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Goals-Based Wealth Management: An Integrated and Practical Approach to Changing the Structure of Wealth Advisory Practices



Goals-Based Wealth Management: An Integrated and Practical Approach to Changing the Structure of Wealth Advisory Practices

Jean L. P. Brunel

ISBN: 978-1-118-99593-8 February 2015 272 Pages

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Take a more active role in strategic asset allocation

Goals-Based Wealth Management is a manual for protecting and growing client wealth in a way that changes both the services and profitability of the firm. Written by a 35-year veteran of international wealth education and analysis, this informative guide explains a new approach to wealth management that allows individuals to take on a more active role in the allocation of their assets. Coverage includes a detailed examination of the goals-based approach, including what works and what needs to be revisited, and a clear, understandable model that allows advisors to help individuals to navigate complex processes. The companion website offers ancillary readings, practice management checklists, and assessments that help readers secure a deep understanding of the key ideas that make goals-based wealth management work.

The goals-based wealth management approach was pioneered in 2002, but has seen a slow evolution and only modest refinements largely due to a lack of wide-scale adoption. This book takes the first steps toward finalizing the approach, by delineating the effective and ineffective aspects of traditional approaches, and proposing changes that could bring better value to practitioners and their clients.

  • Understand the challenges faced by the affluent and wealthy
  • Examine strategic asset allocation and investment policy formulation
  • Learn a model for dealing with the asset allocation process
  • Learn why the structure of the typical advisory firm needs to change

High-net-worth individuals face very specific challenges. Goals-Based Wealth Management focuses on how those challenges can be overcome while adhering to their goals, incorporating constraints, and working within the individual's frame of reference to drive strategic allocation of their financial assets.

Acknowledgments xiii

Preface xv

Introduction 1

Part One The Integrated Wealth Management Challenge

Chapter 1 Many Interrelated Disciplines 11

Multiple Sources of Capital 11

Expanding on the Corporate Analogy 13

Multiple Interactions 16

Educating Future Generations and Wealth Transfers 18

The Make or Buy Decision 20

The Creation of a Wisdom Council 21

Summary and Conclusions 22

Chapter 2 An Example of a Crucial Interaction: Tax-Efficiency 23

The Tax Bite and Its Impact on Compound Returns 24

A New Analysis of Capital Losses 25

An Expanded Definition of Active Management 26

Applicability to Both Asset and Security Decisions 27

Abandoning the Murky Middle: The Barbell Portfolio 29

The Potential Role and Limits of Derivative Strategies 31

Summary and Conclusions 33

Chapter 3 The Need for a Financial Interpreter 35

What Makes Markets Work? 36

Asset Classes, Sub-Asset Classes, and Strategies 38

Developing Reasonable Expectations 39

Performance Analysis and Reporting 42

Summary and Conclusions 45

Part Two Investment Policy Formulation: Goals-Based Allocation

Chapter 4 A Brief Journey through Institutional Theory 49

Five Important Features of the Typical Institutional Investment Organization 50

A Quick Detour via Asset Liability Management 55

Summary and Conclusions 56

Chapter 5 Mapping Institutional and Individual Issues 57

The First Crucial Difference 59

A Second Important Difference 61

A Different Way of Defining Risk 62

The Law of Large Numbers 63

Implications 64

Summary and Conclusions 65

Chapter 6 Goals-Based Strategic Asset Allocation 67

The Basic Principle 67

Initial Theoretical Objections 70

An Academic Imprimatur 71

A Few Simple Principles 72

It Changes Everything 74

An Interesting Implication 76

Summary and Conclusions 77

Part Three Goals-Based Wealth Management Implementation

Chapter 7 Dealing with the Implications of the Process 81

Covering a Set Number of Bases 81

Mapping Asset Classes and Strategies to Goals 85

Understanding Limitations 87

Dealing with Client Objections 88

A Three-Phase Process 90

Summary and Conclusions 91

Chapter 8 Creating Goals Modules 93

Developing General Capital Market Expectations 93

Describing Sufficiently Generic and Specific Goals 95

Creating Constraints Appropriate to Each Goal 98

Optimizing the Composition of Each Module 103

A Possible Example 107

Summary and Conclusions 109

Chapter 9 Working to Understand Client Goals and Goal Allocations 111

Identifying Crucial Initial Client Constraints 111

Determining Whether Any Constraint Is a Show-Stopper 114

Time Horizon and Required Probability of Success 115

Settling on the Appropriate Module 120

Sizing Assets Needed to Meet Each Goal 122

A Possible Example 123

Summary and Conclusions 127

Chapter 10 Finalizing a Goals-Based Policy Allocation 129

Two Possible Approaches 129

Working from Assets and Modules to a Whole 131

Description of Deviation Ranges 132

Our Original Example, Modified and Completed 136

Summary and Conclusions 145

Chapter 11 Managing the Portfolio Tactically 149

The Complexity in the Absence of a Systematic Tool 150

Introducing the Concept of a Tilt Model 153

Five Possible Variations on the Same Theme 156

A Major Pitfall 159

A Possible Example 161

Summary and Conclusions 169

Chapter 12 Portfolio Reporting 173

The Current Challenge 173

A Simple Analogy 178

Adding Taxes Makes Things Even More Complex 180

Summary and Conclusions 181

Part Four Managing an Advisory Practice

Chapter 13 The Currently Typical Firm Structure 187

Many Chiefs and Few Indians 188

The Root of the Challenge 189

Contrary Examples in the Legal and Medical Fields 191

A Simple Illustration 193

Summary and Conclusions 195

Chapter 14 Teams Versus Individuals 197

Too Many Disciplines for Anyone to Master All of Them Fully 197

Specialists, When Left Alone, Lead to Silos 199

The Crucial Role of the Team Coach 200

Only One Individual Can Play That Role 203

Summary and Conclusions 204

Chapter 15 An Alternative Structure 205

The Primordial Role of the Advisor 205

The Missions the Advisor Should Not Accept 207

The Difference Between Must and Does Not Need to Be Tailored 209

Imagining a Different Firm and Process Architecture 212

The Kind of Leverage That Can Be Built 217

Dealing with Objections 218

A Difficult Decision 222

Summary and Conclusions 225

Conclusion 227

About the Companion Website 233

About the Author 235

Index 237