Can NaviPlan conquer the financial planning world?

Historically, the financial planning software business has been as difficult a place to make a living as financial planning itself was in the 1980s. Until recently, many of the larger banks, broker-dealers and insurance companies might have paid lip service to comprehensive financial planning. With a few notable exceptions, much of the planning process at the large financial concerns was product-driven rather than client-driven.

Many of the more commercially successful "financial planning" programs of the past were geared more toward marketing than they were toward financial planning. This left the producers of the better financial planning software to fight over the relatively small number of independents who practiced comprehensive financial planning. As a result, some popular software providers of the past, like Mobius and Leonard, have fallen by the wayside or been merged into other companies' platforms.

Today, there are a variety of functional financial planning programs from which to choose, but one company, EISI, is starting to distance itself from the crowd just at the moment the business is emerging as an established profession. The company has become a force to be reckoned with since it introduced NaviPlan Standard and NaviPlan Extended in the United States in 1999. The implications for financial services concerns, advisors and manufacturers of financial planning software could be far-reaching.

Mark Evans, who has a Ph.D. in artificial intelligence, founded EISI in 1990, but the company's growth started to accelerate only a few years ago. From a staff of 40 in 1999, EISI has grown to a firm of roughly 215 employees. Based on contracts that are already signed, EISI projects that there will be at least 71,350 licensed NaviPlan users by the end of this year, which would make EISI the largest provider of financial planning software in North America, if it isn't already.

NaviPlan's sudden ascension to the No. 1 spot represents a milestone in the annals of financial planning: It will be the first time that a true financial planning program with comprehensive financial planning capabilities is the leading software provider to financial advisors and their clients.

The key to EISI's rapid growth has been the development of its Web-based application, which compliments its original Windows-based desktop applications. This dual platform approach means that EISI can supply the appropriate product for firms with one employee or 100,000 employees. But with NaviPlan, EISI also has positioned itself to control the market for financial planning software in much the same way Microsoft dominates the larger software market. For years, financial advisors have complained about the lack of a common platform or interface to allow all the different programs they use to talk to each other.

By creating a platform with more layers than its rivals, EISI has resolved that issue. In doing so, the Canadian firm has positioned itself to act as a gatekeeper to advisors' desktops. Though it has yet to reveal any inclination to do so, EISI could start wielding the same kind of potential power Microsoft exerts over small software developers and Charles Schwab wields over mutual fund companies.

For the desktop, EISI offers two distinct products: NaviPlan Standard, a goal-based product for lighter planning needs; and NaviPlan Extended, a more detailed, comprehensive, cash-flow-driven program. The desktop software these days is marketed primarily to smaller organizations that do not have the infrastructure in place to support one of the Web-enabled versions. For larger organizations, EISI offers NaviPlan Enterprise Solution, a highly scalable, customizable, integrated Web-based software package. Enterprise Solution just may be the technology that transforms EISI from a very good developer of financial planning software into the unassailable leader in the field.

To understand how versatile the Web-based platform is, one needs to have a basic understanding of the program's architecture. Enterprise is constructed in four layers. One layer is the database, where client files are stored. The second layer is the application, which is comprised of two sub-layers: the calculation engine and the engine that draws dynamic pages (think of a dynamic page as a page that appears after you perform an action, like pushing a calculate button). The third layer is the page server, which delivers the page to the user's computer. The fourth is a Web browser, such as Microsoft's Internet Explorer, which displays the view to the end user. It is these additional layers that enable the programs to interface and interact with others.

EISI offers NaviPlan Online and NaviPlan Offline. Both are available in Standard and Extended versions. NaviPlan Online and Offline can be thought of as a subset of the NaviPlan Enterprise Solution. NaviPlan Online and Offline are essentially the browser-based versions of NaviPlan's traditional desktop programs. This means that the application layer of Online/Offline performs the same functions and calculations as the respective desktop versions, although the user interface is slightly different. The distinguishing characteristic of Online/Offline is that the second and third layers I referred to above are fixed. Features of the program can be toggled on or off, but the user is purchasing one of two "standard" configurations (NaviPlan Standard or NaviPlan Extended).

In the case of Online, the planner accesses all four layers of the program over the Web. If the planner needs to leave the office to meet with a client on the client's yacht, for example, the planner can "check out" a copy of both the application and the client's data file and take it to the meeting. While the file is checked out, no changes can be made to the data on the central computer. Upon returning to the office, the planner uploads the client data file to the server, and the updated file becomes the current version.

NaviPlan Offline is really just a version of NaviPlan Online that is not connected to the Web. The application layer and the data files might always reside on the planner's computer, or the application might reside on the client's computer and the data files might reside elsewhere. Both versions of NaviPlan Online/Offline offer a number of advantages over their desktop counterparts. One is modularity. In the desktop version of NaviPlan Extended, for instance, it is very difficult to do modular planning without completing the entire data entry process. That is not the case with the Web-based versions. These newer versions allow users to define the scope of the financial planning engagement; the program then presents only those data entry screens that relate to the engagement.

Another advantage is control, a feature that is likely to appeal to giant financial institutions. Web versions of the software allow management to grant permissions and review and monitor what everyone in the firm is doing with the software. For example, a firm might decide to enable the insurance-related modules of the program only to those employees who hold insurance licenses. The software can be programmed so that junior planners can create drafts of financial plans, but they will contain a "draft" or "for internal use only" until a superior approves the plan.

Management can monitor production, a feature that might entice control-oriented wirehouses to consider purchasing it. Managers can see how many plans each employee is working on, who accessed the plans, and so on.

The reporting features have the capability to improve client service. One could, for example, generate a report showing all plans that haven't been updated in the past year for clients with more than $1 million in net worth. If the built-in reporting features are insufficient for a firm's needs or if multiple databases must be queried to obtain the desired information, a third-party reporting package, such as Crystal Reports, can be layered on to the system.

The Web-based platform opens up all sorts of collaborative opportunities. Advisors can jumpstart the financial planning process by empowering clients or prospects to enter their data into the program, either before or after an initial meeting. Specialists from diverse geographic regions can consult on a plan without leaving their offices. Clients can receive both reports and presentations over the Web. Independent financial advisors can collaborate with a client's accountant or attorney over the Web. Advisors can permit their clients to run "what-if" scenarios off of an existing plan.

Since NaviPlan Enterprise Solution is totally scalable, a larger firm can move beyond one of the two "standard" configurations by customizing any of the four layers mentioned earlier. For example, the database level could be configured to share information with other applications, so that a CRM package could work seamlessly with NaviPlan. The part of the application layer that draws the dynamic pages, as well as the page server layer, could be totally customized, resulting in a program that looks nothing like NaviPlan, but has all of NaviPlan's calculating power. Theoretically, the browser could also be customized with plug-ins for a richer user experience.

What this means, says Denis Martineau, EISI's senior vice president of sales and marketing, is that "NaviPlan Enterprise Solutions software can be molded around a corporation's approach to financial advice." It can look and feel totally different in each installation, yet the calculation engines (either Standard or Extended) driving the programs will remain constant.

Despite the rosy outlook for EISI, a few potential obstacles might slow the firm down. One is a gap in its product line. Neither NaviPlan Enterprise Solutions nor the more standardized NaviPlan Online is affordable for smaller firms at the moment. The software for a "small" installation (about 200 users) of NaviPlan Standard Online would cost roughly between $50,000 and $100,000. Total installation, including software, hardware, and IT labor (internal or external), would be between $150,000 and $250,000, plus $500 to $600 per user in annual licensing fees. NaviPlan Enterprise is even more pricey. For a custom online solution serving at least 10,000 users, the software would likely cost between $500,000 and $1 million. More than 10,000 licenses would cost between $200 and $400 per user per year. Hardware, IT and training costs could reach a few million or more. As a result, the boutique shops cannot avail themselves of all the Web-based NaviPlan platform has to offer.

It seems likely that at some point in the future EISI will offer NaviPlan Online "lite," an out-of-the-box, turnkey solution that will provide smaller firms with "standardized" Web-based versions of NaviPlan Standard and Extended that they can host in-house at a reasonable price. That version is probably a few years away. In the meantime, look for NaviPlan to either offer NaviPlan Online under an application service provider (ASP) model (EISI hosts the software; advisors pay a monthly fee to access the software and store their data files) or team with a third party who will offer NaviPlan Online as an ASP. Although this may be an acceptable alternative for some, other independents, who ironically were NaviPlan's earliest and most vocal supporters, may feel their interests are being subordinated to those of the larger firms, causing a backlash.

There is a problem supporting two distinct platforms. Not only is it costly, but it can be confusing to end-users. For example, a number of advisors I talked with believed Fidelity was offering its advisor clients a desktop version of NaviPlan, when in fact it is offering NaviPlan Offline. Without detailing the merits of one vs. the other, it is fair to say that someone moving from Desktop to Offline would require a period of adjustment.

Eventually, it's likely all NaviPlan desktop users will be required to learn a new interface, because over the long run EISI can operate more efficiently and profitably concentrating its efforts on the Web platform. Assuming price parity, end users would benefit from the change as well, since they would gain additional benefits while maintaining all of the features they currently enjoy.

The greatest threat to EISI's continued growth may come from within. Over the last few years, the firm has managed to grow at an impressive but controlled pace, without overextending itself financially or technologically. EISI now appears to have the critical mass and the product to take the company to the next level, provided that they continue to make the right decisions. Management has made all the right moves. The question is, will they continue to do so as the company moves to the next level?

If EISI continues to expand its market share, as seems likely right now, its growth could have a profound impact on the financial planning profession. On a positive note, many advisors will have better financial planning tools at their disposal. Assuming that they are properly trained, this should result in a better product for the client.

At the institutional level, EISI is grabbing market share, perhaps indicating trouble for some competitors in that space. (In April, AXA Advisors LLC announced that it would install NaviPlan Enterprise Solution nationwide, replacing Financial Profiles, its current software provider.) Smaller financial planning firms that service the boutique financial planning shops may also feel the heat as EISI moves its Web-based platform downmarket.

For smaller independent planners, the news is mixed. In the immediate future they may experience frustration at the inability of EISI to deliver to them the same cutting-edge platform that the big boys are receiving. Independents may have to pass through a transitional phase, where they can't get exactly what the want from EISI in the way they want it.

In the medium term, however, EISI's development projects at the large institutions should empower the company to produce a highly competitive turnkey solution for smaller firms, leading to greater efficiencies.

A turnkey Web version would also be a great boon to the budding profession of virtual financial planners. Financial advisors who do not write financial plans in-house can contract the plan-writing chores to these independent contractors, who will do it for them. In effect, these "planners for hire" perform the same task for independent firms that the centralized financial planning offices perform for some of the large firms. One obstacle to the growth of virtual planners is the issue of control. It is a good bet that more firms would embrace the concept of virtual financial planners if all the client records resided solely on the firm's servers at all times, with the virtual planner's access being monitored and controlled internally.

Longer term, there is a risk that many software providers-smaller players and those selling sales-oriented software-will be forced out of the market. If NaviPlan's financial planning software can integrate with a wide range other types of programs (CRM, portfolio management, analytics), and competing financial planning programs can't, NaviPlan will possess a unique advantage that competitors will be hard-pressed to overcome. The result could be fewer choices for advisors and price increases.

Similar occurrences in the past have sometimes led to declines in service and/or higher prices. There is no evidence that EISI has plans to act as a market bully, but as its power grows it may prove difficult to resist the urge to capitalize on its clout. Smaller firms in particular may grow increasingly uncomfortable.

Whether or not EISI ultimately becomes the dominant force in financial planning software, the company definitely bears watching. It has had impressive success at a time when many technology companies have stumbled badly. The firm assembled an excellent platform, which could propel it to much greater success in the years ahead. It would be a great mistake to underestimate EISI in the future.

Pershing to Deploy NaviPlan

As Financial Advisor went to press, Pershing LLC and EISI were preparing to announce an agreement whereby more than 50,000 users of the Pershing NetExchange Pro platform would be offered access to a customized version of NaviPlan Online. A formal announcement is expected to have been issued by the time you read this. "We went through a very extensive evaluation process", said Pershing Director Marc R. Butler. "We came away with the conclusion that these guys are the real deal."

According to Butler, the initial rollout will be the online version of NaviPlan Standard. The platform will offer data integration, so that a client's personal and portfolio data already housed on Pershing servers will populate fields in NaviPlan. In subsequent phases, Pershing plans to offer NaviPlan Extended online. They also plan to build a trading applet into NaviPlan so that advisors can construct portfolios and implement them from within the financial planning program itself.

Joel P. Bruckenstein, CFP, is co-author of the book Virtual Office Tools for the High-Margin Practice: How Client-Centered Financial Advisers Can Cut Paperwork, Overhead, and Wasted Hours. (See www.virtualofficetools.net for ordering information.)