Meeting goals outranks investment performance for advised clients

Australian investors are more likely to want advisers to help them meet their goals rather than chase investment performance, according to research by Milford.

A joint initiative between Milford Australia and Ensombl, the Safe Hands on the Wheel white paper explores how clients are preparing for extended periods of market stagnation and volatility, and as an extension of this, their approach to active and passive management. 

The paper includes insights from six experienced financial advisers representing over 700 clients. 

Rather than using an adviser to achieve solid investment performance, the report found clients seek an adviser to help them meet their personal and financial goals. 

“Clients are largely benchmark unaware, and typically judge the performance of their financial plan simply in terms of the progress towards their financial and lifestyle goals.

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“Navigating volatility and preserving capital is far more important than chasing the highest possible investment returns. Clients recognise that advisers have expertise and access to opportunities that can help them achieve their goals,” it stated. 

Helping them to achieve their financial goals was cited by 30 per cent of clients as a benefit of receiving financial advice, according to a Financial Advice Association Australia report last year.

Marisa Broome, principal at wealthadvice and former chair of the Financial Planning Association of Australia, said: “Market benchmarks and indices have little relevance to clients. What’s more important is their progress towards the goals enshrined in their financial plan.

“Clients come to us to help them navigate their way through a complex and confusing financial landscape towards their lifestyle goals. Exposing them to the full ups and downs of the market, on the basis that history says they may be better off in the long run, isn’t good enough. You may as well say ‘you’re on your own’.”

For advisers whose Australian clients across all age groups typically conform to a “loss-averse” investor type, current economic uncertainty means they are prioritising capital protection and a smoother growth journey for their clients.

The paper observed: “The consensus view among the advisers we interviewed is that the majority of clients were suited – emotionally and objectively – to a strategy designed to capture much of the market upside (75–80 per cent) while limiting the downside. 

“This smoothing of the journey – which can be achieved with a blend of active and passive strategies – offers clients the opportunity to achieve the growth necessary to reach their goals while still being able to sleep at night.” 

Richard Elmes, principal and adviser at Agile Wealth, pointed out events in the macro landscape, however, are pointing towards a risk environment after one of the best decades in history since the global financial crisis. 

“Being exposed to 100 per cent of any movements doesn’t make sense, especially now, when the facts of the real economy say we should be cautious,” he said.

“You get worried for clients – it is harder to recover when you are taking 100 per cent of a market drawdown than it is when you are giving away some of the short term returns for longer term benefit. If you can invest in managers who can minimise the drawdowns, the following year’s returns will be far superior.”