High-net-worth investors are doing more of their own decision-making, say Northern Trust advisors, who recently gathered for an evening with the press. Clients appear to be redefining what they want from their financial advisors – from charitable giving to guiding them through the gaps in their health-care coverage. Meanwhile the clients make the decisions important to them, like choosing which life goals they want to build portfolios around, called “goals-based investing.”
NT's advisors managing director for Senior Wealth John Voltaggio and chief investment officer for Wealth Management Katie Nixon see a trend toward “more customer-driven advising.”
Goals-based investing has a large “fun” component. Clients invest only their portfolio's “excess sufficiency,” think of it as a savings surplus kept in separate buckets that are constantly updated and monitored with the client via an iPad, according to a plan to liquidate each bucket at a specific time. Goals might include flying lessons or a private plane purchase, a world cruise or a trip to Bora Bora.
Nixon says the goals-based strategy has largely replaced risk tolerance-based investing, lifting much of the stress of investing from her clients. She points to the market plunge in summer 2015. Normally, concerned clients would've been calling. Instead, Nixon says, “my goals-based clients weren't worried -- no action was needed. It's a higher-confidence way of managing,” says Nixon. “Seeing money in terms of when we'll need it gives the assets recovery time.” And, she adds, taking no action can translate into tax benefits.
Generally, says Nixon, the approach is enjoyed by a cross-section of clients. “Our Goals Driven Wealth Management approach has resonated across the wealth spectrum, from less than $1 million to greater than $500 million,” says an NT spokesperson. For clients with more than $100 million, the emphasis is on identifying planning opportunities for the estate. “Our holistic approach allows clients to see what they need for a lifetime of goals and have confidence they can position the estate to optimize beneficiaries such as heirs and charities.”
Charity is another place where NT's clients are setting their own course, but less through family foundations. More clients are using Donor-advised funds. “They're especially good for smaller family funds,” says Voltaggio. Investors can designate exactly which IRS-defined charity they choose and still get the capital gains benefits, while investing the money where they want without administering a private fund.”
Eileen Heisman, CEO of National Philanthropic Trust, wrote in The 2016 Donor-Advised Fund Report's press release that donors today want to have a more active role with their contributions. “The next generation wants to be closely connected to their philanthropy, which is reflected in the double-digit growth of DAFs. Baby boomers and millennials in particular want a close connection to their philanthropy and to track their charitable impact.”