Exercise helps you avoid dementia
We should be grateful for the sensible course set by our financial advice code

Goals-based planning

Pick a goal, then work out how much money is needed to achieve it. Then focus on the variables of time and risk. If you don't fancy accepting all the risks you can buy some financial risk transfer. It's usually cheap, and effective. Goal based planning has some great features. The goal is something that a customer wants, they set it, so the whole process starts in the right place: with the customer engaged. If we stay close to working on how to achieve the goal, then they stay engaged. It even acts as a good entry point for holistic financial advice.

Yet the dominant paradigm for insurance risk advice is, at least theoretically, capital needs analysis, with a kind of odd side-order of goals jammed in at some point. Then we hear from regulators that  it is very common to see the goals orphaned - with actual recommendations regularly failing to be connected back to the achievement of those goals. The recommendation conforms to an accepted definition of 'good' in most cases, so we arrived at the right destination, it's just that the goals-based route was ignored, we took a different route, which to many clients is more convoluted and difficult to understand. 

The big challenges are: 

  1. How we ask about goals
  2. What they mean in financial terms
  3. What's reasonable to achieve them
  4. What's a reasonable boundary for a goals-based approach

Analysis of data on insurance purchased shows that for all the complicated processes of the industry customers are buying and retaining cover which focuses on three main goals: a bare minimum to avoid passing final costs on to loved ones, sufficient coverage to support staying in the house they live in, and full indemnity. The middle one is the most common. Businesses are different, but similar. There are odd variations. Crazy cat person wants to leave a million dollars to the SPCA - good for them.  Then there are oddities when incomes and goals are way out of whack: the tech start-up boss around the corner is losing $100,000 a month, but still wants shareholder protection cover for $5 million. Goals can be crazy, but they are also what energises people. 


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