"The removal of entry load has made us more accountable for our advice"

What are the financial planning lessons from 2009 that investors should incorporate in their strategies this year?
The previous year witnessed a sharp recovery in equity markets and investors minted money on the bourses. Those who remained invested in the market not only recovered the losses incurred in 2008 but also generated handsome returns from their portfolios. However, the investors who pulled out of the markets and parked the money in banks missed the bus. So the lesson is to never put all the eggs in one basket and to diversify across all asset classes.

What equity strategy do you recommend for 2010? Is it different from that for last year?
We think long-term investors should stagger investments via systematic transfer plans spread over the next 12-18 months. We are cautiously bullish for shortterm traders and advise them to invest lump sums with strict stop-loss and profit-booking targets on upsides of 10 per cent or more. In 2009, we had suggested investing in growth funds, but this year we are focusing on value funds. Also, in the early part of last year, we had suggested lump-sum investments in equities to our clients. As we are cautiously optimistic now, we recommend investing in a staggered manner and to carry out regular profit booking.

How has the removal of entry load in funds affected you?
Due to the abolition of entry load, we had to change our commission-based model to one based on both commissions and fees. It has helped us make a clear distinction between clients who come to us for transactions and advice. We provide quality after-sales service to our transaction-based clients; for those who seek advice, we offer premium services like customised portfolio construction, regular portfolio review, financial planning, regular market updates, etc. Thus, the removal of entry load has made us more accountable for our advice and helped us improve our services. As a result, we are seeing a rise in volumes.

Are clients willing to pay only for advice?
Across the industry, one out of every five clients is willing to consider a fee-based payment for an investment adviser. However, one out of every 10 clients actually pays the fee. In our experience, one out of three clients is ready to pay a fee for our advisory services.

Are you factoring in the changes proposed in the draft Direct Taxes Code (DTC) while formulating strategies?
The DTC might not be implemented in its current form. If and when it is, we will witness a change in the investment behaviour of people as they might shift from growth to fixed-interest investments. The exempt-exempt-tax (EET) format is likely to push people to focus more on retirement planning and think long term. The investment advisory business will be re-engineered and we will work out our business strategies accordingly.