As anyone who has taken the CFP Board exam knows, comprehensive financial planning includes an analysis of the client's personal net worth statement. By definition, this means that a financial planner is supposed to gather data, analyze, make recommendations and, if appropriate, implement recommendations pertaining to liabilities as well as assets. If engaged for ongoing financial planning, the practitioner should also continue to monitor the liability side of the balance sheet as well as the asset side.

Unfortunately, many professionals who call themselves financial advisors or wealth managers today all but ignore the liability side of the personal balance sheet and instead concentrate almost exclusively on a client's assets. Twenty years ago this was understandable (though still not justifiable), because generally speaking our parents' generation was frugal. To many of them, debt, with the possible exception of debt linked to real estate, was something to be avoided.

In addition, the number of debt products available to retail clients was limited. There was a time when anything other than a 30-year mortgage was considered "exotic." Clearly, that is no longer the case today. Until the recent meltdown, many Americans used their houses as piggy banks, making use of mortgages with no down payments, of interest-only mortgages, of home equity loans, etc. The liberal underwriting policies of lenders only added fuel to the fire. The result was a mortgage meltdown that reminded us once again that too much debt or the wrong kind of debt could prove toxic.

Think it is only the lower end of the financial spectrum that has been hard hit by the mortgage crisis? Think again. Celebrities such as Johnny Carson's longtime sidekick Ed McMahon and former boxing champ Evander Holyfield have also been engulfed in the mortgage mess. And these are not isolated incidents. For example, within the famous Beverly Hills 90210 zip code, 31 foreclosure actions were filed in the first four months of 2008, up sharply from 13 in the same period of 2007.

Against this backdrop, a number of firms have developed products that are designed to help advisors better gather data, analyze the data, make recommendations, implement recommendations and monitor the liability side of the personal balance sheet. Of these, the most interesting one I've come across so far is the online application by Financial Crossing called Liability Manager.

Financial Crossing Inc., headquartered in Palo Alto, Calif., bills itself as "the market leader in the emerging field of liability management." In the broadest sense, the company's goal is to provide tools through all sales channels, including call centers, online portals and the branches of banks and other financial institutions, but perhaps the most comprehensive tools the firm has developed are designed for financial advisors. These tools are designed to help advisors manage all of a client's liabilities, including mortgages, home equity loans, car loans, credit card debt and any other debts the client may have or is contemplating in the future.

Liability Manager looks and feels similar to traditional financial planning programs, and functions in a similar way, so advisors should not have trouble adopting it. After an advisor and client have discussed the scope of their engagement, the advisors can have clients fill out a data-gathering form, or they can complete the form with the clients. As they gather data, they also discuss the client's goals. Next, with the help of the software, the advisor analyzes the client's situation. The software uses a proprietary optimization model that factors in the client's risk tolerance, his time horizon, the current economic conditions and his financial strength and creditworthiness. Once this is done, the application will recommend one or more alternatives. The advisor will then recommend a course of action to the client, and perhaps offer alternatives if appropriate. If authorized, the advisor can then help apply for the appropriate loans and implement the plan. Once it has been implemented, the advisor can regularly monitor it.

Sound familiar? That's because the process closely adheres to the six-step financial planning process. Now that you understand the progression in general terms, let's look at a real example.

An advisor logs on to the Liability Manager and enters the e-mail address of a new client, Mr. Joe Public. The application then sends out an e-mail to Mr. Public, inviting him to click a link and fill out the electronic Liability Management questionnaire. When the client clicks on the link, he sees a secure Web page with his advisor's name/branding. The page has four tabs, one for client contact info, one for basic financial information (income, credit score, tax bracket), a page for current liabilities and one for goals (which include the client's priorities and risk tolerance, his willingness to use certain products, his willingness to accept prepayment penalty provisions, etc.). If the client has access to all the necessary information, and if he understands all of the questions, the form can be completed in a matter of minutes. Otherwise, the form can be completed during a live meeting with the advisor or with the advisor's help over the phone

Once the client fills out the questionnaire, the information is automatically populated in Liability Manager.

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