Investment advice is often considered by both clients and financial planners as a vital component of a thriving financial planning business, making it essential to get right.
The traditional strategic asset allocation approach - where a client’s capital is split across a static range of defensive and aggressive assets in accordance with their risk profile - is simple enough for most advisers to implement, but can lead to disgruntled clients during times of poor market performance. This makes it difficult to demonstrate the adviser’s value proposition and exposes their business to regulatory risk due to poor client outcomes.
Goals based investing places the client’s unique objectives at the heart of the investment process. The client’s capital is invested in a way to achieve the return target required to meet those objectives within a pre-determined time frame. This, in turn, entails a strong focus on limiting portfolio volatility, which is achieved via dynamic asset allocation.
The goals based investing approach allows financial planners to clearly align the client’s best interests with their processes, thereby differentiating their business by providing superior advisory service and building better client relationships. Such strengths are especially critical for the success of advisory firms in light of the heightened volatility that dominates today’s markets and a regulatory environment that obliges financial planners to deeply know their clients and act in their genuine best interests.
While goals based investing tackles the drawbacks of the more traditional SAA approach, the time and resources needed to manage numerous client-centric investment strategies and react quickly to market developments have prompted astute small and mid-sized advisory firms to outsource their investment function.
The rationale is simple; most advisers would find it difficult to compete with professional money managers and outsourcing this vital function to a dedicated portfolio team allows them to gain a strong competitive advantage, as they can focus on delivering on their core competencies and strengthen client relationships. Outsourcing also frees up capacity to service a greater number of clients, resulting in a more profitable business.
Dynamic Asset provides complete goals based investment solutions for advisory firms, including access to a simple online portfolio construction tool, client education and reporting, and administrative assistance. Contact Dynamic Asset to implement goals based investing into your financial planning business.
Take a look at Part 2 of this article here.
