MoneyGuide Pro from Pie Technologies, a leading contender among the new breed of Web-based planning software applications, delivers the benefits of such applications, including slick graphics and goals-based financial planning. The program is priced right, and its new version includes features likely to please most advisors. Comprehensive planners, however, may not be as enthusiastic about it.
Bob Curtis, the president and founder of Midlothian, Virginia-based Pie Technologies, took a panel of four financial planners and me on a 75-minute tour of his software. Before detailing what we saw and the responses of the planners, some background is in order.
Financial planning software is in the throes of radical change as technology shifts the focus of developers from traditional software to Web-based applications. New companies that many planners probably have never heard of are suddenly challenging the handful of longtime vendors. Forrester Research analyst Jamie Punishill gives prominent mention to the new breed of planning tools in a September 26 report, “Grading Advisors’ Planning Tools.” Those tools, all Web-based, include netDecide, RiskMetrics, Direct Advice, Financial Engines, and eMoneyAdvisor, as well as Pie Technologies.
With the exception of EISI’s NaviPlan, which is best known for its traditional, locally run software package that has the largest market penetration of any planning software, Punishill’s report deals exclusively with Internet software companies that started out making Web applications and that have never made a traditional planning software application for advisors. His universe thus does not include stalwarts such as ExecuPlan, Financial Profiles, Lumen, and MoneyTree. Why are there so many new entrants?
One reason is that, with a long-term bear market and people feeling increasingly insecure, financial planning is more important than ever. Advisors who once could focus their practices only on investing are suddenly in need of tools allowing them to do more–like college planning, retirement cash flow analysis, and estate planning. Comprehensive planners have “stickier relationships” and are more involved in their clients’ lives, which makes their businesses more stable and less correlated with the ups and downs of the stock market. That’s why financial planning is more popular these days.
But the second, and perhaps more important, reason why these new Web-based financial planning applications are attracting all these new entrants is because they convert the sell-one-at-a-time business model of traditional planning software companies into an enterprise solution used by hundreds or even thousands of advisors scattered at remote locations across the country.
These Web-based applications can run on a Web server in a B/D’s home office and reps at locations around the country access the application from a browser. All client financial data is centrally stored. Plans can be created or merely approved by a central planning desk at the home office. A B/D gains greater control over the rep’s practice than it had when reps stored data for client plans locally on their own desktop machines. The rep can share the plan with a client, create “what if” scenarios in real time that tweak his or her plan and instantly show the results. In addition, all of the assumptions about inflation and asset class returns can be determined by the B/D, and account data can be downloaded from a brokerage system directly into a plan to reduce the data input required of a rep and get a client up and running on a planning package more easily. And, most importantly, the B/D’s compliance department can monitor all of it.
The implications of the shift toward development of Web-based planning applications on the fragmented independent financial advisor business are beginning to become clear. The Web-based applications I’ve looked at–which include Financeware, Financial Engines, Cofiniti, Morningstar Advisor, and MoneyGuide Pro–are less comprehensive than the traditional planning software packages. They provide plans that are superficial or they focus exclusively on investment planning and do not provide estate planning, insurance advice, or tax planning.
That’s because the great majority of reps affiliated with B/Ds have not been comprehensive planners. While a small number of reps at most B/Ds have provided comprehensive planning services, most reps focus on investments or provide a partial or “lite” plan to their clients. Since an advisor needs to charge at least $3,000 or $4,000 to create a comprehensive plan and make money on it, the cost cannot be embedded in an investment management fee or made up on sales commissions. Only the most wealthy clients are willing to pay steep prices for detailed plans, which means few advisors provide comprehensive planning services, and that is even more true of reps affiliated with B/Ds who often focus on the middle-market.
For reps then, most of whom, according to Forrester Research, do not currently use any planning package, adding one of these Web-based planning tools–even if less comprehensive than a traditional software package–is a big step forward. For advisors who provide comprehensive planning–a relatively small segment of the profession that is comprised of a couple of thousand fee-only advisors plus perhaps about 5% to 10% of reps affiliated with independent B/Ds–these Web-based planning applications will be less attractive.
Comprehensive planners, however, may not all be less sanguine about these Web-applications. Some may indeed welcome a trimmed-down version of their comprehensive planning software, but most will see the new breed of tools as a step backward. For them, the Web tools will take another year or two of development, maybe three. By then, the Web tools will be more comprehensive and rival the traditional planning software applications they now use.
Which brings us back to MoneyGuide Pro and the reactions of our panel of planners who looked at the program. First, let’s talk about the comprehensive advisors who like the program: they say MoneyGuide Pro has great potential but that it is not high-powered enough for their practices at this stage.
Dick Potter, whose Chicago firm, Antares Capital Management, provides comprehensive planning and investment management to less than 50 high-net-worth families, says he was impressed with the program. But he would not use it in his practice. His main reservation: the program does not provide a way to model cash flows while saving for a goal, such as retirement.
While MoneyGuide Pro does allow for some cash flow modeling post-retirement, it does not do so in the accumulation phase of a plan. Just how important it is that the program does not include comprehensive cash flow analysis is the subject of debate among expert planners.
“The system we use now lets you look at whether someone will meet his retirement goal in 2013 and will show you that between now and 2013 you have a $500,000 shortfall and that you need to save another $20,000 a year to reach your goal,” says Potter. He wants to be able to give his clients actionable advice on how much more they need to save, and doing that requires tracking their cash flows, which MoneyGuide Pro does not do. “Given the level of sophistication of this program and its great graphics and its ease of use, I’d expect this hole will be plugged in coming months,” says Potter.
Potter says cash flows are needed in making comprehensive plans. “You cannot advise a client on estate planning and an annual gifting strategy without detailed cash flow analysis,” he says.