In my first review of PieTech's MoneyGuidePro over a decade ago, I was impressed by how smart yet easy to use the application was. This new cloud-based version seeks to get back to the simplicity of the original while adding functionality. For the most part, MGP: G3 succeeds. It is a better and smarter and more intuitive financial planning application than the previous version.
There are at least eight new features and eight major enhancements to the application. There's also a great deal of functionality hidden below the surface that can be leveraged to create financial plans that are better aligned with client needs.
Perhaps the best way to understand the magnitude of the changes that MoneyGuide has undergone is to walk through the creation of a quick and simple retirement plan.
Generally speaking, financial planners deal with affluent Americans. Historically, the cost of producing comprehensive financial plans is high and the public perception is that financial planning is only for the rich. As an industry, we have not done a good job of refuting this perception.
Less wealthy Americans often have less complicated financial lives, so they could benefit from a less comprehensive approach to planning. Recently, a number of applications have been created to specifically address this less complex demographic, but comprehensive planning applications have struggled in this regard. For example, with MGP: G2, a well-trained user could create a simple retirement plan for a prospect or a mass-affluent client, but the methodology for doing so was not readily apparent. In MGP: G3, creating such a plan is quick and simple. Bob Curtis, president of PIEtech Inc., created a basic retirement plan for me in four minutes.
To create a basic retirement plan, I first created a new client by entering the names, gender and birth dates of the couple. I then provided employment status, employment income and noninvestment "other income," if any, for each. In addition, I provided state of residence and citizenship information.
Next, I used "Auto Retirement Goal." This new feature, with a single mouse click, automatically creates a retirement goal based on a set of pre-programmed instructions. By default, the application takes current household income, subtracts federal and state income taxes, FICA and Medicare taxes. It then subtracts an additional 14% assumed savings rate to arrive at the assumed cash needed to maintain the current lifestyle. This sum is allocated into two goals: 80% to an annual basic living expense need and 20% to an extra living expense want. The "need" is a proxy for comfortable baseline living expenses; the "want" is a proxy for all of the extra lifestyle expenses one would enter in the full planning mode.
Resources at the clients' disposal to fund retirement are added next. The first is retirement income. The application automatically estimates Social Security payments assuming both partners retire at their full retirement ages. You can drill down and modify the calculation in various ways, but for a quick plan we stick with the defaults. Other income (pension, annuity income, royalties, etc.), if any, is then added.
Investment assets come next. Enter an extra savings amount and a willingness to increase saving. The default is 5% of income with a high willingness to do so. In version G2, I'd be required to spend time entering all of a client's assets, but another new G3 feature, the "Summary Total Only" screen, allows me to bypass this and enter totals only for employer retirement accounts, IRAs, taxable accounts and the like. The downside of this approach is that the reports cannot provide a current breakdown of holding for comparison to your recommendations, but it saves time. If necessary holding and asset class details can be entered, the improved interface still saves more time than the previous version.
The advisor can now add other assets (e.g., a house or a business). I choose to add the couple's $350,000 house to the plan. To my knowledge, the new MGP: G3 approach to other assets is new and unique. The traditional approach assigns a current value to the asset, assigns a growth rate to the asset, specifies when the asset will be sold, and brings the cash into the portfolio at the specified time. The MGP: G3 approach more accurately reflects reality.
First, it includes a "net cash amount" worksheet to better determine the future cash flow. It calculates the future cash value and then helps estimate any debts to pay off, sales expenses and taxes due to arrive at a net amount. You can accept the application defaults, or modify them to your needs. Another new feature is the ability to classify an "other asset" as a "special asset." If you choose this option, rather than assigning a single terminal value to the house, you create a low, expected and high value. In this mode, the application will still use the expected value in calculations, but it will give you the ability to run a separate stress test later on special assets to see the potential impact on an overall plan.
This functionality can be useful in many scenarios. An obvious one is a client who expects to sell the house to cover living expenses in retirement. The advisor can illustrate what might happen if the house does not realize the expected selling price. This feature also allows you to illustrate to a client who does not plan to sell the residence in retirement how the residence might be used as a funding method of last resort in a "what-if" scenario or scenarios.
Yet another new feature in this section is the ability to model a sale of a business such as an installment sale that takes place over a number of years. If you designate the business as a special asset you can include low, expected and high values for each year, allowing the advisor to model multiple scenarios. I found it surprising that the installment sale feature was not included as an option under the residence, since families use this technique.
Moving back to my quick plan, you can also enter any insurance policies. Next, you enter the total of liabilities under four categories: personal real estate, vehicles, business and other personal debt. Upon the completion of the resources section, a personal balance sheet is generated. The summary page gives a quick overview of the clients' financial health. The details section serves as a quick data entry check.
If the subject of the plan is a client, and that firm has the proper integrations in place, much of the necessary data will already be pre-populated in the system, further reducing plan preparation time. Another time-saving option: MGP: G3 offers a new online data gathering mode. This allows advisors to provide clients with a user name and password. They can then go online and provide the personal information, financial goals, resources and risk assessment.
MGP: G3 significantly revises PIEtech's approach to risk. The new risk assessment tool asks each partner to assess their own loss tolerance on a scale of 1-100. The justification for this approach is that PIEtech's research indicates that most clients and prospects are good at assessing their loss tolerance. To help users more accurately gauge their tolerance, the application displays an asset allocation, peer group comparison and bear market scenario associated with the score. In my quick plan case, the husband scored himself a 65. This implied a portfolio of 61% equities, 35% bonds and 4% cash. It also indicated that his loss tolerance was higher than the average for men in the 50-64 age group, the average score being a 54, with a standard deviation of 11. The application further calculated that someone with a 65 score, and the associated portfolio, was likely to incur a $234,000, or 26%, loss in a bear market. After the client received this additional information, he confirmed his comfort with his risk score.
Next, the spouse, who was not party to the husband's evaluation, performed her own. The wife scored an even 50. If both spouses were sitting in front of me, I would have a brief discussion with both spouses, with a visual description of each one's selection-related information. Since in my example they were not in attendance, I decided for demonstration purposes to assume they'd be comfortable with a household loss tolerance of 57, which would limit the theoretical loss to 22% or $198,000.
Those who prefer the old risk questionnaire can still use it, but only for informational purposes, not for risk scoring. Advisors who use the optional FinaMetrica system integration through MGP can substitute that score for the MGP one since FinaMetrica also scores on a scale of 1-100.
Upon completion, we move to the current allocation page. Since we are using the quick method, there is no analysis of the current portfolio-a small price to pay for the increased speed of plan preparation.
The proposed asset allocation based upon the household risk score is then displayed, as is a "target band." The latter is a visual representation of multiple portfolios between a client's current portfolio and the one indicated by their risk score that can increase their expected return. Each displays an asset allocation, expected annual return, expected worst one-year return and a standard deviation. Any allocation within the target band can be recommended.
The MGP: G3 improved SuperSolve II feature is then used to determine the probability that the clients' resources will support their retirement needs. The default confidence level is 80% probability using a Monte Carlo simulation, but the target can be altered and an average return calculation method can be substituted if desired.
In this case, the quick plan showed that the couple was on target to meet their goals at their desired retirement age of 65, with an 81% probability of success. The plan, to this point, took less than seven minutes to create. Fine-tuning the plan for clients and going over various scenarios takes additional time, but the point is that you can run some hypotheticals for a prospect or a simple case in minutes.
What if the couple wanted a higher probability of success? One option would be to run a "what-if" scenario whereby I locked all of the spending results (using the easy lock, yet another new feature), but moved the retirement age to 68 for both spouses. That would have boosted the probability of success to 94%. Another option would be to lock everything from the original solution and add $8,800 in annual taxable savings, which the couple indicated they were willing to do. That results in an 89% probability of success. Finally, we agree upon the savings, and agree to postpone retirement till age 66, resulting in a probability of 92%.
An easier way to accomplish the same tasks would have been to run these "what-if" scenarios using the improved version of PlayZone, which allows advisors and clients to simply move sliders on a screen. Clients can save a result to show it to their advisor in PlayZone, but only advisors can take a result within PlayZone and make it a recommended scenario.
MGP: G3 capabilities go way beyond the simple case we used for illustration purposes. Earlier we discussed the simplified retirement goal creation and the simplified asset data entry. If you instead use the retirement goal builder to create a retirement goal, the application displays a retirement time line to better visualize the various periods of retirement. This more detailed data entry methodology includes a life expectancy calculator as well. Why? Even though the MGP defaults are excellent, their accuracy for an individual can be improved upon by answering a few questions about each client's general health and family history.
The area where results are generated is improved. Formerly, moving between the results page, the PlayZone and the "what-if" section was not as seamless as it could be. Now, these areas are more tightly tied together. The way that plan scenarios in the results area are displayed has changed as well. The application only displays the high level details so they appear on a single screen. Clicking the details button exposes a menu of choices, so you can pinpoint the detail you wish to view or work on. These include bad timing, asset allocation, stress test and Social Security maximization.
Some of these tools are new and welcome. For example, under the Stress Test menu, there is the ability to generate a new Portfolio Probability matrix. This matrix displays all of the model asset allocations to help advisors determine if a lower risk portfolio can achieve all of a client's goals. In my sample case, I learned that a somewhat less risky portfolio would actually boost the plan's overall probability of success and reduce the downside risk in a bear market. The trade-off is that the projected terminal value of the portfolio would be less. The Portfolio Probability Matrix is a welcome addition; I just wish it were easier to find.
Another new addition, the special asset stress test, is also under the details on the stress test menu. This runs the scenario in question with the low, expected and high estimates for any special assets, and shows the probability of success under each condition.
Speaking of Social Security maximization, the application does a number of clever things in this regard. The default Social Security strategy is to take it at full retirement age for both spouses; however, when you pull up the Social Security maximization screen, you can compare a number of alternative strategies. Strategies are compared in total anticipated cash flows over life expectancy, but also by breakeven ages and probability of plan success. In the sample plan, the application indicated that if both spouses waited till age 70 to begin benefits, the odds of overall plan success would go up slightly, and the overall benefit received would be increased by approximately $150,000 over both lives , assuming all other plan assumptions were met. Armed with this information, planner and clients can discuss the potential benefits of this scenario and other alternatives. If a strategy other than the default one is selected, it will be incorporated into the plan. In many scenarios, the Social Security strategy that is projected to generate the most dollars is not the one that results in the overall plan's highest probability of success. This can lead to an interesting conversation with clients.
The new "What Are You Afraid Of?" section is a brilliant addition to MGP: G3. It allows you to uncover and address client objections to a financial plan. It addresses issues such as: "What happens if I live five years longer than we are projecting?" or "What if future Social Security benefits are cut by 10%?" Using the sliders in a fashion similar to PlayZone, you can model changes in inflation, Social Security benefits, longevity, returns or health-care costs and the application will calculate a return on the fly. If the current plan requires adjustments to address a client fear and the client is still years from retirement, the application can solve for a solution.
The final enhancement that we'll cover is Presentation Mode. This area has been enhanced so that you do not have to toggle back and forth between the planning mode and the presentation mode in most cases. That's because you can now access SuperSolve, PlayZone and details from right within the presentation mode.
Although MGP: G3 is the best version of MoneyGuide to date, a few minor tweaks are required. The Social Security feature does not offer the ability to contrast taking benefits at the first eligibility date with the recommended strategy. MGP's explanation for this is that taking benefits at the earliest date is almost always a sub-optimal strategy. They are correct, but many Americans take benefits the day they are eligible, so advisors need to be able to contrast this strategy with the preferred one to educate clients. I'd also like them to prominently highlight the estimated potential dollar difference among the various strategies.
As mentioned earlier, the Portfolio Probability is hidden. I think it deserves more prominence. I also mentioned that the application should allow for installment sales of homes.
There's an issue with the details menu on the results screen: You can't make changes to a plan within it. The fear is that if you let users make changes on what is supposed to be a display screen, some will alter plans in unintended ways.
I understand MGP's dilemma here. The workflow is supposed to be that you make changes in the "what-if" section or the PlayZone. On the other hand, by prohibiting you from, for example, making changes to the portfolio from within the Portfolio Probability matrix screen, users are forced into additional mouse clicks to accomplish a task. My suggestion would be to allow changes under the details section after a warning has been displayed.
MGP: G3 sets a new standard of excellence within the financial planning software community. It is smarter, easier to use. It provides numerous aids that allow advisors to create better plans for their clients. In addition, by making it easier, faster and cheaper to produce basic plans for the mass affluent, MGP: G3 makes financial planning affordable to a much wider audience. Is a comprehensive application like MGP: G3 or a targeted application like Finance Logix's RIO is more appropriate for mass affluent planning? That's debatable, but the fact that an industry leader such as MGP is addressing the demographic signals to the industry that there is an untapped market out there for planners equipped with the proper technology tools.
MGP: G3 is also a relative bargain. It lists for $1,295, a price that has not changed in five years despite the fact that this application is far superior to the one sold back then. Volume discounts are available.
There are a number of other well-regarded financial planning applications on the market, but they will have to raise their game if they want to keep pace with MGP.