Financial Planning's Future

This software is comprehensive and is geared to high-net-worth individuals. Advisors choose from a total of nine planning modules covering specific planning issues clients often face: estate planning, long-term care, financial independence, disability, survivor needs, asset allocation, education, net worth and accumulation.

It supports model portfolios and uses the Ibbotson Associates classification engine to categorize client holdings. It also integrates Ibbotson Monte Carlo simulation and an eight-question risk tolerance questionnaire.

The planning features are strong, handling a full range of complex trusts, such as a charitable reminder unitrust, qualified personal residence trust, and generation skipping as well as a credit shelter trusts, and the software calculates federal taxes on these trusts.

The report builder is easy to use. Just click on which of the reports you want to add to a package, and it’s done. There are 400 reports to choose from.

Data input with FP+ Professional works the way a lot of advisors do: it’s paper based. While the company is planning to make its online interface more up to date with live data input into browser screens and the paper approach is outdated, it is very well organized. When you’re going to meet with a client, you print out an Adobe Acrobat PDF form where you write in all of the client’s personal data. Each section of the data collection form is boxed out and denoted with a watermark number. So the personal data is section 1 and occupation information is section 2. At the bottom of the data collection form is a set of tabs that list the sections of the data collection form you need to fill out in order to provide answers to a client about a particular planning issue. For instance, to run an asset allocation report, you must collect data from the client in sections 1, 3, 10, and 12. After you collect the data, you must input it into the program. That’s a bit cumbersome but it is well organized.

The software falls short in a couple of areas that sophisticated planners may find irksome. For instance, the risk tolerance questionnaire cannot be edited. In addition, you can not run side-by-side comparisons of different plans for a client without creating a new plan for the client. Only in the estate planning module can you model two strategies side by side.

In the investment planning part of the program, you cannot design your own model portfolios. If you buy the Ibbotson asset allocation add-on module, that comes with five model portfolios. But you cannot add your own or edit the Ibbotson models. Similarly, you cannot add your own asset classes and are limited to the 13 asset classes that come with the Ibbotson asset allocation model.

You also will not easily be able to enter different pre- and post-retirement portfolio allocations for a client. Assets each have their own rate of return and you can not assign a rate of return to a portfolio. Mark Grenader, JD, CFP/PFS, a senior VP at Investec Advisory Group in Houston, says that although he otherwise liked FP+ Professional, requiring that he input return rates for each individual asset was a deal-killer. “If we have a client with 50 different holdings, I’d rather analyze the overall portfolio,” says Grenader. “It’s too much detail.”

FP+ Professional is priced at $1,000 annually for a single-user license, though it is discounted when purchased through a B/D that has a distribution agreement with Financial Profiles. Adding the Ibbotson Asset Allocation module is an additional $200 a year, and the Monte Carlo is another $250 annually. Advanced estate planning module is another $250 a year, which is needed to do the more complex trusts. Until now, the software was available only in a desktop version. That changes in January when it will be released in a hosted online version that you’ll access over the Web. The Web-based version will have the same functionality and interface as the desktop version, however. The company expects the online version to cost slightly more than the desktop software.

MoneyGuidePro

(www.moneyguidepro.com)

This program is strong and planners have a hard time finding bad things to say about it. Harold Evensky, who for years has been a leader in the financial planning profession, helped design the program and actively promotes it. But make no mistake that the driving force behind MGP is the CEO of Pie Technologies, Bob Curtis. Curtis’s software has revolutionized planning by combining a goal-based approach, sales-oriented presentation graphics and reports, browser interface, and comprehensive scope. (In the November 2003 issue, I covered Curtis’s idea about planning.)

I am amazed at how Curtis has done so much with so little staff. He now has just 21 employees, but is supporting 17,000 users. Curtis says 25% of the users are IA representatives, 25% are employee registered reps, 40% are independent registered reps, 9% are fee-based planners, and 1% are money managers. Advisors can permission clients to see their plans online and can also share plans with another advisor.

What is most innovative about this program, however, is the way it handles goal planning. I believe it is the only program that lets you fund goals by priority rather than chronology. In other words, when you input goals in other programs–say you want to buy a boat this year but also fund your child’s education that she starts in three years–other programs will fund the boat first if you say that you want to buy it this year and the college bill only starts three years from now.

MoneyGuidePro let’s you say that you want to buy the boat this year but it is not as important to you as funding your child’s college education. You prioritize your goals in order of importance and that’s what gets funded first. And then the program shows you graphically which goals are 100% funded and which are only partially funded.

MGP balances the simplified goal based approach that eschews long-term cash flow projections but does not sacrifice detail and is comprehensive. The program in pre-retirement uses current federal and state tax tables as the default for a client’s marginal tax rate and uses current tax tables to calculate progressive tax rates post-retirement. It includes a stock option module that illustrates many possible exercise strategies and shows you how they would impact a plan, with side-by-side comparisons on screen of three exercise strategies.

Assets you input are automatically categorized using the Morningstar classification system. You can use MGP’s risk tolerance questionnaire or edit it and create your own, and MGP is in the process of integrating with FinaMetrica, a leading risk tolerance questionnaire provider that is highly touted by leading planners.

MGP also includes long-term care insurance and disability insurance modules that allow you to illustrate how purchasing these policies versus not doing so will affect a plan in the years ahead. It is an effective tool for showing a client how paying premiums for an LTC policy now can help a couple avoid being in poverty in old age if one spouse must be placed in a nursing home for a long period. MGP also includes a database of LTC costs by state to let you accurately illustrate the cost of care and a similar database is integrated for college cost calculations.

Catherine Jacobs, who runs a financial planning software service bureau and works with Financial Profiles’s two planning programs, has been fairly tough in looking at planning applications but raved about MGP. “I like so many things about this software, it’s hard to know where to begin,” she says. She was especially impressed with a “stress test” feature that shows the effect on a portfolio of two consecutive bad years–with losses in stocks equivalent to two standard deviations.

Where the program perhaps falls short is in estate planning. It models the effects of an irrevocable insurance trust but not a credit shelter trust, a charitable trust or other trusts. (However, it does graphically illustrate an estate plan in an organizational chart.) While the program does make an attempt to model cash flows, make no mistake, this is a goals-based planning tool. If you are looking for a cash-flow planning tool, this is not the one for you. But if you are interested in a solution that allows you to run plans live on the fly with clients by inputting only basic data but that can also handle more detailed and comprehensive cases, then this is an outstanding candidate. And at $995 a year, which is discounted through B/Ds and trade groups to $795, the price is right.

NaviPlan Extended

(www.naviplan.com)

This was the most improved product I’ve seen in my latest round of demos of the planning applications. Canada-based Emerging Information Systems Inc. (EISI), the makers of NaviPlan Extended and its simpler sibling, NaviPlan Standard, has finally cracked the usability barrier and made its software friendlier.

Based on user numbers supplied by the vendors, EISI is the dominant vendor in financial planning software. Founded in 1990 by Mark Evans, a computer science professor at University of Manitoba after he built a planning application for a small advisory firm, EISI now has 70,000 licensed users. The company would not give details about its client base–the percentage that is employee registered reps versus independent reps, for instance. So it is hard to judge its penetration in the independent advisor and independent B/D market. However, the company does say that of its 70,000 users, just 1,500 are the U.S. version of Extended, its powerful desktop program for sophisticated planners. So it is fair to assume that NaviPlan Standard has historically been the big seller for EISI.

Until now, I was not very impressed with either product. NaviPlan Standard was a little simplistic. It didn’t give users real after-tax portfolio projections, for example, but still required a good bit of data input. NaviPlan Extended, on the other hand, was too complex. It gave you good reports and was very complete, but over and over again advisors would complain that the data input was overwhelming. Even sophisticated advisors gave up on it and moved to less detailed applications because of the data input requirements.

EISI has now revamped its interface to very cleverly make NaviPlan Extended less demanding of data input and more versatile. The change makes it likely that over the next couple of years, or perhaps sooner, you’ll see one version of NaviPlan instead of the current two.

What’s new is that you can now choose different levels of plans when you open a new case. This feature has already been added to NaviPlan Standard, and it is now in a beta version that is soon to be released in NaviPlan Extended 10.1. If you are sitting down with a prospect or a new client for the first time, you can do a “Financial Assessment” that requires minimal data input. This level of plan is a needs analysis in which the client tells you about his goals and holdings. So it is really a discovery tool with which an advisor can learn about a prospect’s net worth and assets.

Being able to create a quick assessment or basic financial plan and yet have access to much more powerful planning in the same application provides advisors with the best of both worlds. When a prospect becomes a client or a client’s financial life becomes more complex, you can “promote” the simple plan to a more detailed plan level. So a client can start out with a simple plan that requires little data input and grow into a more complex plan over time. The flexibility NaviPlan is building into its products is very impressive.

Holly Gillian Kindel, a planner at Mosaic Financial Partners in San Francisco, who viewed version 10.0 in a recent demo, says her firm dropped NaviPlan Extended in 2002 because it was too complex, but she is recommending that her firm return to it. “NPE is more user-friendly and flexible than previous versions,” she says. “EISI appears to be committed to improving the program on an ongoing basis.”

With EISI addressing its usability issues, NaviPlan Extended’s comprehensive capabilities can shine. Knowing that you can do the heavy lifting when you need it, it will give comfort to detail-oriented advisors looking for the best tool in making cash-flow based plans. Plan projections in NPE are based on actual, not average, tax rates. While the program does not actually create Schedules A, B, C and D for submission with a tax return, they give you the data you need to fill in the forms. An Alternative Minimum Tax calculation is integrated into the application, helping you avoid that hidden tax trap.

Advisors can run two side-by-side “what-if” scenarios on screen and an unlimited number of scenarios can be shown in reports. NPE includes all of the bells and whistles a sophisticated advisor might want, such as a stock option planning module, a Monte Carlo simulator (in which rates of return and standard deviations can be set at the account or holding level), the ability to define your own asset classes and returns on them, and creation of your own model portfolios for reuse in multiple client plans.

NPE is integrated with a database of long-term care costs, makes assessments and recommendations of LTC insurance coverage needs, and models how disability insurance income will offset a disability need. The college planning tool imports college costs from a database of thousands of colleges and universities. NPE also handles the full range of complex trusts, including CRUTs, CRATs, QPRTs, and QTIPs.

NaviPlan Extended’s single-user license fee costs $1,250 a year, and the Ibbotson Asset Allocation module costs an additional $125 annually, with an Ibbotson Mean Variance Optimizer costing another $100 annually.

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at [email protected].