The independent financial advisor world has been fighting for years about fees and whether you can accept commissions and still be a professional. But the difference between financial advisors who say they are professionals and those who act like professionals is not about fees as much as it is about financial plans.
Most financial advisors are advising people without making financial plans. It always amazes me that when I speak at conferences for broker/dealers and ask how many advisors in the room use financial planning software that only few hands go up.
The truth is that most registered reps and many RIAs don't do financial planning. They are selling mutual funds and insurance and other products or their investment advice without using any professional software for assessing a client's needs and preparing a strategic financial plan for them. They are thus often making investment recommendations in a vacuum.
Since plans take time and expertise to create and you can't get people to pay for them, advisors have been giving advice without them. But that's changing. Plans are now much easier to create thanks to a few new software products and over the next couple of years, a number of "instant plan" software packages are likely to be rolled out by broker/dealers and embraced by reps because they're not just simple but also help sell products.
The growth of financial planning has been hindered by its complexity. So these programs strip away the most complex issues and allow you to create plans right in front of your clients. The movement toward simpler planning software began years ago with products like MoneyTree Silver, and was given a big boost in the last few years by goal-based planning packages like MoneyGuide Pro. But now we are seeing a new generation of planning tools begin to take hold that boasts of allowing you to create plans in 20 minutes.
While this is the first in a series in which I'll review 12 or so planning packages, it is clear to me already that the planning software category is dividing into several types. There are the traditional cash-flow-based comprehensive programs–covering retirement, college funding, insurance needs, estate planning, and a few other planning issues–that allow you to model income, expenses, and investment returns five, 10, and 20 years into the future or more in extraordinary detail. EISI's NaviPlan Extended is probably the best-known package of this ilk. Then there is a handful of newer goal-based programs that require far less data input, with MoneyGuide Pro being the best-known program in this category.
But these newer programs take the idea of simple goal-based planning to a new level by requiring even fewer data inputs, but at the same time making it easier to create in-depth recommendations and reports. They create "instant" programs on demand. We are coming to the point where you'll have one planning program for making illustrations and doing quick sales-oriented plans for clients and prospects, and an additional package that you will use without your clients to create more detailed plans.
While many planners who use cash-flow-oriented programs or detailed goal-oriented programs will regard the instant plans as superficial, good planners are demanding these products. And for good reason.
"I've been searching for software that's not too complex and doesn't presume accuracy or precision that real life does not substantiate," says Ron Overbeck, of Overbeck Financial Consultants in Sarasota, Florida. Overbeck, an MBA and CFP licensee who's been a planner for about 20 years, has grown to dislike "three-decimal plans."
Overbeck is probably like a lot of advisors who want a simpler approach to planning software. Overbeck says he has been using MoneyGuide Pro and is happy with that program, but says that it has in recent months added modules and complexity. Meanwhile, he also uses MoneyTree Silver, one of the first to offer quick plans, but says it, too, has more data input than he now wants.
"The Monte Carlo aspect of these programs is useful," says Overbeck, "but I don't know that clients understand or that it is easy to explain." Overbeck, who works in the "middle-income retirement market," says he wants "something quick and easy and that doesn't pretend to be more than it is.
"Between life's unpredictable events–deaths, marriages, divorces, layoffs–and the unpredictability of the stock market and real estate, life is filled with uncertainty," he says. Planning tools that are too precise are overkill.
Meanwhile, his target clients just want simple output they understand. "Planners get too wrapped up in our own world of statistics and data and many of our clients nod and pretend they understand what we're doing when they really don't," says Overbeck.
"It is good to have the capacity to create complex plans and make these complex calculations, but in my niche it is more horsepower than is needed." And the bottom line with clients is prompting them to take action–selling them on the need to make an investment, buy insurance, or take some other step. "If the software doesn't convince your clients to act, what good is it?" he asks.
Both programs I reviewed this month are aimed at creating instant plans. They cover similar ground: Retirement needs, LTC, disability insurance, college funding, and asset allocation. For advisors who have never used planning software before or who are looking for a simple tool to create illustrations and quickly show clients planning concepts, either one is a good choice. But there are some important differences.
IncomeMax from Cygnus Software
This new planning package was created for use by insurance agents. Consequently, it is strong in illustrating the need for life, disability, and long-term care insurance.
To review the product, I had the help of two veteran financial planners, Richard Del Monte, a CFP of Del Monte Group in Alamo, California, and Holly Gillian Kindel, CFP of Mosaic Financial Partners of San Francisco.
In addition, Catherine Jacobs, a CFP who runs Shreveport, Louisiana-based Outsource Opportunities (www.outsourceopportunities.com), a service bureau for planners using Financial Profiles Professional software, joined us, along with Aaron Spahr, planning software project manager at Securities America, a broker/dealer based in Omaha, and Matt Abar, founder and lead programmer of TechFi, a portfolio management software company that was bought by Advent Software in June 2002.
