A Critical Question — A Surprising Answer

A question that I’m often asked, particularly by other advisors, has to do with retirement income analysis. People want to know if I will recommend a financial planning program for this area that is unbiased, objective, and not product-driven.

Before I answer, I want to offer an observation on software used in financial planning. No software is a ‘be all and end all’ for financial planners. The software used in financial planning is not yet at the place where an advisor is able to input the data, push go, and have the results displayed.

The inability of the software to do all of the heavy lifting in the financial planning process is a stumbling block for many advisors and firms. This is especially true for those, who are considering financial planning as a service offering. The majority of advisors and firms, who hold themselves out as “financial planners,” are actually just purveyors of product or asset managers, who use the “financial planning hook” to gather assets or sell product.

Unfortunately, it is these firms and advisors who dictate the product offerings of companies, which create financial planning software. Any casual perusal of the company websites will illustrate my point with words like these:

“Help you grow your business . . . .”

“Increase your AUM [assets under management] . . . .”

One site even has a calculator, which illustrates the additional revenue you can generate by using their software. The company has statistics on the amount of additional income their software will generate in three areas: fee revenue, product sales, and assets under management. And you just thought I was making this stuff up!

The software utilized by planners today is light years ahead of the early software we first used 30 years ago. Yet, interestingly enough, many of the programs used by planners today had their genesis back in the day. Today, two of the most widely used programs had their origin/support in an insurance company decades ago.

Financial planning is an art and not a commodity. The end product is not a widget that comes off an assembly line. A financial plan, like art, has structure. And like art, a financial plan has a host of variables, which cannot be quantified in a financial planning program. In the process, a financial plan comes together as something greater than the sum of its parts.

Therefore, the answer to the above question is not a financial planning program. The answer is a financial calculator—something that is able to answer the majority of a client’s retirement questions in short order. And interestingly enough, I have never seen a financial calculator ‘pitch a product’ or offer to manage a client’s assets.

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