When it comes to evaluating investment strategy and performance, the wealthy and their advisors may be using the wrong measuring stick.
SEI has announced the findings of a recent survey, which reveals insight into the investment knowledge of ultra-high-net-worth individuals (UHNWI) highlighting a misunderstanding of investment strategies as well as uncovering technological expectations and confidence in wealth management approaches.
The majority of survey participants show confidence in their personal finance expertise, with two-thirds claiming they have extensive or considerable knowledge of financial and investment management. While over half (56 per cent) report that their primary investment strategy revolves around index benchmarks, 40 per cent indicate their primary strategies are for their investments to fulfil personal and/or financial goals. A two-thirds majority also claim they are familiar with a goals-based investing (GBI) approach, which designs portfolios to meet a specific return, risk, and time horizon target for an investor’s defined financial goals. However, at 44 per cent, close to half inaccurately define the concept as a measure of benchmark performance.
“There appears to be a substantial need for education around investment strategies, especially in understanding a true goals-based investment approach,” says Michael Farrell, Managing Director of SEI Private Wealth Management. “Short-term portfolio performance gives clients a false sense of confidence. If they beat the benchmark, but can’t buy that dream home, their approach has failed. It’s vital for them to be able to determine and anticipate long-term wants and needs, and to ensure their advisors are successfully employing the right strategy that delivers on tomorrow’s goals.”
This seemingly positive data is contradicted by the 56 per cent of advisor-exclusive investors who define GBI as a measure of performance. More than half (51 per cent) of those survey participants who are unfamiliar with GBI or unsure whether their advisors take that approach indicate they are in favour of it. In fact, they claim that it’s extremely or very important that their investments measure progress toward personal and/or financial goals, rather than just performance.
“There is a strong disconnect between consumers’ intended investment purpose and their understanding of how to achieve those goals over the long-term,” says Jeff Ladouceur, Director of SEI Private Wealth Management. “If investors do not understand goals-based investing themselves, how can they be sure their financial advisors are using that approach when managing their wealth?”
Looking to the digital world with a significant dependence on technology, 69 per cent of respondents said it is extremely or very important that their financial advisor use and/or provide the latest technologies. With two-thirds expecting the ability to interact with their advisors remotely, only 29 per cent said that service is provided by their advisors. Additionally, more than half (51 per cent) require the ability to track and measure progress toward goals themselves, while 43 per cent said it is provided.
Ranking the greatest technological benefits, 29 per cent and 28 per cent of survey participants asserted technology helps them make better decisions and be more self-sufficient, respectively. More than a third utilises a robo-adviser to help manage their investments.
“There’s growing reliance on financial services technology, which supports consumers’ need for transparency in wealth management,” said Farrell. “Transparency is integral to employ a true goals-based strategy because it provides clients the ability to hold their advisors accountable. Technology gives them a front-row seat to monitor their investments and align their wealth with their goals.”