Wealth management: New book provides practical framework for Goal-Based Investing
12/09/2021
3 min
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Romain DEGUEST, finance professor at IÉSEG School of Management, has co-authored a new book on the topic of goal-based investing (GBI). GBI is a new paradigm that is expected to have a profound and long-lasting impact on the wealth management industry. It refers to the use of personalized solutions to help individual investors (e.g. buying a property or retiring) and financial advisors meet their/clients’ financial objectives within a given time frame.
Presentation and operational framework for GBI
“Goal-based Investing: Theory and Practice” (World Scientific publishing) has been co-written with two experts from EDHEC Business School, Vincent MILHAU (Research Director at EDHEC-Risk Institute) and Lionel MARTELLINI (Professor of Finance and Director of EDHEC-Risk Institute). It presents the concept of GBI in detail and introduces a general operational framework that can be used by financial advisors to help individual investors optimally allocate their wealth by identifying performance-seeking assets used to increase their portfolio’s return and hedging assets used to control the potential risks that their portfolio is exposed to. The optimal balance between performance-seeking and hedging assets is specific to each investor and depends on their risk profile and the type of financial goals they are trying to achieve.
Romain DEGUEST explains: “While it is fully recognized that there is a need for investors to consider the different types of risk that they are individually exposed to, versus the standard class of market risks, we believe that this insight has yet to be fully exploited in the wealth management industry. There has often been a tendency to focus in isolation on the broad class of market risks, without properly integrating investors’ preferences.”
Optimizing allocations to categories of risk
The new book, therefore, provides a practical framework that can be used by financial advisors to allow individual investors to optimally allocate to categories of risks they face across all life stages and wealth segments to achieve personally meaningful financial goals.
“It is not an overstatement to say that the wealth management industry is already experiencing a profound paradigm change with the development of robo-advisors that provide automated personalized financial advice to each investor, and it is our hope that this book will provide assistance to the next generation of financial advisors and wealth managers who will focus on satisfying clients’ needs through a dedicated investor-centric goal-based investment solution approach,” adds Romain DEGUEST.
Grounded in the principles of asset pricing and portfolio optimization, the goal-based investing approach leads to the design of investment solutions that truly respond to investors’ problems, which can most often be summarized as follows: secure essential goals with the highest confidence level and maximize the chances to reach aspirational goals.
Case studies to guide the reader
A series of case studies guides the reader through the implementation of goal-based investing, illustrates the efficiency of this paradigm and explains how one can accommodate a variety of implementation features such as taxes, short-sales constraints and parameter estimation risk.
- More information on this new book is available here.
- Readership: Financial advisors, wealth managers. Students in finance, financial engineering and mathematical finance, at the Masters’ or PhD level, as well as finance and mathematical finance
March 2023: Please note that Romain DEGUEST no longer works at IESEG. This article was published during his time at the School.
