In the financial services industry there are two very important roles – that of the fund manager and that of the financial advisor.

The fund manager is given a lot of importance. That’s because the fund manager along with her analysts choses the companies which go into the portfolio. This is done by studying the profitability of  companies. The fund manager reduces the risk of individual companies by choosing companies from different sectors.

While the risk of individual companies can be diversified away the market risk still remains. Market risk simply means the risk of the entire market going down. When this happens (e.g., during 9/11, global financial crisis, start of the pandemic, etc) the share price of most companies go down. The NAV of even the most diversified funds and investment linked policies can fall very sharply at these times.

It is at these difficult times the importance of the financial advisor becomes clear – for it falls on the financial advisor to manage the market risk. The market risk is manifested in not just the NAV of investment funds crashing but also customers panicking and redeeming when they are incurring paper losses. While nothing can be done about the NAV of your funds falling, the financial advisor can ensure, that instead of redeeming in panic, the customer is actually adding to the portfolio (topping up).