14 May Be Careful of SIP Business
SIP – Stuck In Pain – Why Many Advisors Do Not Prosper ?
Despite awesome market returns neither Investors strike compounding returns nor does the Advsor display stellar business results.
Many Financial Advisors lose valuable time of their lives in convincing clients to start their SIPs.
They behave as though SIP is manna from heaven and an all weather key to prosperity; some kind of a dream vaccine to once for all kill the virus of poverty.
While they innocently fall into this SIP trap, it is vital to understand that the SIP rarely serves the average Advisor.
SIP by design is a wonderful tool provided the investor stays loyal for over a decade.
But alas more often than not SIPs are prematurely terminated by investors which not only hurts their interests but brings even more pain for the Advisor.
Many advisors focus purely on SIPs thinking to themselves that small ticket sizes and perpetual investing will result in a winning strategy.
The story of SIP on excel sheets sounds so amazing and unreal that IFAs lap it like there is no tomorrow.
Their aggressive stance yields favorable results as they retire every night with a sense fulfillment having closed several SIPs during the day.
Sadly this feeling of success is far far away from the truth but unfortunately the Advisor has not clue or any realization.
The SIP engine kicks off successfully and goes on well for a year or two with the SIPs sustaining even when markets are high and and the units are expensive.
Both Client and Advisor are rather happy and delighted.
But come year number three four or maybe five and markets correct / fall making SIP units amazingly cheap and full of wealth manufacturing potential.
However such explanations seem to only fall upon deaf ears of the investos who behind to think that some tsunami has hit their lives.
Seeing NAV fall makes their hearts miss several beats which thereby makes them pull the stop on their SIP journey.
The Client certainly loses his or her opportunity of a lifetime but the man who pays a huge price is the Advisor.
SIPs make no sense to market unless the investor continues this practice well beyond 10 years.
However expecting such discipline and consistency from today’s fickle mindsets is way too much of a wish.
When Invesors divorce their SIP abruptly the man who pays the alimony is the Advisor because SIP marketing is a loss making proposition during the initial 3 to 5 years and only starts making sense after 7 to 8 years.
So when you lose SIP bearing customers prematurely the entire exercise becomes a loss generator and when you lose multiple SIPs prematurely then this loss gives the Advisor a powerfully compounded Mohammad Ali punch on his jaws.
Therefore it is high time Advisors need to think like Entrepreneurs and not like sole Proprietors oblivious of how they are getting short changed by SIP marketing which ultimately causes them more pain than gain.
If you want to succeed in your SIP strategy ensure the following:-
1) Focus on high value SIPs
2) Focus of Retirement Planning (high value customer with large corpus) and other SWP based planning like Holiday Planning after coronavirus situation improves
3) Focus on lumpsum investing for Education Goals
Depending 100% of small SIPs is a business fraught with risks.