Why goals-based wealth management has yet to reach its full potential

The discussion around goals-based wealth management has been circulating for a while now, since the financial crisis in 2008 caused investors and advisory firms alike to pause, reflect and think about a better way to help clients manage their financial futures.

Rather quickly, that “better way” took shape in the form of serving investor households, not just individuals, to gain better clarity into their entire financial landscape (aggregated income, assets, liabilities) and truly understand them as families — their dreams, aspirations and life goals.
As such, goals-based wealth management was born. Advisers moved to help retail investors envision, plan and invest against their household financial goals in order to achieve the ultimate dream of a comfortable retirement and efficient decumulation of wealth.

(Related: The case for embracing goals-based wealth management)

The goals-based idea is strong, embraced as an approach, and actions around what must be done are well documented. In fact, many components needed to support GBWM are actually already in place. But as an industry, we have not officially brought GBWM to life. There is one operative word that explains the delay in the broad realization and elegant delivery of GBWM: components.

If we break down the requirements to deliver GBWM, we can organize them into a few core components: household data aggregation, proposal generation, financial planning and advice, product and investment selection, asset allocation and rebalancing, income optimization, compliance monitoring and reporting.

In order to efficiently perform all these things for the investor, the industry has solved for each component one at a time, taking each function and developing the tools to automate it. By doing so, a startlingly complex eco-system of siloed technology has been created.

Technology’s current state

From a “10,000 feet up” technology perspective, we currently sit with siloed tools built in the past for a different service model that supported separate components of investor needs. Today, the model is very different. GBWM is exceedingly more comprehensive and holistic, but also complex. It requires cohesive, seamless and simple component delivery — elegantly bringing together what is now chaotically separate.

We all know the right thing to do for the investor and genuinely want to oblige, yet current technology is being unraveled and reassembled to support the new direction — which takes time. All the while, advisory firms are losing runway. They must move quickly and, in fact, are now facing another challenge: in addition to needing to efficiently support GBWM, they must do it for an increasing number of investors.

To survive and grow, traditional advisory firms must not only serve existing clients with a goals-based approach, but also capture new clients across additional segments. This includes a mixture of investor profiles, from high-net and ultra-high-net worth to mass affluent and millennial investors. The question for these firms is: how can they deliver this with current-state technology?

The future state

Some look under the hood and see technology as a mess of spaghetti and, with head in hands, wonder where to begin with the unraveling and rebuilding. Others see a beautiful mosaic of rich, robust capabilities that simply need to be served up in a more streamlined, unified way — to snap a total picture into place for a unique user type.

(More tech insights: Why it’s time to evolve your firm’s technology)

I fall in the latter camp. The best approach to solve the industry’s challenge of serving more investors with goals-based wealth management is to leverage all of the beautiful functionality already in place. Upgrade what is old and fill in what may be missing with best of breed, either by developing or integrating to existing systems. Then focus on unifying the delivery to the user.

We also know that firms must embrace a digital offering to capture newer segments of investors. To prevent that technology from disrupting the stability of the current service model, firms would do well to take the “mosaic” approach. Digital wealth is just another component serving a separate objective to be unified into the whole.

Pushing technology to its limits

As an industry, we must push technology to its limits. Make it work harder, process faster and scale bigger to support greater productivity and growth. Managed solution assets increased to $4 trillion in 2014, up 14% from prior year. Analysts project managed accounts will exceed $7.2 trillion by 2018. With that level of growth, speed and scale must become just as important a consideration as individual functionality for future-state technology.

Through my work with some of the top broker-dealers and largest asset managers in the U.S., I know that the leaders of these firms are driving the use of unified technology and ramping up speed and scale to support their delivery of GBWM. This speaks volumes to how hard the industry is working to get this right. Technology firms serving the industry must ramp up and do the same.

And while there is much work left to do, advisers, executives, operations managers and technology firms must continue to work together to keep this momentum moving in the right direction for the ultimate benefit of the investor.

Cheryl Nash is president of investment services at Fiserv.