The premise of Goals Based Investing is to focus each investment portfolio on specific individual personal and lifestyle goals. Those goals inform the right timeframe, risk and return parameters, which in turn determine the best asset allocation and investment mix. Goals can be short-term, such as taking a holiday, medium-term, such as renovating or paying school fees, and long-term, such as saving for retirement.
When we think of investment advice, the first question almost always asked is “what’s the client’s risk profile”? Like Pavlov’s Dog, it’s almost a conditioned reflex to the way the industry has operated over so many years. Of course, it’s important to understand what type of investments the client would be ‘comfortable’ with, but does it really help them achieve their goals and is it really in their best interests to invest according to a risk profile questionnaire?
Goals Based Investing (GBI) continues to gain recognition and be better understood amongst advisers. In his article Goals Based Investing: Should it be the norm? Giuseppe Ballocchi describes GBI as the way of the future for financial advice. Are we finally seeing a shift from the more traditional Strategic Asset Allocation approach to GBI? The simple answer is yes. Why, because it makes sense. Client goals should determine investment decisions. And, there is a rising school of thought that SAA investing will not suit likely market conditions going forward.
Investors are more knowledgeable about the market and their portfolios than ever before. They can see that not all is right in the world and there is an air of fear and doubt sweeping through many financial conversations.
Matthew Walker is a passionate advocate of Goals Based Advice and Goals Based Investing, and former Chairman of the Association of Goals Based Advice. Today he is the Managing Director of Dynamic Asset and Chairman of Dynamic Asset Investment Committee.
In this interview, he shares his thoughts on:
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.
