Financial planning is usually not a static process. When your clients ask you for advice in investing their resources, one of the more difficult tasks is getting them to make decisions on not only what their ultimate investing goals are (besides becoming wealthy or wealthier), but just how much risk they want to take along the way.As a client's economic and life conditions change, often their goals do as well. Many successful planning professionals find that periodic re-analysis of each client's holdings is a good idea. By examining how well a client's investment portfolio is performing and what progress is being made towards meeting a client's ultimate and near-term goals, you are best serving your clients, and very possibly generating additional fees for your practice.

The process of deciding the mix of financial products, how and where to invest a client's resources, is closely tied to the client's stated financial goals. The goal may be simple, such as maximizing income or capital. It may also be more rigidly defined, such as accumulating the assets necessary to make a major purchase, such as a house, a boat or a private jet.

Many times, however, it's not that simple. A client may have multiple goals, such as maximizing income for a period to finance a college education for one or more children, while at the same time accumulating capital for ultimate retirement. At its most challenging, financial planning is an intricate juggling act.

Coming up with the strategy that produces the best mix of investments is what the client is paying you for. Unless your role is strictly advisory, your choices may be constrained by what types of financial products you have access to. If you are committed to providing a client with only specific lines of financial products, the process may be somewhat easier than if your client has the entire universe of financial investment vehicles to choose from.

Regardless, using an asset allocation system can help you determine what specific classes of investments would be appropriate to meet the client's stated goals. Depending on the system that you select, you may be able to research the performance of specific stocks, bonds and other investment vehicles, and model investment scenarios to see how closely the model fits with a client's needs and goals.

One size doesn't fit at all

While we can talk about asset allocation software as if it is a well-defined application, it really isn't a clear category at all. To a large extent, that's because the process itself is part science and part art. Applications such as general ledger and payroll are rigidly and clearly defined. That's just not the case with many aspects of financial planning, including risk determination, performance estimation, and how much of a client's assets to put into individual investment vehicles. To be successful, the process takes experience, judgment and sometimes even a fair amount of luck.

To be fair to the vendors in this industry, asset allocation is often a part or module of a larger financial planning system. This module may be available as a stand-alone, or integrated into a more comprehensive system that also provides research and reporting capabilities.

Selecting the right application requires almost as much thought as performing the allocation task itself. More than one planner has found herself in way over her head after using financial planning software, including asset allocation applications. The problem is that many of these applications are too easy to use - requiring the planner to just enter a few figures, choose from a number of client goals and timelines, and hit a "go" button. Out pops a suggested allocation report, complete with colorful graphs. Bind it, generate an invoice, schedule a client meeting to present the results, and you're good to go.

The problem arises because "black-box" applications are built on a set of underlying investment theories, mathematical modeling strategies and other decision-making defaults. We're not saying that you have to be able to duplicate the process with a calculator, pad and pencil. You should, however, at least be somewhat cognizant of what processes and assumptions the software is employing.

You can find a lot of information about the underlying modeling strategy on a vendor's Web site. If you are not familiar with the approach, it is in your best interest to do a bit of further investigation before making your investment in a specific application. That way, not only will you have confidence that the underlying processes and assumptions that the software is using are sound and in line with your own beliefs about investment strategy, but you will be able to explain how and why certain investment recommendations were made, should the client have questions about your report.

Many of the asset allocation systems we tested use Monte Carlo or other complex mathematical techniques and simulations to predict the performance of an investment. If you have a preference for one type of mathematical modeling over another, this should also be factored into your selection of an asset allocation application.

Putting them to the test

We tested a half-dozen packages that help perform asset allocation. These span the gamut in both cost and capabilities, though due to the process of allocation itself, we wouldn't classify any of them as entry-level. Of the six applications that we tested, four were PC-based, while two are Web-based.

In testing each application, we used the sample clients provided by each vendor for training. We altered risk willingness, asset balances and other factors in each package to test ease of use, appropriate computations, and different modeling and reporting options.

As with any mission-critical application, you are probably better off using a newer PC, rather than just any old machine that you happen to have laying around. Our test configuration was a modest 3GHz Pentium 4 model with 1GB of memory, an 80GB hard disk drive, and a dual-layer DVD burner that could also be used for backing up important client files. Our Internet connection is a broadband cable modem. If you intend to use one of the on-line Web-based applications, a high-speed broadband connection is pretty much a must.

Selecting the right asset allocation application requires that you fully understand your current planning practice and where it's heading. If your financial planning practice consists solely of consulting on retirement and insurance issues, you may be able to get away with an application that concentrates on these areas.

If you have a multi-faceted practice and plan on growing it further, you may want to opt for a more comprehensive (and expensive) application. The initial and ongoing outlay will be higher, but having the functionality available at your fingertips gives you a lot of flexibility in the services that you can pitch to your clients.



When we first looked at AdvisorVision last year, this Web-based application was just being launched and was in beta testing. This time around, the application is up and running, and AdviceAmerica has contracted with a number of well-known financial institutions to provide them with AdvisorVision. For example, Citicorp Investment Services licenses AdvisiorVision and provides it to its clients as CitiPro.

AdvisorVision is part of WealthVision, a modular planning system that includes other products such as LifeVision Express, a planning tool meant for the client rather than the planner. AdvisorVision itself is also modular and, depending on your practice, you can add modules for different types of goal achievement, including net worth, retirement, education, life insurance, accumulation, emergency fund, estate planning and debt management. This approach allows you to expand your planning options as your needs change, and pay only for what functionality you need at the present time.

We tested the full version with all of the goodies, using a high-speed broadband Internet connection. AdviceAmerica claims that most users will have no problem using the application even over a 56Kbps dial-up line, but if the AdvisorVision (or other Web-based) application is going to be a critical part of your practice, it makes sense to find some way to get a high-speed connection, whether it is cable, DSL or even satellite.

Using AdvisorVision is easy. As with similar products, you'll have to enter planning goals and risk tolerance. As with many of the applications that we tested, this process for assessing risk governance is rather simplistic, a series of questions where you rate the client's willingness to take a risk on a five-point scale. Unfortunately, there really doesn't seem to be a realistic method of assessing this parameter.

Once the constraints, goals and parameters have been entered, you can access the research databases that you subscribe to. As AdvisorVision can make investment vehicle recommendations based on the conditions and constraints that you've entered, the more money that you invest in this area, the more choices the software will be able to access.

Once you've narrowed the choices down, AdvisorVision makes it easy to create impressive-looking and detailed reports for your client. These can be generated in Word or PDF format, and include plenty of graphic elements to ease the process of understanding the recommendations.

AdvisorVision is not inexpensive. The Comprehensive Planning Edition, which is the high-end product, costs $2,000 and an additional $200 a month for maintenance. Still, that's not outrageous, and includes access to Albridge, Lipper Fund Data and other research sources. If you want only the Investment Planning Edition, the cost is half of the above.

Cheshire Financial

Planning System

Cheshire Software Inc.

Cheshire's Asset Allocation Planner is one of the less expensive applications we tested. It's available as a stand-alone module for $499 for the first year and $150 for subsequent years. By itself, however, there are serious features, such as Monte Carlo simulation, that are not available. You may find the Asset Allocation module sufficient if your planning practice is very basic. It will allow you to define a specific set of investment vehicles, rates of returns and goals, and cut and paste in historical rates of return data.

We tested the more comprehensive Financial Planning System. This is priced at $1,799 for the initial purchase and $750 for following years, which is still very modest for this type of application. The complete Financial Planning System includes the Asset Allocation Planner, as well as the Retirement Planner, Education Planner, Net Worth & Cash Flow Planner, Estate & Trust Planner, Life & Disability Insurance Planner, Distribution Planner, a Monte Carlo simulator, and a financial planning questionnaire. A new version of the software, with additional features and different pricing, is slated for release in 2006.

Once the input data and criteria have been entered, you can run Monte Carlo simulations to estimate performance. The system will build efficient frontier curves given the data and goals supplied. Since neither the Asset Allocation system nor the other modules appear to link to any of the online research and database services, cutting and pasting historical performance data is not only awkward, but also requires that you set up your own research resources.

Integration between the different functions is not as clean as with the other packages that we reviewed, but it is not difficult to move from one set of tasks to another. The user interface is also far less elegant than the competition. If you can live with that, the reports generated by the system are detailed and presentable. They won't embarrass you with the client.

We liked some of the features that Cheshire's Financial Planning System offers, such as the client questionnaire. On the whole, however, we think that only very small basic planning practices will find the application completely suitable. That may change when the next version of the software is released.

Ibbotson Portfolio Strategist System

Ibbotson Associates Inc.

As with a number of the products that we tested, Ibbotson's Portfolio Strategist Financial Planning System is modular. You can purchase one or more modules to provide the functions that you require. Just to keep things confusing, the actual asset allocation is performed by the Portfolio Strategist module, which includes the Fund Optimizer module. The price for these two is $695 for the first year. The overall system is also called The Portfolio Strategist, and includes the above two modules, a security classifier module, a fund strategist, and an analyst module. These other modules are also available separately. When purchased and installed as a system, the modules are seamlessly integrated.

The user interface is pretty straightforward. Tabs on the left hand of the screen let you enter client profile data, detail the current portfolio, perform a risk analysis, do sensitivity analysis, and perform allocations. Clicking on a left-hand tab changes the horizontal task tabs on the top of the screen to those that are appropriate for the particular subsection. If this sounds complex, it's easier to navigate than to describe.

The complete Portfolio Strategist is moderately expensive, close to $3,000 a year before any additional database subscriptions, which are necessary to use the system to its best result. For many practices, this will prove to be a profitable outlay. With the proper database subscriptions for the type of investment vehicles that your practice feels comfortable recommending, you can model extensive multi-level goals and produce the almost ubiquitous efficient frontier curves.

As with several of the other planning systems that we reviewed, the output of the system is impressive. You can print the generated plan in Word format so it can be easily modified or edited. Extensive graphics are incorporated, and Ibbotson's Portfolio Strategist can create a PowerPoint presentation for you. This is a really nice feature and one that many planners will greatly appreciate.

Total Planning System

Money Tree Software

Money Tree Software has several planning applications. Easy Money is goal-based, Golden Years is primarily a cash-based retirement planner, and the Strategic Solutions module has the Monte Carlo simulation routines and extensive report capabilities. Unless you are strictly planning for retirement, you'll probably be best served with the Total Planning Solution, which incorporates all three. We reviewed this integrated system, which installs as a single application with effortless navigation between the components.

Overall, we found the system easy to use. Data entry screens are nicely laid out, and intuitive to use. As with most of the other packages that we tested, the questions to determine risk tolerance are simplistic, and chances are that you'll have to actually demonstrate the possible effects of selecting more risky investments by generating several scenarios.

The major exception in usability that we found with the system is the lack of import capability with most of the major research databases, such as Morningstar. You can look up historical information and stock quotes on Yahoo, but that's hardly in the same class as Morningstar, Lipper and other such resources. Total provides a link capability to Albridge, but you'll have to arrange the subscription yourself, and configure the link as well.

This may be a pretty severe limitation and constraint for many planners. In many cases, you will have to perform the research yourself and plug in the data and investment vehicle choices and categories. Once you've finished your input, you can run Monte Carlo simulations and change goals and other parameters.

Just how applicable and useable Total is going to be really depends on your practice. If you specialize in a limited number of investment vehicles, you may find it's just what you need.

SunGard Planning Station

SunGard Online

Investment Systems

SunGard is one of the better-known names in the financial field, having several divisions that supply software and services to banks, brokerage houses and other financial institutions. The Planning Station is a Web-based application targeted at wealth managers with substantial planning and management practices. It is provided in a modular form, so that you can select only those modules that you require, which keeps the cost down. Still, while the vendor requested that you contact them for prices, don't expect it to be inexpensive.

This modular approach has benefits if your practice stratifies planners and sales staff, since there are modules for each staff function. These modules can access common data, so a sales person can collect much of the initial data, and the planner won't have to re-enter it. Conversely, the planning data will be available to the sales person for follow-up.

The online Planning Station Allocation Master component that we tested is based on the Frontier Analytics Allocation Master product, which is a desktop in-house application from SunGard.

As with other Web-based ASPs, we recommend a high-speed broadband Internet connection. You might be able to get by with a dial-up connection if absolutely necessary, such as running some functions at a client's home, but for general day-to-day use you'll want a speedier hook-up.

While you might suppose that using a high-end planning system is more difficult than a more entry-level application, the opposite is true. Planning Station is very logically laid out, with tasks shown sequentially in a left-hand window pane. You can turn on a help pane on the right side of the screen, which will give you further guidance, and most operations have wizards that walk you through the necessary input.

As with most planning systems, Planning Station generates an efficient frontier curve to specify the product mix, and Monte Carlo simulation is available to predict product performance. You will have to subscribe to different research databases as part of your overall Planning Station subscription, and these will determine which investment vehicles you can access for allocation.

You can generate a variety of output, including extensive client reports that incorporate extensive graphics. Planning Station also provides a comprehensive client questionnaire which you can either give to the client or fill out yourself during an interview.

Zephyr StyleAdvisor 7.0

Zephyr Associates Inc.

AllocationAdvisor 6.1 is a part of a more comprehensive financial planning system from Zephyr called StyleAdvisor. The annual subscription fee of $15,000 has been reduced from last year, and includes a license for up to five users. StyleAdvisor includes the allocation subsystem, AllocationAdvisor, a GrafixGenerator, Database Creator and PowerPresenter. It is also the most expensive product in this roundup.

While it may be expensive, you do get quite a bit for your money. The annual fee includes subscriptions to both Zephyr's own Index Database, with over 12,000 indices, and Morningstar's 14,000-product mutual fund database. Both of these are updated monthly. Also included in the fee are unlimited technical support over the phone and attendance at the annual users' conference in Lake Tahoe. A large variety of additional databases are available for research, and each is priced à la carte.

Using AllocationAdvisor (and StyleAdvisor) is actually simple. The user interface is well-designed and easy to navigate. As with the other applications that we reviewed, you need to answer a series of questions about the client's goals and risk willingness, and then run models that suggest possible investment vehicle portfolios.

This latest version of AllocationAdvisor has changed the underlying model from the Markowitz mean-variance optimization to the Black-Litterman Model. Both still create efficient frontier curves, but Black-Litterman allows the investor (or planner) to add their own estimates of expected return into the predictive model. Other updates include more graphics choices and export options, as well as a new "notes pane" for adding comments without having to exit to a word processor.

As with the previous version, you can change parameters, criteria and risk willingness easily to run multiple scenarios. A sync key lets you easily bring in current prices from the available databases, and available investment vehicles are detailed in easy-to-use pick lists, so building possible asset choices for a client is relatively quick.

The graphics and reporting modules make it simple to create easy-to-understand reports for your clients. That's assuming that your clients have the financial sophistication to understand the level of detail that the reports provide. These reports illustrate the various scenarios and possible outcomes of differing investing strategies to help the client make their ultimate decision. You will probably find that you will need to go over the reports several times with a client - once when you first present them with it, and at least one additional time when the client has had some time to study the report.

StyleAdvisor is not an application for the financially unsophisticated on either the client or the planner side. It is priced to appeal to practices with wealthy clients who don't mind paying a hefty fee for value received. If you have this type of practice, the annual fee will be worth every penny.

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