Managing Goals Based Investment Portfolios for Financial Advisers

Help for financial advisers to understand the benefits of managing goals based investing portfolios that align with client goals.


Financial Advisers all know what investing looks like. They know the different ways portfolios can be structured and what markets will generally do under different conditions. They typically aim to develop investment portfolios that give their clients certain returns over the lifetime of their investment.

Currently, the approach used by most advisers to develop portfolios set according to the investor’s risk profile. The approach has two key challenges:

  1. Risk profiling does not necessarily align with the investor’s actual financial needs
  2. A Strategic Asset Allocation approach that matches the chosen risk profile is developed on backwards-looking data and mostly static regardless of market conditions.

In other words, investment management is not matched directly to the future financial needs of clients. Also, the investment methodology treats market volatility or periodic loss of capital as an acceptable side effect. The problem for advisers is that clients don’t tend to agree with that.


The Solution - Goals Based Investing

In 2019, investors want more. More control, greater certainty and the ability to fully understand how their investments are managed and the value for money that their adviser provides.

Goals Based Investing is an investment approach that allows the client to better understand the direct correlation between their investment and their objectives, and to engage more meaningfully with their adviser on what matters to them.

So, what are investors looking for? Moreover, how can advisers help them achieve their short, mid and long-term goals in a way that makes sense to them?

 Each goal or portfolio built to match that goal will expose a client to different levels of growth or return, and each comes with its own levels of volatility or risk; depending on the nature of the goals or duration of the investment.


Dynamic Asset Allocation and Managed Portfolios

One of the most significant advantages of a true-to-label Goals Based Investing approach is that assets are allocated dynamically according to market, asset class and investment foresight. It is both predictive and reactive in nature. In a Goals Based investment portfolio, all investments must each suit a purpose in achieving the stated goal; otherwise, they are not included.

A simple enough idea, but to manage portfolios using Dynamic Asset Allocation requires the expertise and time of a dedicated portfolio management team.

The following examples demonstrate how Dynamic Asset (the business) has developed Goals Based Investment portfolios to meet investor goals, across growth, income and risk.

Advisers would typically mix and match goals based portfolio allocations to align with the precise goals of each client.


Short-term, lower risk investments

The Dynamic Asset Cash-Plus portfolio is a cash flow/liquidity orientated portfolio constructed with the aim of providing for capital or liquidity requirements between 3 and 12 months. It is designed to replicate Term Deposit rates, after fees, to help manage the otherwise cumbersome process of managing and rolling over term deposits.

This type of portfolio only uses safer, short-term investment opportunities that have minimal volatility while providing Term Deposit levels of income.

Comparatively, the Dynamic Asset Short term portfolio may be used for periods of 1-3 years. It is cash flow/liquidity orientated, providing capital or liquidity requirements for this period.

Unlike the Cash-Plus portfolio, the Short-Term portfolio uses a slightly more comprehensive range of low volatility assets that will, in turn, provide a modestly higher level of return while still maintaining appropriate levels of risk.

These two portfolios are suited to clients who are looking for a way to maintain a short-term liquid asset pool without taking substantial risks in investment. They like to know precisely what they are saving for, the duration of saving required, and how much volatility they are comfortable with.

When clients are seeking to invest over an extended period, without necessarily preparing for retirement or the long-term, a broader investment mix paired with a slightly higher level of volatility. Portfolios such as the Dynamic Asset Mid-Term Portfolio, allows investors to grow their capital over a three to five-year period, with a risk target of less than 6% and a return target of CPI +3% (net of fees).


Building and Protecting Wealth

Although shorter-term investments are important to your clients, long term investments are where the bulk of an advisers investment portfolios usually lie. These can be accumulators looking to build their wealth over time or retirees looking to protect their capital for the long haul.

Portfolios such as the Dynamic Asset Long Term Wealth Protector Portfolio focus on managing volatility and downside risk, with capital volatility targets of less than 6%. The objective of these portfolios is to generate 60% of its return target through income and 40% through growth while still offering a safeguard from significant changes in the market and negative returns. As the name suggests, the Protector portfolio is designed to protect money for the future for risk-conscious investors by using a mix of principally defensive and alternative investments.

A portfolio such as the Dynamic Asset Wealth Builder Portfolio suits those that have higher investment outcome needs and are comfortable with a higher level of risk. For example, it often suits accumulators with long timeframes to work with, investors that need to boost returns to achieve their long-term goals or for investors that want to borrow to invest.

Building wealth, as we all know, is associated with higher levels of growth along with volatility and risk.  This outcome orientated nature of this portfolio focuses on achieving those high levels of growth while still managing capital volatility targets of less than 11%. The Wealth Builder portfolio is recommended for periods greater than seven years and uses growth and alternative investments predominantly.

Dynamic Asset Portfolios are typically blended, rather than used independently, allowing the adviser to be client focused and customise each portfolio to align to their goals. Client communications, portfolio construction and reporting is simpler and more streamlined, referring to actual portfolio benchmarks rather than traditional market benchmarks. By understanding the nature of their reasons for investing, as well as providing your client with a diverse mix of risk-aware investment options, you are showing them there is a new, better way of investing.


The Benefit of Managed Portfolio Services

As described earlier, the level of resources, expertise and time required to managed Goals Based Investing Portfolios using Dynamic Asset Allocation is substantial. This is where Managed Portfolio Services provide the solution.

With a Managed Portfolio Service, such as that provided by Dynamic Asset, the adviser can use the tools and resources of Dynamic Asset to allocate client investments to one or more of the Dynamic Asset Portfolios. An allocation which is based entirely on their financial goals.

Dynamic Asset then manages the investment portfolios using Dynamic Asset Allocation. They do so through their highly experienced investment committee, portfolio manager and administration services, under which the funds are primarily managed dynamically as individual Managed Discretionary Accounts.

The benefits of outsourcing using a managed discretionary account are:

-    Time saved on investment research and allocation

-    Tools for professional portfolio construction to match to each client goal

-    Time saved on chasing authorities from clients and executing orders

-    Dynamically managed investments that are designed to provide outcome driven returns, not market linked returns, improving the likelihood of superior risk-adjusted returns.

As client expectations continue to evolve and escalate, finding ways to offer better value is the critical question for every financial adviser. Goals Based Investing deployed through a Managed Portfolio Service is a compelling solution.

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