“What we want and what we need
Has been confused, been confused”
— REM “Finest Worksong”
Journeys and destinations
Commissioner Hayne definitively instructed financial advisers to “obey the law”.
At one level, that’s a simple directive. In reality, while it’s not a complex obligation it does ignore the complexity of the law and the practical challenges or reconciling legislative principles against individual circumstances. It is a task made more difficult by the absence of clarity and our own lack of certainty.
In our experience, a common failure is the inability of advisers, paraplanners, regulators and compliance experts to properly differentiate between ‘goals’ and objectives.
This is particularly problematic given that Section 761 of the Corporations Act requires advisers to consider their client’s relevant “objectives, financial situation and needs”.
Let’s leave ‘relevance’ aside for a moment and focus on two critical elements of appropriate advice – the client’s goals and objectives.
Goals are qualitative
Your client’s goals and objectives are the foundation on which personal advice is built. As we’ve previously observed most advice professionals can easily uncover their client’s goals and objectives and develop broad strategies to satisfy those identified needs. However, advisers often struggle to demonstrate how their recommendations comply with the law.
A goal might be as generic “sorting out my super” or “making sure I’ve got enough to retire” or “ensure my family is looked after if I’m injured”.
It’s a qualitative element that reflects an articulated or implied emotional or lifestyle concern that is blind to products or strategies.
“I want to make sure that I have enough for retirement”, or “I want to be able to pay my bills if I can’t work”, or “I want to go on a holiday”, are all very reasonable things that your client may want, although by themselves are not enough to start taking steps to accomplish any of them.
In both cases, the clients’ goals to plan for retirement or to protect their lifestyle are practical and emotional needs. Buying property, consolidating funds or salary-sacrifices may be the strategies by which they’ll achieve their goals but they are, in fact, objectives.
Goals and objectives are different and distinct. An easy way to differentiate between them is to recognise that the Goal is the desired outcome and not the path to reach it. An effective articulated goal:
- provides the bigger picture, and does not usually contain a high level of detail;
- Is contextual, objective and subjective; and
- Is often inferred or uncovered by the adviser; and
- can be emotional, challenging and confronting.
Remember that most clients have multiple goals that they hope can be pursued simultaneously.
The real challenge for advisers is that properly identifying goals requires a deep and intimate understanding of your client’s hopes, dreams and circumstances. Sometimes, this requires a frank discussion with your client about realistic goals and expectations (and a considered effort to reconcile the differences between them).
Objectives are quantitative
Identifying Goals tells you where your clients want to go. The Objectives are the tactics and quantitative measures by which their Goal(s) are likely to be satisfied. Objectives should be clear, SMART and testable and must
- Outline specific steps to be taken;
- Contain detailed successive, progressive or complementary measures; ; and
- Are relevant to the identified goal.
If the goal is clearly understood, the objectives are the means by which the client is more likely to achieve that goal.
Reconciling goals and objectives
Few clients have specific goals.
Fewer clients have clear, structured and prioritised goals.
Most simply have an intuition (or an apprehension) that they’re not heading in the right direction.
Many clients can’t articulate their own goals beyond expressing a need for certainty and reassurance. The empathy, objectivity, competence and diligence required by your Code of Ethics are essential for helping them to identify and satisfy their goals.