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Defining a client’s goals and objectives

5 March 2020

What are ‘goals’, ‘objectives’, ‘strategy’ and ‘tactics’ and how do you use them in financial planning? Robert Harper, senior paraplanner at Strabens Hall and PFS Paraplanner Panel member, considers this question in relation to client portfolios.

This is the full version of an edited article which appeared in the March issue of Professional Paraplanner.

As Aristotle probably once said on the excellence of practical rationality and self-planning, “First have a definite, clear and practical ideal; a goal, an objective. Second have the necessary means to achieve your ends; wisdom, money, materials and methods. Third adjust your means to an end”.

That is how I would best describe the financial planning process.

Goals, objectives, strategy and tactics are the four necessary steps to managing money well. The four terms have been central to living life in general, even before year zero in Aristotle’s time!

I believe there is confusion amongst some about the terms, so I explain them as I understand them and highlight the importance of being able to separate the terms in the context of building a financial plan.

What is the difference between goals and objectives?

For a long time, I did not know the difference between a goal and an objective. I actually thought they were the same thing. It is bit like an African elephant and Indian elephant standing next to each other. Unless you know the differences they can just be defined as elephants.

Generally speaking, a goal is a description given by the client of what they want (it’s a destination) stated in quite general terms.

For example a client may state two main goals as:

Goal one: “I want to maximise the amount I can spend in retirement”

Goal Two: “I want to gift money to my children to help them out with purchasing property”

An objective is a measure of the progress that is needed to get as close to an ideal as reasonably possible ‘all goals considered and priority assigned’.

Why do we state objectives not goals in reports?

The problem with goals left as they are is, they are just statements that lack specifics, timelines, level of motivation (priority), and a reality check.

Looking at the above goals in the context of client actions, we see why this might be an issue. If the client gifts too much, they lower their standard of living in retirement, if they save too much for retirement, their children might not get the properties they need. They are in actual fact ‘conflicting goals’.

If goals are not restated as objectives, the adviser cannot measure progress towards goals or make sure the plan is working in the way it should be prioritised. You could quite easily say that based on the goal above, £1 will help them out to some extent, but that is unlikely to be the client’s intention, given that more often than not, parents want to make a material difference to their children’s lives.

To make goals become objectives, we can assign a SMART analogy to help.

Let’s make Goals ‘SMART’!

The SMART acronym was probably first written down in 1981 in Washington by a former Director of Corporate Planning for Washington Water Power Company.

This may have originally been aimed at business target setting, but, this can also be adapted to setting a client’s objectives. There are other variants but this how I apply it.

  • Specific: ‘What’ is the target or specific client area of improvement?
  • Measurable: What quantity, estimate, indicator of progress that can actually be written down? This serves as a measure of progress for future reviews, priority weighted.
  • Achievable:  Is the knowledge and experience of the client/adviser enough to ‘get it done’? Can the client discipline themselves to stick to the objective?
  • Realistic: Can present resources, ‘realistically’ hit the future target measure? Is it attainable without being too easy or too hard? If too easy, does the client really need to take the maximum risk defined by risk profiling? Should ‘measure’ increase?
  • Time-bound: When can the result be achieved? Over what time period? (Deadlines make it easier to achieve objectives).

When you make goals SMART you remove the woolly thinking out of the equation and bring clarity, focus and motivation to the client and adviser. The adviser should ideally have a discussion with the client about the priority of each goal and how money can be split between them.

Cash flow modelling is a great help in assigning values to objectives that are realistic and time bound.

Examples – Making goals SMART

Let’s look at those two conflicting goals again and let’s suppose the client says their retirement is most important, but they must at least be able to gift enough to their children so they can get mortgages.

After allocating the minimum for deposits (£50,000 each) cash flow modelling shows they can probably target £40,000 p.a. in retirement as a sustainable maximum:-

SMART Objective 1: You will retire at age 65. After allowing for your essential spending of £16,000 p.a. in retirement which must be covered, you will aim to spend a further £24,000 p.a. on your lifestyle (which includes holidays and leisure) sustainably over your retirement. This is a total equals a spend of £40,000 p.a.

SMART Objective 2: You will gift £50,000 in 5 years to each of your daughters, Molly and Polly who are currently finishing University, to help with their property purchases. This is likely to be the minimum they will need in your local area to get a mortgage assuming 5% p.a. growth in property.

What about strategy and tactics

Strategy is the ‘life plan’ of the client that will hopefully achieve the objectives. It is updated every year and is a long term view of what the client is going to do. When I list strategy, I do so with link back to the objectives and could be constructed as a discussion document in advance of the main advice letter, or included within it.

A strategy commonly includes things like:-

  • Amount of emergency fund.
  • How much cash will be kept for short term capital expenditure in the next five years?
  • How much will be invested and into what wrapper types.
  • How they will achieve maximum income.
  • How investments will become more efficient over time.
  • How much will they pay into to various wrappers in the accumulation phase of life.
  • How they will de-cumulate wealth.

You cannot employ tactics until there is strategy in place.

Tactics are what the client will action in the ‘here and now’ and concerns suitable products and investment managers.

For example:

  • Choice of provider / fund managers / discretionary fund manager
  • Should a pension, ISA or GIA be Transferred or even consolidated with others?
  • If bonds should be surrendered/assigned/kept?
  • Investment allocation and attitude to risk that will be adopted

Common muddling of tactics and objectives

A common muddling I have come across, is that sometimes desired tactics of the client are easily stated as objectives.

For example, ‘The client wants to transfer his/her pension from A to B’ or the client wants to invest into XYZ discretionary manager.

These are not objectives, but tactics to achieve an objective. To assess if the transfer should actually go ahead we should understand why the client wants to do it and make sure that reasoning is sound for their higher level objective.

Suitability to the overall objective should be found. For example the overall objective could be to retire on £40,000 p.a. and the transfer that the client wants can be perfectly reasoned from the stand point of saving on cost, to boost the Likelihood of the client living closer to that goal.

No specific needs or objectives

This probably does not happen often, but there may be times where a client doesn’t have any specific needs and objectives in relation to making an investment or engaging in financial planning no matter how much discussion has been had.

Clients may just want growth to grow wealth and financial security to satisfy their own mental wellbeing, or they maybe want to decide on objectives in the future.

This is reasonable, but the reasoning should be noted on the file and, when this is the case, I look for a evidence of a good discussion on objectives before coming to that conclusion.

Suitability letter (Some tips to detail strategy and tactics tactics)

1. Try and list only two or three main benefits of employing the specific strategy, tactic or recommendation.

2. The suitability letter should ideally refer back every line of reasoning for the tactics (recommendation) back to an objective at the start of the report to clearly demonstrate suitability.

3. Try and avoid listing features as reasoning for the choice of product provider. Generally if the benefit listed does not specifically make progress to one or more objectives, it is not central to the recommendation and just a feature. For example, online access, financial security of the provider (as long as client protected by FSCS), service levels. These are still relevant nice to haves of course, but can probably can go into the appendices or kept on file as research.

In conclusion, when planning for the client; avoid stating goals, strategy or tactics as objectives, but do link strategy and tactics to the objectives when formulating reasons why. For transactional advice, sense check the client strategy they themselves have formulated, particularly for final salary transfers.

Build the plan in the right order. Goals, objectives, strategy tactics and if helpful hold a strategy meeting with the client before tactics.

Importantly, think SMART.

Professional Paraplanner