Advisor | February 2023

Let’s imagine a person entering a car dealership: they take a look around waiting to be greeted by the salesperson on duty. In the meantime, the salesman observes them and then welcomes them in his office: he introduces himself and tries to understand the person in front of him, whether they are married, have a family, are single, how much they intend to invest in the car, what are their needs, etc.

Only after having carefully listened to them, the salesman starts discussing models, engine size, power, accessories, and potential loans.

Let’s now imagine another person entering a car dealership: this time, the salesman on duty walks up to them and, before they can utter one single word or look around, he states, “I have the car for you”.

In fact, seeing an elderly man wearing ordinary clothes and a watch of little value, the salesman assumes they will want a grey MPV.

Soon after, the potential client stands up and leaves: 1) the seller did not ask any questions, but kept talking instead; 2) the man had come to the car dealership to buy an orange Porsche 911 GT3 rather than a grey MPV.

This example applies to all sectors and, of course, to the field of financial consultancy.

Just consider that 75% of Italians do not invest their savings; 19% of them have been contacted by their bank in this regard, but felt that the investment proposal recommended to them would not suit their needs.  

Of course, the law stipulates that a MiFID questionnaire should be filled out before making any investment proposal. This allows for the suitability and risk assessment of each client, whereby clients can familiarize with the many types of investment available and decide which are more suitable for their specific needs.  

However, it would perhaps be beneficial to get acquainted with the client before suggesting an investment solution, to know whether they are married, single, divorced, if they have debts, dependent children, what are their time horizon, risk profile and goals.

But all this is easily said and seldom done.

The good news is that some among the most enlightened professionals of the field have realized that discussing goals before products is not only more appropriate, but also more effective commercially.

Indeed, after the 2008 financial crisis, the Goal Based Investing approach picked up. From the Anglo-Saxon countries, which tend to anticipate the trend of the financial field, Goal Based Investing has been spreading all over Europe.   

In fact, the Goal Based Investing approach connects investments to life goals and people’s values.

According to Maslow’s hierarchy of needs, the most important goals (for example, physiological needs such as food, shelter, medical assistance) take priority over less important goals (for example, ambitious goals such as buying a holiday home, a yacht, or a sports car).

Goal Based Investing was born out of the contributions of behavioral finance: the Nobel Prize winner Richard Thaler claims that people tend to divide their wealth in mental “drawers” dedicated to different goals (this is known as mental accounting).

Is the opinion of a Nobel Prize winner not enough to understand the importance of all this?

Nicola Ronchetti