The achievement of core financial and lifestyle goals is often a measure of a successful financial planning experience by clients. This may often be an ongoing journey, whereby needs, desires, values and tolerances change as the client’s relevant circumstances change.
An adviser’s value proposition to a client is being there to navigate the client through the ups and downs of their financial affairs, to arrive at their intended goals and objectives.
Increasingly, there is an expectation on advisers to provide strategic advice, whether that be in wealth creation or contingency management, and not just be purveyors of financial products. Strategic advice in turn is likely to lead to more productive and longer term client engagement.
Take for instance, a scenario where a young professional sees a financial adviser for the first time for advice on investing an inherited lump sum.
Objective
The adviser may at first look to identify and meet as a priority, the client’s short term objective of seeking a suitable investment (taking into account his risk profile, income needs and preferences etc.) and in setting the scene help the client to map out some financial goals in the medium to longer term. Those goals may be to accrue enough savings for a deposit on a house in two years’ time or to have plans to start a family in five years’ time and needs to save for private schooling.
Throughout this, the client will continue to opt in for ongoing reviews of his investments and as his circumstances change – which may require a revision of his needs and risk tolerance – the adviser’s strategy is also likely to change.
Setting specific and measurable goals and objectives also pays compliance dividends. By doing so, an adviser is able to better demonstrate that the advice provided is appropriate and in the best interest of the client. According to ASIC’s guidance in Regulatory Guide 175, any process of giving good quality financial advice may include providing assistance to the client to set prioritised, specific and measurable goals and objectives (note 1).
In assessing whether an advice provider has complied with the best interests duty, ASIC will also consider a range of factors to determine whether the client is in a better position following the advice including whether the advice meets the client’s objectives and needs (note 2).
Difficult to measure
In contrast, generic goals and objectives may render the appropriateness of advice difficult to measure. For example, a phrase such as “review of retirement savings” does not address what the client wants to achieve in a review of retirement savings. Another way of framing this goal would be to firstly explore with the client, when they intend to retire and how much they need to retire on.
This may require a detailed analysis of their savings potential, expected annual expenditure, risk tolerance and any lifestyle goals they want to achieve, such as buying a boat. The client’s goal could then be famed as “the client intends to retire in five years’ time on an approximate income of $30,000 per year in today’s dollars.”
The adviser can then explore appropriate time-to-retirement strategies and make recommendations designed to provide for such income in five years’ time, with enough surplus to buy the boat that the client had wanted. In doing so, the adviser will not only be able to demonstrate why their advice is appropriate having regard to the client’s objectives, but will also add value to the client’s financial planning experience by specifically addressing a desired outcome.
Another example is the frequently stated objective of “reviewing superannuation.” This does not address what the client requires of their superannuation plan. If the client for instance, expressed a desire to be able to purchase listed shares within his superannuation, a more specific and measurable way of articulating this may be to state that, “the client wishes to consolidate superannuation into a fund that has a direct trading facility.”
Appropriate advice
Of course, it does not immediately follow that the adviser has to be able to meet the client’s goals and objectives in order to be considered to have provided appropriate advice. Appropriate advice does not necessarily equate to meeting a performance target. Investments that fail to perform as expected, may still be appropriate if the recommendation is based on meeting the client’s goals and objectives.
ASIC notes that good quality financial advice is not necessarily confined to monetary improvement but encompasses a person‘s preparedness for the future (note 3). Part of this is for the adviser to be able to say to the client that this is what you want to achieve and this is my advice on how you get there.
An adviser should also manage a client’s expectations and assist them in setting goals and objectives that are realistic and achievable. It is appropriate that where a particular goal or objective is not immediately attainable that it be scoped out of the current advice and be considered at a later stage.
Basis of a plan
It is the addressing of realistic short term goals and identification of long term goals that may form the basis of a strategic plan between the client and adviser and in turn, lead to longer client engagement.
Indeed, it is the achievement of financial goals and objectives that is ultimately what many clients aspire to in seeking financial advice as opposed to buying financial products off the shelf. An adviser can play a key role in guiding their client through the ups and downs of their financial situation. It is a journey which may begin from the first meeting where goals and objectives are appropriately identified.
