As the lives of wealthy individuals and their families become more complicated and uncertainty in the investment environment increases, the advice they receive needs to be more comprehensive and practical too. To meet this need, many advisors are adopting a more holistic, goals-based approach that focuses on specific objectives rather than beating market benchmarks. To be successful, this approach requires products and solutions that can provide the necessary levels of flexibility and a deeper understanding between providers and clients.
The last five years have seen the global investment environment become more uncertain. As the international economy has shifted from a period of sustained growth to a widespread slowdown, a diverse range of factors have contributed to a dip in investment and trade. Rising trade tensions, slowing Chinese demand and local issues among emerging economies have all magnified uncertainty and created a drive to re-evaluate established approaches to investment and wealth management.
At the same time, the lives and financial affairs of wealthy individuals and their families are increasingly global, and progressively more complex too. They are likely to be focused on multiple financial goals at once, such as purchasing property, paying for children’s education, planning for retirement and funding the healthcare costs of elderly parents. In the prevailing context of market uncertainty, there is a need for more comprehensive financial advice. Funding different goals at the same time requires trade-offs and maintaining the right balance of assets and liabilities.
These two factors are driving a shift across the wealth management sector, as people seek out more holistic, goals-based advice. For many, this means moving away from established ways of thinking about long-term investing.
Different solutions for different goals
To meet the changing needs of wealthy individuals and their families, goals-based advice looks to measure performance based on the achievement of specific goals within an agreed timeframe rather than a narrower focus on beating market benchmarks. This not only creates multiple, sometimes competing, priorities where perhaps there was previously only one, it also broadens the range of advice that people expect advisors to be able to provide.
The emergence of this more holistic approach to wealth management is helping to provide people with a more personalised service. It is being welcomed across the sector, with McKinsey1 predicting that 80% of advisors in North America will be offering goals-based advice by 2030. And the potential benefits are clear. For wealthy individuals, it means having advisors that are looking at their complete wealth management picture and working with a much deeper understanding of their personal goals and life situation. For advisors, the chance to become an even more indispensable source of advice, insight and guidance can be invaluable.
This evolution in the relationship between clients and advisors could have a significant impact on the future shape of wealth management services. For example, changing client expectations mean that beating the market is likely to be viewed as a bonus rather than as a primary marker of success. They may, however, expect to be provided with realistic targets and may not be happy if these have to be revised downwards or additional assets made available in order to meet them. Risk becomes less about complex models and more about whether a person has enough assets to reach their goals without a shortfall.
According to the Money Management Institute2, the move towards holistic wealth planning means “incorporating digital tools to quickly and efficiently address broader financial planning needs”. Solutions like life insurance need to be structured in ways that suit an individual’s specific situations. Being able to release liquidity on demand to meet goals is likely to be an increasingly important way of providing clients with the flexibility they want. These kinds of innovative solutions have the potential to help clients identify and prioritise their goals and create tailored funding and development strategies that are mapped to life stages, upcoming events or the end of specific deadlines.
But whether choosing from a growing list of third-party solutions or developing them in-house, software is not the only potential barrier advisors face when trying to implement a goals-based approach. Research from Deloitte3 found that as well as access to the right digital solutions, a lack of training and not being able to offer the right range of products and services are actively hampering many from pivoting to this new approach. Addressing these deficits is likely to be an ongoing business priority as client needs continue to evolve in the coming years.
Another challenge is breaking free of long-held ways of thinking. In many instances, financial advice and wealth management are currently structured in a way that makes it difficult for a single advisor to gain a complete understanding of their client’s assets, liabilities, life goals and long-term financial plans. Breaking down these walls is not going to be easy.
Walking new paths
A more holistic, goals-based approach to investing and wealth management could be a crucial step in providing people with the freedom and flexibility to truly use their wealth the way they want. It can also help wealthy individuals to think more effectively about what they want the purpose of their wealth to be, and how it can be used to design and create the kind of life they want. Chasing investment performance may be right for some goals but could actively work against others.
Ultimately, financial solutions that allow clients to better design the cover and support they need are likely to become increasingly popular over the coming years. People want to live with flexibility and freedom, utilising their wealth in a way that not only aligns with their goals and aspirations, but with their loved one's too.
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