I’m old enough to remember DIY Excel-based retirement calculators, a derivative of over-categorized household budgets. Some of us took those spreadsheets and developed tabs and tabs of additional analysis, and sold it as “customized financial plans.”
I appreciate handmade quality as much as the next guy, but I’m young enough to know that for today’s financial plan this makes no sense. The way successful advisors do business has changed in order to meet the growing expectations of clients. Let’s face some basic truths:
- Monte Carlo analysis is an improvement over the oversimplified traditional straight-line projection. Yes, focusing excessively on a singular probability of success can be as misleading as straight-line projections. But this is not a flaw of the Monte Carlo approach itself, instead of the financial planner. It is your job to help clients understand the magnitude and consequences of failure, and sensitivity analysis of the trade-off decisions they have available.
- Static, point-in-time, snapshots of a client’s financial picture can’t compete with dynamic analysis built from live information. And accommodating fluctuations in taxes, ERISA limits and lifestyle spending (to name a few) make planning for moving targets really hard to do via spreadsheets.
- Once you get the hang of it, financial planning software makes you more efficient and effective as an advisor. Simply put, only buy the software if you see a positive return on investment. If you don’t, you’ll never be happy.
Before you adopt new software and overhaul your firm’s financial planning process, recognize that there is no magic system that will satisfy all stakeholders, meet all strategic goals and never need to be changed. But there are some steps you can take to help discover what you need in terms of planning software. Here are a few things to consider:
- Reverse-engineer your FactFinder. Typically these data collection tools come in two flavors: bad and worse. You really want a strong FactFinder, since this is going to be your client’s first (and therefore lasting) impression of what it’s like to work with your firm. So reverse-engineer it by reconciling the information you know your Financial Planning software requires with what you’re collecting. Asking the client to give you the same information twice should make you blush.
- Use your software as a checklist to solve the problem of extreme complexity. There are too many granular levels of information in a financial plan to keep it all straight in your head (or in spreadsheets). Start by reading The Checklist Manifesto by Atul Gawande, then get busy getting real. If you’re not following a repeatable process, using checklists, your not giving your clients what they deserve.
- Roll out changes incrementally. Pick an improvement that won’t take much effort to implement, but will give tangible results. Resistance to small change will be lower, and positive results will encourage staff to accept, and perhaps even welcome, further change. Because the pace of change is slower, it will be easier to absorb without disrupting work in progress.
- Your staff needs training, and so do you. You’re going to delegate the nuts and bolts of data entry, but that doesn’t alleviate your responsibility of knowing how the software works. Take advantage of training opportunities to lead the process of financial planning, understand the system’s limitations, and help staff create workarounds.
