Beyond that philosophical issue, the perpetual fee is unattractive for another significant reason. For years, the benchmarking studies have shown that many firms have profit margins below 25%. If your firm doesn’t have a 25%+ profit margin, it is losing money on these deals. Even if margins are higher, paying a 20-25% cut severely undermines the profitability and valuation of the organization

All these services tend to rely heavily on online marketing and social media. True, people are gathering information differently now than 10 years ago but for our clientele, at this point, they don’t select advisors like this. 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.

Financial Planning Software

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, it is simply not necessary for me to give good financial planning advice.

What do I mean by misused? A potential client has printouts of some beautiful charts and access to an online dashboard. Data has been collected, entered into the software to produce a plan, and products are sold based on the output. Yet, the client does not feel their financial affairs are in order and we can see plenty of gaps in their finances.

The problem is that the “plan,” whether obtained through some sort of an advisor or done themselves, is simply an exercise in using software to justify the investment selections. The client feels uneasy because there’s a lot more to their finances than portfolio structure.

Many times, financial planning software is not necessary to give good advice. I don’t need it to tell a 50-year-old client that has no savings and can only save $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 (MCS) 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 mitigate the risk of potential shocks to their cash flow like dumping too much into a second home, helping a kid get out of a bad marriage or taking care of a special-needs grandchild.

We find far greater analytic value from specialized software packages than financial planning software.