Helping investors live better financial lives should be the real purpose of every financial advisor and every asset management firm, but not everyone lives up to their end of the bargain. When the focus becomes short-term performance and selling the next hot product, clients no longer come first.
Every financial professional owes it to investors to set the focus back on achieving critical lifelong goals. In the end the performance that really matters are the client who gets to retire comfortably, builds a legacy for the next generation, or simply achieves a sense of financial security.
A strategy to counteract short-term thinking
But even investors themselves can make decisions that interrupt these vital goals. Given the rapid rate of change across so many different variables and the likelihood of increased volatility, investors may find it difficult to keep it all in perspective. Goals-based investment strategies are intended to hold promise for keeping clients on track, but they require some fundamental steps many have yet to take.
These steps can be critical, as 91% of advisors in the U.S. believe investors are too short-term focused.1 Across the industry, many firms are urging advisors to implement goals-based investing with clients. It’s a move designed to take clients off the market benchmark performance merry-go-round and help them to reframe the investment process in terms of funding retirement, paying for education or leaving a legacy.
Many investors agree with this approach – at least in theory. More than eight in ten say they would be happy if they achieved their goals, even if they underperformed the market. Even more (84%) say they are willing to set a target return that is independent of the market.2 While this is a positive mindset, many are lacking the foundation needed for effective goals-based planning. Just 55% of U.S. investors say they have clear goals. Even fewer (48%) say they have a financial plan in place.2
Goals-based investing starts with clear financial goals
The numbers aren’t much better for investors who say they work with a financial advisor: Only 57% of these individuals say they have goals and just 51% say they have plans.2 This shouldn’t be seen as a case of advisors not doing their job; it’s more likely a case of individuals losing sight of what they’re trying to accomplish. Goals-based planning is a common practice for a majority of advisors, but many recognize the challenges to successful implementation of such planning. First and foremost, client performance expectations can get in the way of meeting goals, followed by some clients’ inability to focus on goals in volatile markets. For the advisors themselves, one of the challenges may be the difficulty of translating clients’ financial goals into portfolio strategy.
Putting the strategy to work
Success might really come down to asking clients one fundamental question: Do you want to anchor your portfolios to achieving returns or achieving goals? Making client goals the focus of every client interaction can help set the right direction. For example, “Why did my returns come in under market returns this quarter?” becomes a discussion about the end goals and the risks they are willing to take to achieve them. “We know you don’t want to take risks with your assets, so we agreed to try temper your risk exposure by changing your allocations” becomes the answer. It’s difficult to help investors remain focused, but that’s really one of the main reasons why they come to you as an advisor.
1 Natixis 2016 Global Survey of Financial Advisors – Natixis Global Asset Management commissioned CoreData Research to conduct the study of advisors in 15 countries in order to assess advisor attitudes on a range of topics such as business growth, portfolio construction (including volatility, risk and income), client service, advice and investment challenges. An online quantitative survey was developed and hosted by CoreData Research. A sample of 2,550 advisors in 15 countries including 300 in the U.S. was obtained for the purposes of this study. Results are analyzed with segmentation from a range of perspectives.
2 Natixis 2016 Global Survey of Individual Investors – Natixis Global Asset Management commissioned CoreData Research to conduct a global study of individual investors, with the goal of understanding their views on the markets, investing and measuring their progress toward financial goals. Data was gathered throughout February and March 2016. The study included 7,100 investors in 22 countries including 750 in the U.S.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.
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