Can technology finally make goals-based advice a reality?

Everyone’s talking about it, but few actually do it, and those who aren’t feel under pressure to say they can. Despite all the talk about goals-based advice in the profession, the reality of how to deliver it still seems unclear.

A goals-based advice process helps clients pinpoint what is really important in their life before exploring the strategies, trade-offs, and probabilities those choices entail.

The initial results from the Quality of Advice Review (QAR) indicate a move towards regulating the outcome of advice rather than the process. Goals-based advice represents the epitome of the proposed obligation to provide ‘good advice’ as it is directly shaped around the goals of the client.

And while most advisers would acknowledge that a client’s objectives should always be the starting point for advice, traditional technology hasn’t kept pace. Many goals-based solutions have tended to be too simplistic to provide useful results or over-engineered and complex; finding the right balance is crucial.

For advisers, this means working around client goals within these technological limitations. The outcome is client goals are often still retrofitted to fit a pre-existing risk profile, advice strategies and products.

Start with goals, not strategies

Goals-based advice can help reveal a client’s priorities and values. It’s a great way to start a discussion because clients are often unaware of what is driving their own actions. For example, it’s not common for discussions to reveal basic financial and lifestyle issues between couples.

Unfortunately, it’s all too easy to take a shortcut to investment strategies without a clear idea of the goals driving them.

A client may want access to the Age Pension (a strategy), but this is just one means to an unspoken goal. Another client may want to buy an investment property (another strategy) but without a clear understanding of the reason why, a better alternative strategy may be left on the table.

Goals-based advice aligns perfectly with advisers’ current best interests duty and related obligations — as well as the future obligation to provide ‘good advice’ as proposed in the QAR by ensuring advice meets a client’s objectives, financial situation and needs. Goals are specific to each client and untethered from products and investments.

But even client reviews may neglect goals; they tend to focus on easily measurable areas such as investment performance when they should measure whether a client remains on track to achieving their objectives. By actively reviewing the latter, strategies can be changed as needed.

More pressure to make a goals-based approach scalable

The fast change in current market conditions has underlined the need to make a genuine shift to goals-based advice rather than intuitively incorporate it into traditional advice processes.

Inflation is soaring at the fastest pace in decades, placing new cost-of-living pressures on clients. Official interest rates have quickly risen, adding hundreds of dollars each month to the average mortgage.

Common goals, such as home ownership, are becoming harder to achieve. A rising number of retirees are being forced to use their super to pay off their home. The percentage of pre-retirees who owned their home outright fell from 70 per cent to 47 per cent between 1990 and 2015, according to research by the ABS.

A goals-based advice approach can help clients evaluate whether their goals are still achievable and make the difficult trade-offs needed. It can substantially improve the outcome of advice — even the act of writing down goals significantly increases the odds of achieving them, according to research.

Tech to support goals-based advice and boost engagement

The relatively high cost of advice, partly driven by regulations, has long been in the spotlight. Goals-based advice takes time and can be expensive without the right tech solution.

However, change is underway, with the government’s QAR explicitly calling out digital advice as playing a key role to lift innovation and improve accessibility.

Savvy advisers are looking for technology that supports their business now and can help it transition with the changing regulatory environment and consumer expectations.

The tools are increasingly available to make goals-based advice a fundamental part of the advice process, with tools that are:

• Engaging and effective for clients, yet simple to use for advisers.
• Separated from products and strategies.
• Encouraging clients to achieve their goals by helping them imagine and connect with their ‘future selves.’
• Demonstrating the value of advice to clients by changing their lifestyles.

Goals-based advice is now set to take centre stage as the industry continues to evolve.

Andrew Zietara, head of product, Midwinter

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.