Perhaps the most common piece of financial advice given to new investors is that when you set out, you need to have a goal. You must know what your destination is in order to make the right decisions about getting there.
It’s pretty sound advice. But it may also be the wrong kind of advice for a lot of people.
Talking about financial goals suggests having measurable figures that signal success or failure. They are a target in rands and cents.
However, the head of strategic markets at Allan Gray, Thandi Ngwane, believes that this isn’t something that resonates with many people.
“I spend a lot of time speaking to individuals who are new to investing and a key message to them is to pick a unit trust that aligns with their goals and time frames,” says Ngwane. “But quite often this acts as a barrier, as many people don’t think of their finances from a goal-oriented perspective.”
What are your intentions?
She believes that a much better motivator is to have tangible intentions. What is it that investing money will actually do for you?
“Ultimately, people are looking for peace of mind or happiness, and that is a far stronger motive for putting money away,” Ngwane says. “That is the intention we need to explore. We need to encourage investors to think of what they value and help them understand how investing can aid them in achieving that end.”
This is a message that might resonate particularly strongly with the current generation of savers. Sanlam recently highlighted its concerns about the low level of retirement provision being made by millennials.
According to the CEO of Client Solutions at Sanlam Employee Benefits, Viresh Maharah: “Millennials do not relate cognitively [or] emotionally with retirement because of the negative associations… and therefore they don’t engage with the process.”
Put another way, millennials generally do not see the sense in setting a retirement goal. It is outside of their frame of reference.
“In speaking about retirement, millennials often aren’t thinking in terms of financial goals,” Ngwane says. “But if you position it slightly differently, from an intent perspective, whether that is a shortened working life, happiness or flexibility to do what they want to do with their time, that’s often more of motivator.”
A plan without goals?
An important question this raises, is where this leaves financial planners. How does anyone create a financial plan without goals?
“I think the conversation does need to shift to dealing more holistically with clients and not just material goals,” Ngwane says. “In other parts of the world such as the US and Australia we’ve seen an increased shift towards behavioural coaching by financial advisors. The approach then is not so much about the hard facts around returns and so on, but about understanding the whole person and how their finances relate to their personal journeys.”
Similarly, advisors are currently expected to discuss things like asset allocation, volatility and benchmarks, but for most people these are abstract, and even meaningless concepts. What matters is whether they will have what they need to live the life they want to live.
“Benchmarks are a good example, particularly with individuals, because sometimes investors are looking to do better than the next person,” says Ngwane. “That is sometimes quite a fruitless benchmark. If you rather consider what your personal objectives are, what the intentions are that drive those outcomes, that’s more productive.”
Financial planners may therefore find that they play a far more meaningful role in being able to translate the necessities of a financial plan into what is actually meaningful for a client.
“Sometimes financial concepts are quite abstract and it’s difficult to understand how they tie into our behaviour as investors,” says Ngwane. “Ultimately our behaviour has a big influence on our investment outcomes. Trying to bring those two a little closer together involves a more holistic conversation, that is not as cut and dry as just returns and objectives.”