Goals-based planning is an approach to investing that is rapidly gaining popularity among wealth managers and financial advisers. But having the right technology to facilitate an improved relationship between advisers and clients, acts as a boost to goals-based planning because it makes it easier to expose a client’s financial goals and put concrete plans in place to achieve them.

Goals-based planning also provides a framework for structuring conversations related to assets. Rather than simply stating that the goal is to maximise returns, advisers encourage clients to contemplate a multitude of financial ambitions. Those ambitions must then be prioritised, ranked, and monitored by the adviser and the client with the assistance of the software.

Traditional wealth management often focuses the conversation between adviser and client on which products will get the clients to their wealth goals. However, if the goals are not well defined in the first place, then the product chosen may not be a good match. Robust goals-based planning, thus, can help ensure that the client’s investments are aligned with their values and priorities.

Goals-based planning is an efficient and cost-effective advisory process with clear insights into the trade-off between risk and return and the impact of particular investment decisions.

By contemplating the totality of a client’s investment goals, a holistic picture emerges for the adviser, leading to more meaningful conversations with the client based on an observable deepening engagement and strengthening trust. Goals-based planning provides a framework for more effective communication between the adviser and client.

The adviser can keep the client informed and engaged by ensuring progress meets the set goals and adjusting the plan as needed. Proactive monitoring of goals and alerting when clients are off-track leads to greater transparency, trust, and collaboration between the adviser and the client.

Technology as an enabler
Supporting advisers with this financial planning approach comes easier with the right software technology. With a fully integrated cash flow planning tool for a holistic view of the client’s situation, software can address income and investment risk.

In particular, being able to access realistic portfolio projections of institutional quality, based on monthly updated economic scenarios for a full range of asset classes is valuable and can be linked to client financial goals. Linking and integrating this with cash flow planning means the adviser can easily identify possible budget shortfalls or surpluses, supporting efficient decisions.

Consumer Duty - introducing a higher standard of customer protection
These tenets are the basis of the Consumer Duty Act in the United Kingdom. As a new and higher standard of consumer protection in the financial services industry, Consumer Duty requires financial services companies to demonstrate that they are actively prioritising clients’ interests.

There are four outcomes of Consumer Duty in the UK, all of which are supported by goals-based planning. Consumers need to be at the heart of the business, and firms must focus on delivering good outcomes for them. So, this model emphasises the centricity of the consumer in the process by considering all the client’s goals and values.

Secondly, financial services firms must provide products and services designed to meet customers’ needs, offering fair value. With a goals-based planning approach, the selected products will always be aligned to meet the client’s goals rather than the product being the goal.

Thirdly, Consumer Duty demands that the adviser communicates and engages with customers to ensure they can make effective, timely and properly informed decisions. This philosophy is at the core of goals-based planning. By facilitating conversations that expose the client’s goals, advisers and clients are actively and effectively communicating in order to ensure that all parties to that conversation are satisfied with the outcome.

Finally, Consumer Duty stipulates that outcomes must be monitored and reviewed regularly. Financial services firms and their advisers must, in conjunction with clients, take action to address any risks to good customer outcomes. This is where goals-based planning software is critical. By providing a means to meaningfully monitor performance, advisers can facilitate discussions when their clients are not on track to achieving their goals. Real-world, complex scenario planning is at the core of sophisticated monitoring that yields meaningful results.

A win-win-win
For the client, goals-based planning can help to reduce uncertainty and increase confidence in their financial future. By having a clear plan tailored to their specific goals, the client is more in control of their financial situation due to regular and ongoing monitoring of the plan and more confident in their ability to achieve their goals. This can lead to greater satisfaction and a stronger sense of trust in the adviser’s recommendations. It is much more effective to talk about the client's aspirations instead of the historical performance of an investment fund.

Indeed, this approach to wealth planning focuses on understanding and fulfilling financial requirements to ensure that the client’s diverse goals are met rather than focusing on the singular goal of maximising returns. Thus goals-based planning creates added value for the wealth manager, adviser, and consumer in several ways; in other words: a win-win-win situation.

For the wealth manager and adviser, goals-based planning can increase client retention and loyalty. By understanding the client’s financial goals and tailoring advice to achieve them, the adviser will ultimately build a stronger relationship with the client based on a deep understanding of their objectives. In simple terms, this means asset allocation is done according to the client’s goals rather than the wealth manager’s guidelines.

The result is that the client feels heard because the wealth manager or adviser enters into a conversation with the client about their financial objectives rather than about their portfolio’s performance as a standalone objective - thus upping client satisfaction levels.

This, in turn, can lead to higher revenue through increased assets under management and client referrals. In fact, Morningstar revealed that applying a goals-based planning approach could lead to a 15% rise in the assets under management (AUM) of a bank, wealth manager or pension provider.

Banks and wealth managers can deal with the changing regulatory landscape by adopting a proactive and adaptable approach. Some key strategies that they can consider:

• Banks and wealth managers must stay up-to-date with the latest regulatory developments and anticipate how they may impact their business. It is important that they include regulations, for example, suitability, by design. Suitability must be an integral part of the advisory process to give clients the best advice.
• Goals-based planning also helps with a risk-based approach: banks and wealth managers should develop a risk-based approach to compliance, focusing their resources on areas of highest risk. This approach can help to streamline compliance efforts and ensure that resources are allocated where they are most needed. Not only by managing the risks of the investment portfolio but also the risks of not achieving clients’ personal goals.

A matter of trust
Ultimately, goals-based planning is about trust. It is a process supported by sophisticated tooling that promotes the development of trust between an adviser and a client, and most importantly, it is a process that enables clients to trust their own decisions. By focusing on outcomes rather than the process of accumulating wealth, clients learn to trust their priorities as well as the advice of their partners in wealth management.

Interested in reading the full report? You can read this edition of the UK WealthTech Landscape Report online here.