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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

Caselet: Ms. Kapoor, 45, has a portfolio of Rs 50 lakh. After a 20% market fall, she wants to move fully to fixed deposits, saying 'markets will keep falling'. Her risk profile earlier showed moderate risk tolerance and a 15-year horizon. What is the most appropriate first step for the adviser using a behavioural approach?

The adviser should first acknowledge her concern, then revisit her goals, horizon and risk profile and demonstrate how the plan performs through the fall, before deciding on any allocation change. This addresses panic-driven loss aversion while respecting suitability and the client relationship.

  1. AAcknowledge her concern, revisit her goals and risk profile, and show how her plan holds under the fall before changing allocationCorrect
  2. BExecute the switch immediately since the client's instruction must be followed without discussion
  3. CAdvise her to invest additional money to average the cost without discussion
  4. DTell her that her fear is irrational and refuse to discuss it

Explanation

A good adviser empathises, reconnects the client to long-term goals and the agreed profile, and shows plan-based evidence before any change. Immediate execution ignores the suitability duty, while dismissing her feelings damages trust. Pushing more money without discussion also ignores her emotional state.

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