Each student must describe how a financial advisor should deal with and counsel the client who is considering making suboptimal financial decisions as a result of biases. Your role as a skilled financial advisor is to prevent the client from making such financial mistakes. For all the three situational cases, you are required to provide your answer in at least 500 words.

Situation 1: A client has a nuclear family consisting of three members (husband, wife and a small child). They currently own a Swift Dzire car, which was purchased in 2016 for 8 lakh. Although the car is primarily used within the city, it does undertake a few outstation highway trips. The cars total annual mileage is 15,000 kilometres (12,000 kilometres in the city and 3,000 kilometres on highways). Recently, with the advent of safety crash ratings, the client has become paranoid and is worried about taking the car on highway trips. Following a discussion with his wife, he plans to sell his existing vehicle and purchase a bigger SUV worth 15 lakh. As a financial advisor, what will you advise the client? Is it financially sensible to purchase the new SUV or does the client have another alternative option without compromising the safety aspect on highway trips?.

Marking scheme: 5 marks for describing the financial advice; 5 marks for explaining the behavioural biases.

Situation 2: Your client is a salaried individual with an annual income of 15 lakh and manages to save 5 lakh every year after all their expenses. Following the COVID-19 pandemic and working from home, the client developed an interest in financial markets and invested some money in equity markets, where they earned a decent profit of around 50%. However, the client is personally upset that he missed out on the Bitcoin boom, where the prices of Bitcoin increased tenfold between March 2021 and October 2022. He is also an avid cricket fan, and after having witnessed multiple advertisements about cryptocurrency during the T20 World Cup 2021, he has grown impatient and is eager to invest 50% of his monthly savings into bitcoin immediately. As a financial advisor, what will you advise the client? What type of biases is being exhibited by the client?.

Marking scheme: 5 marks for describing the financial advice; 5 marks for explaining the behavioural biases.

Situation 3: Your client is employed in Amazon, India, and receives a competitive annual package that includes ESOPs that have increased in value. With a taste for success, your client is investing a large amount of his savings into Amazons stock, which is traded on the international stock exchange. As a financial advisor, what will you advise the client? What type of biases is being exhibited by the client?.

Marking scheme: 5 marks for describing the financial advice; 5 marks for explaining the behavioural biases.