A look at Oppenheimer software; an update on Skill Weighted Portfolio.
In my June 2005 column, "A Great Challenge Facing
Advisors And Their Clients" (available on our Web site,
www.fa-mag.com), I argued that retirement income planning will be the
next big thing in software development for financial advisors, and I
offered a preview of what some large software developers such as
NaviPlan, Morningstar, and AdviceAmerica were working on to address
There is, however, one stand-alone, Web-based software program already being used by a number of advisors to tackle the thorny issues surrounding retirement income planning. It is called Oppenheimer-Funds Retirement Income Manager, and it is accessible at the OppenheimerFunds Web site (www.oppenheimerfunds.com) by clicking on the "Advisor Log on" icon at the top right of the page, logging in, then clicking on the link to the software in the upper right of the Financial Professionals Home Page. The site is free, but you need permission from OppenheimerFunds to use it. If you work for a B/D or RIA, you should be able to get credentialed by calling (888) 470-0862.
According to John Davis, retirement product manager at OppenheimerFunds, his firm felt that many of the retirement planning tools on the market required too much data and produced reports that were too long. The goal was to develop a tool that required 15 minutes or less of input, but offered concise, meaningful output capable of helping the client determine the probability of funding their retirement needs. I decided to take Retirement Income Manager for a test drive to see what it could do.
The OppenheimerFunds software takes a fairly sophisticated approach to retirement distribution planning, considering OppenheimerFunds' self-imposed time constraints. It factors in risk tolerance, income sources, asset allocation, variable income requirements, taxes, historical returns and volatility of returns. It also attempts to incorporate factors into the probability analysis that others don't, such as life expectancy and health-related issues.
There are two types of plans that can be created in Retirement Income Manager: a "standard" plan and a "quick" plan. According to the Getting Started Guide, the difference is that the quick plan does not require any data input to begin other than the client's date of birth, as opposed to the "standard" plan, which requires typical client data including name, address, and spousal information. The quick plan saves additional time by making some assumptions. For a "standard" plan, a health and risk assessment is required; with the "quick" plan, the program automatically assumes good health and moderate risk tolerance.
Provided you select the standard route, you would first go to the "search" screen, where you either search for an existing plan or start a new one. Next, you provide the limited personal information requested, followed by the answers to the health and risk profile. The third step is to input the estimated Social Security benefit and start age (a link to the Social Security Administration's Web site eases this task) as well as any pension income. The fourth step is to provide an asset inventory (current holdings, tax status of holdings, cost basis and asset class). The fifth step is to enter annual income needs during retirement. This need is broken down into "basic" needs and "lifestyle" needs. Users can increase or decrease the income needs at intervals, if they choose to do so. They can make further adjustments at the death of the first spouse. This also is where any wealth transfer goals would be stipulated. Once this step is complete, the program runs 2,000 Monte Carlo iterations, and displays the results. In my computing environment, the process typically took just over 20 seconds, but your results may vary depending on your computer, the speed of your Internet connection, etc.
The "results" page is really slick. On a single screen, the program lists the inputs, the current asset allocation and a proposed alternative allocation. For each allocation (current and proposed) it graphs the probability of meeting the basic income goal, as well as the probability of meeting both the basic and lifestyle goals combined.
While I do not think that Retirement Income Manager is the last word on distribution planning, I do think that, given the parameters (something that's quick, easy, doesn't require any specialized knowledge), it is a big step up from similar free tools I've seen in the past.
There are, however, many trade-offs you make for speed and simplicity. For example, there are limits as to the types of assets that can be entered in the system. You cannot change the order in which the assets are spent down. Generally, taxable assets get spent first; however, if there is an RMD (Required Minimum Distribution), the program is smart enough to take that first. The program can approximate the impact of federal taxes, but it cannot factor in the impact of state and local taxes. For many, trading speed and simplicity for complexity and detail is appropriate, provided the advisor is knowledgeable and does so conscientiously.
While there is much to like about Retirement Income Manager, I experienced a few too many annoyances. Documentation was one. For example, a casual reading of the Quick Start Guide leads you to believe that the "quick plan" gives you all of the functionality of the program, but this is not the case. You can't plan for a couple, and you cannot set a future retirement date. In fact, in my opinion, the "quick plan" does not save enough time to justify using it at all; you'd be much better off if you just stick with the "standard" plan.
The "Client Data Capture Worksheet" (the data gathering forms that you can print out) is not environmentally friendly. It consumes eight pages, but five to six would have been sufficient. Other than that, there's nothing wrong with it, although with a little imagination OppenheimerFunds could have done better. At a minimum, these PDF files should have included fillable fields, so the form could be completed by a client electronically; at best, the advisor would be able to seamlessly upload the information within the form directly into the program.
The Web site consistently times out after a short period of inactivity, which I found to be a nuisance. I understand and appreciate the security consciousness of the feature, but I can provide this sort of protection locally. If OppenheimerFunds wants to help those who can't, that's OK; just provide me with an option to opt out of the "timeouts" if I wish.
If there is one fundamental error that OppenheimerFunds made with this program, however, it is the printed reports. They are a prime example of a marketing department run amok. Offering a suggested alternative asset allocation is fine, and so is plastering the OppenheimerFunds name all over the report, but suggesting that the client rely solely on OppenheimerFunds as an investment vehicle is not.
The report includes a full-page featuring OppenheimerFunds' Portfolio-Builder product, and another about their IRA product. There is an additional page covering a spectrum of additional alternative portfolios, all comprised solely of OppenheimerFunds. OppenheimerFunds would be better served by offering this sort of material as an optional appendix. Oppenheimer provides advisors an option of printing out various types of OppenheimerFunds literature for inclusion with the report, and that is fine.
Unfortunately, you are currently limited to printing a 25-page report that features three or four pages of useful analysis and 20-plus pages of other stuff. In all fairness, some pages contain required disclosures. However, the marketing overkill cheapens the value of an otherwise promising program as a client educational tool.
In spite of my criticisms, I think that OppenheimerFunds deserves a great deal of credit for developing this program and making it available to advisors at no charge. Given the goals and constraints placed on the developers, this is an excellent effort, and with some additional tinkering, I think it can serve as a useful tool. However, if OppenheimerFunds actually expects independent advisors to print and distribute their reports, they will have to keep a tighter leash on the marketing department.
Skill Weighted Portfolio Update
A little over a year ago, I introduced readers to Skill Weighted Portfolio (June 2004) a platform from Engagement Systems LLC. This product includes help with sales, client education, portfolio and portfolio management. The one thing that truly sets Skill Weighted Portfolio apart, however, is its dedication to the core/satellite portfolio construction methodology. The Skill Weighted Portfolio methodology is somewhat unique however, because it includes two distinct satellites (or rings, in SWP parlance) as opposed to the usual one. According to Lou Day, president of Engagement Systems, the company is in the process of adding a number of new features that could potentially make SWP an even more compelling buy.
Skill Weighted Research, an optional add-on to the SWP product, is already available, although according to Day it is still a work in progress. Currently, it is being offered at an introductory rate of $5,000 per year for a single user, with volume discounts available. When the product is totally built out, the price is expected to double.
Skill Weighted Research offers institutional-quality, forward-looking research on separately managed accounts and mutual funds from RogersCasey. Advisors receive custodial-specific buy and sell recommendations for the core and both satellite portions of the portfolio. So, for example, if an advisor custodied a client's account at Schwab and needed to construct a portfolio, the buy recommendations would be limited to the separately managed accounts, ETFs and mutual funds available through Schwab. There will also be a pure research component to the offering, so that advisors can supplement the analysts' recommendations with their own research.
Skill Weighted Lead Generator, currently in the testing phase, is scheduled for release by the end of the first quarter next year. This product is designed for CPA firms, or advisors partnering with CPA firms, to data mine the CPA firm's existing client list. Using a proprietary system developed by Engagement Systems, the software will search through the database and identify tax clients who are prime candidates for investment advisory services. Next, the system will allow the user to choose from a selection of pretested marketing pieces that are deemed appropriate for the targeted prospects. The user can then place the order and initiate the mailing. Results of the campaign will be tracked from within the system. This feature will sell for $5,000 plus printing and mailing costs.
Looking a little farther out, Day expects to incorporate a performance-reporting component into the platform by the end of 2006. The reports will be designed to provide context to the investment approach and the results. For example, the rings of the portfolio (core, above market and absolute return) will be reported on separately, so that expectations for each ring can be aligned with performance. A composite report will be included in order to provide a total picture of the portfolio and its performance over various time periods. No pricing is available for the performance module at this time. It is anticipated that multiple tiers of this service will be offered, so that higher-net-worth clients can receive more details and the increased level of service that they are accustomed to.
When all of the pieces are put in place, Skill Weighted Portfolio could become a one-stop shop for investment management. With its fixed cost structure, it may present an enticing alternative to the asset-based pricing models of typical turnkey asset management programs.
Joel P. Bruckenstein, publisher of Virtual Office News and an expert in applied technology for financial services professionals, can be contacted at email@example.com.