There are many ways for financial planners to help clients achieve their goals but without doubt the essential raison d’etre for any financial planner is that they do help their clients achieve their goals.
In this respect “goals-based advice” should be considered the foundation for every financial planning business on the planet, and not be seen as a ‘fad’ or passing phase. What else would they be there to do?
As to how to achieve those goals, well, everyone has an opinion as to what they think the best way to achieve this may be. Rather than say it’s black and white and one is better than another, why don’t we foster the debate and encourage everyone in the industry to build their understanding of the options available to them.
The Association of Goals Based Advice (AGBA) has been set-up to help financial planning practitioners achieve just that. Network, learn from others, find the options that best suit their ideas and business needs.
Mark Nagle from Treysta stated his opinion in ifa recently, arguing that “the idea of goals-based advice is flawed and is a ‘fad likely to be short lived’”.
Once we move past the idea that every approach is designed to be “goals-based”, in so far as it meets the clients’ goals/needs, then we can open the conversation up to include another perspective on how to provide goals-based advice and build investment solutions to meet those needs.
Should the solution be mathematically solved as a Required Rate of Return? Should it be based on a risk profile or tolerance? Is it best achieved through values-based discussions?
AGBA doesn’t advocate any way is the ‘best’ or ‘the only true way’. In fact, AGBA would suggest that elements of all approaches can be taken into consideration for any given practice to deliver a business solution to best meet their client’s needs. That is, they need not be mutually exclusive and perhaps we can draw the strengths from every approach.
For example, perhaps we use a values-based approach to help define and refine ongoing goals, which in any practical context must be an ongoing discussion. For this we have a system of reviews’ for clients, as life is always changing and evolving. At some stage it’s likely that some, if not all, goals can be defined empirically.
Otherwise how do you know where you’re headed or how to measure it? Once defined we can empirically look at the ‘current’ goals and build solutions to meet those goals, be they investment portfolios, cash flow systems, etc… That is the core of our jobs as financial planners. If part of that is to use investment portfolios with specifically designed outcomes to help meet those specific needs – as indeed Treysta seemingly do – then fine, if that’s what helps the client, great.
Perhaps the current debate is a little narrow and we’re falling into the trap of thinking there is only one way we can move forward. Previously, we’ve been educated around using one system based on a risk profile. Through forward thinking practitioners and industry associations like AGBA, we’re now beginning to see there are lots of valid ideas and more than one way to do things.
This is a huge positive for the planning industry and one that can only help us evolve and improve the public perception of our industry. Let’s embrace it. For example, goals-based investing does not do away with the need for risk profiling. Indeed it’s still essential, no matter what your solutions may be.
The simple reason for this is that once goals are identified and investment solutions put forward, we need to ensure that it is suitable for the individual client’s risk tolerances. Often it’s not, but then that’s another element of a financial planning conversation. For example; if the required rate of return is too high and can’t realistically be solved for, or is above their stated risk tolerances, then a conversation around how achievable their goals are should ensue. Do they retire later? Do they reduce their retirement income?
Do they save more now? Or, it may be the client doesn’t need to invest or take any risk at all because they have already accumulated enough assets, or will with strong cash flow, so why take any risk? In this scenario it may be a conversation around efficiency, risk tolerances, building more than is required for a buffer, to help family, philanthropy, etc… Again, any number of conversations are all good financial planning conversations that we should be having with all our clients.
So, no, goals-based advice is not a fad. It’s the reason we’re all doing what we do. It’s the ‘how’ and ‘why’ of it all that we should be considering. Let the discussions begin.
Matthew Walker is chairman of the Association of Goals Based Advice
I think that the intention of the original article has been entirely missed due mainly to the vagueness of the arguments that were presented. The original article was obviously designed to be controversial and in response to the recent marketing of Goals Based Advice by an institution to attract customers / planners. What I believe he is implying by describing Goals Based Advice as a fad is the industrialised “check a box” version that an institution will offer. Client needs a Holiday?- tick – When? – How Much? – plug into calculator and here is a graph of what you need. And there are probably a lot of planners out there that do just that. What I think original article was trying to get at (although I may be wrong!) is there are number of steps before this to get a meaning goal for a client based on psychological principles. And then you can plug it into the graph in the SoA! I liken it to Risk Profiling. There is “check a box” risk profiling that satisfies compliance and then there is risk profiling that delves in to how a client would really react to actual investment risk. And we all know that clients can be a very poor judge of this.
Firstly, goals based ADVICE and goals based INVESTING are related but separate concepts, frequently confused! So no, goals based ADVICE is not a fad, but following the same old advice process and substituting SAA + a Balanced fund with a collection of ‘real return’ products, well that may turn out to be a fad after all. Go an take a look at AMP’s definition of goals based advice ‘linking a clients goal to an appropriate product’……. yep, sounds like an ‘advice’ process to me.
BB, one of the reasons that AGBA was set up was to assist advisers to build portfolios that aim to help provide certainty to the achievement of client goals (this is no easy task)…but what you wrote “but following the same old advice process and substituting SAA + a Balanced fund with a collection of ‘real return’ products” is the opposite to what AGBA is trying to achieve. In fact we concur that simply talking about goals and then proposing a standard BALANCED SAA or a mix of real return products is not going to do the job at all. Maybe consider attending an AGBA event, at least then you will better understand what AGBA is trying to do and the various approaches AGBA members are using.
I am a believer in a basing investment advice on goals. How can one construct a portfolio without knowing the yield ? For me it is nice to look back at work carried out more than 20 years ago predicting the capital required to produce an income stream and note that my clients still have the required capital and income .
How good is our new AMP 360 product which is all based around seeing our customers seeing everything online via our own portal. Their goal is our own goal
Wow another association. How much is it to join ? .I cant understand what extra special information for” those in the know” with the networking ? definitely A Fad
Having been in the business as a practitioner for 32 years. I have now seen with my own eyes what goals based advice achieves, clients who have achieved their goals and moved on to the next phase of their lives. Now tell me its a fad.
Hi Lindsay2, I’m not sure I follow. What did your eyes see goals based advice achieve? Was it good or bad? Did they stop having goals in the next phase of their life? In my 26 years of giving advice I have never seen a client that didn’t have a ‘goal’. If they didn’t have goals I wouldn’t be able to help them as I’d have no idea where to take them on the advice journey. Sorry, still can’t tell you it’s a fad until I understand what your point is. Until then, seems like common sense to me as its’ the basis for any advice.
Lindsay, can you explain why you think it’s wrong so I can understand what you’re saying?
I think you’re all missing the point – the “goals-based” club is the fad…all advice is in some ways goals based as all is in some ways not specifically goals-based (i.e. not everyone has realistic goals. The point is that here we have yet another group attempting to set themselves up as a splinter group to speak for yet another smaller section of the industry. I’m in the Groucho Marx school…never join any group that will accept you as a member!
Phillip so AGBA is “attempting to set themselves up as a splinter group to speak for yet another smaller section of the industry” – would that ‘smaller section’ of the industry be those advisers who are wanting to provide to their clients advice aimed at increasing the certainty of them achieving their goals ? Well if so it is a LARGE SECTION of the industry as every adviser’s job should be to help clients achieve their goals.
LOL, How is it a Fad or do people only invest or buy services/product, not sure why anyone would see an adviser who didn’t focus on their goals and used a formula to make it happen; be that in their head within the software industry
Lindsay- you are wrong. Goals based is one aspect of planning and is incorporated into the SOA as is all other aspects of the client thought process. It IS a definite part of KNOW YOUR CLIENT and is a foundation for strategy as is risk profiling etc. Planning is an evolving process, so be smart and use all processes old, new and future- by what ever name you give them. You will exhibit virtues of a better planner and your clients will benefit from your increased intelligence.
How is investing to meet a client’s needs/goals a fad? Goals based investing makes sense to a client and holds fund managers accountable in a different way to SAA active fund managers that is all.
You are wrong – it is a fad.