What it would be like for an advisor in the 1980s to be magically transported to our 21st century? The changes would be dazzling: the Internet and social media, exchange-traded funds and Morningstar data, Skype conferences and the virtual cloud, plus a few million mobile device apps that do everything but vacuum your house.
But the most substantive change, in my opinion, would be the dramatic upgrades in financial planning software. Back then, the most advanced programs were overlays and templates built on VisiCalc or Lotus 1-2-3. Today, advisors import client data into integrated calculation engines that pull in historical investment performance data and client lifespan estimates and use tax tables to compute future portfolio values. Monte Carlo simulations even give the odds of retirement success.
The planning software evolution is nowhere near finished; in fact, it may just be getting started. Case in point: a new planning engine called InStream Solutions is simultaneously creating four major innovations that could change the way advisors work as dramatically as today’s best financial planning applications represent upgrades over VisiCalc.
Viewing your client comprehensively
InStream is a goals-based planning software engine: that is, It will calculate a client's probability of reaching pre-determined goals. This is not an innovation, of course, but it represents the core around which the innovations are built.
Just as with other planning programs, you enter a client's personal and portfolio data and get reports and probability estimates. But the program offers one remarkable feature that I predict will become more popular in the future: the client’s data, including goals and assets, family members, home address, phone number and employer, are all automatically integrated into a contact management system that is organized as a mindmap. The mindmap display makes it easy for the advisor to see a client's personal and financial situation in one place, organized intuitively. More importantly, it allows the client to see an integrated personal and financial picture and perhaps understand for the first time how his or her accounts fit together.
Automatic updates
The first real game-changer is InStream's ability to create customized alerts. Other programs have features that show when your client portfolios are out of tolerance and need to be rebalanced, but InStream is the first program I've seen that proactively searches for and communicates anomalies or crossed boundaries that the advisor wants to flag.
"You can stare at a client's information and data and not realize that there is something that needs to be done," says Zohar Swaine, InStream's president and CEO. "How can you tell from the data whether a client would benefit from refinancing his house? Does it alert you when it's your client's daughter's birthday? Or the fact that most families start their 529 plan at this particular age?"
For example, you could set an alert for whenever a client's probability of meeting her goals falls below, say, 87%, so you can proactively contact her to discuss a higher savings rate or a different portfolio mix. If the market has dropped by a certain percentage, you'll get the same alerts, which would allow you to contact the clients who have not triggered alerts to let them know that everything is fine for now. If clients breach a ceiling – if their probability of success goes up over 97%, for example — you could have a conversation about taking some risk off the table with a more conservative portfolio mix.
"We think that a financial planning program is, first and foremost, a client communications tool," Swaine says. "Instead of operating in a reactionary mode, you can proactively address client issues and better manage your client interactions and the overall professional relationship."
Some of this alerts data – when to rebalance based on tolerances set by the advisor herself, or the daughter's birthdays – come straight from a continuous assessment of the data within the program. But InStream also has the ability to compare the data in its system with what’s happening in the outside world.
Google vigilance
You might call this next innovation "Google vigilance." InStream's program is constantly running, somewhere in the background, a Google analysis of issues related to the client that the advisor defines. You can enter into the program the fact that the client is an avid golfer and that you want Google to aggregate news feeds about local golf events or national tournament news that you can share. These alerts can be extremely granular – the program could pull up news about the daughter's school district – or much broader, like breaking news about individual stock holdings.
Linking client information to Web searches offers up a number of possibilities for productive communication, and the drip marketing (sending relevant messages to stay at top-of-mind) possibilities for prospects are virtually endless. Most clients aren’t tech-savvy enough to create automated search features that are constantly looking for news and information related to their interests. In this sense, InStream (and its inevitable copycats) can add value outside of the normal planning relationship.
Alerts can also be triggered via InStream's third major innovation: what it calls a "participatory knowledge base."InStream can alert advisors when most clients typically start their 529 plans,” says Swaine. “It can pull information from all the financial plans across all of InStream’s users, which are stored in its cloud-based system. At the end of the day,” Swaine continues, “we will create a data warehouse of thousands of individuals' financial plans. We would never sell that data," he adds quickly, "but it can be anonymized and accessed by the InStream user base, to answer questions about best practices, or how or when other advisors are taking certain actions, how much they are allocating to which asset classes at which risk tolerance levels or their average probability of success, broken down any way you want to access it."
Beyond that, InStream will feature a social media platform that will allow advisors to compare notes with each other about virtually any issue they want to pose to the virtual study group.
It's hard to overstate the possibilities here. Until now, planners have had no chance to see how their advice compares with that of other advisors. The profession as a whole has developed only the broadest consensus on basic decisions, like how much life insurance to recommend, what a "conservative" portfolio should look like or what future return assumptions should be plugged into the Monte Carlo software. As the database grows, advisors will be able to pull out the average savings rate of the average financial planning client and compare it with the broader figures of the population at large. They could even compare the profession's average rate of return per unit of risk versus the markets'.
Encouraging competition
Finally, InStream's advisor alerts can be generated by a fourth significant innovation: the marketplace. Long-term, this may prove to be the most significant innovation of the four.
Let's say you input into InStream details about your client's home mortgage and how many years are left until the bank is paid off at a particular percentage rate. A number of banks and mortgage companies will pay a fee to participate in InStream's marketplace, where they will be competing to win the business of advisors and their clients. If one of them posts a 3.55% mortgage rate with zero points down, InStream would run a calculation on a threshold preset by the advisor to find out if any clients could save more than $1,500 by refinancing. Alerts would then be triggered to the advisor, who could notify clients and give the mortgage lender some additional business.
The marketplace is still in its early stages of development, but Swaine is talking with insurance companies, mortgage firms and trust and estate attorneys. No commissions will be offered to advisors to recommend these products. Advisors are not required to recommend a product or service from the marketplace – they can shop around to look for a better deal.
"This gives advisors a chance to comparison shop," Swaine says. As vendors bid for the business of InStream advisors and their clients, they have an incentive to lower fees, prices and rates in competition with each other. "We will have, over time, a robust marketplace of vendors who will create a level of transparency unseen anywhere else," Swaine adds. "And we are enabling advisors to manage the process."
The surprising price you won’t pay for InStream
InStream is free – that is, advertiser-supported – and the company expects the core software program to remain so. "We may charge for customized analytical capabilities or added functionality," Swaine says. "We need to figure out that line of demarcation, where we start charging for some of the software."
InStream is still in its beta stage, Swaine says, even though upwards of 1,700 advisors are currently using it. "The marketplace isn't up and we're still working on some of the features with input from the advisor community," he adds.
I suspect these four innovations – self-created alerts, Google vigilance, consolidated data from thousands of InStream financial plans and the upcoming marketplace – will take hold in the profession and become as ubiquitous as Monte Carlo engines are today. When they do, today's advisor will experience the same sense of wonder at the next iteration of planning software as the 1980s advisor would experience by comparing modern planning systems to VisiCalc overlays. Financial planning and investment advice are about to take another evolutionary step forward – in four directions at once.
Bob Veres's Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at:www.bobveres.com.Or check out his Insider's Forum Conference (September 17-19 in Dallas) atwww.insidersforum.com.
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