by Susan Edmunds
Adrian Kwa
ANZ’s head of advice transformation Adrian Kwa said goal-based investing offered a more focused approach that addressed the most important issues for investors.
They would often have a range of goals, both short and long-term – and advisers could tailor their portfolios to suit the desired outcomes.
If a client needed money for their kids’ education in a couple of years, a percentage of the portfolio could be separated off and allocated to that goal, with the correct asset allocation. Its performance could then be judged on how well it was on track to achieve the target.
Adviser Jordi Garcia said it was a method he already used. “A benchmark is just a yard stick, that’s all. To be honest, most clients don’t have a realistic expectation for benchmarks. If you ask a client what their expected return from an investment will be they can’t answer that because they have nothing to gauge it on.”
He said he would often break goals down to the income that clients would need to support their lifestyles. “Nine out of ten clients have no idea where to start or how to look at investments but they can say ‘I like to go out to dinner every night and that costs me $100,000 a year’ – that they can relate to very quickly.”
He said benchmarks were used in internal discussions but rarely taken out to clients.
IFA president Michael Dowling agreed benchmarks could be problematic.
“Eventually they will not work for the individual. This is because the focus is on having the fund in play all the time to constantly out-perform the benchmark,” he said.
“In my opinion the point of money is to support your lifestyle. Once you understand how much you need to support your lifestyle goal, it could mean you can achieve your goals by taking less risk rather than more.
“The benchmark could be invested with rolling timeline, some as long as 40 years for instance, this will always be disconnected with your personal investment objective - either being too short if you are investing at an early age or for multi generations, or too long if you plan to access the funds sooner.”
IFA chief executive Fred Dodds said goal-based investing required a financial plan from an adviser.
“This would then lead to short-term, mid-term and long-term solutions and they would get them with planned investments and each goal would no doubt have a different risk profile.
“This would fit with the advantages of using a competent adviser who would first bring organisation to the situation and then prioritise the goals - isn't that just effective financial life management. It would for sure involve regular discussion between adviser and client - and that's all good.”
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I have never worked for a company that did not use benchmarks as a reference for performance and why would we ever not use them as a reference for portfolio performance for our clients? The simple answer is we think the client is stupid and we can hide our poor relative performance while we charge high fees.
More dodgy weasel words from an industry reluctant to be accountable to its clients for its performance and fees. Given that this article comes from a bank I would be very interested to hear the FMA's comments on this one. I expect to hear nothing as they probably think this is 'fair'.