OpenIM The Open Investment Model

SD-01.13 — Goals-Based Allocation

Business Domain: BD-01 Investment Strategy & Allocation (Front office) · Applies: BOTH

Purpose

Sets the long-horizon allocation for a private client or household by the goals-based paradigm — partitioning the client’s wealth into a sub-portfolio per goal, each with its own time horizon, its own required probability of success and its own allocation, and assembling the household portfolio bottom-up as the sum of those sub-portfolios. It is the wealth manager’s defining allocation discipline. The CFA body of knowledge names three co-equal approaches to asset allocation — asset-only, liability-relative and goals-based; OpenIM gives each that is not asset-only its own Service Domain (SD-01.7 / SD-01.8 carry the liability-relative approach), and SD-01.13 carries the goals-based one.

It is not SD-01.4 Strategic Asset Allocation: SD-01.4 optimises a single pool of capital top-down against one objective and one policy benchmark; SD-01.13 rejects the single-frontier premise — there is no single policy benchmark, risk is the probability of failing a goal, and the household portfolio is the emergent sum of independently-funded sub-portfolios. An implementation activates SD-01.4 or SD-01.13 as its allocation paradigm, not both — the same alternative-operating-model relationship SD-01.6 Total Portfolio Approach has to SD-01.4. It is also not SD-01.14 Goals-Based Planning: SD-01.14 frames the client’s goal hierarchy as a strategy artefact; SD-01.13 consumes that hierarchy and allocates to meet it. SD-15.15 Financial & Wealth Planning wraps the advisory delivery — the comprehensive financial plan, estate and wealth-transfer strategy, behavioural advice — around the hierarchy SD-01.14 frames and the allocation SD-01.13 sets.

Service Operations

  • Structure the goal hierarchy for allocation — take the client’s prioritised goals from SD-01.14 and organise them for allocation: the safety / lifestyle / aspirational layering, each goal’s horizon, minimum required return and required probability of success.
  • Allocate wealth across goals — decide how much of the household’s capital funds each goal’s sub-portfolio, against the goals’ priority and funding adequacy.
  • Set the per-goal sub-portfolio allocation — set the target allocation of each goal’s sub-portfolio to its own required-return and probability-of-success profile, from a low-risk safety sub-portfolio to a high-risk aspirational one.
  • Assemble the household portfolio — aggregate the per-goal sub-portfolios bottom-up into the household’s overall allocation, and surface the implied aggregate exposures.
  • Monitor progress to goal and re-allocate — track each goal’s funding adequacy and probability of success over time, and re-allocate across and within goals as circumstances, markets and the goal set change.

Inputs and outputs

  • Inputs: the client’s prioritised goal hierarchy and funding-adequacy assessment from SD-01.14 Goals-Based Planning; the household’s assets and external holdings; the capital-market assumptions (SD-01.3); the client’s risk tolerance and capacity for loss; the per-goal probability-of-meeting-goal forward-looking measure from SD-09.5 (the goals-based-measurement consequence that feeds re-allocation across and within goals).
  • Outputs: the per-goal target allocations and the assembled household allocation — consumed by SD-05.1 Portfolio Construction (which builds each sub-portfolio), SD-01.5 Tactical & Dynamic Asset Allocation (applied per sub-portfolio), and SD-15.14 / SD-15.15 (client reporting and the planning review). The goal hierarchy and per-goal target allocation are also consumed by SD-09.5 Investment Analytics & Insight, which computes the per-goal probability-of-meeting-goal as the forward-looking goals-based measurement on the BD-09 wealth-manager performance row.

Entities

  • Consumes: E-03 Portfolio / Mandate (the household and its sub-portfolios), E-01 Legal Entity (the client / household), E-09 Asset Class, E-10 Benchmark / Index; the SD-01.3 capital-market assumptions; E-30 Goal (the client’s prioritised goals, framed by SD-01.14) and the SD-01.14 funding-adequacy assessment; E-31 Goal Progress Measurement (the SD-09.5 per-goal probability-of-meeting-goal forward-looking measure).
  • Owns: no master entity — the per-goal target allocations are analytical artefacts. The Goal it allocates against is E-30 Goal, owned by SD-01.14 Goals-Based Planning; SD-01.13 consumes it.

Standards

  • The CFA Institute asset-allocation curriculum — the three approaches to asset allocation (asset-only, liability-relative, goals-based) as co-equal, and the goals-based treatment in the Private Wealth Management body of knowledge.
  • The goals-based-investing body of knowledge — behavioural portfolio theory and mental accounting, the wealth-allocation goal hierarchy (Chhabra), and goals-based wealth management (Brunel).

Open extensions

  • The per-goal probability-of-success model and the funding-adequacy sub-model.
  • The boundary with SD-01.5 — tactical and dynamic allocation applied per sub-portfolio.

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