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| Capitalstars Investment Advisor |
The inspiration for today’s post is an extension of my recent blog discussions about How The Digital Age Will Change Financial Planning.
NO MORE DATA GATHERING
The first major change to anticipate in the digital age is the elimination of most data gathering for the update process. Historically, updating a plan involved a somewhat arduous process of getting current values for all accounts, which put a lot of work on the client to gather the information. This was often problematic not only because it quite literally worked for the client, but also because the client’s investment of time and effort were often unrewarded by a plan update that had no material changes or recommendations.
As a result, many planners have eased away from doing a rigorous annual plan update schedule in recent years, opting instead for a multi-year process, or simply waiting until the client expresses an interest in an update or reports a change in life circumstances… but unfortunately, that means several years could pass where the client is off track before an update reveals that a material adjustment of savings or spending is in fact required. Nor does it necessarily leave in place a process for the planner to be aware if the client simply isn’t doing the saving and spending committed to being done in an earlier version of the plan!
In the digital age, though, updating a plan is not a client-driven data gathering process, but a technology-driven data gathering process. Updated account values are aggregated automatically through the client’s financial dashboard software – such as Mint.com or ByAllAccounts – and pulled into the advisor’s financial planning software. As a result, the only thing that needs to change with the client’s input is the actual goals, which can be done live and interactively with the client on the spot.
In fact, in a world where technology allows for a client’s plan to be continuously updated to date – at least with respect to financial information – any client meeting can immediately turn into a plan update meeting on the spot, as the only thing required is to turn on the planning software and show the client’s current financial position, including not only a balance sheet but where the client stands on the path to completing goals.
PROACTIVE PLAN MONITORING
However, the real value of a technology-driven plan monitoring process in the digital age is not simply the ability to share updated financial projections with the client as requested or on-the-spot at a meeting. The real value is the ability to configure the financial planning software to monitor key metrics itself, and notify the planner (and/or the client directly) when something relevant to the plan has occurred.
For instance, if the client has committed to saving at least $10,000/year into an investment account, the software would automatically notify the planner if the net inflows to the account at the end of the year did not reach $10,000; the software might even be configured to provide a ‘warning’ if $7,500 of contributions haven’t been made by the end of the 3rd quarter. Another possibility would be planning software that monitors current interest rates, and generates a notification to the planner for any client that would potentially benefit by refinancing; thus, if rates dip down another 0.25%, the planner is automatically notified about the 3, 6, or 10 clients who should be contacted about a potential refinance because the current rates are now “low enough” compared to their original rates.
Another way an ongoing technology-driven process could generate proactive actions by the planner is with respect to monitoring the financial plan for risks. For instance, if the plan is continuously updated with a nightly download in a similar manner to how portfolio investment statements, then the software could automatically run an updated projection and notify the planner if the probability of success had declined below 80%, 90%, or some other predetermined threshold. Thus, instead of periodically running a plan update manually to “check” and see if a client’s plan is in trouble, the software would notify the planner automatically, which in turn could prompt a meeting or phone call with the client to discuss whether any action should be taken.
TECHNOLOGY, NOW AND IN THE FUTURE
Notably, some parts of this digital age monitoring process are available now. Planners and/or their clients can aggregate account information using systems like Mint.com or ByAllAccounts. Financial planning software programs like eMoney Advisor and MoneyGuidePro have some capabilities to import data from outside providers. Some proactive financial plan monitoring tools have been built into the new software platform inStream.
But ultimately, expect far more integration than even what these tools have achieved so far, which in turn will make many aspects of the financial planning process easier. Imagine if financial plan updates could be done in minutes, live in a client meeting, instead of via a multi-day back-and-forth data gathering process followed by data input to the planning software and an ‘updated plan presentation’ meeting!