Birthdays, graduations and anniversaries are all festive occasions when we recognize the various milestones in life with the people most important to us. In addition to celebrating these events, they give us an opportunity to reflect on what we’ve achieved, how we want to live our lives, and what our expectations are for the future.
And investors with an eye on retirement should always consider inviting their financial advisor to the party – at least metaphorically. Throughout a client’s life, an advisor should act as a guidepost, tracking their progress on the road to a healthy retirement and keeping tabs on financial goals.
To get the party started, clients and their advisors should sit down regularly to review the performance of investment portfolios, make adjustments that follow a long-term, goals-based approach, and identify the events likely to impact client finances going forward. Everything from the birth of a child to the death of a parent, childcare to Medicare, and marriage to divorce, should be discussed, as each is likely to affect client finances and retirement plans.
A goal-oriented strategy aligned with a client’s retirement timeline helps build wealth over the long term rather than relying on an investment-focused approach, beating a particular benchmark, and earning the right to manage client assets for the next quarter.
In fact, the financial advisory industry as a whole is moving towards a goals-based engagement model, using custom portfolios consistent with a client’s risk profile to achieve long-term performance rather than surpassing a benchmark. Advisors who are more product and investment focused, and unwilling to adapt to this growing industry trend, are likely to fall behind.
Advisors need to determine required returns, not benchmark returns, to help clients with their retirement objectives and the probability of successfully achieving them. This process allows advisors to better craft portfolios that minimize risk, but hit the return targets necessary for long-term growth. It also educates clients about the financial decisions they can make to improve the probability of reaching their retirement goals.
For example, a client with $500,000 wanting to retire in 15 years with $1,500,000 will need an 8% annual net portfolio return. If the client shifts gears along the way and starts to consider an earlier retirement, a new dialogue with their investment advisor is necessary about raising the required return to meet the new objectives. Further, an advisor should determine whether the client should increase savings, pare spending or consider other actions.
Advisors need to manage client expectations by curbing excessive optimism during boom times, being a calming force amid down markets and always keeping an eye on long-term performance.
Advisors who stick with a goals-based plan and continuously monitor portfolio progress will serve their clients well, and perhaps secure an invitation to the next party – if not create a reason to celebrate.
Matt Matrisian is Senior Vice President and Director of Practice Management at AssetMark, Inc.
