Goals-based financial planning offers an effective and motivating solution for investors. Research by David Blanchett, Morningstar’s head of retirement research, found that using a goals-based framework in financial planning led to an increase in client wealth of more than 15%; behavioral research also suggests that investors get a sense of motivation and satisfaction with their financial plans when advisors focus on a client’s personal goals versus arbitrary benchmarks. But for goals-based financial planning to succeed, advisors need to know what their clients’ goals are. Typically, advisors identify client goals simply by asking them. But as our research, and research by others such as Benartzi & Lewin and Tversky & Kahneman have shown, people generally respond to that line of questioning with whatever’s top-of-mind when they’re asked what’s most important to them. That means the set of goals that advisors get from their clients, typically during the onboarding process, might be different from the goals that truly matter to them.
A different way to uncover goals
To prompt more-thoughtful goal identification, past research—by Bond et al., Keeney, and Siebert & Keeney—suggests that a carefully curated list of common objectives can be effective. These master lists have been shown to improve preference identification in many areas, and our research tested the effectiveness of lists for identifying financial goals. We asked participants to list and rank their top three financial goals, then added those self-reported goals, in random order, to a master list of common financial goals (shown below), to create a combined list. After viewing this combined list, participants were then asked to rank all the financial goals in order of importance.
Master lists might be essential for goals-based financial planning
On average, 26% of participants changed their top goal after seeing the master list. The master list was even more impactful in a multiple-goal scenario: About 73% of participants substituted at least one of their top three goals with goals from the master list. That means only 26% of participants retained all their top three initial financial goals, and this highlights a flaw in the traditional goals-based financial planning framework.
Our findings suggest that the true power of goals-based financial planning—the motivating factor for investors—has yet to be realized because people may be working toward the wrong goals. Using a quick behavioral nudge, such as a master list, may be the key to helping investors uncover their true financial goals. Based on these results, we also created a worksheet that can help advisors begin a goals conversation with their clients.
Learn about how Goal Bridge can help your clients set and work toward their goals.