By Chuck Widger, Executive Chairman, Brinker Capital, a Registered Investment Advisor
Most everyone agrees, defining your goals aids in financial decision-making. In fact, in a recent study, 78% of advisors said they recommend that client set specific goals for their investments, and 69% encourage clients to have a target return for those goals independent of the market. Nearly the same amount of clients (67%) is willing to set an independent target return for their financial goals as well.
As I point out in my New York Times best-selling book, Personal Benchmark Integrating Behavior Finance and Investment Management, by benchmarking to the specifics of our lives, rather than vague generalities, we can become an expert in the Economy of One, otherwise referred to as goal-based investing.
But understanding that a personalized, aspirational, and goals-based approach rather than a deterministic index-based approach to investing makes sense is only the first step. Separating from the herd of your own volition is difficult, and there are bound to be obstacles.
You don’t have to look too far to locate those obstacles. Benjamin Graham (2005), the father of value investing, once said, “The investor’s chief problem— and even his worst enemy—is likely to be himself.”
Graham’s proclamation is borne out in this same study which shows a disconnect between advisors and clients clarity in those goals. Advisors report top client goals as retirement income (22%), saving for retirement (20%), and financial independence (18%) as clients’ top three priorities. Meanwhile 60% of clients stated that they had no goals whatsoever, yet 73% were confident that their portfolios were constructed based on their goals.
Although the investment and advisory community has adopted goals-based portfolio construction and the establishment of targeted returns as a best practice, these stats show that clients may not yet have gotten the message. They are a helpful reminder that change is slow.
Clients have been conditioned to think of their investments in terms of performance, not goals. Trying to beat market indices comes as second nature. It is ingrained in today’s investor. So, as advisors, you’ll have to repeat the virtues of goals-based planning over and over. You’ll have to explain that a disciplined approach will get them where they need to go more certainly than if they follow their gut instincts and chase returns.
About the Author
Chuck Widger is the founder and executive chairman of Brinker Capital, an investment management firm with $17.5 billion in assets under management (as of September 30, 2014). Chuck recently authored a New York Times best-selling book entitled, “Personal Benchmark: Integrating Behavioral Finance and Investment Management” (www.personalbenchmarkbook.com). He is currently chair of the Villanova University School of Law Board of Consultors. He is a past chair of the Gettysburg College Board of Trustees and chair-emeritus of the Money Management Institute’s Board of Governors. The Money Management Institute is the industry association for the $3.5 trillion managed solutions industry. Chuck holds a B.A. from Gettysburg College, a J.D. from Villanova University School of Law, and an L.L.M. (Taxation) from Boston University’s School of Law. He served as a Lieutenant in the U.S. Navy.
Brinker Capital is a 2015 FSI Premier Sponsor