markets are volatile, they have always been this way. Highlight the times when markets were going bonkers, there have been periods worse than this, there were wars, global economic slowdowns, scams, natural disasters, political instability, and all these factors pulled Equities down, but eventually everything fell in the right place. Over long periods of time, equities have overpowered all hurdles to emerge as the most rewarding asset class. Ask them to consider any 10 year period from the birth of Indian Equity, investors belief in their investment didn't go in vain.

3. Volatility is an opportunity to invest. Ask your investors one thing, 'What do you do when there is a 50% discount sale at the mall?' You have to do the same here, volatility presents an opportunity to gain, in the form of low purchase prices. You are getting many quality stocks in your Mutual Fund at a lower NAV, which will boost your profit margin from the investment over the long term.

4. They invested for their goals which are still far away: Remind the investors who are considering

disposing their investments to avoid further losses, about their goals, which is why they invested in the fund. Points 1 and 2 above will explain that NAV fluctuations are temporary, and bringing their attention to their goals will support the need to refrain from taking a decision hastily.

5. Prepare the investor for volatility shocks. The first thing to do when you have a client onboard is acquaint him/her with the risks associated due to volatility, which is nothing but a summary of the points above. This activity will mentally prepare them for such days, in most cases the investor won't panic because he sort of expected the downturn. And showing the flip side also exhibits your credibility, since you are not presenting only the rosy picture to the investor, rather you are being ethical and helping the investor take an informed decision after counting in all the risks.

For an investor, ignoring the noise is easier said than done, because the idea of losing money is frightening, accompanied with negative statements being bombarded from all sides can make him lose his mind. It is your responsibility as his advisor to calm the panic stricken investor, explain the reasons, show the way forward and and ask him to stick to his financial plan.

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Role Playing has been proven as a successful sales conversion strategy globally. Looking at the impact role plays have created, growth witnessed by organizations as a result of sales conversions by being prepared for the unanticipated, role plays are largely penetrated in businesses today, many organizations have incorporated role plays in their sales trainings. Role Plays are also a part of curriculum in colleges, many MBA colleges have role play sessions for their students, preparing them better for the rustic outside world.

The potency of role plays to add value extends to our advisory practice as well. We can augment our sales and expand our business by incorporating Role Playing in our system. The ideology behind role plays bank upon the concept of being prepared for all probabilities.

Role Play is a technique wherein a situation is fictionalized and the participants assume the role of a different person than themselves. So, you can do a role play with your family members or friends or your employees, in which one becomes an investor and another advisor.

How does Role Playing help?

1. Role Playing helps you give a perspective of the client's thought process. Role Playing is based upon the doctrine of substitution. When you assume the role of an investor, you step into the investor's shoes and think from his mind. You understand his needs in a better manner and can predict how he/she would react in a particular situation or to a particular stimulation.

2. Helps you be prepared.Role Plays prepare you for the most unlooked for reactions from investors. Situations aren't left to chance, you are mentally prepared to handle most difficult situations because you have practiced them before. When you face the client, you are more calm, the role playing works like a déja vu, you know what's coming next, and you are equipped with the best possible comeback.

In advisory, client centric approach is the key to business development. But often, we miss to bring out the client element when we talk to the investor. We talk about our product, our services, rather why the investor needs them, what purpose will they solve, how will the investor benefit by investing with us. We are so consumed with our offerings, that we miss to connect them with the investor's needs. Role plays is one of the most effective ways which can help us connect the dots, because of the above two points, you understand the client's perspective and you are prepared.

3. Engaging Process. Role playing apart from being an effective tool to boost sales conversions, is also a very engaging process. There is activity, involvement, it's fun for employees and helps boost their confidence. It helps participants imagine and come up with new ideas. Though role plays are entertaining, yet they must be taken seriously. The role play should be treated as a real customer interaction experience, and not a theoretical speech.

4. Role Plays help identify and work on the weak points.A role play is like a premiere before the real show. It gives you leverage to identify any mistakes that you are likely to commit and avoid them in real time.

To extract the best from a role play, you can do the following:

> Let the sales people play different roles each time, one person should not be playing as the investor always.

> Evaluate the role play. It'll be meaningless if you do not evaluate the role play and give relevant feedback. It could be body language, what went wrong, what went right, how could he/she have done better, etc.

> Let the employees watch each others' performances, and share their observations.

> Do a role play of past failures, prospective clients you could not convert. A role play would allow you to diagnose the loopholes and come up with alternate ways to tackle similar situations in the future.

When multiple minds are at work, you might come across situations which even you haven't encountered before, so it gives you an opportunity to be prepared for the unforeseen. A role play is is a more practical way to learning rather than learning through PPTs or through a teacher student mode. Just like a coach can explain rules of the game to the players, but the player will perform well only if he practices before the real match. Practice familiarizes him with the game, the hiccups that may come, the rules and how to apply the rules in real time, and helps him control his emotions. Similarly, role plays are like practice matches for financial advisors, it gives them a taste of the match before the real match takes place.

Role playing is an overlooked but a very effective strategy for better conversations with investors, you must practice yourself as well as train your employees via role plays to increase sales conversions.

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HNIs or high net worth individuals is a class of individuals who are distinguished from other retail segment based on their net wealth, assets and investible surplus. This is a very lucrative segment for financial advisors and there are many who have aligned their business model to suit the HNI client segment. However, as desired as the HNIs are, they are also peculiar in their characteristics and approach to managing finances.

HNI clients are also not easy to acquire. It would be also safe to say that almost all Ultra HNIs are clients of big wealth management firms and family offices. Fortunately, the size of the HNI market has been increasing very fast and today it is more spread-out and approachable for advisors. Today it is very much possible for small & mid-sized financial advisors to focus on and acquire HNI clients, in addition to their retail client base. In this article, we look at this HNI segment more closely and try to identify common profiles, characteristics, needs, problems and common solutions for the benefit of our readers.

Please note that this is a generalized piece meant for familiarizing you with a typical HNI client. It may be very much possible that your experience may differ with us but then, it will only help you get more clarity on the image of an average HNI in mainstream discussions.

Definition:
There is no standard definition of a High Networth Individual in India and the definition of HNIs varies with the geographical area as well as financial markets and institutions. Generally, the following definitions are the most common...

• Ultra HNI: Above Rs.25 crores of investible surplus
• HNI: Rs.2 crores of investible surplus
• Emerging HNI: Rs.25 lakhs to Rs.2 crores of investible surplus

Profiling:

• The Inheritor: Inheritors are born in rich families, having established businesses & social network with easy access to capital and then going on to inherit business /wealth.
• The Self Made: First generation entrepreneurs who have strived and build businesses and have created wealth through success.
• The Professional: Highly qualified, skilled professionals who have created wealth as they have reached leadership /top management positions in their companies which have grew big or have got big reputation and success as professionals in their field.

Depending on the nature /source of their wealth, the HNIs generally also differ in many other attributes regarding how they perceive and manage wealth. The wealth dynamics of each type of investor is unique. It would be interesting to decode their mindset on different parameters...

Characteristics & Trends of HNIs today:

• The number of HNIs & Ultra HNIs is rising at a fast pace (estimates range from over 17% to 22% annually)
• The age of HNIs falling with growth of the digital age & emergence of E-Commerce
• HNI segment today is heterogeneous; meaning HNIs are increasingly from all social backgrounds, unlike before
• Most HNIs are distinguished individuals in social networks of power and influence
• HNIs today are more outgoing, showcasing wealth and experimenting
• HNIs are more today more spread across Tier 2 & Tier 3 cities and not concentrated to metros
• HNIs are increasingly heavy spenders on high quality homes, luxuries, travel, entertainment and education
• HNIs have investments majorly into their own businesses and realty
• Growing companies and industries are putting many employees into the HNIs segments

Major objectives of HNIs:
While most of needs of HNIs are pretty obvious, the difference lies in the way they approach each area of finance its' background complexity. Typically HNIs are likely to be more aware of financial markets and products. They are also more like to have higher risks taking ability and willingness. Their financial background would also be likely to be deeper and more complex.

The following are the broad scope of needs of HNIs....

• Investments & wealth management: HNIs are looking primarily for
• Wealth accumulation
• Wealth preservation
• Liquidity
• Holistic view of personal wealth & business wealth
• Protection of wealth: HNIs are primarily looking for protection solutions to safeguard their wealth and assets against liabilities and business risks.
• Credit management: Here HNIs are mainly concerned about leveraging investments and managing liquidity with credit across personal space and business space (working capital, term loans, promoter funding, etc.)
• Inheritance planning: Here the primary objective is of smooth transfer of wealth to next generation in a tax efficient manner with appropriate legal structures.
• Tax planning: HNIs consider this as inherent part of any financial decision where they primarily look at post tax returns and tax deductibility.
• Charity and supporting social cause: Increasing more HNIs are also willing to support social cause like wild life, nature and education.

Common wealth management issues of HNIs:

• Wealth concentration on own business and no diversification
• Less consolidation /scattered investments with difficulty in tracking performance
• Personal assets likely to be provided as security to liabilities
• Too much complexity in holdings and investments
• No clear financial goals /objectives from investments
• Internal family dynamics affecting decision making
• Locked up investments in illiquid avenues

Common wealth management solutions for HNIs:

• Investments
  • Segregation of business and personal wealth
  • Consolidation of all assets & liabilities – business & personal
  • Identification of wealth goals /objectives
  • Diversification across asset classes /products
  • Monetisation of business wealth
  • Unlocking of illiquid wealth
• Protection
  • Ring fence personal wealth from business liabilities
  • Plan for financial independence of family members
  • Take insurance for assets and business /professional liabilities
  • Look at insuring life, health for all family members
• Inheritance
  • Write proper Wills for family members
  • Create structures like Trust for smooth transfer of wealth & assets

Challenges in acquiring HNI clients

• Not easy to get leads, references and appointments
• More relationship driven and have to like you first to do business
• Winning trust & confidence is a time taking process
• Competition from Family Offices, financial institutions
• Want single window solutions for all needs
• Expect good reputation, qualifications, infrastructure and high service standards

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Investors often misinterpret their risk taking ability or they may not be able to rightly communicate the same, and that's why it becomes imperative for the advisor to understand it on the client's part. Most times when you ask the investor about his risk tolerance, you'd get his Risk Appetite in response, that is how much risk he is willing to take and not how much he should take. Risk Appetite is the investor's attitude towards risk, it is a psychological factor. A number of factors influence the appetite or the willingness of the investor to take risk, some of them are:

The general nature of the investor determines his readiness to take risk. A bold and aggressive personality would be open to taking risks as against a timid person.

Secondly, someone with good prior Investing experience, would be more comfortable with risky investments as compared to someone who has had a bad prior investing experience.

Thirdly, product knowledge also makes a person amenable to a risky product, since he understands the underlying features and the risk return tradeoff.

A major driving force which can convert a pessimist into an optimist is the Market Sentiment. When everyone is buying, the most traditionalistic investor would pop out from under his quilt and be game for investing and of course, the other way round too.

Lastly, Age matters, young blood is more of an investment stuntman, because risk thrills him and moreover he has a major portion of his life lying ahead to make up for a wrong decision,

while the grey haired are cautious, since they cannot bear much volatility.

The above factors play a major role in influencing an investor's investing decision, yet it might not always be prudent. And the advisor has a crucial role to play here, the sum of the above, or the risk appetite is evident, you have to excavate the risk tolerance, that is the ideal risk taking ability of the investor. To arrive at the ideal risk-ability of the investors, you need to evaluate the following parameters pertaining to the investor:

Income: One, the advisor shall consider the income of the investor while evaluating his risk tolerance. The higher the inflow of money, the more risk the investor can afford. This is because a small pitfall will not pull the investor so deep that he's not able to stand up again. Along with income, take a look at the disposable income as well, if the investor has a high running income but equally high consumption, then the jolt from a risky investment can hit hard.

Age: Two, assess the risk tolerance with respect to age. Age is an element which affects both appetite as well as tolerance. A young investor has a leverage over an older investor and that's time. Time can heal the deepest cuts so even if the young investor suffers a loss, he has an entire life to recover from it and secondly, long time stabilizes the most volatile markets, it deletes the risk element from the investment. Therefore, a young investor has a high risk-ability as compared to his older counterparts.

Life expectancy of goals: Three, the advisor shall consider the distance of the goal for which the investor is investing. If the investor's goal is far enough, his risk tolerance is high, the investor should take risk and get the dual benefit of getting the maximum out of power of compounding as well as neutralize the volatility as explained in the above point as well. If the goal is short term, then volatility is capable of causing substantial corrosion to the Portfolio. This means your investor's risk tolerance will be different for different goals.

Financial Stability: Four, check for the investor's overall Financial Stability in determining his/her risk tolerance. Financial stability comes from the investor's level of preparedness, meaning if the investor has enough savings to take care of his liquidity needs, or meet any unexpected emergencies, he has a decent insurance backup, health, life and asset insurance, then he is considered financially stable. And such an investor can take more risk than someone who isn't prepared well. Because if risk poses a loss and there is a clash with an emergency, the latter investor would not be able to cope.

Dependents: Lastly, the number of mouths that the investor has to feed determines his risk tolerance. A person who has to take care of his two kids, spouse and parents, should be taking lesser risk as compared to a single investor or someone who has a working spouse and one kid to tend to. So, as an advisor it's important that you consider the investor's family stats before you attach risk to his Portfolio.

So, the above are some, among many factors which define the risk tolerance of an investor. There are various factors custom to a particular investor, that can play a role in determining the risk tolerance like expected inheritance, expected future earnings, etc., which need to be analyzed while assessing each investors Risk-ability. You must also remember that these are general ideologies and are not set in stone, these are standards which can have exceptions. There is a possibility that an old investor is financially stable, has enough assets and has secured his retirement. Although the age factor is not in the investor's favour yet the other factors negate the age, and allow him to assume risk.

Hence the above are subjective and interdependent and risk appetite too plays a major role here. No matter how tolerant the investor is, if he doesn't have the audacity, he won't able to digest risk. An investor may have a high risk tolerance but doesn't have the nerve to take risk, your job is to apprise the investor with what he/she is foregoing. Every investor must understand that returns come for a price, and the price is risk, and otherway round, there might be investors who have a low tolerance but a high appetite, so you need to apprise them with the potential risks. A balance need to be maintained. The bottomline is the Risk tolerance should be used in conjunction with the Risk Appetite of the client and the solution be applied in arriving at the Investment Strategy.

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