SunGard is making its first real effort to market the company's PlanningStation application to independent advisors.
SunGard Data Systems Inc. is an enigma. It is the
largest technology vendor in the financial services business, but you
hardly ever hear the name SunGard in the independent advisor space.
With 14,000 employees, $4 billion in annual sales
and $25 trillion in assets on its accounting and portfolio management
systems, SunGard's 2005 annual report says the company serves 25,000
customers in more than 50 countries, including the world's 50 largest
financial services providers. Yet SunGard's financial planning
application, PlanningStation, barely has received a mention in advisor
periodicals. While sales revenue of companies like MoneyGuidePro and
MoneyTree basically would amount to a rounding error on SunGard's
income statement, independent advisors know much more about these other
vendors than this behemoth.
I researched PlanningStation and have some good and
bad news to report about it. The good news is that this is a good
planning application that even the most demanding independent financial
advisor-including an idiosyncratic fee-only comprehensive
planner-should consider, and it is beginning to make inroads with
independent advisors. The bad news is that, like many of the other best
of breed applications, SunGard in the past hasn't been very active in
pursuing the independent advisor market-including the independent
broker-dealer and registered rep market as well as registered
investment advisors-and has not figured out exactly how to sell its
products to independent financial planners.
Company Background
SunGard was formed in 1983 in a leveraged buyout
from Sun Oil Company. It went public in 1986 and was listed on the New
York Stock Exchange. In August 2005, SunGard was purchased, in a
leveraged buyout again, for $11.5 billion. It is now owned by a
consortium of private equity firms, including Goldman Sachs & Co.,
The Blackstone Group, Kohlberg Kravis Robert & Co., Bain Capital
Partners, Providence Equity Partners, Silver Lake Partners and Texas
Pacific Group. The company loaded up on debt, including a $5 billion
senior secured credit facility, $3 billion of senior unsecured loans
and a loan that securitized $375 million of it its receivables. As of
June 30, the company had $7.4 billion of debt, including $4.4 billion
of variable rate debt.
Headquartered in Wayne, Pa., SunGard derives 78% of
its revenue in the U.S., and 77% of its non-U.S. revenue is generated
from the U.K. SunGard has three business lines. According to the
company's June 30, 2006, quarterly filing with the Securities And
Exchange Commission, SunGard's Higher Education And Public Sector
Systems business division, which provides resource planning and
administrative software and services to colleges, universities and
school districts, as well as state and local governments, accounted for
21% of SunGard's revenues. Availability Services, which keeps
technology infrastructure secure and provides recovery and IT
management systems to SunGard's customers, brought in 32% of the
company's revenues. The Financial Services line of business accounted
for 47% of the company's revenues.
The Financial Services line serves buy-side
investors, including banks, investment managers, mutual funds,
insurance companies and trustees. It also serves sell-side firms,
including brokerages, custodians and transfer agents. SunGard provides
enterprise-wide applications to institutions for straight-through
processing of investment transactions with front and back-office
functionality, including trade order management, compliance checking,
accounting and reporting. It also provides treasury management systems
and owns a clearing firm, an equities trading desk and a New York Stock
Exchange member firm to facilitate treasury management. The financial
services business is rounded with wealth management and brokerage
system applications, like PlanningStation, as well as employee benefit
plan accounting systems and insurance marketing and policy
administration.
What has made the company attractive as a leveraged
buyout candidate twice since 1983 is that 89% of its $4 billion in
revenue is recurring revenue. In addition, no single customer accounted
for more than 3% of its total revenue during the three years ended in
2005. Still, even a big company like this could be vulnerable in a
downturn in the financial services business, and servicing debt
payments could be tough if the stock market crashes and a large chunk
of its customers can't pay their bills or go out of business. Financial
stability is something advisors have to worry about with any of their
tech vendors-especially small ones-and the risk of this giant should
not be overlooked.
The company is great at acquiring small technology
companies and repackaging their products by integrating them into
larger SunGard systems. It's made about 150 acquisitions in the last 20
years.
PlanningStation Basics
PlanningStation is the re-engineered software
application first offered by a firm called Sterling Wentworth, a small
tech company that had 120 employees when it was purchased by SunGard in
1999. Within a year of buying Sterling, SunGard acquired Frontier
Analytics, makers of Allocation Master, a well-regarded asset
allocation and analytics application that is now integrated into
PlanningStation. (Harry Markowitz, a winner of the 1990 Nobel Prize for
Economics for his work in the 1950s on portfolio theory and the
importance of asset classes and diversification, is on the advisory
board of Frontier Analytics.)
PlanningStation is comprised of three different
levels of planning tools, called "series," and each series contains
modules for creating financial plans. The Foundation Series includes
the most basic modules, with the Planning Series containing more
sophisticated planning modules and the Advisor Series providing the
most detailed modules.
It will literally take you just minutes to fill in 20 data points in
the retirement module of the Foundation series and generate an 11-page
report you can give a client. The retirement module in the Planning
Series contains a minimum of 80 data inputs, and generates a report
about 20 pages in length plus 20 spreadsheets. The Advisor Series
retirement module provides a 30-page report and requires 402 pieces of
data.
Usability
The modular architecture and progressive
sophistication of each series makes PlanningStation easy to use, and
allows advisors with differing levels of expertise to use the program.
It lets you start a client who has little money with a simple plan, but
you can adopt a more detailed approach as the client's assets grow and
his needs become more complex.
Once you input a client's data it can be accessed
across all of the modules. So if you want to run a hypothetical case on
a client projecting how his portfolio will grow and affect his plan,
you can later use the same data inputs for that client to run an
insurance illustration. You can show a client up to three different
planning scenarios at one time, but PlanningStation stores more
scenarios.
The report writer is simple, allowing you easily to
select which pages you want to give a client from a long list of pages.
The Web-based application has a "presentation mode" that is visually
appealing and meant to be shared with clients. While it is Web-based,
PlanningStation also works "off-line" when you are not connected to the
Web. The Monte Carlo Simulation uses forward-looking capital market
assumptions that come with Allocation Master, a feature sure to please
advanced planners. But this program is obviously suitable only for
advisors who are willing to post data to a Web server hosted by SunGard.
Features
PlanningStation can assist with tax preparation and
can create IRS Schedules A, B, C, and D, and it tracks 401(k)s with
matching contributions as well as the cost basis of a Roth IRA. Using
its scenario comparisons, PlanningStation allows you to show how a plan
will perform with and without Social Security, and with and without
repeal of the estate tax. The program differentiates between active and
passive income, but it uses estimates that you input, not actual state
tax rates.
PlanningStation's features for making portfolio
projections are as sophisticated as any of the other out-of-the-box
planning packages available, allowing you to create your own model
portfolios and reuse them for different clients, define your own asset
classes, illustrate current versus recommended asset allocations and
apply one portfolio in preretirement and another postretirement in the
same case.
To make long-term-care insurance illustrations, the
software imports the costs of care from a state-by-state database
listing or you can input your own locale's costs. PlanningStation makes
disability insurance illustrations using existing or new coverage, and
makes recommendations for additional coverage. It can analyze whether
you have adequate homeowners insurance as well as auto insurance, but
not umbrella policies.
PlanningStation lets you model estate plans for
couples three ways: assuming a death today, and that the client dies
first; assuming a death in the future where the client dies first; and
assuming a death in the future where the spouse dies first. It lets you
show the impact of the entire alphabet soup of trusts, including CST,
ILITs, CRUTs, CRATs, QPRTs and QTIPs. The program illustrates how
adding these trusts would change an estate plan. However, it does not
model generation-skipping trusts. The software also does not support
nontraditional couples, reverse mortgages or private annuities, and it
does not actually calculate the taxes on trusts.
Cash Flow Projections
Until early September, PlanningStation was available
only as a goal-based plan planning software. Although it was
comprehensive, it did not allow for detailed, year-by-year projections.
For anal-compulsive planners who feel they have no choice but to run
such detailed plans, not having a cash-flow modeling engine was a deal
killer. In September, however, SunGard launched a long-awaited cash
flow consultant module.
Nathan Call, the product manager for the cash flow
module, says that for every 1,000 users of the application, only 25 to
50 will use the cash flow module. "It's for a high-net-worth client who
has nonstandard planning needs, not just wanting to plan for retirement
but who wants to see how selling a business in 2010 will affect his
cash flow and tax situation."
The beauty of cash flow planning is that you can
have a client who is going to make $8,000 a month from January 2007
through March 2008 and then change his earnings from April 2006 through
March 2015 to $4,000. The same is true of expenses. You can input
month-to-month expenses for any specific time period. You can make
unlimited withdrawals and contributions for exact amounts at exact
times in the future. Dividends can be reinvested or distributed for a
specific period. You can liquidate specific accounts at specified life
events, such as retirement.
The cash flow consultant allows a user to make some
complex calculations, such as modeling the effects of using an Internal
Revenue Code Section 72(t) withdrawal from an IRA for those under age
591/2. Taxes, when using this module, are assessed annually every
January, spiking expenses in that month but creating a more realistic
assessment of your cash flows. When you examine a chart showing your
projected cash flows year by year, you can drill down in any given year
for more detail. This can also be done with your projections of net
worth, so you can drill down to see details of the contributions and
withdrawals from specific accounts.
A Focus On RIAs
These features are best suited not for the
enterprise-wide brokerage and bank clients SunGard has traditionally
sought but for more advanced financial planners. Maybe 5% of the reps
at a brokerage firm with 1,000 or 2,000 reps have a practice where they
daily deal with high-net-worth clients who demand such fastidious
planning. It's safe to assume that the vast majority of bank and
brokerage reps work with only a few clients with a net worth in excess
$3 million and complex planning needs, and they often can outsource
plan writing for these complex cases to specialists in the home office.
So what's up here? Why would SunGard want to develop
this product for complex planning cases when few of its users need it?
Call says SunGard is now interested in serving independent financial
planners, selling to what they call the "retail" market-"onesies,"
instead of just selling 50, 100 or 1,000 seats in bulk to a large
institution. The move in this direction makes some sense.
The head of an elite group of advisors at a large
insurance brokerage called me a few months ago and told me that SunGard
was planning to launch a cash-flow version of PlanningStation after
advisors in his group had pressured SunGard for the last couple of
years. With sophisticated advisors demanding it at large institutions,
SunGard had to respond. And now that SunGard has built the software,
why not sell it to independents over the Web?
Actually, there are good reasons why not to do
it-and, hence, reason to wonder aloud whether SunGard will succeed
where other larger software companies have failed. Supporting
independent planners-typically an RIA firm not affiliated with any
B-D-often can be a major headache. These advisors are the most
demanding customers you can ask for. They became independents because
they want to do things their own way. Telling them they can't customize
a risk tolerance questionnaire in their asset allocation software is a
deal killer to them. Telling them they can't change the words on a risk
disclosure is a deal killer.
In addition, since they are small businesses and
usually have technology systems comprised of a patchwork of
applications strung together with no strategic overlay, RIAs demand a
lot of support and suck resources from sales and support staff. This is
why Intuit last month withdrew its portfolio reporting package from the
RIA market. It's why Advent is so disliked by RIAs-because it takes a
hard-nosed business approach to making sure its RIA clients pay for
support.
Can SunGard Do It?
SunGard is different from Intuit. Unlike Intuit,
SunGard has been focused on working with advisors for years, albeit
mostly serving large brokerages and banks with captive sales forces. It
already sells 1,500 retail-client advisors PlanningStation. Call says
the company is attracting 40 new independent advisors a month to its
retail product, a 35% growth rate in the number of independent advisors
it lured over the previous 12 months.
In a sign of hope, key functionality in
PlanningStation is customizable. For instance, the retail product,
which is hosted on SunGard's own Web servers, allows you to change your
disclosure and put your own logo and company colors in you reports.
Moreover, you can actually change the capital market assumptions built
into the Monte Carlo simulator. Call says SunGard is working on letting
individual RIAs customize their risk tolerance questionnaires. While
the application comes with automatic asset classification system of
mutual funds from Morningstar, you can classify assets as you wish.
The application does not have an interface to import
portfolio data from Schwab PortfolioCenter or Advent Axys. However,
Call says SunGard is negotiating with Schwab, Fidelity and TD
Ameritrade to allow data from custom accounts to be easily imported
into PlanningStation. My guess is those deals could take months to
negotiate and then many more months to actually get working.
Interestingly, SunGard's focus on enterprise-wide
sales to big financial services companies with captive sales forces has
left it with a small profile among independent broker-dealers. While
some large BDs have licensed pieces of SunGard's products, not many
independent BDs are buying it for their reps and telling their reps
they must use PlanningStation as their planning application. Raymond
James has done an enterprise-wide deal integrating PlanningStation, but
that is a rare win in the independent BD space. The challenge in
selling to BDs for a company like SunGard is that it must be guaranteed
a minimum number of licenses to make it worthwhile to set up a BD with
a version of the software that runs on the BD's Web server and is
integrated with the BD's back-office. SunGard would seem not to have
deep penetration in the independent BD space yet.
Summing Up
For sophisticated planners, the full PlanningStation
suite costs $625 a quarter. That includes the Foundation and Advisor
Series as well as the Cash Flow Consultant module. For advisors who do
not need cash-flow planning, the price is $500 less. And SunGard sells
less expensive versions that do not handle in-depth retirement,
education and estate planning.
I do have to say that in all my years of covering
technology I have not met a more open and forthcoming group of staff at
a big company. While I have my doubts that SunGard will be able to
provide support demanded by comprehensive planners, my impression of
the culture at SunGard, based on my conversations with about six of the
company's employees over the past six months, is that this is a healthy
organization. Who knows? Maybe they can pull it off. It sure would be
good to have more competition in providing key technology applications
to the independent market.
Andrew Gluck, a longtime writer and
journalist, is CEO of Advisor Products Inc., a Westbury, N.Y.,
marketing company serving 1,500 advisory firms.