With any objective the key is to get the client to elaborate on three main things: what, why, and how much?
You probably hear a lot of talk about “Smart” objectives, and using the Smart acronym is great. But what is easier to remember (and put into practice) is what, why and how much? You will naturally get most of the detail you need if you answer those three questions fully.
What is not enough, though, is objectives along the lines of, “I want to beat inflation”, or “I want to consolidate my pensions for ease of administration”, or “I want to leave a legacy for my family”.
As a starting point, this is fine. But for a good file — and to evidence suitable advice — you need to build on these.
The reason this detail is so important is because whether your final advice is suitable or not rests on the needs and objectives.
If you have only got woolly needs and objectives detailed on your file, then you can easily pull the advice apart — particularly when it comes to the risk profile that you have recommended.
Core part of a risk profile
Why are needs and objectives a core part of risk profiling? And why would advice fall apart if they are only sparsely documented on your file?
Easy. Because the fundamental part of risk profiling is this: does your client need to take risk? It is the first and most important question.
It comes before the other two aspects of risk profiling, which are willingness and ability. If the client has no need to take risk, then a recommendation to invest is unsuitable.
But you might be reading this thinking, “no, I disagree. Sometimes the client doesn’t need to invest, but they want to”.
And you are right. But why do they want to? And is the answer to that question simply their objective?
Yes, it is. Let us be clear, the need to take risk is defined as the need to take risk to meet both the needs and objectives of the client. So they might not need to take risk to meet their financial needs, but their objectives may mean that there is a need to take risk.
If there is a need to take risk so the client can meet both their needs and objectives, then we need to establish how much risk they should take.
