There are some very difficult questions that an IFA has to ask a new prospect. Asking an existing client is also very useful, but asking a new prospect is vital. By the time you are through with this list you will realize why it is very difficult to be a DIY investor.

1. I am very happy you have chosen me as your adviser, may I know the process that you followed to find me? : No. Not in your first meeting, but yes, over a period of time you need to find the answer to this question. Is it because you sent mailers? your client referred them? because you did a presentation in his brother’s office? Find out the reason, it will help you build.

2. You have said ‘you have a high risk tolerance’: Do you dear client realize that risk tolerance is more psychological than mathematical? When the index is at 30,000 and your portfolio tops Rs. 3 crores, you feel very confident. However, when the market dips how will your risk tolerance be? No, no, do not tell me what happened when the market fell 10%, maybe you bought more. Tell me how will you feel when there is a 78% correction (Nasdaq), a 46% correction (Sensex) or a 40% correction (Dow)? Imagine you have just been bypassed for a promotion (you are seething with rage), your wife has been asked to take complete bedrest because of the fall she had in a trekking accident, and your child has joined IG school and the fees is Rs. 15L per annum.

And the market corrects by 30%. Let me quantify it, your portfolio is now worth Rs. 2.12 crores – and you remember seeing it at 3.87 cr at its peak.

TELL ME HOW WAS YOUR RISK TOLERANCE.

3. I invest your moneys in funds managed by fund managers, so I (and the fund manager) can go wrong. At what level will you ask for my head and at what stage will you ask for the fund manager’s head. Fund managers heads are easy, I can change the fund, but my head, I will fight. Not for the fee, but to tell you that it is a process, not a product. You have a choice, but I hate losing clients because I could not explain what I was doing. How do we prepare for this? Making the ground rules helps. Can we draft the rules, please?

Markets are subject to risks, and your returns are subject to the markets. Sure I can hold your hand, but I need to know the rules in advance.

4. What is your biggest financial worry? Tell me in detail. Know your top 5 financial worries. Let me tell you how we can tackle that. Use that to judge my usefulness in your life. Not the previous quarter returns of my investors. Honestly I have no clue of what is that. Your worries should reflect that of your parents, spouse and kids. We will sort it out over a week, fair enough?

5. What makes you feel worse – the market going down after you invested? the market going up, and then coming down? market going up you NOT SELLING and the market coming down? or will you really do the SIP and wake up once in 3 years to see your statement?

6. “Meeting your Goals” to me is the only goal. I will ensure that your portfolio does that. Once you are assured that will happen will you look at your portfolio and be worried? You should be worried about the time taken for the journey. Standard deviation is my worry, done?

7. I know you did not like the 22 page questionnaire that I asked you to fill, but do you know how inconsistent you have been in risk tolerance? Behavioral Finance is a new science and the questions are not easy to construct, answer or use.

8. I can assure you that your reasonably moderate and well articulated goals will be achieved. However, when mid stream change in direction happens, life will be tough. We are aiming at ‘Goal achievement’ not relative return, or compared to Morningstar ideal portfolio how much you deviated kinda game. Those games actually divert your attention. For me blogging it fun. For you knowing what is noise and what is information is not easy. I will help you tackle the financial media. Believe me, that alone is worth the fee that I earn. Or why I charge you a fee.

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  1. Subra,

    How did you cop up with you investments in stocks( direct not via MF) during the mini great depression of 2008. Psycologically it was very tough to hold on to ones stock during those time.

  2. it was very easy for me except for first week… i decided not to open and look at the value for over an year nor watch business channels.. so cool. 😉

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