GoalgamiPro is a new direct-to-advisor offering from Advisor Software Inc. (ASI). For those of you unfamiliar with the firm, ASI was founded in 1995 to bring institutional-caliber analytics to retail investors through financial institutions and their advisors. The management team at ASI has a great deal of experience in related fields. Andrew Rudd, the chairman and CEO, was a co-founder of Barra Inc. He's also authored two books on institutional investing. Neal Ringquist, the president and COO, previously served as vice president of sales and marketing for Morningstar Associates LLC, a registered investment advisor and wholly owned subsidiary of Morningstar Inc. Nicolo Torre, the head of research, formerly served as head of research at Barra.

ASI is well respected in institutional circles. Its clients include Capital Analytics, Charles Schwab, Fidelity, Genworth Financial, TD Ameritrade, LPL, Russell Investments and other firms. If you've used the Fidelity Asset Allocator Pro tool or the free Schwab or TD Ameritrade rebalancing solution, for example, you've used an ASI product.

GoalgamiPro is a household balance sheet diagnostic tool that is being offered directly to independent advisors for the first time. A similar version has been available to advisor clients of select financial institutions for about a year.

What exactly is a household balance sheet diagnostic tool? According to ASI: "GoalgamiPro captures the goals and resources of a household and provides the first gauge of affordability of a client's lifetime goal plan. The Household Balance Sheet provides the basis of planning and assessing priority levels within goals and whether they can be funded."

ASI is careful not to use the term "financial planning" here, and rightly so. GoalgamiPro is more than a simple calculator, but less than a comprehensive financial planning application. It's for advisors who are not financial planning specialists if they want to get a good approximation of how a client is doing relative to his or her financial goals. It is also a way for an advisor to run a financial checkup on a prospect without investing a great deal of time.

How Does It Work?

GoalgamiPro is a Web-based application. When you first log on, you enter the client browser, which resembles Windows Explorer. You can create client accounts here and then organize them into folder directories. First you create your main directory. Then add subdirectories. So you might name the top directory "XYZ Advisors," create subdirectories for each line of business, perhaps have separate directories for clients and prospects under that heading, etc. Once your directories are in place, you can navigate through the directory to find a client, searching by the name, the contact, the person who created the account, the date it was created or the date it was modified.

After an account has been created, you click on the name of the account to navigate to the client dashboard. Along the top of the dashboard, there are buttons. One allows you to add household members to the account. All that's required is a first name, a last name, the gender and the date of birth. The second button is for entering financial accounts. The application recognizes three types of accounts at this level: brokerage accounts, retirement accounts and bank accounts. Once you select an account type, you may be prompted for further information. For example, if you select a retirement account, you'll be asked if it is a 401(k), a Roth 401(k), a traditional IRA or a Roth IRA (the application does not get into the nuances of SIMPLE IRAs, 403(b) plans, 457 plans, etc.). You can also specify whether an account is "advised" or not.

Bank accounts are treated as cash, but they have no impact on the goalgamiPro calculations, regardless of whether they are checking, savings or money market accounts. Brokerage accounts on the balance sheet are treated as the liquidation value less a transaction cost. The default transaction cost is 1%, but the user can select a different rate. All short-term gains are taxed at 33.6%, while long-term gains are taxed at 20%. Traditional IRAs and 401(k)s are treated in a fashion similar to brokerage accounts, but the tax rate applied is the rate entered for the case. At the balance sheet assumption screen, you can select a pre-59½ withdrawal option, and the 10% penalty will be applied. For Roths, the liquidation value is the current asset value minus the transaction cost (and any early withdrawal penalties, should you choose them).

Once you create an account, you add the holdings. You can either enter the symbol or type a security's name so the application can find the symbol for you. If you enter the total value, the application will calculate the number of shares. If you know the number of shares, the application will calculate the total value. If it is a taxable account, you should enter the tax basis for a more accurate result.

You could also export client data from your portfolio management software into Microsoft Excel and then from Excel into goalgamiPro. If you are in a rush, or if you do not have all the specific holding information, you can add asset class proxies for a holding with an approximate cost basis if necessary. The third button takes you back to the client dashboard. This shows all the cases associated with the client, the client name and description, as well as the primary contact for the household unit.

You click a button to add a new case or edit an existing case. This takes you to the case dashboard. To create a case, you click the "include household members" button to specify which members of the household to include in this case. You also apply a tax filing status and an average tax rate (not a marginal one) for the case. You then click the "include financial accounts" button to specify which accounts are to be included/excluded from the calculations for this case.

Next you go to the retirement expenses area. You can create one target amount for all monthly retirement expenditures, or you can break retirement spending down by category or by discretionary and non-discretionary expenses. For each retirement expense, the application allows you to enter three values: the necessary amount, the target amount and the aspirational amount. Necessary amounts are arrived at using the absolute amount provided. For the target and aspirational values, incremental amounts are calculated. The default discount rates range from 4.8% for necessary goals to 7.8% for aspirational amounts, but users can adjust them. Once net present values are arrived at, they are multiplied by a "survival probability" to arrive at an actuarial net present value (ANPV) for each goal level. You can also enter educational goals, one-time goals and recurring goals. The calculations differ slightly for each, but they broadly follow a similar methodology.

You then enter savings plans. There are two types: retirement savings (pre- or post-tax contributions to a retirement account) or other savings (after-tax savings). For retirement savings, the program calculates the ANPV of the future monthly cash flows. GoalgamiPro then discounts each year's future savings by a Treasury yield curve to calculate the savings' net present value for that year. GoalgamiPro next calculates the ANPV of each year's savings by applying the survival probability of the person who owns the retirement account in each year to the respective net present value. Once the ANPV is determined, goalgamiPro will deduct the present value of the deferred income taxes that would be owed on the savings from the ANPV for tax-deferred retirement accounts.

Social Security benefits are defined by the user. GoalgamiPro does not calculate them for you. For balance-sheet purposes, goalgamiPro does a net present value calculation similar to that used for retirement savings to arrive at a value that is entered on the balance sheet.

All of the data entry to this point sounds time consuming, but it actually takes longer to read about than actually do. Of course, the time required will vary depending on the case and the level of detail you choose, but a basic case can be done in about 15 minutes. Soon, the time required will shrink. That's because ASI is working on an integration with Salesforce through the AppExchange. That would automate the integration process for those using a custodian-supplied version of Salesforce. We also expect some direct custodian integrations of the program if there is demand. Once these take place, all the assets will flow seamlessly to goalgamiPro. Then all the advisor will have to do is create a scenario and add assumed tax rates, Social Security receipts, savings and retirement expenses.

The Output

Once all the data is entered, you get a "goal funding analysis." The analysis consists of two views: the balance-sheet summary view and the balance-sheet analysis view. The former clearly illustrates the client's current net present value balance sheet by type of resources (assets) and types of commitments (liabilities). The balance-sheet analysis shows the three goal levels (the necessary, target and aspirational levels) and for each displays the category amount, the amount funded, the funding ratio and the margin of safety. The last shows the amounts that could be lost but still allow the investor to fully fund a category. This view also includes a chart of resources versus commitments, a pie chart of resources by type and a pie chart of commitment by type.

After viewing the results, the user can generate a report. A report template allows for a bit of customization. Advisors can customize the report title and advisor information and also select from a number of pre-written narratives that explain where a client's assets are in relation to his or her funding needs. (Advisors can also add their own text.)