Which factor drives a client's return objective?

A client's return objective is fundamentally tied to their annual spending requirements. This is because the return objective is often constructed to ensure that the investment portfolio generates sufficient income or appreciates in value to meet these spending needs. For example, if a client has specific expenses that they need to cover annually, the return objective will be set at a level that can reliably meet those expenses without compromising the capital base over the long term.

While factors like market volatility, investment fees, and asset allocation strategies play significant roles in shaping investment decisions and portfolio management, they do not directly establish the foundational return objective like annual spending requirements do. Market volatility can influence the risk tolerance and behavior of a client, investment fees can affect net returns, and asset allocation strategies are critical in determining how the portfolio will perform. However, these elements are more about managing the portfolio and aligning it to achieve the return objective, which is ultimately driven by the need to meet spending requirements. Thus, understanding a client's annual spending is crucial for setting a realistic and appropriate return objective.