A practical application of goals-based advice

Much has been written about goals-based advice, whether it’s a passing fad or just a new description for what advisers have been doing for decades. Some articles delve into the behavioural science around goal setting and the neuroscience of how the human brain works and there have even been discussions recently around whether psychology subjects should be part of the financial planning qualification requirements.

Fortunately, ASIC provides some guidance in this area. Initially, they want to see that you are gathering personal and financial information from your clients and that this includes their stated goals. An important aspect of this requirement is that the goals are captured in the ‘client’s voice’ – that is, in their words not in the words of the adviser who may have chosen the client’s goals from a list of options in their SOA template.

The best way to capture these goals in the client’s voice is to have the client record them in an online fact find. If you are using a paper-based fact find, writing them down verbatim is your only option.

Once a goal has been captured in the client’s voice, ASIC wants to see evidence that you have explored the subject matter of these goals. The most effective way for you to accomplish this is to discuss the goal with the client and then re-state the goal as a SMART goal (specific, measurable, achievable, realistic and t ime bound).

So, for example, a client goal may start out as We want a family holiday to Europe and after discussion may progress to a SMART goal: We want a family holiday to Europe in June 2020 and expect it to cost $25,000. Further notes may be required to determine how important this goal is to the client, if the goal is in conflict with other goals and how far the client has progressed in achieving this goal.

ASIC would also like evidence that advisers have reviewed a client’s broader financial circumstances to identify other ways that they can improve the client’s position. An example of this could be if through discussion the adviser determines that the client has only a simple will created 20 years ago but the client has since amassed substantial assets held in various entities requiring a more comprehensive estate plan.

An adviser would then ask the client if reviewing their estate plan should be a new goal and by repeating the process above will have provided evidence of exploring the client’s broader circumstances. A great way to open discussions around the client’s broader circumstances is to ask a series of targeted questions around the six areas of financial advice to determine how secure the client feels that they are not exposed to risk in these areas. An effective way to do this is to use a tool like a 5 Minute Financial Health Check to help the client identify any issues in their financial world that need to be addressed.

Goals-based discussions should be seen as a critical part of the financial planning process as it is difficult to see how an adviser can achieve the requirements that ASIC has applied without hard evidence (file notes) of these discussions having taken place. However, the goals conversation is less about the adviser’s understanding of psychology and more about a common sense repeatable process that captures the client’s original goal (in their own voice), the re-stated SMART goal, any new goals reflecting the client’s broader circumstances and notes around priorities and conflicts with other goals.

The goals discussion should also be viewed as part of a process that begins with gathering information from the client, progresses to the goals conversation and then becomes the basis for determining the scope of advice. This then leads to the letter of engagement and the ongoing service agreement to determine which areas of advice will be addressed, and the priority order for any subsequent strategy documents and statements of advice.

This process can be simplified through the use of technology that seamlessly transfers the relevant information through a series of tools providing a logical progression for the client and a simple sequence of events for the adviser to follow that produces detailed file notes linking each stage along the required audit chain. It is much better to have compliance automatically built in to a process and system than to retrofit it manually afterwards.

Hans Egger is managing director of AstuteWheel

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].