Wealth Client Goal-Setting Methods

Karim Del Ponte

Analyst

Pyrrha Capital

SMARTEST vs. CLEAR: Tailoring Goal-Setting Models for High-Net-Worth Clients

In wealth management, our approach fundamentally differs from traditional asset management. A key distinction lies in how we set goals and collaborate with clients. In this article, I will highlight these differences using the goal-setting models SMARTEST and my adapted version of the CLEAR model, explaining why I prefer CLEAR for high-net-worth private clients.

Note: (The CLEAR model originally comes from coaching; my adaptation of the acronym has no connection to its coaching origins.)

SMARTEST: A Clear Structure for Institutional Clients

The SMARTEST model is an advanced version of the classic SMART framework and is particularly suitable for institutional clients and asset management scenarios. It offers a structured approach, combining specific, measurable, actionable, realistic, and time-bound goals with ethical and sustainability aspects.

Components of the SMARTEST Model:

1. Specific: Clear investment objectives, e.g., “Achieving the index return after costs” or “Outperforming the index return after costs over a rolling five-year period.”

2. Measurable: The benchmark is clearly defined, and performance is regularly evaluated using best-practice relative methods rather than absolute terms.

3. Actionable: Clear measures, such as rebalancing, are predefined for deviations from strategy or strategic changes.

4. Realistic: Return and risk objectives are calculated using statistical best practices.

5. Time-bound: A defined investment horizon, e.g., five or ten years, to achieve specific investment objectives.

6. Ethical: Minimum criteria in ESG scoring, such as a minimum MSCI ESG rating, are specified.

7. Sustainability: Clear, measurable sustainability goals, such as adhering to a decarbonization path in the equity allocation according to industry standards.

Example:
An institutional pension fund might set goals such as reducing the portfolio’s carbon footprint by 50% over ten years while ensuring at least 80% of the portfolio consists of Article 8 funds, achieving a performance that meets the strategic asset allocation after costs over a five-year horizon.

CLEAR: Flexibility and Emotional Connection for High-Net-Worth Private Clients

In contrast, I see the CLEAR model as a crucial complement in wealth management. While client goals should be implemented internally using the SMARTEST model, they should be presented to clients using the CLEAR approach. Why? Because this model better reflects the specific needs of high-net-worth individuals. Wealth management clients are individuals or family groups, not statistical averages like the beneficiary portfolios of pension funds. Wealth management is not a standardized service—it is a personalized process that goes beyond mere financial metrics.

Components of the CLEAR Model:

1. Collaborative:
   Close collaboration ensures the investment strategy aligns with family circumstances and changing life situations. Regular discussions keep the strategy on track. Collaboration is crucial since complex wealth situations and family dynamics require tailored approaches. Strong collaboration fosters trust by addressing emotional and rational factors in decision-making, helping to alleviate potential anxieties and strengthen long-term relationships.
   Example: Instead of focusing on investment solutions during the first meeting, at least four meetings take place—covering the client’s situation, company values, investment solutions and their long-term perspective, and integration into the client’s personal context.

2. Limited:
   Focus on the essentials. A wealth management client doesn’t want to deal with 300 stocks in their portfolio or complex fund structures. They prefer to understand the overall logic behind an investment structure, e.g., inflation protection to preserve wealth combined with thematic investments to grow wealth.

3. Emotional:
   The mandate should reflect the client’s values while being thematic yet robust. For example, targeted investments in biotech funds if the client has a passion for that sector. Especially for “Re-Wired Investors”—Gen Z, Gen Y, and the Baby Boomer generation influenced by them—understanding their investments and building an emotional connection to them is vital. Wealth management clients view a mandate like a special watch or car—it’s an investment they should love.
   Example: Performance reviews are personalized and conducted face-to-face or via Teams rather than sending a generic report.

4. Appreciable:
   Goals are divided into small steps, such as selecting and discussing a new thematic satellite fund annually.

5. Refinable:
   The strategy is continuously refined to adapt to life circumstances and market changes.
   Example: A client setting up a legacy mandate might receive core inflation-sensitive investments supplemented with structural growth themes in equities and alternative investments. The implementation takes place at their long-standing private bank. A specific satellite investment could be a medical technology fund, as the client has built a company in that field. Performance reviews are conducted during winter vacations, and over time, the next generation is gradually involved in discussions to add more satellites reflecting their values.

Wealth Management: Beyond Numbers

Wealth management fundamentally differs from asset management because it’s an individual, value-driven service. While institutional clients often have clear, standardized requirements, high-net-worth private clients need solutions that account for both their financial goals and personal values and circumstances.

The SMARTEST model provides an excellent framework for standardized, ethical, and sustainable goals in asset management. However, in wealth management, where flexibility, collaboration, and emotional connection matter most, the adapted CLEAR model offers clear advantages.

This article is part of a series exploring why wealth management requires a unique approach. In future articles, I will delve into other aspects that make wealth management distinctive.

I look forward to engaging in dialogue on these fascinating topics and invite you to share your thoughts and questions with me.