by Dave McClure
America’s 77 million Baby Boomers are woefully unprepared for retirement and what comes after.
Though they have had more opportunities, more earning potential, and the most overall wealth of any generation in history, the American Association of Retired Persons noted that 59 percent of people between the ages of 24 and 64 have no retirement plan. Nearly two-thirds of today’s workers don’t even know what their goals should be, because they haven’t even begun to figure out how much they will need.
Serving the needs of this generation should be relatively simple — helping to map out goals and assess risks, then selecting the right investment vehicles and following up with strong portfolio management services. But the market for financial planning has proven difficult for many accounting firms to leverage, for three reasons:
· Lack of a sales mentality. Much of today’s financial planning industry arose from insurance and brokerage houses, which used front-end financial planning primarily as a vehicle to sell their own investment products. For many accounting firms, it has required an adjustment to fit financial planning within the context of their role as financial counselors without becoming salespeople.
· A steep learning curve. While the front-end process of financial planning is relatively straightforward, service to the client must also extend to selecting investments and periodically evaluating how they are working against the plan. This, in itself, will require extensive knowledge of investment vehicles and portfolio management.
· Complicated software. Though personal financial planning software has existed for nearly 20 years, much of it is simply not well-suited to the job. Forrester Research last year found that, while 80 percent of practices engaged in financial planning had deployed software to assist the process, the industry has not settled on a single package to fit all needs.
Sixty-one percent of firms use more than one package, and another 68 percent offer stand-alone tools in addition to a comprehensive package. Moreover, only 37 percent of planners who were provided software tools actually used them. Issues keeping the software from being used ranged from poor design and substantial training requirements to difficulties in data entry.
Financial planning software vendors are addressing this latter problem in two ways. First, packages are becoming increasingly modular, so that financial planners can select from a menu of tools appropriate for each client. Second, software vendors are providing more specialized individual planning tools that address specific problems.
This review considers six software programs for personal financial planning, each with a strong reputation for either individual planning tools or a modular approach to the needs of accounting firms. These are packages that focus on the front-end planning rather than portfolio management, and each is considered “best of breed.”
Retirement Income Navigator v. 2.0
Brentmark Software Inc.
Brentmark Software’s Retirement Income Navigator is all about balance. When markets fluctuate, stocks may show strong growth but are not dependable. Fixed-rate investments are steady, but do not provide the necessary growth and inflation protection. The software helps to manage money during the income draw- down period of the client’s life by calculating the optimum balance between fixed-rate investments for income and investments in stocks for growth.
This core emphasis on balance causes the RIN to be fundamentally different from other financial planning packages. Rather than allocating investment resources based on investor risk tolerance, the actual income required is factored in on a short- and long-term basis. This means that the emphasis is not on accumulation of wealth, but rather on the ability to generate steady and predictable income throughout the retirement years.
Based on the same theoretical foundation as Brentmark’s previous Investment Scenario Generator, the RIN provides for the development of a wealth accumulation plan, the analysis of mortgages, the preparation of income schedules, inculcation adjustments, and benchmarking. Input of data is straightforward, starting with beginning capital, annual income, payment period, scenario years, inflation rate, and minimum cash/IBOs. If any of these areas are unknown, such as beginning capital, the program will solve for the one unknown.
Calculating annual income reveals the maximum annual income available from the scenario and the option to have it preserve or consume capital. In periods where stocks must be held rather than consumed, “income ladders” built on annuities or other fixed-rate assets can be used, with simultaneous optimization of both income and asset allocation. In all cases, the RIN assumes that financial strategies will be the result of managed rather than random changes in market conditions and expectations.
New to the program in v. 2.0 are schedules to account for non-investment income and custom income needs; enhanced reports; customizable investment categories; and enhanced optimization capabilities. Additional financial planning resources are available from the Brentmark Web site, including informational sites such as RothIRA.com, LifetimeSavingsAccount.com, NewRMD.com, Roth401k.com, PensionPlanners.com, and StateDeathTax.com; online calculators (CalcTools.com); and online publications (GoldbergReports.com).
The Retirement Income Navigator is neither complicated nor elegant in appearance. It’s value lies instead in its simple data entry and navigation, and in a core philosophy that is generating a lot of attention among financial planners. In a time of Baby Boomer retirements and unpredictable stock markets, it is critical that financial planners incorporate this level of plan management, balance and structure into their client plans.
J&L Retirement & Financial Software Professional
J&L’s retirement and financial planning software is a cost-effective program for developing strategies for retirement, education, home ownership and other goals; showing how those strategies are affected by life financial events such as inflation, taxes, mortgages and loans; and creating viable options in the plan through calculators for mortgages, refinance analysis, accelerated mortgage payments, inflation, trade-off analysis, required minimum distributions and credit card payoffs.
The program begins by creating accounts that represent current investments, assets, equity and the return rates, and filling out an initial values form containing the client age at which the plan starts and the client age at which the plan ends (death or retirement). Income tax rates are also entered along with inflation statistics. A financial scenario is built on deposits to or withdrawals from an account over the lifespan of the plan. Initial data input includes assumptions by the planner for investment savings, tax-free savings, retirement savings, and assets not part of the plan liquidation, plus equity and the related outstanding mortgage.
The focus of the software is on the creation of financial scenarios and investment tracking with year-by-year reports of up to five separate budgets. Incorporated into the software are advanced features for Required Minimum Distribution RMD, Revenue Code Section 529 College Savings Plans and Rule 72T asset withdrawal options. Customizable reports and charts, and the ability to import from and export to other databases and spreadsheets, give the software excellent flexibility.
Changes in initial assumptions and “what if” scenarios are navigated through tabbed headers at the top of each screen. These tabs include Groups, Asset Allocations, 50 Accounts, Summaries, Net Worth, Accounts, Scenarios and Results. In the Professional version, tabs also provide for Monte Carlo analysis, which can perform up to 200 iterations based upon input from the planner, and for historical return analysis. The planner can also select from over seven reports, including comparisons of various results and scenarios.
The Professional version of J&L Retirement and Financial Planning Software is a beefed-up version of J&L’s consumer-planning product. While the interface is somewhat dated and the functionality much more streamlined than more costly competitors, the software has won positive reviews for its simplicity, easy navigation and flexibility.
Priced at $99, the J&L Professional software provides an excellent balance of cost versus features, with enough frills thrown in to make it very attractive to smaller accounting firms or those that need to rapidly build and evaluate financial planning scenarios.
Money Tree Suite
Money Tree Software
MoneyTree Software’s 2003 Suite is aimed at the 66 percent of firms that use more than one planning package, offering four individual programs that in the aggregate cover the majority of financial planning needs. A new update for 2003 integrates the 2004 tax tables as well as the 2003 tax act.
The individual programs that comprise the suite are Easy Money, designed to provide an overview of net worth, cash flow, estate taxes, asset projections, retirement projections, survivor insurance need, income taxes and asset allocation, all compiled into a report with appendices and 11 color graphs; Golden Years, a flexible program for retirement projections and analysis using actual IRS rate tables presented in a 60-page report; Money Tools, a data integration and management system that combines data management, contact management, practice management and portfolio management; and Retirement Solutions, a set of 10 of the most commonly used specialized applications to handle specific questions about distributions, pensions, tax planning and related issues.
Of strong value to accounting firms is the audit trail generated by the software, so that the financial planner can easily show the origin of numbers and the computations involved. Both Easy Money and Golden Years have an easy-to-follow audit trail using code numbers on each page and notations for each row or column indicating the page containing the source data. These modules also offer multiple types of planning —goal-based planning for clients who are still several years away from retirement, and cash flow planning for clients at or near retirement.
An additional module offered separately from the suite is the Silver Financial Planner, a simplified planning tool that offers a wide range of “what if” scenarios. Silver Financial Planner has options for multiple asset groups, varying rates of returns, differing tax rates and other variables. It features a Monte Carlo simulation report, along with retirement projections, survivor insurance needs, education funding, asset allocation, estate planning, disability and more.
Later this year, an updated version of Money Tree Suite, rewritten from the ground up using the Microsoft .Net framework, will offer even easier data input, better modeling of future changes, enhanced entry of investment and retirement plans, and the ability to access, update and run the programs over the Internet.
Money Tree Suite 2003 is a streamlined set of applications that utilize a common database of client information and assumptions, reducing the chore of data entry and minimizing the learning curve. Covering the most common scenarios, the suite also provides excellent back-office integration with e-mail, calendaring and tasks that is invaluable to smaller accounting firms.
Profiles+ Professional v. 7.0
Financial Profiles Inc.
Profiles+ Professional is a solid, stable and robust suite of 14 financial applications that generate strong earnings that can increase a firm’s income average by 41 percent in the first year.
The Profiles+ Professional package of 14 modules — four for business planning and 10 for personal planning — were created in order to help professionals sell more financial products, enhance their revenues and increase referrals. These modules may be used independently or in combination, with preset combinations for personal financial previews addressing financial statements, income tax, estate planning, long-term care, financial independence, disability, survivor needs, accumulation, education and asset allocation, and for the four business areas of key employee evaluation, business valuation and continuation, employee benefit analysis, and financial statements and ratios.
Optional modules extend the basic programs with Spanish output, Monte Carlo simulations, integrated Forefield content for planning preparation, Ibbotson Security Classifier, tax sensitivity, and a business module for small business owners.
The suite uses simple input screens and a fast calculation engine to produce over 400 NASD-compliant output pages featuring more than 150 sales concepts, images, text pages and audit trails designed to help open, explain and close the sale. In addition, the program integrates with Siebel eBusiness Applications, E-Z Data’s Client Data Systems and Ibbotson Associates’ Portfolio Strategist to simplify data entry.
Version 7.0, introduced in September of 2003, updates the integrated product with features that include an enhanced tax sensitive option for projecting future cash flows, new functionality for entering and analyzing stock option data, updated college savings plans, an optional Monte Carlo simulation, and updated statistical and tax data.
In addition, Profiles+ Professional’s reporting capabilities have been updated with current statistics and sources, including the Ibbotson Asset Allocation database. A new Manual Asset Classification feature enables advisors to manually allocate and classify client assets rather than relying solely on the auto classification method, which uses Ibbotson data.
Though Profiles+ Professional places emphasis on sales of investments as part of the planning process, its extensive set of modules provides a complete solution that is rated highly by its users. While more robust than some other modular planning tools, Profiles+ Professional remains an essential tool for any effective financial planning or wealth management practice.
Split-Up v. 6.02
According to the U.S. Census Bureau, more than 40 percent of Baby Boomers aged 40 to 50 have already been divorced at least once, and close to half are expected to divorce at some point in their lives. That’s where Split-Up comes in.
There are four products for financial professionals: Split-Up Professional Edition, Professional Pension Evaluator, Professional Deluxe Edition, and Office Pack.
Split-Up Professional Edition is a suite of five products that includes the core Financial Advisor Professional Edition program; five quick divorce calculators; child support guideline calculators for the states of California, Florida, New York, Massachusetts and Pennsylvania; an arrears calculator to assess child-support payments in arrears; and a pension evaluator.
Though not limited only to those who are or will be divorced, the Professional Pension Evaluator does provide a good estimate of the value of pension benefits that will also be of value to judges and attorneys, and will help the client understand the impact of changes in retirement dates or income levels, and will assist in deciding between lump-sum or distributed payments. The evaluator calculates value using both so-called “GATT” (unisex) and “PBGC” gender-specific tables, both from Group Annual Mortality (GAM-83) tables. It allows the entry of any discount rate and suggests the Federal Reserve Web site, where appropriate discount rates are updated regularly. It offers options to estimate the benefit if the employee continues to work until cut-off date, or earliest retirement date, or regular retirement date. And the program includes a detailed audit report explaining line by line how the value is calculated.
The Professional Deluxe Edition combines the two prior products, Pension Evaluator and Professional Edition, at a savings. The Office Pack includes everything in the Professional Deluxe Edition, plus three copies of the Split-Up Personal Edition CD software to distribute to clients and a listing in the Split-Up Professional Directory maintained on the firm’s Web site.
The Split-Up software features one of the best and most attractive user interfaces available in financial planning software. Left-side, context-sensitive tabs make for easy navigation, and data entry is both streamlined and simplified. The charts and reports present a professional appearance with a respectable audit trail and drill-down detail capability.
Reasonably priced and easy to navigate, Split-Up allows people experiencing a divorce to make key life decisions relating to work, homes, alimony and property division, and to strategically assess the impact of the divorce over a period of years. Split-Up is must-own software for financial planners, if for nothing else than to ensure that they cover all of the relevant planning factors when their clients divorce.
WealthWhen is a spreadsheet-based financial planning tool that allows U.S. taxpayers or their financial advisors to create short- and long-term financial plans and perform “what if” scenarios on those plans to see exactly how investment decisions and economic and lifestyle changes would affect one’s future, including retirement.
The strength of the program is its focus on tax planning —while most financial planning tools use simplified assumptions about tax effects on financial plans, WealthWhen does full-tax federal and FICA calculations in accordance with the latest Tax Code, including the alternative minimum tax and rules for stock options.
Data input into client files called Data Books allow for six financial scenarios for retirement. Based on the client information and assumptions about 12 economic factors, such as inflation and investment returns, the scenarios offer year-by-year income estimates. WealthWhen can also accurately reflect the future significance of built-up capital loss carry-forwards and AMT credits.
Derived from a client fill-in spreadsheet, or from a client questionnaire, or via a personal interview, this data is first used to develop a “Base Scenario” that represents the current, most accurate and up-to-date projection of the future.
Once this scenario has been developed, the Reports & Charts section is used to project future balance sheets, income/expense statements and other reports for future time periods of up to 40 years.
The base scenario is also used as the basis of up to six scenarios that can then be compared side by side for “what if” analyses. To differentiate between values input by the planner and those derived by the model, WealthWhen indicates model-derived data by underlining it and showing the data in a different color. In addition, any projected value can be overwritten at the discretion of the planner.
WealthWhen is a serious number-crunching application that does require some work in entering and updating data. But this structure also allows for exceptional flexibility and an interface that is easy to navigate. It is particularly well suited for accountants seeking a straightforward planning product with a balance of economy and functionality.
Dave McClure is president of Kent Associates of Alexandria, Va., an independent testing laboratory and evaluation service.
Retirement Income Navigator v. 2.0
Brentmark Software Inc.
3505 Lake Lynda Drive, Suite 212
Orlando, Fla. 32817-8327
Pricing: $299 (includes six months of maintenance); $59 for annual maintenance. $598 for 10-user site license (networked); annual maintenance — $118.
J&L Retirement & Financial Software Professional
240 East Church St.
Frederick, Md. 21701
Pricing: $99.95; multi-user and network pricing available.
Money Tree Suite 2003
Money Tree Software
PO Box 637
Philomath, Ore. 97370-0637
Pricing: $1,550 for suite, $500 annual maintenance. $1,900 for suite plus Silver Financial Planner, $500 annual maintenance.
Profiles+ Professional v. 7.0
Financial Profiles Inc.
5421 Avenida Encinas
Carlsbad, Calif. 92008
Split-Up Software v. 6.02
831 Beacon St., Ste. 2900
Newton Centre, Mass. 02459
Pricing: First year — $549; renewals — $299 per year. Defined Benefit Pension Evaluator Module — $199, with a $99 renewal fee. Discounts apply for additional copies in the same firm. Network pricing same as additional copies.
6 Ellery Square
Cambridge, Mass. 02138
Pricing: Single-machine license for professional/commercial use for unlimited clients — $449.95; additional machine license — $149.95.
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