• Karina Dorogi

Compliance Update: Client Goal Setting

Client goal setting to align with ASIC's expectations according to MLC.



An Adviser sat in on MLC’s interpretation of ASIC’s Goal Setting Expectations webinar and sent us their notes. We’ve packaged them up into 4 digestible parts for your goal setting and measuring pleasure:


Part 1 - Defining Client Goals


The Learning outcomes were;

  1. 3 major requirements

  2. Distinguish between goals and objectives

  3. Questions to clarify; client objectives

  4. Questions to clarify; priority of objectives


The first major requirement of RG515 is that goals are now;

  1. Specific

  2. Measurable

  3. Prioritized (SMP) –

Specific Measurable and Prioritised replaces the old SMART goals. Strategies must align and specifically address the clients goals.


Let’s take retirement as the client goal example;

Specific:


To be considered a 'specific goal' about retirement, the client has to tell us;

  1. How much income they require?

  2. Will the income be indexed with inflation?

  3. What age will the income be retired i.e. age 87?

  4. Are there any one off expenses that need to be factored in?

Measurable:

  1. How do you know when you get there?

  2. At review how do we show this? Depending on the clients answer to point 1, we could use Lifestyle Goals Modeller or some other tracker to show them how they are going towards their goal and when they have achieved it.

Prioritised:


If the Adviser identifies that there are insufficient funds or not enough time to achieve the goal, the Adviser could ask the client; what do they want to focus on?


E.g. I want to retire at 60 on $100,000 net income measured in today’s dollars and indexed with inflation. In addition, I want to travel overseas yearly until I’m 70 with a travel budget of $20,000pa, also indexed with inflation. ASIC prefers "seriously tailored" – so do clients!

Part 2 - Questioning Techniques


MLC suggests framing, asking and then confirming with the client. Is the right approach setting specific, measurable and prioritising client goals?


Here’s a few tips for the Retirement example;


"I’d like an idea of how long we should be looking to fund your retirement for. You’ve mentioned retiring at 60".


Or;


"You’re 45 now. Half the people your age will die before age 83, while the other half live longer. Do you want me to aim to ensure funds last until 83 or for longer?".


Or


"Does your family tend to live into their 80's even 90's? If they do, we will need to ensure that their funds are to last those extra years".

The next question is to ask about their expenditure.


"Think about what you are currently spending money on. For now, ignore your mortgage or any one off expenses like a new car or holiday. In retirement, what % of your current day to day spending would you still want to achieve each year?".


"Indexation. Inflation will cause that $X to buy less and less over time. Can I assume you will want to keep up with inflation?"


Or;


"So you’re looking to retirement at 60 on X% of your current expenditure indexed to keep up with inflation and you would like that to last at least until age 88. Does that sound right?"

Here’s an example of a conversation between the Adviser and Client, discussing Insurance;


Client: I want to look after my kids if I die.

Adviser: Can you tell me what you mean by 'looking after my kids if I die', what do you want the insurance to pay for?

Client: I’d like to get an idea of what looking after your kids means if you died, would you want your debt repaid in full?

Adviser: Once the debts are cleared, we have bills to keep paying. What bills are you thinking about here? Is it just the cost of school fees, the normal cost of living outside those fees or something else?

Another quick one for Investments

I want you to look after my stuff. In order to achieve what?

Or;

To be able to do what?

Or;

Look after your stuff so that you can ______?


Quick tip: Self-assessment: Consider you were checking someone else’s file and the only description of the clients objectives was “manage my stuff”.


There can often be unstated or implicit goals e.g. Estate Planning. An explicit goal is a goal that the client states during an interview. An implicit or unstated goal is one the adviser identifies or knows must be considered to achieve a client’s explicit goal.


This is what an Adviser can say when they come across the estate planning scenario above.


One thing that will need to be addressed quickly is your estate plan and who gets your assets if you die. "Would you like us to make recommendations for you regarding your Estate Plan?"


The Adviser writes the implicit goal in their file note. The Adviser will need to include a strategy in the advice document that is directly linked to the achievement of the implicit goal.


The next trick to master, is how to measure the clients progress to these well documented answers to goal setting questions.


Part 3 - Prioritising


We all usually have champagne taste on a beer budget. If the client cannot meet all of their objectives then we need to talk about whether there is a mismatch between objectives and resources. So let’s talk about the options that would be available to the client:


Options

  1. Abandon goal/s and keep the others as is

  2. Modify one or more of the goals

  3. Change the sequence of the goals

Retirement example continued...


Adviser: I haven’t done a detailed analysis of your situation yet, but I always like to ask;


Given your retirement objectives:

  1. $80,000 pa net Income

  2. Indexed with inflation until the age of 87

  3. With $25,000 of one off expenses annually until the age of 75.

If I cant find a way of hitting all of those, are there any must haves in there? (Write down the clients answer to this).


Insurance example continued...


Adviser: If I can’t find a way of hitting all of these, are there any must have in there? What’s more important retirement or insurance? (Write down the clients answer to this).


Part 4 Pro Tips:

  1. Ask targeted questions and capture responses in the file note

  2. Have a starting point to track progress against i.e. plan vs actual in reviews

  3. Link resources and tools in strategy file notes to objectives that support or challenge the clients objectives.


Final thoughts from the webinar;


Jared Wilson, NSW Compliance Coach at MLC Wealth says;


Performing a retirement projection at review is going to be the most effective mechanism in determining whether the client is on track. Beginning with the facts on hand, for example, age, super balance and contributions, risk profile and years till retirement, then arriving at the expected lump sum.


By comparing the expected lump sum value with how much the client needs, for the purpose of deriving an income, will aid you in determining if the client is likely to achieve theirs or not. If not, the process should lead to discussing the various levers that can be pulled in order to achieve the client's goal.

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