The concept of goals-based investing has “raised the bar” when it comes to financial planning, as wealth management clients typically no longer want to compare their finances to a benchmark or historic average.

The concept of goals-based investing has “raised the bar” when it comes to financial planning, as wealth management clients typically no longer want to compare their finances to a benchmark or historic average, according to a new report by SunGard and CEB TowerGroup which considered the factors behind this trend. 

“A key trait of today's new wealth client is the desire to collaborate with wealth firms when planning for their financial future,” the firms said in Shifting to the Center: Financial Planning is the Hub of Wealth Management.

The paper claims that many firms are shifting away from a heavy focus on investment management, centered on past performance, to an approach much more orientated around long-term financial planning and life goals.

“This focus not only allows firms to provide the tailored advice clients desire, but creates opportunities to introduce additional products, provide more services, and even offer advice on held-away assets to better meet a client's holistic goal planning needs,” it said.

Investment management is still of course a fundamental aspect of the wealth planning process, but the bottom line is that the expectation of portfolio construction has changed. As clients increasingly measure performance against their own personal goals, firms will need to be able to clearly define and plan for them.

“Historically clients were bucketed into models based purely on their risk tolerance or very little data gathered in the 'know your customer' (KYC) process,” Scott Parry, executive vice president and general manager of advisory and investment services for SunGard’s wealth and retirement administration business, told Family Wealth Report.

“Now, as more clients prefer to have their portfolio performance measured against their personal goals as opposed to a common benchmark, wealth firms need to construct tailored portfolios that align with the goals, or more realistically, multiple goals that are discovered via the financial planning process,” Parry said. “Clients don’t want to be placed in a portfolio; they want a portfolio designed and constructed for them.”

Yet the survey showed that 68 per cent of global HNWIs and 69 of North American clients don't have a formal financial plan. Even though it has been known “for some time” that a large proportion of HNW individuals don't have a formal financial plan, Parry said SunGard and CEB were surprised by how high these figures are.

Parry noted that the financial planning process “changes as one goes up the scale of net worth;” it becomes more of an estate analysis and less of a cash flow analysis, he said. “Unlike most Americans, ultra high net worth individuals are not using financial planning to assess their chances of having a comfortable retirement, that is most likely secured.”

He explained: “Instead they are figuring out how to diversify what can be a complex web of investments in real estate, private partnerships and traditional investments, what to leave their heirs, and how to fund the luxuries of life such as boats and second - and maybe even third - homes.”

Technology

Specifically, the paper considered how wealth management firms and advisors can leverage technology to enhance their financial planning offering and appeal to a more diverse audience.

Advisors realize they aren't providing clients with the access and collaboration methods they increasingly desire, the paper said, with over one in three of the firms surveyed saying they plan to adopt or replace financial planning technology in the near future.

But not only do advisors need more effective financial planning solutions, they also require support in presenting, posting and accessing the planning output.

“Advisors will need investment databases, economic models and sophisticated analytical calculators to create proper goals, prioritize those goals, create appropriate asset allocation models, perform a detailed lifetime cash flow analysis, and perform an insurance assessment,” Parry said.

“They also need a way to gather all the required information from the client and then a way to deliver the results to the client,” he added. “Those aspects of the planning process have traditionally been a manual process, but increasingly these are being facilitated with technology solutions.”

Another key finding of the survey was that 83 per cent of financial advisors ranked financial planning as an important technology. However, only 63 per cent rated such technology as effective, primarily because they cannot display planning output to clients via a portal or tablet – despite that 70 per cent of clients own such a device. The paper advises that firms address this 20 per cent gap between importance and effectiveness to boost efficiency.

“The first place firms can start is by actually talking to their advisors,” Parry said. “Far too often, solutions are foisted upon advisors without involving them in the selection, or at least the implementation process.”

He continued: “Many times technology is inefficient because it is not integrated with other systems and does not fit easily into the workflow of an advisor’s typical day. By involving advisors in the design and implementation, and by making the planning technology an integrated part of the entire ecosystem of the advisor platform, firms can begin reducing the gap between importance and efficiency of technology.”

SunGard’s WealthStation is an example of the type of technology used by firms and their advisors to help with the financial planning process. The platform's core components include CRM, portfolio management and financial planning applications.

Some 80,000 financial professionals use the WealthStation application, either directly or through their firm. WealthStation Financial Planning offers modules for 60 different planning concepts, including: traditional retirement planning, IRA roll over analysis, social security optimization, disability insurance needs analysis, plus fifty more, Parry said.

Over 4,500 clients took part in the client experience survey.