Some thoughts on goal setting and eliciting client objectives

I've written previously about how important it is for a financial adviser to work with their clients to elicit their goals

In my experience, if a financial adviser is good at this, you really notice it when you look at their client files and the advice that they provide. (After all, how can you determine the quality of advice unless you can benchmark them against clearly articulated objectives?)

However, setting goals for yourself, or working with another person to elicit their goals, isn't necessarily straightforward.

There are many misconceptions about goal setting

The Yale goal setting study

You may have heard of the study relating to the 1953 Yale graduating class, in which the 3% who had specific, written goals for the future accumulated more personal wealth than the remaining 97% combined. It's a compelling story that is also completely fabricated.

"SMART" goals aren't so smart

Even the SMART prescription that is often discussed in relation to goals has its limitations. You'll recall that SMART is an acronym for what a goal should be: Specific, Measurable, Attainable, Realistic, and Time-Bound.

I'd suggest that the acronym itself contains a redundancy:  "attainable" and "realistic" mean the same thing.

The SMART perspective also rules out non-measurable goals. For example, I want my children to live happy lives. How do I put this into the SMART context? That I want them to be able to measure their happiness on a scale of 1 to 10, and at the end of each decade to assess their happiness during the last 10 years as 8 or higher?

Not all goals are equal

It's important to distinguish between first order and third (and fourth and fifth...) level goals. I might have a goal to exercise 30 minutes per day, or avoid soft drinks. These are goals in pursuit of higher level (first order) goals, such as living a longer and healthier life and having more energy. It can take time and work to determine what our first order goals are. 

Having said this, goals are important and powerful

That's not to play down the importance of setting goals. They can be very powerful.

So powerful that, as Harvard Business School research contends, there there can be a dark side to goal setting. Sometimes a goal can push your attention in the wrong direction, and close your eyes to opportunities, ultimately causing you to make the wrong types of decisions.

As Goodhart's law states: "When a measure becomes a target, it ceases to be a good measure". Although this might be more applicable in an organisational context, it can also relate to our personal goals. 

Goals need to work within the context of our circumstances, needs, and other objectives

If we live the "full catastrophe of a rich life", we'll soon find that important goals are in competition with one another.

All things being equal, I'd love to have the wealth of Bill Gates. But to even have a chance of that, I'd need to compromise my current lifestyle, break commitments that I've made, and take extraordinary risks. I have other priorities.

And even Bill Gates needs to prioritise his goals. I'm sure he'd love to do more to rid the world of suffering. But even his resources are limited, and he needs to focus the resources of the Bill and Melinda Gates foundation on very specific types of projects. 

Goal setting is a tool and needs to be used effectively and on an ongoing basis

Do I think we should give up on the exercise of  goal setting? Absolutely not. As I've mentioned, goals are powerful, and a professional adviser who works effectively to elicit goals is much more likely to provide excellent quality advice. 

Goal setting  is a tool, and like any tool, needs to be used effectively to get the results we want.

It's easy to characterise goals as end points. But goals can and should change over time. As Niall Fergusson explains in The Ascent of Money, “there really is no such thing as the ‘future’ singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise”. We need to adapt to this reality, and adapt our goals accordingly.

Goals need to be reprioritised in the context of a person's evolving circumstances and needs, and the other goals in their lives. 

When providing a client with advice over the course of a number of years, it's important to continue this conversation relating to their goals and objectives. 

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.