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When Goals-Based Planning Doesn’t Work

Steps advisors should take to understand critical details about their clients.

By Libet Anderson

For some time now, the industry has seen an increasing number of advisors shift to an advice and planning model, with the product-centric approach becoming less common. At the same time, goals-based financial planning has become almost a buzz phrase in financial services—and with good reason. Not only is this approach more in line with regulatory trends but it’s a path that most investors and advisors have embraced.

Many firms and advisors may also be running the risk of developing damaging blind spots. There is no question most clients view financial planning through a goals-based lens, whether it’s accumulating enough wealth to buy a boat, join a country club in retirement or send a child to college. For some clients, unfortunately, the goals-based approach doesn’t work, but not necessarily for the reasons you may think.

When clients meet with their advisor, the conversation usually revolves around a straightforward question—“Am I on track?” If so, great. From an advisor’s perspective, the focus from there becomes reinforcing the behaviors that got the client to that point. If not, the discussion becomes about what needs to happen to catch up. How each investor approaches this challenge, though, can vary wildly—and advisors should take steps to prepare by understanding some critical details about their clients.

Don’t Put Clients in a Box

Some clients have simpler needs and are not as concerned with whether they’re on track to buy, say, a vacation home as they are with having enough income to pay their bills each month. This is particularly true for older investors in the decumulation phase of their lives.

With such clients, a goals-based approach may not work well. They want to hit a “number” each month, and it’s the advisor’s job to do all they can to help get them to that point.

But even in situations where clients are younger and have the wherewithal to dream bigger, it could be they prefer to take a cash-flow approach. Think, for example, of an engineer, a scientist or someone who works in another numbers-centric profession. It’s not that these clients don’t have goals. It’s that their minds may be incapable of viewing financial planning in the abstract.

They want to hit specific benchmarks, but they also want to see how it’s happening. When they meet with an advisor, they require hard data and more granular analysis than merely “you are on track.” For them, no detail is too small. Advisors, therefore, can’t make assumptions or allow their own biases or the latest trends to dictate how they choose to serve such clients. 

Determine the Client’s Financial Planning Mindset

At the outset of each engagement, advisors commonly profile clients, looking to uncover their hopes, dreams and motivations as well as learn what keeps them up at night. However, this is a best practice that should continue over the duration of each relationship, since these things often change over time. That’s the way to make authentic, long-lasting connections that deliver value.

As part of this process, advisors should try to understand each client’s mindset a step further to discover how clients like to visualize financial planning overall. The client’s answer may come as a surprise, to themselves and you.  

Are they analytical and data-driven? Alternatively, are they more conceptual? They may believe they are goals-based planners—because, after all, who doesn’t have goals—but in the end, it may turn out that a cash-flow analysis makes more sense. The reverse could just as easily be true. The only way to find out for sure is to dig deeper when you have conversations with each client.

Getting the Right Support

Many independent broker/dealers offer a variety of solutions that allow advisors to do both cash-flow and goals-based financial planning. Some offerings even let advisors seamlessly toggle between the two. And while it’s laudable for firms to make available a diverse selection of tools, they also need the bandwidth and knowledge to back them up or it becomes impossible to serve advisors as a facilitating partner.   

The truth is nearly every software package looks good when you see it for the first time. The best offerings are customizable, performing different functions based on where clients are in the investment lifecycle, whether they follow a cash-flow or goal-based financial plan. It’s up to your firm to help match you with the right set of tools because advisors don’t have the time to figure this out on their own.

Practice management is not about lip service. It’s not about having a call line that serves multiple thousands of advisors. It’s about having a team in place that offers one-on-one support, willing to learn the nuances of each business and then match the specific needs of advisors with a tool that will most help them serve clients.

There is very little question that the shift toward advice and planning-based models will continue. It’s what investors crave and regulators are demanding. However, be wary of homing in on methods that can constrain clients and prevent them from approaching financial planning in a way that works best for them. 

Libet Anderson is Managing Director of Advisory and Planning at ProEquities, responsible for developing and promoting the company’s advice and financial planning offerings through its advisory platform.

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