thought leadership

OPAL, a leading software solution developed by Ortec Finance for financial institutions globally, enables goal-based investment decision-making. Ronald Janssen, Managing Director, Private Client Solution elaborates how they leverage their institutional investment risk management expertise by using top-notch calculations as the core of the solution.

In order to give a suitable financial advice, you need more than a complete overview of the financial situation of the client. Knowledge about financial goals is essential as well. Goal-based financial planning puts the goals of consumers at the centre. With this approach, financial advice is moving from a product oriented approach towards a client oriented approach.

When you look at the Goal-based planning process you start with assessing the goals a client wants to achieve. Then you find a solution that matches these goals, based on a transparent advice that outlines the options of the client and provides insight into return and risk. And finally you monitor whether the client is scheduled to reach his or her goals, and– if necessary – adjust immediately. This is the essence of a Goal-based financial planning process.

The concept of Goal-based advice is getting more and more attention. Not only to comply with regulatory guidelines, but also in adding client value and improving quality of advice.

2. Does goal-based planning lead to a better advice for the individual consumer?

Overall, we see that by implementing goal-based financial planning, trust of the clients increases and they appreciate talking about the feasibility of their dreams instead of talking about performance of their portfolios.

Consumers must be supported in making financial decisions. The core of goal-based financial planning lies in showing the feasibility of goals under various scenarios. For clients it then becomes clear what impact changing circumstances can have on financial goals. This allows the clients to have a keen understanding why they need to take a certain financial decision. The better the information, the better the decisions. We believe that there are three important aspects of goal-based financial planning that ensure that financial plans are improving in quality and becoming more personal:

First, the use of a dynamic scenario model, secondly, a holistic approach and finally, the combined insights into both income and investment risk.

3. How can you support different client segments in their decision making process?

The increasing digitization makes financial services accessible to an increasingly wider audience. However, the service channel depends on the client segment. In retail segments, clients generally receive more digital advice, where the financial advice is generated by an algorithm.

In private banking, on the other hand, the client journey will be guided both online and offline. A personal advisor will be available to make the financial plan and to guide the client in the decision making process. Hybrid solutions are quite common right now.

4. How do you add value in the client journey?

Traditionally, a number of questions are asked to the customer leading to a risk profile. This profile often helps when selecting an investment profile. But you can also dig deeper. With our approach you can calculate the feasibility of goals and measure the capacity for loss.

This is why scenario analysis is such an important element of goal-based financial planning. Scenario analysis visualizes how wealth may develop, not only under the expected average conditions, but also under good and bad market developments. Scenario analysis, therefore, provides insight into returns under various economic circumstances (in the so-called what-if scenarios) and provides insight in long- and short-term risks.

Another important aspect is the continuous monitoring of goals. We provide automated solutions that enable you to  monitor your entire client base in real-time. This enables you to alert your individual clients and offer them proactive advice to get back on track.

5. Isn’t GBFP costlier than traditional advice?

This is a fallacy as using this methodology decreases time to make advice whilst increasing the quality of the advice.

As we are able to isolate the areas of focus with the GBFP, the intake takes just about the same amount of time as traditional financial planning. We also try to automate the data gathering by using data aggregation. We are also prioritising preferences alongside client goals.

During the periodical update, it will eventually cost less time because the client is completely aligned with the financial plan. This client-centric approach further increases the likelihood of meeting client expectations and improves business retention.

6. How can you increase the quality of advice compared to the market standard?

The fact that you can add personal goals, is the first important step in deciding whether the goals are feasible and realistic. The second important quality improvement is taking into consideration all the factors that are relevant and impactful to the client and his wealth development.

By offering more insights in the future income and wealth development of your client and considering a broad spectrum of factors that impact your client’s life, we help you with a more holistic approach. With this approach, you can guide your client in a more comprehensive way to set an investment goal which is achievable.

Do not think only about costs, the choice for an allocation strategy, but also about the risks such as investment risk, inflation, interest rate fluctuation and/or currency risk. We offer a global solution and localized our solution in term of taxes, local products, etc. Furthermore, we do not calculate one plan, but provide insights in the expected returns but also in risks by calculating the financial plan 1000 times.

Also our solution brings structure to advisory, sales and risk management processes within an organisation. Risk and return are communicated consistently across the entire product range and business models resulting in an uniformed investment experience.

7. How do you differentiate from your competitors?

In the day-to-day advisory practice, scenarios are usually generated based on fixed returns and volatility. But we can do much better. Years of scientific research and experience in the institutional market are at the root of the Dynamic Scenario Generator of Ortec Finance. In this stochastic engine, we use techniques from the institutional market on ALM advice for pension funds and insurance companies.

This dynamic model simulates realistic and high-quality scenarios. These economic scenarios are based on historical data and macro-economic knowledge, and take the current state of the economy into account. The risk and return parameters are horizon dependent. This leads to better insight, different investment decisions and, ultimately, to a greater feasibility of the financial goals of your clients.

8. What is the future of goal-based financial planning?

Goal-based financial planning is growing strong. The activation of clients will be stimulated by using techniques like machine learning and Artificial Intelligence (AI). The intake will be automated as much as possible. The financial advice will be automated for non-complex clients and parts of the advice will be automated for complex clients.

New client segments will get advice, like retail clients by automating parts of the client journey, the activation, intake, advice and monitoring, the overall cost decreases whereas the quality of the advice improves dramatically. More clients can benefit from the GBPF.

Learn more about the Goal-based Financial Planning solution of Ortec Finance>​​​​​​​https://www.ortecfinance.com/en/solutions/application/goal-based-planning

ABOUT Ortec Finance

Ortec Finance was created in 2007 through a management buyout of the company ORTEC B.V., which was founded in 1981 by four innovative students of econometrics at the Erasmus University of Rotterdam who believed that mathematical models could be used to optimize the performance of companies. More than 35 years later, this is still the core of its expertise.

With a team of 250 experts in Rotterdam, Amsterdam, Hong Kong, the United Kingdom, Canada, and Switzerland, Ortec Finance serves its customers completely independently.

Ortec Finance is a leading provider of technology and solutions for risk and return management.

• 20+ countries represented
• 500+ customers
• 96% retention rate
• 3 trillion euro total assets managed by our clients