The goals-based advice debate is a worthy discussion and points to the great diversity of approaches inherent in financial advice delivery today. It also flags the emergence of new digital tools designed to support and enhance the advice experience for adviser and client alike.
Today I see myself very much as a proponent for digital, goals-based advice solutions. My journey began years ago – pre the digital age – inside a busy financial planning firm.
So, I understand both sides of the debate. I believe that an integral part of advising is the close ‘life-coach’ role an adviser automatically undertakes with his or her client. Finance is intertwined with knowing a client’s values and understanding their goals and desires.
Depending on your point of view, this dynamic approach to guiding a client may contradict (or in my view complement) a traditional advice process, whereby client’s goals are defined and addressed first and foremost, then risk and investment products are recommended to meet those specific client goals and objectives. Either way, we are witnessing a broader industry acceptance of goals-based advice. Progress is being made in terms of developing goals-based planning.
Everyone wants to be heard, and asking a client what they want from life and about their personal goals automatically turns on their ‘engagement switch’ within the financial advice process.
Yet the industry debate rages on. Some may claim that goals-based advice is a fad, that goals can’t be accurately predicted over the long-term since they are likely to change over time. As a result, the starting point of goals-based advice is inherently wrong, so detractors say. I disagree. But is that argument a distraction? Goals-based advice empowers consumers to create their own financial destiny, state their own definition for satisfaction and take pride in their financial lives.
There are fundamental objectives towards which we all strive, such as buying a family home, getting married, having children or protecting our income to create financial security, all of which are goals. Then putting in place all the necessary strategies to achieve those goals to essentially aim towards living the desired quality of life that is fully funded and retiring on a decent income. This process is not necessarily focused on beating the market by a percentage with a product.
These fundamentals aren’t likely to change much. What varies in fact is time, target dates or fund pool amounts – the goal ‘attributes’, not necessarily the goal itself. But the goal itself can change also, it can be traded off for other more essential goals. If goals change, the financial advice process can be fine-tuned around those shifting goals with the expert guidance of the financial planner. In the process, software can be used to speed up the process such as ensuring a statement of advice (SoA) is compliant.
It is proven that longer-term planning is correlated with better savings, cash-flow and debt-management behaviour. Having a clear mental picture of one’s goals also improves goal achievement, goals are forward looking, outcomes-focused and personal, and it helps demonstrate the true value of advice to consumers.
Another argument heard from detractors is that goals-based advice is an excuse for product flogging. But what’s so product orientated about advising a client on how to own their home debt free or build a retirement nest egg? Goals-based advice simply looks at the end point and works out how to get there.
If you don’t consider a client’s goals, then you risk delivering financial advice that doesn’t meet an investor’s needs.
Goals-based advice creates an environment where there is greater clarity about what the client wants and how financial advice can be delivered to meet those desires. We stand at the beginning of an exciting new phase for the delivery and management of professional financial advice that is goals orientated, which will help to put Australians on a path towards greater financial security and satisfaction.
Jacqui Henderson is the founder and chief executive of Adviser Intelligence
It’s genuinely embarrassing sharing the job title with people who dont already do this.
Most FA’s still don’t know what a goal is – it gets confused with (variously) a desire, a need, or even a product. Goals based advice requires a level of sophistication and a fee-based (not product-based) rem structure. The industry is nowhere near this yet, hopefully it wil get there after the RC and actual (vs. virtual) implementation of the newer legal framework for advice.
Goals are simple, like retire on 50K per annum. Save $50k for a home deposit. Invest so that the kids have $5,000 each by age 18. Its not rocket science, and many advisers are on top of this so called new type of advising. Thing is advisers have been doing this for eons, its just the newer entrants that think they are inventing the wheel.
Well said.
I’m keen to see the development of an aeroplane with trained pilots are so advanced in their fields they can meet in an echo chamber, espouse exciting ‘new’ concepts, culminating in aspirations of flight… It’s worth reading the Corps act, best interest duties and respective safe harbour provisions to understand Situation, Needs and Objectives are essentially a legal requirement for all PA advice providers. Surprised these kinds of marketing concepts receive airtime within industry media.
The ultimate goal is to provide the advice, get paid for the advice, and make no product placement.
I’m so confused. How is this a new fad? Isn’t this what we were always doing?
What the hell were all these advisers doing before they stumbled upon “goals based advice”. Just throwing darts at an APL?
Excellent summary, thanks for bringing some common sense to the discussion on goals based investing.
Thanks for articulating so well what we do (or should be doing) as advisers for our clients.