Do HNI’s understand Goal Based Investing? (Part 1/2)

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

January 3, 2020 | 3 Minute Read

Vijay Venkatraman asked me to participate in a discussion in his conference on 6 and 7th January 2020. The topic I was told was that IFA’s tell him HNI’s don’t understand Goal-Based Investing as let’s say someone who has ₹10 Crore has his house and child’s education sorted. He asked me for my views on it first and my instinctive response was “This is absolute Nonsense.”

The bitter truth is that IFAs who say this don’t really understand how to conduct such conversations. I don’t mean to hurt anyone here and my intention here is to only help IFAs who want to make a difference get better at what they do. 

Let me first share some thoughts on why I think this is nonsense and then why I think IFAs don’t do this.

Take the case of the richest man in the world Bill Gates. Now sure Bill Gates won’t have goals such as funding his child’s education or wedding but can you think what would be Bill Gate’s goals. His goal can be “Generating $2 billion a year to fund the Bill & Melinda Gates Foundation.” Don’t think too much on the figure of $2 billion (whether this is right or wrong), the key is that this is a real goal that Bill Gates could have. To achieve this, he can’t be making random investments but needs to have a written Investment Policy Statement (IPS) or a Financial Plan that his Advisor & team will first establish and then follow.

First, let me tell you a couple of things. The key goal that every HNI will have is Retirement Income and Maintaining Current Lifestyle. When you are dealing with HNI’s you have to first realize that your role is not to MAKE him an HNI, your role is to KEEP him an HNI, help him avoid costly mistakes, help him grow his money in a meaningful manner to protect his lifestyle and transfer his wealth to the next generation. Money is a source of huge conflicts and we have seen some of the biggest families fighting over money, control and power. I won’t digress much here but the key to understand is that your HNI client will have goals. It is up to you to bring these goals out by having a meaningful conversation.

Now let’s take some of the different goals that I have come across.

  1. Build a School in my mother’s name – Want to have a corpus of ₹50 Crore.
  2. Buy a Yacht 
  3. Invest in my passion for farming and building this business.
  4. Separate Fund to mentor Entrepreneurs and support them – ₹100 Crore
  5. Build a chain of Clinics and Hospitals.
  6. Buy a Jet
  7. Build a School for Special Children outside of Mumbai (with world-class facilities so that children are taken care of after their parents are gone)

I can go on and on with actually hundreds of different goals that HNIs can and will have.

So let’s understand why IFAs do not take this path of Goal-Based Investing

  1. First, as I said, most do not know how to have these conversations
  2. Second and important, they themselves don’t believe in it. SELF BELIEF in the GOALS model is very low.
  3. It is very HARD and takes time. Why go through the pain of having a meaningful conversation, talk about the client, gather data when I can quickly talk about a product which is still easier to do. Discussing goals and details will delay gratification while just talking about products gets into INSTANT GRATIFICATION- Invest in 2 Minutes like Maggi Noodles. After all, this is what Investing is all about right? …Speed, Transactions, Products, Returns and so on. Who wants to talk about Client GOALS?
  4. The Biggest one is “Change”. Yes, you have to change, stop doing what you are doing and change your process and conversation. Like I have always said, “Change is the most difficult thing.” The resistance is always internal and not external.

So Yes, it is very hard, takes time and you will fail initially and get frustrated. The only ones who will succeed are the ones who BELIEVE that this works and make the changes necessary in their process and conversations. 

You will be amazed to see the quality discussions that you will have with your clients, the stories and their dreams, fears that they will share will help you build this mad Trust (the most important currency in our line of work )with them.

I have done this starting 2005 till 2017 and met thousands of HNI families. 99% of the families have discussed their financial goals with me as I have made them think about what is important about money to them. 

So don’t say that HNIs don’t have goals or appreciate them, every HNI certainly does. All it takes is an IFA who believes in it and does what is required to make it happen.

Read Part 2: Meeting HNI Expectations

I hope you loved this post. Feel free to share it with your fellow IFA colleagues and friends. 

My objective here is to add real value to as many IFAs as possible and help you build the wealth management firm of the future. Let me know your thoughts and if there any topics that you would like me to cover.