Often, clients and advisors have conflicting views that result in friction and typically a break in the relationship. This can easily be avoided if both parties clearly explain their viewpoint and meet on common ground.
Take, for example, a situation we encountered recently. The client has more than Rs. one crore in regular plan funds. The advisor suggested that the entire corpus be shifted to direct plans in one shot and that future investments be made in direct plans.
The client was ready to make future investments in direct plan funds but was not ready to shift to regular plans in one shot because of the tax incidence, and such a sudden change seems unnecessary to him.
In this case, you may agree there is no great urgency to shift existing investments to direct plans. This can be done gradually during rebalancing events or whenever the market is down. A one-shot switch makes sense only when all the units have no capital gain.
So, what can be done when such a situation occurs? Both parties should avoid extreme decisions or recommendations. Although the advisor had no conflict of interest in recommending the switch to direct plans, they must agree with what the client feels comfortable with. It will not affect the efficacy of the financial plan in any way. The client can consider a gradual shift to direct plans. Happily, that is precisely what happened in this case after the client was coaxed to discuss with the advisor.
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Clients unhappy with advisor recommendations need not immediately think of severing ties. They should discuss things with them and reach a common ground. If the advisor does not like to explain his suggestions or discuss what their clients wish to do, then the relationship is doomed. Clients also should be flexible to some extent if the suggestions are reasonable.
Another common problem is with investment recommendations. The advisor wants the client to shift to new instruments but is unhappy and wants to stay with their current investments. Unlike a regular plan to direct plan switch, this is a change of funds (typically). For example, one active fund to another, active to passive, passive to active, etc. Resolving this is a lot tougher as it often represents a style mismatch.
Unfortunately, prevention is the best cure for this. Before engagement, clients should understand the advisor’s style as much as possible and find their advice for existing investments (regular plans or active funds in case the advisor prefers indexing, etc.)
As “experts”, advisors should take the lead and avoid such situations. They should check if the client is comfortable with the suggestions.