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Financial Planning > Tax Planning

Part 1: The New Old Kid

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Back in the mid-1980s, when Dave Polstra, a CPA, was breaking into financial planning, he wrote plans like crazy. “I would sit in front of the computer and crank them out,” he recalls.

Polstra became a maestro on a primitive DOS software application called IFS, one of the first programs for comprehensive financial planners. IFS made detailed cash flow projections, calculated a client’s income taxes, mapped complex estate plans, and projected retirement nest-egg drawdowns. IFS also stored clients’ contact information–everything from Social Security numbers to kids’ birthdays. It also had portfolio management capabilities and produced performance reports. “I became an animal on the program,” says Polstra. But IFS would come to disappoint him.

In the early 1990s, the founders and programming architects of IAS, David and Linda Grace, sold their company to the broker/dealer arm of Western & Southern Financial Group, a big insurer. Western & Southern was primarily interested in one aspect of IFS that was useful as a sales and illustration tool, and the insurer let the comprehensive planning application languish.

In the mid-1990s, as Microsoft Windows began to rule the financial planning software universe, IFS failed to keep up. It remained a DOS program and its user base dwindled and became too small to support writing a Windows version. In 1995, Western & Southern, at the urging of a core group of IFS users, sold the rights to the software to Phil Wilson of Wilson Analytics, a software company now called AdvisoryWorld. Wilson did little with the program while his company owned it.

A couple of years after IFS stopped making updates for tax law changes, Polstra reluctantly stopped using it. Polstra, who now heads an Atlanta planning firm of 14 employees, says that he has not found a replacement for IFS to this day. Like most comprehensive planners, Polstra patches together a variety of applications to run his practice. His firm makes plans using homemade Excel spreadsheets. For tax planning, he uses a BNA program. For contact management, there’s Goldmine, and he uses Schwab PortfolioCenter (formerly known as Centerpiece) for portfolio management and performance reporting.

Unlike Polstra, however, a small group of loyal users stubbornly refused to walk away from IFS. The loyalists, organized by Buzz Moen, a planner in Minneapolis, and Chris Stanziale, a planner in New Jersey, refused to let go. They ran their business on IFS and nothing could take its place.

The deal with Wilson lasted about 18 months before he gave up trying to rewrite the program. Frustrated, Buzz Moen organized a group of IFS users. Wilson sold the code to 10 “loyal users”–planners with expertise in different planning disciplines, who each initially kicked in $10,000. About 65 users continued to pay $200 a month to keep the program alive.

Led by Moen and Stanziale, these loyalists pursued the resurrection of IFS with the stubborn entrepreneurial zeal that is emblematic of the spirit that separates this corner of the retail financial advice business from the rest of the industry. The loyal users shopped for a new home for the software, hoping to find a caring company that would develop an updated Windows-based version of their beloved package.

In 1998, they found a new partner. This time, it was a French financial software company, Sycomex. The French, according to Moen, dumped millions of dollars into rewriting the program to a Windows environment. But by early 2000, they had run out of money. Still, the IFS users would not quit. They regrouped, and in 2001, sought out the original entrepreneurs behind IFS, the Graces. The couple had long since moved on from IFS, but several of the programmers who worked for them on the original software were working for a friend of the Graces, Herzl Hyton, founder of Optima Technologies, an Atlanta-based company with about 80 employees that made contact management software for large companies.

Moen, Stanziale, and the other planners met with the Graces and Hyton. They convinced them to rebuild IFS’s financial planning and portfolio management functionality on top of Optima’s contact management application. Thus was born a new software vendor that seems hell-bent on serving independent financial planners.

Hallelujah! A new software package is on the market that offers the Holy Grail advisors search for: integration of customer relationship management (CRM), portfolio management software (PMS) and comprehensive financial planning. Interactive Advisory Software (IAS) by Optima Technologies, the reincarnated version of IFS, is a great unfolding story of American small business. But the latest chapter in this story is just beginning.

While IAS is a great start, it is a work in progress. Whether it will succeed in becoming a breakthrough product for planners is far from clear. What is clear is that because it integrates CRM, PMS, and personal financial planning into one database, IAS has great potential. But is that enough? IAS will face challenges that will test its financial wherewithal, engineering staff, service capacity, and marketing muscle. I believe it will take at least a year, and probably two, before planners and broker/dealers in meaningful numbers will want to switch their offices to IAS. Until then, its two main target customers–B/Ds and independent RIAs–will stand on the sidelines and watch the software develop as early adopters go through the painful process of betting on a new company.

For the company to succeed, IAS will first have to prove itself with its early adopters over the next year or two. It must do so by selling the program to a few B/Ds that will run it as the central enterprise-wide application used by their reps. At the same time, IAS will also have to prove itself with independent RIAs not affiliated with B/Ds by converting a few dozen advisors who use Advent and Centerpiece, and by converting advisors now using Goldmine and ACT and other CRM software. IAS will need to show advisors and B/Ds that it is worthy of their trust, so that they can feel comfortable betting their businesses on the software.

The current buzz about IAS originates with the elite of the industry–comprehensive planners. They are the most scientific, detail-oriented individuals in the profession, and are committed to the personal financial planning process. These planners, who often know little about IAS’s rivals, jump to conclusions that this is the only hope for an integrated planning application. But in truth, several companies are trying to provide functionality similar to IAS.

I spent about 30 hours looking at IAS, and I interviewed about 20 advisors familiar with the program. The advisors I interviewed used the software themselves after being given passwords to IAS’s Web-based application, or they participated in a lengthy Web demo of the application hosted by IAS executives. Most did both. Others interviewed for this story are converting from the old IFS to IAS and they are most familiar with the package.

My verdict: This is the most significant development in advisor technology since Techfi thrust itself in the middle of the portfolio management software war among Advent Software, Centerpiece and dbCAMS. But what I, along with hundreds of independent advisors, learned from the Techfi experience was that having breakthrough technology is not enough. Techfi suffered from many minor bugs, its service was the subject of many complaints, and eventually it was swallowed up by a bigger competitor, Advent. However, IAS has some important differences with Techfi. This software is being developed by a going concern, Optima Technologies, where only 20 of the 93 employees work on IAS. An experienced staff already is in place to handle customer service. And the owner of Optima is an experienced entrepreneur guided by a loyal core group of financial planners who are dedicated to IAS’s success.

I’m telling you this because I want you to know how hard it is to judge this software’s prospects for success. There are so many variables that will influence IAS’s ability to succeed, some of which are beyond its control. For instance, we’re in a competitive marketplace where the software companies that now dominate advisor desktops and that offer portfolio management, contact management, or financial planning software are not likely to stand idly by and watch IAS steal their customers. They are likely to integrate the missing pieces over the next year or two, or create easier ways to import and export data so that you will have less need to go through the disruption of converting your business system to IAS. For instance, I expect it to get much easier to export in XML out of Schwab PortfolioCenter into CRM, planning, and other standalone applications. Moreover, many new integrated applications are getting into this space, including and

After nearly three years of a bear market, with revenues from fees on assets under management down 10% to 20%, many advisors are also reluctant to spend on technology. What if stocks drop further over the next year or two? Will advisors be anxious to endure the expense of temporarily running two systems, which seems like prudent operating procedure when converting your practice from one software system to another?

And then there is the fundamental issue of just how good IAS really is. The more I talked about IAS to good planners who understand technology, the more I realized that opinions are totally divergent. There are lots of glitches in this software and it is a massive application. Kathy Day of The Enrichment Group, a comprehensive planner in Miami, spent about 90 minutes examining the software at its debut at the Financial Planning Association Success Forum in late September. Day’s son, who formerly worked at a financial planning firm and who now runs Trumpet, a Phoenix, Arizona, consulting firm that integrates CRM and paperless office applications at planning firms, was at his mother’s side when she was given a tour of IAS.

“It’s an interesting product but it is not ready for prime time, although it is being presented as if it is,” says Day. The criticism comes reluctantly from a former IFS devotee, who is rooting for the integrated application to succeed.

Day says she was disappointed in the contact management functions–ironic, since Optima is a contact management software company that works with Fortune 100 customers. Day says she was unhappy that the software could not schedule multiple employees to attend a meeting. “To do that, you still need to use Outlook,” she says. “That brings you right back to using multiple applications.”

Another informed perspective on IAS comes from Johnne Syverson, a partner at Syverson, Strege, Sandager & Company in West Des Moines, Iowa, and one of the loyal users of IFS who put thousands of dollars into helping keep it alive. In August, Syverson’s firm installed IAS after sending eight staffers to Atlanta for training. When they converted their data on 260 clients in late August from IFS to IAS, they found that not all of the reports for retirement and estate planning could be used. IAS promised the reports would be working by mid-September, but missed the deadline. In November, Syverson was just starting to use the program, “and we’re running two systems this whole time…We did expect to be further along by now.”

Syverson says his staff is dealing with glitches in calculations, especially when a piece of data is used one way in a cash flow report but another way in an estate report. So if Syverson’s firm is trying to run a cash flow report in which $6,000 a quarter is coming from a CRT, IAS is not yet reporting the tax treatment of the cash coming from the trust properly. “That’s how a single-entry system doing different functions can present a set of problems,” explains Syverson.

The single entry database is a blessing and a curse because of such data issues, Syverson says, “but the blessings far outweigh the curse.” He’s right. But it will take some time to conquer these issues. There are so many little fixes that are needed. And each time the Optima programmers fix one problem, one or two new issues emerge.

Is Syverson frustrated? You bet. But since his firm is still running on the old DOS system and is not dependent on IAS, he is patient and willing to put up with the disruption for the long-term benefits the program will ultimately offer. “My guess is Optima got caught by promising to deliver this software for two years to us and perhaps they were pressured to release it too soon,” says Syverson.

“As a former IFS user, I have faith in the people.” says Syverson. “So I’m willing to put up with all this.” “The people” Syverson is referring to are David and Linda Grace, and they have an excellent reputation among the old IFS users. And the fact that old pros like the Graces are working on IAS is what makes it likely to overcome many of the obstacles.

IAS’s features are too varied to describe in great depth, but let me try to give you an overview. It is being offered in two versions: a traditional application that runs locally on your hard drive or on the network server in your office, or a Web version. The locally run software is priced at $7,500 for a license for one to five users, and there’s a $3,750 annual support and maintenance fee. The version that runs remotely over the Web costs $458 a month ($5,496 annually for one user, $763 a month ($9156 annually) for two users and $1,033 month ($12,396 annually) for three users.

The Web version of IAS includes a service bureau in which downloads from brokerages and custodians are done for you. You can go into the database and edit it live on the Web. Currently, both the locally run software and Web version have interfaces for downloads from Schwab, TD Waterhouse, DST Systems, and Fidelity’s National Financial Services clearing operation.

Along with nine advisors, I did a two-and-a-half hour tour of the Web-based application. I later got a second two-hour tour. At my request, several other advisors, including Karen Spero of Spero-Smith Investment Advisers, Inc. in Cleveland and Carol Grosvenor, a former technology consultant to advisors who is now a financial planner in Los Angeles, were given one-on-one Web tours by Optima. They are good examples of how divergent opinions are on IAS among the advisors I spoke with.

“The depth is not there and it is not ready for prime time,” Grosvenor told me by e-mail. “I couldn’t use the financial planning features of this product because they are too simple for my clients’ needs (my choices are Methuselah and View Plan); as an investment advisor, I couldn’t use the portfolio tracking and analysis features because they are too simple (my choices are dbCAMS+, Allocation Master, and Morningstar); I couldn’t use the client contact manager features because of the simplistic nature of the task management, calendaring and note keeping (my choice is Goldmine); I couldn’t use the marketing component because there isn’t anything there (my choices are Text Library System and Goldmine.)”

Spero, on the other hand was impressed. “This appears to be an excellent product,” she says. “As always, it would be easier to start with this system than convert, but this may be a system worth the conversion pains.”

Here are the highlights. When you enter the program, you are immediately impressed not so much by a slick graphical user interface as by a functional one. It shows you a calendar with your appointments for the month or for the day and a pie chart summarizing your asset class distribution across all your client portfolios. Charts of the major market indexes are also displayed, as well as messages from Optima about updates.

What’s more impressive is that this opening screen can easily be customized. You can change the positioning of these elements on the opening page and select from a range of different formatted content to be displayed. When you look at individual clients, all their phone numbers and addresses are displayed along with a summary of their portfolios on an overview page, and you can drill down with a click to see individual positions in any portfolio and then drill down from there to individual transactions.

The client overview page also includes a section of “QuickLinks” that run specific reports, such as a retirement report, net worth statement, federal tax summary, and about a half-dozen other useful reports. The reports are dynamic in some cases, so you can change the retirement date in the retirement calculator or the expected rate of annual returns. Trouble is, the QuickLinks were not working with live data when we reviewed the package, even though the product had been launched in September.

One thing that separates this program from some of the other new planning packages recently launched is that IAS is capable of comprehensive planning because it handles all aspects of a plan and it also allows for detailed cash flow projections. Some of the new goals-based planning packages, such as MoneyGuidePro, do not let a planner input detailed income and expense forecasts and project them over the accumulation and withdrawal phase of a portfolio. The majority of sophisticated planners that I know would not use planning software that will not allow detailed cash flow projections. IAS allows for this.

You can input expense and income data in familiar budget and income spreadsheets and view year-by-year cash flows in columns not unlike Excel. At present, there is no Monte Carlo simulation that is integrated into the program for making investment plan projections. But this is on the drawing board for the next release.

When it comes to portfolio reports, IAS, with seven ready-to-run reports, is lacking the breadth of reports offered by Advent or Schwab PortfolioCenter, but the seven reports are an effort to provide what is most popular, and more reports will be added in coming months.

One of the big challenges facing IAS in coming months will be to make it easy for planners to make illustrations that can be presented to clients. Programs like Morningstar Workstation, Financeware, MoneyGuidePro, and Financial Engines have extensive capabilities that help advisors explain a planning concept to clients. MoneyGuidePro, for instance, shows a client graphically that based on his investment plan he may fund 100% of his most important goal but may only have partial funding of a second or third goal. It also lets you run “what if” reports very easily. IAS is lacking in giving advisors illustration tools like that.

The other big challenge will be making the software user-friendly. I watched as Susan John, a comprehensive planner from Wolfeboro, New Hampshire, tried for more than two hours to make IAS work. John, who in the past has created Excel spreadsheets for me to illustrate required minimum distribution drawdowns, is a very detail-oriented woman who has used several planning packages during her 17-year career as a planner, but she walked away from IAS frustrated that she could not make it work right.

Probably the most realistic assessment of the software came from James Brennan, a planner in Severna Park, Maryland, who formerly worked in quality assurance at AdviceAmerica is a Web-based financial planning application that was run for a time by Robert Goss, former executive director of the Certified Financial Planner Board of Standards, and initially aimed at the masses before being refashioned into an advisor platform.

Brennan, who spent several hours using IAS and who has looked at other planning applications integrated with CRM and PMS, says IAS has its problems, but he remains optimistic. “This is new technology and the product was launched too early,” says Brennan, “but it has the greatest potential of the applications I’ve seen for an integrated application for comprehensive planners.”

Bill Carter, president of Carter Advisory in Dallas, which has a staff that includes 14 planners in six offices, made a similar assessment. Carter, who has 250 fee-paying clients and $400 million under management, was one of the loyal users who has backed the program, and he expected bugs. He did not use the old IFS for portfolio management and is not yet using IAS for that either. He just uses its planning application and has expected the conversion would be difficult.

“When you go through a major software conversion, there are bugs and you need to be prepared for it,” says Carter. “We entered this with expectations that were probably more realistic than most other people’s because of our experience with other software conversions. But we are convinced IAS will be the standard for the industry.”

IAS is off to an exciting start and this new software represents advancement for the financial planning profession. Now we’ll have to see if it can fulfill its promise by fixing bugs, adding necessary improvements, creating a smooth conversion process to migrate users of other packages, and providing good service to demanding independent advisors.

The company needs to find the financial strength in these tech-weary times to survive and serve the difficult independent planner niche that demands state of the art computing applications, personal service, and customization at extremely low prices. I hope the IAS people can succeed. But they have a lot of work to do before planners will feel comfortable betting their practice on them.