The two significant trends in contemporary financial advice are Goals Based Investing and Managed Investment Services. While the client and business drivers of each are independent, both innovations are set to transform financial advisory practices over the coming years.
Together they offer advisers a new level of customer-centric business practice along with a rise in business efficiency.
Managed Investment Services
The 2018 Investment Trends Managed Accounts Report, prepared by Toby Potter from the Institute of Managed Account Professionals, sheds light on the growing change to managed account services by advisers.
According to the report, 30% of advisers currently recommend Managed Accounts to their clients, up four percentage points year on year. The report also states a further 34% of advisers indicate potential future use of Managed Accounts. The latter rose 14 percentage points from 20% just a year earlier.
The principal reason for the change is clear – greater business efficiency. Those advisers who are changing to the use of Managed Accounts report an average weekly time saving of 12.4 hours. Based on an average work week of 40 hours, this represents a game-changing 31% time-saving. Time saved is accumulated from investment administration, researching and selecting investments, preparing ROAs, chasing client authorisations and preparing SOAs.
Time savings lower management costs and create additional client capacity. There are few if any business innovations that can boast this level of transformation.
In additional significance is the report’s finding that advisers state superior client outcomes.
Goals Based Investing
The trend towards Goals Based Investing is driven by the inevitable change towards a more informed customer understanding and more overtly client-centric approach to managed investments and financial advice.
Today, client expectations of service that is tailored to their individual needs is growing across all industries. These changing expectations must be answered by all businesses that aim to maintain a competitive advantage.
When an adviser starts with Goals Based Planning that determines the real future financial needs of the investor, the adviser and client form an aligned view of the desired investment outcomes.
Goals Based planning, when matched with Goals Based Investing, delivers a genuinely customer-centric solution to the client’s financial needs. Goals Based Planning allows the adviser to move beyond risk appetite as the primary determinant of portfolio allocation, to a position where the client's real future needs are identified and shaped as financial goals.
The full benefits of the Goals Based approach are unlocked when Goals Based Planning and Goals Based Investing are combined. Advisers gain a broader understanding of client needs and then track investments towards a defined goal rather than an arbitrary risk-based allocation. When Goals Based Investing is effectively deployed, investment portfolios are actively managed towards the attainment of goals with the objective of less volatility, or greater risk-adjusted real returns.
Goals Based Investing with Managed Accounts
Goals Based Investing finds a natural home within Managed Accounts that are correctly aligned to goals such as growth, income, volatility and timing risks. Managed services facilitate execution in a more timely and efficient manner across a greater range of investment choices.
The active approach is employed by managers such as Dynamic Asset which allows for the efficient utilisation of a broader mix of asset classes including alternative investments.
Specialist portfolio managers actively manage investment towards the defined goals of each portfolio, often colloquially referred to as ‘buckets’. An adviser can in-turn mix these buckets to precisely align individual client portfolios with each clients’ goals.
Higher levels of customer focus, service and mutual understanding, as are achieved through Goals Based Advice, is the basis of excellent client relationships, retention and referral.
Aligning Goals Based Investment solutions helps deliver consistency across the business and client delivery.
Business efficiency through managed accounts provides a competitive advantage to win, grow and prosper.
That is what every adviser needs.
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