Benefits of goal-based planning for advisers

May 28, 2020

Investing without a goal is akin to boarding a train without knowing your destination.

To reach your destination, you ought to have a reason attached to investment which will help you plan your finances well. Why is it important?

A report authored by David Blanchett, head of retirement research for Morningstar Investment Management, finds that goals-based planning can lead to a 15 percent increase in utility-adjusted wealth when compared to a traditional approach to financial planning.

During this lockdown, some of your clients might have paused or even redeemed their investments due to cash flow shortages from pay cut, a shutdown of business, or merely due to the fear of volatility. This implies that some people still do not have an emergency corpus which can be dipped into during uncertain times like these. If investors know why they are investing and discuss their goals with advisers, situations like these can be avoided. Thus, there are clearly a lot of benefits for advisers by adopting goal-based planning.

 Goal-based planning involves the following steps:

  • The first priority for your clients is to build an emergency corpus.
  • Get your clients adequate insurance (health, life, Professional Indemnity Insurance, and so on).
  • Draft an estate plan.
  • Identity short term, medium-term, long-term goals and prioritize them.
  • Prepare an investment statement summarising the objectives of investment and the steps that will be required to achieve these goals. Share it with the client so that you both are on the same page.
  • Design portfolio by identifying products and investments that the client has to commit to meet his/her goals.
  • Keep reviewing the portfolio. It is essential to interact with your client say quarterly/bi-annually to understand how their goals and aspirations are changing. Clients priorities and income levels change which needs to be adapted dynamically in the plan. You never know if your client has acquired sudden wealth from an inheritance or by selling real estate! Clients may not inform the adviser about this on their own, so it is your duty to dig into know what’s happening in the client’s life.

Goal-based planning is a win-win for both advisers as well as investors.

Here are a few benefits for advisers:

  • Clients will avoid taking knee jerk reactions from any event-driven news. You can show them their goals and guide them to remain invested to achieve their desired goals.
  • Advisers get stickier assets, especially if the goal is long term in nature. Goals like retirement, marriage, higher education require regular commitments. This could help you build a sizeable SIP book.
  • Advisers can be at peace since clients may not question them just because the portfolio has corrected. Advisers can show how they are maintaining the right asset allocation to achieve investors goals.
  • Clients will appreciate your effort in chalking out a holistic plan after understanding their financial situation, goals, aspirations and risk appetite. They will discern your value add.
  • Finally, investors get something tangible after reaching a goal. Clients will feel a sense of achievement that they have been able to buy their dream house after investing consistently as per your advice. This will create happy customers and ultimately help you get referrals.

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