From the November 2006 issue of Boomer Market Advisor • Subscribe!

Spike the planning spreadsheets

The packages that exist provide powerful levels of analysis that are difficult -- if not impossible -- to recreate in spreadsheet programs. So why are so many advisors still using spreadsheets?

Market research indicates nearly 60 percent of advisors still use spreadsheets in some fashion. The use of spreadsheets not only exists in practices with smaller budgets, but in large institutions as well. At every one of my previous employers, there was rampant use of unsanctioned spreadsheets. The reason for their use was, in a way, commendable since advisors were struggling to find the best way to serve their clients when approved software failed to do so.

The reasons for using spreadsheets are understandable. They're flexible, highly customizable and easy to share. Above all, they're low in cost. If you conduct an Internet search, you will find a number of planning spreadsheets to download for free; some are quite sophisticated. So why not use them?

Sophisticated can also mean complex and difficult to use and maintain, especially as more functions are added. Troubleshooting formulas and functions becomes increasingly time consuming. Formatting and the reporting capabilities are rudimentary at best. Integration, if it exists, is generally limited to general market data.

It's frightening to consider how many of these homegrown tools are error-prone and fail to meet compliance requirements. In the face of strict regulatory oversight, spreadsheets are not only a potential legal liability, they also can do clients a disservice. Surveys indicate over 40 percent of spreadsheet models developed by experienced Microsoft Excel users had significant errors. Time spent to keep up with the overwhelming number of tax code changes could be better spent in developing client relationships.

Software vendors have quality control processes in place to validate formulas, rules and output in their programs, while ensuring the most up-to-date laws and regulations are included. Their software must be compliant with the standards of various regulatory agencies. This is not to say that bugs and errors don't exist, but they are less prevalent than in homegrown spreadsheets.

If you do feel you have a unique solution that is not met by existing software, find a vendor that can complement your spreadsheets. Allow the program to provide the data and simplify your spreadsheets to supplement the illustrations and unique modeling needs that the software does not, or cannot, generate for you.

Further, don't be afraid to share your ideas with the software vendors you currently use or plan to use. These companies, particularly those with the adaptability and nimbleness to modify their software, are eager to work with advisors.

By leveraging your ideas, both you and the vendor win. You will no longer need to manage a series of spreadsheets and you can let the vendor worry about compliance and quality assurance. If you value ideas in your practice, chances are a good software vendor will value them, too.

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