Probably the most important and overdue addition to Profiles is the ability to apply probability analysis to client goals. Monte Carlo analysis has been a staple in almost every other major financial planning package for some time now. Most practitioners I talk with find it valuable as both an analytical tool and a client counseling tool.
Rather than try to re-invent the wheel, Financial Profiles wisely decided to build their Monte Carlo module upon the basic version of the Ibbotson Wealth Forecasting Engine (IWFE). According to the Ibbotson Associates web site:
"The basic version of the IWFE uses the mean, standard deviation and correlation of the desired asset classes as inputs. From these parameters supplied by the user, hundreds of future return and wealth paths are generated. Users may also enter savings and withdrawals from both taxable and tax-deferred portfolios, and the returns are used to generate hundreds of different wealth paths."
The good news for Profiles users is that they now can avail themselves of a decent Monte Carlo engine supplied by a highly regarded firm. The bad news is that the Monte Carlo implementation, while a step in the right direction, needs further work, and there is an additional cost to use it. According to company spokesperson Adam Dorfman, the typical licensee will pay between $250 and $295 for the Monte Carlo module.
Another feature conspicuously absent from previous versions of Financial Profiles + Professional was the ability to include employee stock options in the financial planning process. Version 7.0 for the first time offers planners the ability to enter, track and, to some extent, plan for nonqualified employee stock options. However, the program does not offer similar capabilities for Incentive Stock Options (ISO), so the "stock option module" will disappoint many.
The new Fixed Income Security link looks very promising. With one click, planners are taken to a Web site run by Fixed Income Securities LLC. Here, advisors can fill in an investment profile and receive a recommended model portfolio tailored to the client's needs and based upon current market data. The site generates a limited number of nicely designed reports, which can be labeled (with advisor and client names, etc.) and printed. While those with expertise in the fixed-income area will find this link fairly basic, generalists looking at individual bonds as an alternative to bond funds will find this a useful tool. Hopefully, the capabilities of this link will be expanded in future versions.
Manual asset classification is another welcome addition. Rather than accepting the default asset classifications from Ibbotson, which rely on return-based style analysis, users now can classify assets as they see fit, adding additional flexibility to the planning process.
A number of existing features have received noteworthy upgrades. Previous versions of Profiles allowed the advisor the ability to designate liquidation order of assets, but the functionality was built into the main Asset/liability section, making for a busy interface. The new version includes a more intuitive "Liquidation Order" section.
Some weaknesses with regard to college planning have been addressed, with 529 College Savings Plans, Coverdell Education Accounts, and UTMA/UGMA accounts added to the account type drop-down menu. Some of the output pages have been upgraded in this area as well. Version 7.0 significantly improves control over future cash flows when operating in the "Tax Sensitive" mode. Individual start and stop dates can be assigned to each cash flow if desired.
Financial Profiles generally has not been regarded recently as a leading innovator in the field of financial planning software, but the company is blazing a trail in one important area: bilingual planning. Spanish language output has been available as an add-on (at an additional cost) to recent U.S. versions of Profiles +, and that module has been fully updated to mirror 7.0's improved output.