Investors vs. Institutions: Goal-Based Wealth Management in Action

Investors vs. Institutions: Goal-Based Wealth Management in Action

The American College of Financial Services
May 7, 2020

Meet Harry: he’s a 35-year-old mid-level executive who’s just walked into your office, looking for professional help with portfolio management and financial planning for a number of future expenditures, including a new house, a vacation condo, and sending his kids to college. As a financial professional and business owner, you want to grow your practice by helping Harry out—but to achieve the results you both want, you’ll have to think outside the guidelines of institutional investors and apply a more personal touch to your wealth management strategy. How does this work?

The first step in this process is to understand a key fact: individual investors are not institutions. There are many wealth management strategies that would work for a big private institution like Harvard, for example, that won’t help Harry get where he wants to be. But that doesn’t mean there’s nothing you can do. With the right knowledge, you can work with Harry as a financial advisor to develop a personal, proactive investment management plan that leverages useful investing tools, concentrates on asset location rather than asset allocation, and measures success against a defined goal rather than a set of benchmarks. This is what we like to call a “goal-based” approach to wealth management.

Individual investors are usually driven by personal goals, such as planning for retirement, saving for their children’s education, or financing a large purchase. They must navigate their emotions and behavioral biases, perceived obligations to family members and society, a finite number of earning years, and a greater need to protect against uncertainty with help from financial advisors to make their investment management strategy work. The issues that matter to them are things like life insurance, estate planning, retirement planning, and other parts of their personal future. Institutional investors, on the other hand, are the pension funds, mutual funds, insurance companies, commercial trusts, and endowments that generally align on very specific goals for portfolio management. Corporations, for example, aim to borrow and invest to maximize shareholder value over the long term, while pension plans seek to provide regular cash flow to retirees. And unlike individual investors, institutions face a limited set of rules, like those of FINRA, that guide risk management and asset allocation and often have an unlimited time horizon. Individuals focus on outcomes over the long term; institutions focus on customer service and other metrics for financial success. Both provide very different models for the financial professional to follow.

To properly tailor your portfolio management strategy to individual investors and their long term goals, it’s more important to understand how products work to achieve specific goals than to fixate on specific stocks, no matter what your client's net worth might be. Which products set the proper risk management equilibrium for best investment management? Which offer the most attractive yield profile for those engaging in retirement planning? Then, start looking at factors such as generating tax alpha through effective asset location rather than asset allocation, and identify account-based characteristics that can improve investor returns and optimize tax efficiency.

As a financial professional, don’t think of an “institutional approach” to wealth management as adding strategies or asset classes that business owners might—instead, think of it as a commitment to research that leans into historical co-variances and unique investment management factors. Consider an approach that utilizes the right tools to deliver customized analysis and reporting, and that helps identify distinctive opportunities for investors of varied net worth. These are the kinds of opportunities that allow you, the financial professional, to take the goals of individuals like Harry, from estate planning and retirement planning to life insurance and other factors, and help make their financial grounding as solid as the pillars of Harvard.


Wealth management isn’t institutional—it’s about the individual.


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