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Research Insight - Goal-Based Asset Allocation in WealthBench - January 2014

The recent peak of interest around goal-based allocation as a useful and practical framework to assist with complex asset allocation problems within the wealth management community, has led to MSCI implementing a goal-based asset allocation application which sits within WealthBench. This paper illustrates the benefits that the new Goal Metrics application will bring to financial advisors and their clients. The intuitive nature of our asset-liability methodology, allows financial advisors to assess portfolio values against the funding requirements of an investor's future financial goals. The resulting asset allocations exhibit characteristics that are not associated with traditional glide-paths.
MSCI's goal-based investing framework allows financial advisors to incorporate detailed descriptions of their clients' specific financial goals, including the acceptable levels of short-fall risk for each goal they are saving for and the desired trade-off between goals. This is more beneficial to investors as goal-based asset allocations naturally provide portfolios which are less risky when based on a low tolerance for shortfall, or as the investor progresses towards important goals such as retirement.