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Episode Summary

From financial planning software providers continuing to focus on adding goals-based features to the widespread adoption of a goals-based approach at the firms that have long been notoriously associated with investments, goals-based planning has been and continues to be on the rise throughout the industry.

The success and effectiveness of a goals-based planning approach is contingent upon the successful execution of two things:

  1. Identifying the most important goals
  2. Prioritizing those goals

The best strategy or portfolio is useless if aligned with the wrong goal. It’s the equivalent of hopping on a plane that takes you to New York when you needed to be in San Francisco.

Which means advisors should be spending equal amounts of time and effort on goal identification and prioritization as they do the strategies and portfolio construction. Simply asking clients what their goals are isn’t the solution.

The behavioral finance world spends the majority of its time teaching you about the behavioral biases that impact financial decision-making. But far less time, attention, and focus has been spent highlighting the fact that behavioral biases or blind spots can undermine the process of identifying and prioritizing goals!

Samantha Lamas and her colleagues at Morningstar conducted an award-winning research study addressing the behavioral biases that threaten the goals-based planning process, and more importantly, developed and tested a solution to help overcome this problem.

They discovered that there is indeed a gap that exists between the goals clients think they want and the goals they actually want. The goals that are truly relevant and important to them.

For example, you may have a meeting with a couple who walks in on a Monday morning after spending their Sunday afternoon at a house-warming party. When you ask them what their goals are, their experience from the house-warming party yesterday (availability bias) is top-of-mind, and thus, they list buying a new home as one of their goals. But had you asked them on Friday, it wouldn’t have shown up in their top 3.

The implications of these results are massive. As we said earlier, the success of goals-based planning hinges on the ability to identify and prioritize goals. Yet, the majority of people don’t actually know what their true goals are.

Fortunately, Samantha and her team conducted an experiment to see if they could behaviorally nudge clients to better identify what’s really important to them. They gave them a master list of common goals to choose from.

Once provided with the master list of goals to choose from, most people’s goals became more personalized, specific and emotionally grounded.

If you want to do goals-based planning, then the first thing you have to do is identify personalized, specific, and emotionally-grounded goals. Otherwise, you might be missing the mark.

Things You’ll Learn

  • The details and results behind the award-winning research from Samantha and her colleagues on the importance of a master list of goals
  • Why humans are ill-equipped to know our goals and the biases at play when trying to identify goals
  • Exactly how advisors can take the research and apply it in their meetings to help clients identify their most important goals
  • The behavioral benefits of goals-based planning
  • How a master list of goals makes goals more personal, specific and emotionally-grounded
  • How many goals is too many at one time and what the sweet-spot number is
  • Samantha’s own story of being asked by an advisor what her goals were and how it shaped her thinking
  • Why clients rank “Helps me stay in control of my emotions” the least valuable attribute of an advisor
  • How rephrasing the value of behavioral coaching led to a significant change in the perception of value

About Samantha Lamas

Samantha Lamas is a behavioral researcher and columnist at Morningstar. She’s worked on some of the most highly-regarded and highly-renown research projects in the industry over the last several years.

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