A New Approach to Goals-Based Wealth Management
34 Pages Posted: 12 Feb 2018
Date Written: February 4, 2018
We introduce a novel framework for goals-based wealth management (GBWM), where risk is understood as the probability of investors not attaining their goals, not just the standard deviation of investors' portfolios. Our framework is based on a foundation of developments in behavioral economics and finance and is consistent with modern portfolio theory. Using a simple geometric analysis, we determine a specific portfolio that matches each individual investor's stated goals. Our approach requires information from the investor about their goals, elicited in a clear manner that market research shows is superior to common current practices. This new approach can improve the communication between advisors and clients and produce better advice for enabling clients to attain their goals with high probability through the use of efficient portfolios.
Keywords: goals, wealth management
JEL Classification: G02, G11
Suggested Citation: Suggested Citation