Investment industry professionals have their priorities backwards.
Instead of talking about solving clients’ problems, portfolio managers focus on selling themselves and their records, says Lionel Martellini, professor of finance at EDHEC Business School and senior scientific advisor at ERI Scientific Beta.
We need to stop talking about ourselves, and start talking to our clients about what they need, Martellini told the advisors gathered at the Investment Management Consultants Association’s conference, June 14.
Advisors should use clients’ goals to determine how to invest. The first step is to sort those goals into essential and aspirational, based on how much money a client has to invest, and his or her risk tolerance. If money and tolerance were infinite, then there would be no need to distinguish between the two types of goals, says Martellini, but in the real world, advisors must focus on achieving what’s possible with limited resources.
In his presentation, he outlined the three factors in goals-based investing: insurance, diversification and hedging, and showed how to use them to achieve both essential and aspirational goals.