Operating Model



The growth of goals-based investing

The desire of end investors for investment products and services that enable targeted outcomes has grown and is referred to generally as “goal-based investing.” There is latent demand for investment propositions that reflect consumerist trends set out in the Parallel Worlds scenario. Critically, there is pent-up demand by all investors everywhere for more control over outcomes.


  • Increasingly, intermediaries prefer investment plans designed to meet investor needs through customized, adaptive solutions that deliver unique investor-directed outcomes. This approach is often referred to as “goal-based investing”.
  • The scenario is of future integration of new data, much of it from smartphones and wearables, tied to operational data, such as transaction and engagement history. Investment apps on mobile communication devices evolve from add-ons to the central feature in user and application programming interfaces. Consider the following example: Just after a retail purchase, a client receives an update on her progress toward meeting financial goals, and at the end of the day she gets a mobile-delivered update of how much money she has saved toward important goals.
  • This narrative is based on the power of big data, enabling the modeling of the end investors’ needs and wants at extreme scales. This modeling helps to identify patterns of relevance in both product design and client service. Firms that dare ask their customers what they want, or create useful (perhaps “gamified”) questionnaires are best able to develop communications that are useful to clients.
  • The investment allocation becomes unique to the individual, like an investing fingerprint. Future State of the Investment Profession explains it in these terms: “As goals are achieved, shocks occur, and adjustments are made through modern engagement with biofeedback devices, such as smart watches. Updates to the profile can be made routine to adapt to clients as their lives and consequent preferences change” (CFA Institute 2017).
  • The equivalent version in the institutional space is generally referred to as the Total Portfolio Approach (TPA).
  • The logic of this wish for better control is strong, but the execution may involve considerable errors whereby algorithms misread intentions and preferences. Further, the area is full of agency hazards, where there is over-hyped delivery, and personal biases are exploited.
  • In The Next Generation of Trust (CFA Institute 2018), 63% of retail investors said they would have interest in more customized products, and of these, about two-thirds would be willing to pay a premium for customization.
  • This approach represents a profound change in pension and lifetime wealth management, because it recognizes there is needs fulfillment during all stages of a person’s life. It is a paradigm shift from basic investment accumulation accounts in working life (such as 401(k) accounts in the United States) to integrated whole-of-life wealth solutions, with accumulation and drawdown investment phases sitting alongside insurance and healthcare planning.