InveSTInG
Incorporating Goals-Based Investing
Working with HNW families requires a broader set of capabilities , moving beyond the portfolio . Wealth advisors need to evolve their practices to better meet the growing needs of these investors , evolving from selling prodaccounts differently to achieve the various goals . A trust established for grandchildren may be more growth-oriented because of their long time horizon . The patriarch ’ s retirement account may be geared toward generating income , and the personal account may be more defensive , based on their views of the prevailing market environment .
Family Goals
Wealthy families are typically solving for multiple goals simultaneously and are not focused solely on maximizing returns . Their objectives may include preserving wealth , transferring wealth efficiently , and funding causes that matter to the family . A family ’ s wealth may determine priorities , and it may be instructive to review the hierarchy of financial needs .
Cash-flow needs . Meeting the basic needs for food and shelter .
Financial safety . The ability to create a financial cushion for unforeseen events .
Accumulating wealth . Building wealth , saving for retirement , and paying down debt .
Financial freedom . Adequate savings for retirement , children ’ s educations , and vacations .
Legacy . Focused on estate planning , tax planning , charitable giving , and instilling value in children and grandchildren .
A family may be solving for various needs simultaneously . A family ’ s personal account may be focused on accumulating wealth , their retirement accounts
figUre 2 :
Case Study
Education
Charlie ($ 1mm )
Travel focused on financial freedom , and their trusts established for legacy purposes .
Case Study :
Tom and Patricia Morgan have two children , Charlie and Samantha . Tom and Patricia have recently retired , they have $ 5 million in savings and no debt . Charlie and his wife Lisa have two children ages 13 and 15 years old . Charlie is an architect and Lisa is a nurse . They have $ 1 million in savings and are focused on saving for the children ’ s college expenses and traveling with the family . Samantha is a single mother , with $ 500,000 in savings , and a young daughter with special needs . Tom and Patricia have set up trusts for the children and grandchildren to help them achieve their respective goals . ( See figure 2 .)
An advisor might treat this family as a single relationship , but their respective goals and objectives will be very different depending upon the respective dollar amounts , cash-flow needs and time horizons . A family shouldn ’ t be defined by their wealth . Each account should have its own goals and a customized portfolio designed to meet those goals .
Tom & Patrica ($ 5mm )
Special Needs
Samantha ($ 500k ) ucts to solving needs , and expanding capabilities to include trust and estate issues , dealing with concentrated positions , lending , charitable giving , and tax management . Goals-based wealth management provides the framework for addressing these needs .
Wealth advisors should adopt a goalsbased wealth management approach to solve the needs of HNW families , changing their relationship and value proposition to better align with the family ’ s goals . HNW families have complex needs , and goals-based wealth management is designed to identify them and then deal with them individually . Goalsbased wealth management is the preferable model for both wealth advisors and HNW families .
Goals-based investing provides a road map for families large and small . Some families may be more focused on intergenerational wealth transfers , and others may be more focused on retirement planning . Some may be focused on charitable giving , while others are solving for college funding . Typically , HNW families are solving for multiple needs simultaneously , and their portfolios should be tailored to meeting each goal .
Wealth management is an everevolving set of disciplines . The one constant is serving the needs of families . Larger families often have more complexity and may require specialized team coverage . Wealth management is a multigenerational endeavor ; therefore , it is incumbent on the advisor to develop relationships with the whole family to effectively deal with the inevitable wealth transfer challenges to come .
Key Takeaways Goals-based investing is designed to identify and solve for multiple goals simultaneously . Rather than merely optimizing a portfolio to maximize returns or minimize risks , goals-based investing recognizes that HNW families have multiple goals , with different cash-flow needs , and different time horizons to achieve them .
A goals-based wealth management
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50 | financial advisor magazine | may 2022 www . fa-mag . com