All these services tend to rely heavily on online marketing and social media. True, people are gathering information differently now than they were 10 years ago, but for our clientele, at this point, they don’t select advisors this way. They are still overwhelmingly relying on word of mouth from friends, family and other professional advisors and then researching behind the scenes on their own.
So far, we find matchmaking services to be crowded, distracting from our core operations, and expensive in hard dollars or labor. We believe we are better off letting our work do most of the talking and maintaining good relationships with our clients and centers of influence.
Planning Software Overkill
Clearly, my issue with financial planning software isn’t that few advisors will use it. In fact, we use it every day and with every client at various points in the relationship. What is my beef? Financial planning software is often misused, and in many cases simply not necessary for me to give good advice.
What do I mean by “misused”? Because even though the software offers clients printouts of some beautiful charts and access to an online dashboard, even though data has been collected and entered into the software to produce a plan, and even though products are sold based on the output, the clients don’t feel their financial affairs are in order at the end of all that and we can see plenty of gaps in their finances.
The problem is that the “plan” produced by the software, whether it’s used by the advisor or by the clients themselves, is simply used to justify investment selections. The client feels uneasy because there’s a lot more to their finances than portfolio structure.
I don’t need financial planning software to tell a 50-year-old client with no savings, who can save only $200 per month, that they need to save more. Giving them a savings number they can’t reach isn’t helpful. What they need is more granular. They need to implement tactics to increase their savings. Right now, planning software isn’t very good at that.
I also don’t need a Monte Carlo simulation to tell me that the 65-year-old new retiree with $2 million dollars and a withdrawal need of $80,000 a year is in pretty good shape if they have a decent portfolio and don’t do anything stupid. That’s been studied to death. What they need is help identifying ways to dampen the risk of potential shocks to their cash flow—when they have dumped too much into a second home, for instance, or need help to get one of their kids out of a bad marriage or help to take care of a special needs grandchild.
We find far greater analytic value from specialized software packages than financial planning software. One of the workhorses in our practice is the professional tax software. We can produce mock tax returns, and the precision that comes with that makes our tax planning very valuable.
The biggest thing we need, something the software is completely incapable of, is care for the client. Planners must take the time to get to know the client (well) if they are going to give good, meaningful advice. If it were just about sound mathematics, people wouldn’t have financial stresses. But because they are human, they don’t necessarily behave the way the math suggests they should.
These behavioral issues are the factor that causes us to use financial planning software more than anything else. Software can really help us paint a picture of how a client’s finances can work. We see clients getting value from interactive tools used in collaboration with us to assess trade-offs and what-ifs. Love that.
Some of the other aspects, though, don’t do much for me. Do clients really need to have their Monte Carlo simulation updated daily? The theory behind this is that when the market takes a tumble, the client will see that their success rate hasn’t declined as much as they thought and so they will be less prone to panic. That may be true for some people, but we didn’t see an updated Monte Carlo result stem anxiety much in 2008 and 2009 because it still showed the numbers going in the wrong direction. The software didn’t keep my clients from panicking in the great recession. I’m the one who kept them from panicking. And I suspect most planners reading this can say the same.
I do see great potential for software generally, particularly with respect to behavioral issues. It is the most interesting frontier for technology to me, because I think it can help me help my clients. I’m also keenly interested in using AI and data analytics to draw insights from my client base and other technology to improve efficiency.
As I said, we are regular users of our financial planning software, but much of the time we don’t need it to give good advice. For many cases, I can outline the basic actions needed on a napkin. Planning is strategic after all—supported by technology, but driven by wisdom and born from expertise and experience. Let’s not elevate software to a seat of higher importance than that of a qualified, caring professional doing real financial planning.
Dan Moisand, CFP, practices at Moisand, Fitzgerald & Tamayo in Melbourne, Fla. You can reach him at [email protected].