“How much do you think you will need to retire?”

Tough question. Common question. Meaningful question? Probably not. Increasingly, advice professionals need to consider:

“Am I asking my client the right kind of questions?”

Rather than focusing on absolute performance against an impersonal benchmark, a goals-based investment approach is enabling financial advisers and wealth managers to build a truly personal investment portfolio for their clients.

The typical approach, used by human or robot advisers alike, is to construct a recommended investment mix focused on two metrics:

  • return: an absolute level of income and growth a client wishes to achieve from their investments
  • risk: the volatility or downside a client is willing to tolerate in achieving their desired returns.

This approach measures its success primarily from quantitative factors which can mean very little to clients when compared with their personal or family-oriented goals. In contrast, goals-based investment philosophies can begin a powerful client conversation and allow advisers to make investment recommendations that are meaningfully linked to a personal goal or sense of achievement for the client.

In 2016, momentum will build for advisers to place client goals at the centre of the advice conversation. To understand client goals and build an investment strategy and portfolio mix that is explicitly designed to achieve those goals.

Advisers will need to ask their clients less about savings, rates of return and risk tolerance and more questions like:

“What do you want to do and how do you want to live when you retire?”

Consider, benchmark returns and volatility measures mean very little to clients when compared to their goals, hopes and dreams. Advisers understand the importance of talking the same language as their clients and it can be a small but significant step to also invest clients in a way that they intuitively understand. This is where goals-based investing can be particularly powerful.

Continuing with the retirement theme, the traditional asset allocation approach can underestimate or ignore some key risks of retirement, including:

  • sequencing risk: where lower than average expected returns occur early in the retirement term, and have a detrimental effect on the size and duration of a client’s retirement savings
  • longevity risk: where a client’s lifespan and, therefore, retirement term is longer than anticipated leading to a detrimental effect on the duration of the client’s retirement savings.

Rather than trying to achieve retirement goals with a single investment approach and overall target return, goals-based investing takes each goal, considers them as an individual objective, and builds a tailored investment approach.

Advisers that want to begin a goals-based conversation with their clients should be aware of common client behaviours with goal-setting:

  • needs are more important than wants: clients are generally willing to take on more risk when the goal is to invest to buy a speedboat, rather than investing to protect their retirement savings
  • immediate goals are more obvious than later goals: clients are generally more concerned about their current situation and often don’t focus enough on their longer term goals.

To illustrate this:

Advisers need to consider how much client goals can vary in terms of their priority, timing and level of risk the client is willing to tolerate to achieve each goal. Returning to the retirement theme, a goals-based discussion may highlight that in order to provide clients with an effective retirement strategy, an investment approach should:

  • quantify the income stream level required to support the client’s lifestyle
  • invest to provide this income stream level for the full retirement term
  • include realistic assumptions about the length of the retirement term.


Three ways advisers can reframe the advice conversation

There are some simple ways that advisers can orient their advice process towards their clients’ goals:

  1. Start asking different questions: this can be as simple as asking a client ‘what are your most important goals and why?’ or as complex as asking ‘how would you describe your ideal retirement lifestyle?’ Clients have come to expect that advisers understand their circumstances and will provide a personalised service. Don’t be afraid to probe deeper during the client discovery phase.
  2. Identify more soft risks: start building into the asset allocation process an understanding of the key roadblocks that will prevent clients achieving their goals (beyond simple market under-performance). Qualitative risks, like opportunity cost, are often poorly understood by clients. If advisers help their clients understand these risks, they may be able to put forward an investment portfolio that better manages their expectations.
  3. Change the way performance is reported: rather than reporting performance against a market benchmark, advisers can start reporting performance against a goal their client is trying to achieve. It can be a powerful image for a client to see how close they are to achieving their goals. More importantly, it may allow clients to better understand how their investments are helping them to achieve their long-term goals (such as the income they want in retirement).


Goals-based investing is just an extension of the knowledge advisers have of their clients and the personal nature of the advice process. Advisers should reflect…are you asking your clients the right questions?

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