Goals-based Financial Planning
Throughout our lives many people feel as if they are moving from one financial hurdle to the next. Inevitably, many, without a clear goal in mind, risk becoming disengaged in how they manage their financial assets, begin to question why they’re working so hard and start to wonder what it’s all for. Evidence suggests that these types of people exist at all levels of financial net worth – and many of them are our clients.
Research has also shown that in the face of financial uncertainty (or the lack of a clear plan), focus turns to numbers, not value, which is why our practice has been embracing ‘goals-based investing’ for clients, as our approach to delivering financial advice for over ten years.
Meeting goals, meeting expectations
Goals-based investing focuses on meeting the financial liability of a future lifestyle goal, which in a sense, reverses the traditional advice model where simply maximising the value of an asset determines a client’s lifestyle in retirement.
An advice strategy which focuses on helping our clients set specific goals (and in subsequent meetings, tracking progress against those goals), makes it easier for us to show – and for our clients to understand – the value we bring to the advice process. Markets move up and down, legislation changes and access to money both rises and falls, however the one thing that is consistent is that most people have certain items on their ‘bucket list’ and the ability to put a tick beside the items on that list is a very rewarding and powerful outcome.
Don’t believe us? Ask our clients
Reframing the advice conversation around specific financial & lifestyle goals has had a significant, positive impact on our business. Our practice recently undertook a confidential client survey conducted by an external research firm, Business Health, which measured nine Key Performance Indicators (KPI’s) as a way to measure the ‘health’ of the practice as seen through the eyes of our clients.
While our practice rated top quartile across all 9 KPI’s, an outcome we’re very proud of, our 3 highest rating KPI’s were in Business Relationship, Financial Knowledge and Professionalism / Standard of Support Staff – all of which scored a rating of 93% or higher. This level of client satisfaction is further endorsed by the 95 per cent of our clients surveyed who indicated they are prepared to refer their family and friend to us for financial planning advice.
Greater client engagement
We believe that part of the reason for such a high level of positive client feedback and referrals is that, for many clients, tracking their investments against tangible goals strengthens the ongoing client / adviser engagement process and provides greater motivation for saving / working towards meaningful goals.
Thus, the achievement of a key financial and lifestyle goal builds further confidence in this approach, which in turn reinforces the desire to maintain this approach of setting, achieving and re-setting the goals.
Wonderful memories are not measured by numbers.
As a financial planning practice based in Parramatta for over 25 years, we also know only too well that when it comes to investment decisions, clients can sometimes be their own worst enemy. All too often, the fear and panic created by the ‘media-led herd’ will cause investors to question portfolios at precisely the wrong time in response to a market downturn or volatility – regardless of how that investment is tracking towards a goal.
We believe the ‘mental accounting’ nature of goals-based investing mitigates this behavioural risk by letting clients make separate investment decisions for each goal rather than in aggregate for their overall wealth or portfolio. Tracking towards and achieving a meaningful goal turns the focus away from the amount of money and/or portfolio performance and becomes a better reference point in times of volatility.
Goals-based investing lets you, the client, take the driving seat with regards your investment decisions and rewards you with the achievement of the things that are important to you, for having the courage to look beyond the ups and downs of the traditional approach to investment. The reward for us, however, is that goals-based investing focuses on the more personal side of financial planning relationships by understanding the things that are truly important to you, our clients.
Sources: Adviser fp – Lonsdale Financial Group Ltd
Renato Mota, IOOF Group General Manager – Wealth Management