Goals-based advice 'a fad', says adviser

Treysta Financial Life Management executive director Mark Nagle spoke to ifa about how goals-based advice is a "horrible moving target" and is something his firm does not offer.

“I think it was an effort for the industry to change their focus away from selling product to bringing the offer back to being more client-centric, and people started coming up with something that was 'goals-based',” he said.

“Goals-based [advice] is all very well, but there actually is a behavioural finance/psychological issue which is called 'affective forecasting'.

“It essentially means that as human beings we are actually flawed in terms of our ability to predict our own futures.”

Mr Nagle said some key lessons can be drawn from behavioural finance in recognising the flaws around goals-based advice, noting that, particularly in younger years, humans are really bad at predicting where their lives will be in 10 years’ time.

“If you ask a client to list a whole bunch of goals over the next 10 years, they're likely to get that very wrong, and that's an issue,” Mr Nagle said.

“You could end up saving for the caravan for your trip around Australia but when the time comes you can't think of anything that you'd least like to do than travel in a caravan around Australia.”

Mr Nagle said the evolution of his firm has moved beyond goals-based advice towards a philosophy based around values.

“Your values are less likely to change over time, and if you create a financial framework around your values, that will give you the best likelihood of making good financial decisions,” he said.

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].