Goals-Based Wealth Management: An Integrated and Practical Approach to Changing the Structure of Wealth Advisory Practices

Chapter 8Creating Goals Modules

Goals modules are the first crucial element of the process. They have required us to identify generic goals we believe we might know how to address, to ensure that we have mapped the various asset classes and strategies that are consistent with meeting them and to have a sense of the return and volatility expectations associated with each of the modules we created.

Developing General Capital Market Expectations

Using the process that was described in Chapter 3, our first step must be to create expectations for return, volatility, and correlations for those assets and strategies we believe ought to be a potential part of our clients' investment policies. Crucial to this process and slightly upstream is the development of the list of assets and strategies we feel will be appropriate. This involves answering three key questions.

The first question relates to the degree of detail required in my asset class list. This decision is driven by two radically different considerations. The first consideration has to do with the trade-off between simplicity and complexity. Who would not want simplicity? The answer is that, although simplicity is desirable, it can also be self-defeating. Would you rather use an abacus or a computer? I suspect almost everyone will agree that a computer is more user-friendly than an abacus. However, would you rather have to build an abacus or a computer? I suspect that everyone would rather build an abacus. The point is that ...