How can we move away from buying funds to delivering outcomes?

‘We are noting that more clients are aware of longevity, both regarding themselves and their parents.’

Will Powell, Financial Planner at Connor Broadley Wealth Management

A change in work patterns combined with different longevity expectations and generational challenges are creating a radically different climate for financial planners trying to meet the needs of individual clients.

While the industry has begun to address these issues, there is a consensus that it should do more to help advisers deliver outcomes rather than simply provide benchmarked performance.

‘Although the industry is evolving, progress is very slow,’ says Tim Clift, a chief investment strategist at Boston-based Envestnet PMC.

Because the industry has been built on benchmarking for so long, it is not just the sales but also the reporting function that is struggling to catch up with evolving requirements in the marketplace. As a result, Clift says, change is taking longer than people would like.

‘Clients don’t necessarily care about benchmarks. Often the benchmark aspect is simply a legacy of what advisers have told them in the past. When you dig deeper, you find out that the things they really care about are more to do with generating income, managing overall risk, or environmental and social impacts,’ he says, adding that the onus is on advisers to understand these goals at the initial planning stage.

Clift says he would like to see a broader range of products that are focused on outcomes, combined with a clear sense of how these can be benchmarked and how they should report.

‘For example, we would like to see more products targeting a specific rate of return, upon which clients can base their planning,’ he says.

A recent look at Envestnet’s platform revealed only around 200 portfolio solutions that could be considered outcome-oriented, compared with 10 times that amount that are benchmark-focused.

‘We are seeing constant demand for greater customisation on our client accounts, whether that be in terms of income mandates, ESG [environmental, social and governance] requirements or customised tax applications,’ Clift says. ‘From our perspective, the more options we have for meeting these requirements, the better.’

The changing patterns of employment are also presenting a specific set of challenges for advisers.

‘Greater flexibility in the way careers are now structured means that people may have different income requirements from their portfolio at different times in their lives,’ he says. Again, he stresses, this is something that needs to be incorporated by advisers at the financial planning stage.

As life expectancies increase significantly, so do the generational aspects of planning requirements, says Will Powell, a financial planner at Connor Broadley Wealth Management in London.

‘We are noting that more clients are aware of longevity, both regarding themselves and their parents. Our clients tend to be in their mid-50s, and their parents may soon be in need of long-term care,’ he says.

Often, he points out, these can be people who have not done much estate planning and may have large properties but, after an unexpectedly long retirement, relatively little in liquid assets.

At the other end of the spectrum, Powell says, clients will typically have children entering the workforce, or trying to get onto the property ladder. With stable employment prospects for the younger generations often a challenge, this too must be factored into plans.

He notes that while there are a growing number of investment solutions designed to smooth out a client’s income drawdown, it is Connor Broadley’s target return philosophy that ultimately informs the future return assumptions in clients’ financial plans.

‘It’s this philosophy and the close relationship between our planning and investment teams that give clients confidence in those plans,’ he says.

Madalena Teixeira, a senior portfolio manager at ASK Wealth Management in Lisbon, also sees a shift away from benchmark-oriented goals when investing.

She notes that smaller, more agile investment managers are often less constrained when it comes to their investment processes compared with giant asset managers. As a result, she tends to favour these types of operations.

‘In Portugal, clients tend to be very conservative and are much more focused on preserving capital than they are on whether or not the benchmark has fallen. We find that more nimble investment houses, where we have easy access to the management team, give us the tools to achieve the outcome clients want over a given time horizon,’ she says.