Emotional Intelligence in Investment Advisory

Emotional Intelligence in Investment Advisory

Emotional Intelligence is to know your own emotions as well as those of others, self motivate and know how to monitor the emotions of others.

In India emotion plays a very important role in the life of most of the people and in their decision making. Investment products or financial products are not tangible where look, feel and touch can impact ones decision making. It is the belief, experience, faith and trust which influences the decision more. Ideally it should be the knowledge and logic that should be the core of investment decision making but that is not the case.

Do we treat our client as a revenue generator for our company or someone whose existence itself is must for my own better career and life? If we think client as a revenue generator then our approach is totally product centric, our own company centric and we try our best to convince him and get the business. But in this process have we for once really tried to understand what client really needs or wants? Every investment product is good but not suitable for all. Most investment product sellers are so much impressed with the feature of the product that they anyhow make it suitable for anyone.

If any investment advisor thinks that this client is useful for my own career, he will not do hard selling but soft selling. I will think him not as a mere revenue generator but a very much part of my team. He is no more an outsider for me but a very much part of my own success and growth. Here emotional intelligence plays a very active role.

We need to understand the components of emotional intelligence

Personal Competence – self awareness and self management

Social Competence – Social Awareness and Relationship Management.

Self Awareness is the ability to understand your own mood, emotions, drives and their impact on others.

Self Management – to control disruptive or impulsive moods and to think before acting

Social Awareness –ability to understand emotional characteristics of others and having skills to treat people according to their emotional reactions- empathy)

Relationship Management – proficiency in managing relationship and building network. The ability to find common ground and building rapport.

In investment advisory when we are interacting with client we should be cheerful, cool, calm and composed first. Pressure of meeting sales targets or revenue playing on your mind, your emotion may not be in your control and wrong communication can come out ending up in no business or miss-selling. Even if I am not in total control of my own emotions still I should not hasten with my recommendation and force decision on my client if it has some element of biasness. I am expected to be fair to my client. I should know what makes my client happy. Is it excess return or it is safe consistent return? Is he comfortable taking risk i.e. able to bear short term volatility or that short term volatility affects him psychologically?  If short term volatility affects him then have I explained him why it happens and how it benefits also if there is patience and long term investment horizon. Have you ever once explained him all possible risks in detail and how you can help to manage the risk or you have just marketed on the basis of return. In India the fear of losing looms so much in the mind of investors that they lose opportunity of good gain also. As an investment advisor also many refrain to explain risk for the fear of losing the client as it creates negative emotion. A right advice with total benefit for client develops a very solid everlasting lifelong relationship and also a network of such long trusted relationships which will eventually lead to client faith in advice and ultimately help an investment advisor meet his business targets, earn profitability for client (first) then company and finally earn reward for him. We all know client acquisition is very difficult but if client is retained following emotional intelligence way then business growth is always exponential.