We recently sat down with Jon Ou, our VP of Corporate Strategy, to get his perspective and insights on the value of householding and holistic, goals-based financial planning, the benefits of this comprehensive approach for advisors and their clients, and the role technology plays in enabling effective goals-based planning, both now and in the future.
Q: How does Vestmark define householding?
A: We think of householding as enabling the advisor to manage their clients’ portfolios in alignment with their many goals and financial objectives. Householding is holistic and context-aware portfolio management. This means managing the accounts and investment assets holistically, including potentially spanning multiple individuals in a household relationship.
The reason why we think about householding is because we recognize that every household is going to have different objectives across different time horizons, different assets subject to varying tax rules to attain these objectives, and different required distributions that are needed at different times. We’re interested in simplifying that complexity so that the advisor can serve the right investment products, strategies, and allocations to improve the likelihood that their clients’ financial objectives can be met.
Q: How has this more holistic approach to wealth management evolved over time?
A: Historically, wealth management has been very account centric and specific to the individual relationship the advisor has with one investor. Our model for householding continues to be able to support the advisor’s individual client relationships and account centric approach.
But increasingly, we're in more of a financial planning based world, in which clients are asking for a comprehensive plan, one that can address both their short-term needs and aspirations as well as their long-term legacy. With financial planning at the forefront, financial advisors need to adjust how they think about managing those assets. We're seeing that shift in the industry over time as we think more about goals-based planning and the need to translate that financial plan into an executable portfolio.
Q: What are the benefits to advisors of taking a holistic approach to financial planning through householding?
A: Retention studies continue to underscore the importance of a holistic financial planning approach. Advisor value is no longer contingent on basic investment management and portfolio advice. We consistently hear that today’s clients are increasingly expecting services like estate, tax, and charitable planning from their advisors.
And so advisors who can deliver and implement comprehensive, goals-based plans for their clients stand to gain a huge advantage in the market over those who haven’t found a way to do so. They’re able to have important conversations about progress toward goals, not just beating a benchmark. Their perceived value is greater because they can demonstrate their role in helping clients achieve what’s really important to them. And they’re in a much better position to take advantage of the transfer of generational wealth, being the expert who is already helping older clients prepare to pass their assets to the next generation.
Q: What are some ways technology has impacted an advisor’s ability to effectively implement a goals-based approach to financial planning?
A: Technology has been a huge enabler to the industry, in part because we've been able to satisfy at scale the advisor’s initial use case of account-centric portfolio management.
Now, it's incumbent on technology to evolve to help provide the full execution capabilities to the broader set of assets and accounts that an investor might hold for different purposes.
I believe that effectively implementing goals-based plans into strategically aligned portfolios for an advisor’s entire book of business requires a technology solution. It’s something that many firms, including Vestmark, are striving to enable for advisors. We’re very focused on delivering the right user experience with the right interface that enables client conversations and decision making. For example, if we can show how one of the household’s goals is on the path toward achieving its objective faster than a different goal, the advisor and clients can come to a decision on what needs to be done differently going forward.
We're well aware of the different ways in which one can properly influence a goal towards stronger achievement. There are a number of levers, from the allocation of the accounts to the time horizon left before the goal needs to be achieved. These factors coincide with the household’s ability to contribute to those accounts and how much risk they want to take on.
Those are all valuable inputs toward achieving, or increasing the likelihood of achieving, a particular goal. Our technology will surface all of that information in a clear and concise manner that enables really powerful conversations between advisors and their clients, and allows for those informed decisions to be made.
Q: As technology evolves, how do you think it will affect the future of householding and comprehensive financial planning?
A: I think the biggest opportunity is the ability to provide a feedback loop between the plan and the portfolio. Currently, plans get updated once a year at best, but a lot can happen in a year. The household might need to establish a new goal or change the target date, the target amount, or the amount to contribute towards each goal.
And of course, the markets will do what they do.
So for portfolios that have been executed and are being managed on a day to day basis, there’s definitely an opportunity for those considerations to inform the plan so that the plan and the portfolio can adjust accordingly. That ecosystem of information sharing between advisors and households and between planning tools and portfolio management tools doesn't seamlessly coexist today.
Looking for more information about the value of goals-based financial planning? Download our whitepaper, The Power of Goals-Based Financial Planning: How Technology Helps Advisors Improve Client Relationships and Drive Growth.
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