In this space, I often talk about the value hub of an advisor’s practice as planning. I usually mean financial planning, but obviously investment planning is a key part in achieving clients’ goals too. In fact, aligning client investment portfolios with their goals can help a client better understand their plan, and stay the course in volatile times. The alignment should help modify a client’s emotional behavior as the investments reinforce the plan and vice versa.  So, why aren’t more advisors constructing goals-based portfolios? If you are, why don’t your clients know about it?

Aligning client investment portfolios with their goals can help a client better understand their plan.

SEI recently analyzed a July Phoenix Marketing International survey of 900+ affluent U.S. households.  More than half of the respondents said their advisor uses a goals-based approach to manage their investments. Frankly, this makes sense to me.  An advisor does a deep discovery into the goals and dreams of a client; they use planning tools and software to uncover issues and concerns. After churning out a thorough plan, they implement aligning different portfolios based on different goals. That is what should happen right? Unfortunately, only 1/3rd of the respondents in the survey could accurately describe what a goals-based approach is.


The survey defined goals-based as: “containing  multiple portfolios, each designed to meet a return, risk and time horizon target for each of their specific goals”.  Almost 70 percent of the respondents did not define it accurately as they thought goals-based could be one portfolio, or admitted not understanding the term at all. Either we are not educating our clients about how we construct portfolios to match goals or we’re not constructing portfolios to match goals, therefore using a one-size-fits-all portfolio approach.  It seems we’re missing a few opportunities here.

If you are constructing goals-based portfolios, it may make sense to re-educate your clients.  Start by:

  • Using brochures or time in client meetings to make sure you cover (and re-cover) your investment process and how it fits into your planning offering.
  • Name the portfolios for reporting purposes – name them after timelines or specific goals. Tie them to the planning.
  • Measure progress to goals. Typical client reviews center on performance vs. a specific benchmark. Change the conversation; show progress towards college funding or retirement nest egg instead of showing the Dow, S&P or the Bloomberg Barclays Agg.

Get some coffee

If you are using a single portfolio for all clients’ goals, it may be time to reconsider. Think about it from the client’s perspectives. Hypothetically, let’s say your client has a shorter-term goal currently, but also has a growth goal, as they want to leave a significant legacy.  The market tanks. Do they have the mental accounting ability to remember that for example, 35% of the single portfolio is long-term growth and 65% is for their current income?  Do they stay the course or go against your advice and want to move to cash (or at least more conservative)?

Dan Nevins – who wrote the ground breaking 2004 paper “Building Goals-Based Investment Strategies” – gives this example:

“This morning at breakfast, I ordered a cup of steaming hot coffee and some cold freshly squeezed orange juice.  My server replied that, on average, I see that you like your beverages room temperature.”

His point: it’s hard to lump all of our goals into a single portfolio and achieve the desired outcome. Based on human behavior, something is going to give. And I bet it would be during times of stress when your client is panicking and that may be the absolute worst time to make a change.

If your clients are looking at their well-diversified portfolios right now and want to get more aggressive to keep up with the S&P. Or if they want to move out of that same portfolio to avoid volatility in a downturn, maybe it isn’t the communication, maybe it is the construction.  Either way linking their portfolios to their plan and communicating about it makes sense.

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Dan Nevins and Phoenix Marketing International are not affiliated with SEI or its subsidiaries.

Investing involves risk including possible loss of principal.

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