Determining Client’s Goals and Objectives

1.1. Overview

Ascertaining the client’s real personal and financial goals and objectives may be the most important portion of the financial planning process. Time must be taken to determine the client’s ability to evaluate investments and understand the various approaches to investing.

1.2. The Client’s Personal Goals

Determine the Client’s Personal Goals; personal goals first, financial goals later. Break the time frame down as follows:

  • Short-term (0 – 2 years).
  • Intermediate (2 – 5 years).
  • Long-term (over 5 years).

Some of those goals might be to relocate to a different city next year, change careers in five years, or retire at age 50 and do volunteer work. All of these are important to the client personally and to the firm, and from a financial viewpoint, since it takes funds to do these things.

1.3. The Client’s Financial Goals

What are the client’s Financial Goals?

Over what time frame are they to be achieved?

  • Short-term (0 – 2 years).
  • Intermediate (2 – 5 years).
  • Long-term (over 5 years).

These decisions may or may not be difficult initially for the client; but when the personal goals and the financial goals are matched, do they mesh or clash? Also, very seldom do both of the client spouses agree completely on personal or financial goals. Sometimes you will need to utilize your mediation skills in your efforts to get them to an agreement on the major points of these goals.

If the personal goals and financial goals do not mesh or are just completely incompatible, the rest of the financial planning process is almost impossible until the goals are agreed upon. If the two client spouses cannot agree together on the personal and financial goals it may still be possible to work with them independently, if each individual’s own personal and financial goals mesh. But proceed with caution.

1.4. Client’s Objectives

What are the client’s financial objectives specifically? Have them put their objectives in order of preference:

  1. Current income.
  2. Build cash reserves.
  3. Major purchase such as a House, Car, Boat, or Recreational Vehicle.
  4. Start or buy a business.
  5. College funding.
  6. Protect purchasing power.
  7. Vacation/Travel.
  8. Tax free income.
  9. Build wealth:
    1. For themselves.
    1. For the Children.
    1. For the Grandchildren.
  10. Charitable giving.
  11. Retirement funding.
  12. Care taking of a family member that is a single parent, disabled, incapacitated, or has other special needs.
  13. Caring for a parent(s).

The reason these are being prioritized is so that you can begin to determine the client’s desires and needs.

1.5. Problems in Achieving Objectives

A notable baby boomer phenomenon currently affecting many clients involves the need of “boomer” care not only for their children, but for their parents as well. This is the first time in our history that an entire generation, as a whole, has had to be concerned with both. If the parents have not been fortunate enough to accumulate sufficient investments, then the burden falls on the children for helping their parents attain a comfortable standard of retirement.

Currently, out of every 100 people reaching age 65:

Financially able to retire4%
Continue to work23%
Dependent upon others73%

When discussing retirement planning, consider the client’s retirement goals such as:

  • At what age do they plan on retiring?
  • What standard of living or retirement life-style do they plan on having as opposed to their current lifestyle?
  • Will they travel? If so, moderately or extensively? In the USA or overseas?
  • Will relocation take place prior to or after retirement?

What special problems do they anticipate?

  • Potential health concerns?
  • Special care for extended periods of time?
  • What debts are they likely to have then?

1.10.                Client’s Ability to Evaluate

Indicate the client’s ability to evaluate the merits and risks of an investment by asking if they have been on a Board of Directors, an Officer of a Corporation, a Guardian, or if they have other experience analyzing financial statements. Is the client familiar with and comfortable with financial markets? What investment experience has the client had with marketable securities, commodity futures, options, securities on margin, unmarketable securities? And what has been the frequency of that experience. Does either of the clients have preferences concerning social consciousness investing, using a minority owned investment manager, or some other special actions?

Other clues as to the real investment attitudes of the client can be determined with the following information:

  • With which is the client the least comfortable, holding cash when the market goes up or holding stocks when the market goes down?
  • With which is the client the least comfortable, selling a stock and seeing its value immediately increase, or buying a stock and seeing it immediately decline in value?
  • With which is the client more comfortable, larger volatility in prices with a higher value, or lower swings in value but commensurate lower returns?

1.11.                Approaches to Investing

Within the equity markets, there are several ways to approach investing. Obtain the clients understanding of the following (or any not listed) and determine if there is a preference. Some of the more common approaches used are:

  • Bottom up analysis: The value of the individual firm is the only concern. The national economy is important only as it impacts the individual firm.
  • Top down approach: This approach starts with an analysis of the different sectors of the economy as a whole. The good sectors are identified, and then the companies within those sectors are analyzed.
  • Value oriented: The managers are mainly concerned with the present worth of the company and its earnings.
  • Growth oriented: The future potential is more important than the present value.

There are over 20 different styles or categories of mutual funds classified by Morningstar, a mutual fund rating service.

Determine if they are familiar with the following terms so that their investment portfolio may be planned with their full knowledge.

  • Small cap (capital) stocks and bonds (under $1 billion).
  • Medium cap stocks and bonds (between $1 and 5 billion).
  • Large cap stocks and bonds (over 5 billion).
  • Domestic stocks (U.S. only).
  • Global stocks (anywhere in the world).
  • Foreign stocks (outside of the United States).