February 9, 2012

Does Financial Planning Software Improve or Destroy Productivity?

Michael Kitces
Head of Planning Strategy, Buckingham Wealth Partners

This article is authored by Well-known Blogger Michael Kitces addressing the Financial Planners in US and we think its equally relevant to India and globally.

Financial planning is hard work. It’s hard work for the clients, who must spend far more time than they are accustomed in the process of digging through their personal financial lives and their goals. It’s also hard work for the financial planner, who invests an incredible amount of time into the process of creating a financial plan for the client, entering client data into financial planning software, “crunching” the numbers, and then crafting a written plan to explain and justify the results and the associated recommendations.

Yet as planning software becomes increasingly more complex, we are approaching a difficult crossroads: the depth of the planning software requires more and more time to do the analysis, and necessitates more and more written detail to support the software output. As a result, the planning process itself drags out, taking hours and hours to create a plan and weeks and weeks to deliver recommendations to clients.

But when did the complexity of financial planning software begin to drive the planning process, instead of being a tool to expedite it? Has our financial planning software become the enemy that’s ruining our productivity, instead of improving it?

The inspiration for today’s blog post is a recent study released by the FPA on the fees that financial planners charge for their services. What was notable in the study, though, was not just the fees that financial planners charge for their services, but the time it takes for them to actually use financial planning software to complete a written financial plan.

Average Time to Complete a Financial Plan (US)

Average Time To Complete A Financial PlanSource: FPA Research Centre, Financial Planning Association, 2012

As the figure shows, while a quarter of financial plans take a relatively modest 3-5 hours or less, another quarter of them take 6-9 hours, while nearly 50% of all plans take 10+ hours, including almost 30% of plans that take more than 15 hours! All to develop a single financial plan!

And while I will grant that for a small subset of firms, their typical client is so affluent and complex that it requires extensive analysis time, I have to question overall if it’s really true that 50% of all financial planning clients have situations so complex that even a full-time professional financial planning expert needs 10+ hours to figure out what to do!

Moreover, the arduous time to complete the financial plan also stretches out the timeline for turning around the plan to the client. The FPA study also revealed that only a quarter of planners actually deliver the written financial plan less than two weeks after the initial discovery meeting (which, coincidentally, is about the percentage of planners who take no more than 5 hours to complete a plan); the remaining 75% of planners take at least two weeks to deliver the plan back to the client!

All of which raises the question – what is it we’re doing that takes SO long, and do we really NEED to do it that way? In my own experience, a large portion of the time necessary for plan construction from the FPA research is in fact attributable not just to the process of analyzing the client’s situation and crafting recommendations, but in using our financial planning software to support the actual creation of the written financial plan.

Yet as I’ve written previously, it’s already a little unclear why it is we as planners spend so much time building financial plans when we all acknowledge that virtually no one actually reads them.

It appears to me that we have created a difficult circular problem for ourselves as financial planners. It takes time to do the analysis for a financial plan, in no small part because of the complexity of our software. So we gather our client data, and disappear for a week or two to work through the software and craft a plan. But we can’t just come back with a brief list of client recommendations on a single piece of paper, because clients won’t trust it and act on it after we’ve been off with our black-box software for so long.

So we need to justify our recommendations by providing a written plan to support the software output. But the thoroughness of the written plan – even if only to serve as a trust-building exercise – in turn requires so much time, it drags the process out even further, and the plan takes still longer. And heaven forbid the client has a question we failed to cover in the initial version of the plan… then we tell them to come back in another two weeks while we run the updated information through the software again!

Is there a way to get off this productivity-destroying roller coaster? I believe there is. The solution is to give clients a more interactive planning experience, where much of the planning “work” is done live, on the spot, with a screen showing a plan that the client can manipulate, with the planner sitting nearby acting as navigator and guide for the process.

Anything the client wants in written form is simply printed at the end of the meeting itself. If the client needs any educational materials for a specific issue, those can be delivered too, at the time. But the rest of the written plan disappears as unnecessary.

Because simply put, the client doesn’t need a giant written financial plan when the client was a part of the plan construction process itself, and can kick the tires and take the plan for a test drive and make a final decision on the spot. In other words, with a more interactive planning experience, the client gets buy-in to the plan and an outcome that can be trusted, because the client has become part of the building process in the first place.

In this context, financial planning software that supports the interactive client experience returns to its rightful place as an enhancer of productivity, not a detractor.

There’s just one real problem. We don’t really have financial planning software that is up to the task. At least, not yet. But it may not be far off, with an array of new financial planning software offerings coming to the industry lately. Can you imagine the experience for the client, not to mention the efficiency of your practice, if the bulk of the planning really could be done in a 2-hour meeting with software that effectively supports the process… cutting out not just a dozen hours of written plan construction, but a 2+ week delay as well?

So what do you think? If there was a financial planning software package that was so easy to use, it could analyze a client’s situation on the spot, would you use it? Would your clients engage (more) in the process? Could it make your practice more efficient? Have we unwittingly held our own financial planning process hostage to the limitations of our software, instead of using the software to enhance our financial planning productivity?

Michael Kitces, MSFS, MTAX, CFP, CLU, ChFC, is the director of research for Pinnacle Advisory Group, a private wealth management firm located in the United States that oversees approximately $1 billion of client assets. He is the publisher of the e-newsletter The Kitces Report and the blog Nerd’s Eye View through his website www.Kitces.com. Kitces is also one of the 2010 recipients of the US Financial Planning Association’s “Heart of Financial Planning” awards for his dedication to advancing the financial planning profession. Follow Kitces on Twitter at @MichaelKitces.


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Authored by,

Michael Kitces

Director of Research
Pinnacle Advisory Group
Washington D C (USA)

26 Thoughts to “Does Financial Planning Software Improve or Destroy Productivity?”

  1. I believe in the advisor preparing the financial plan and definitely not in front of the client.There are so many factors like rates, cash flows, risk perception, which all need to be quantified and then presented to the client.
    Remember the financial plan although lengthy today, is the basis of goal reviews one year down the line and it is the “lengthy” plan that will bring back numbers and focus of why we are executing the investments in a certain way to reach specified goals. For this, one needs to refer to the complete financial plan and not just a one page Action Plan, which does not show the planner how he got there in the first place.

    Financial Planning is just as much an art, as it is a science and would need the planners exclusive design each time, rather than a prototype, churned from a planning software.

    • Dilshad… I think around 80% of the plan making can be prototyped using a financial planning software or excel models. And that around 20% will have to be customized each time as per client situation

  2. phph9701 says:

    “Financial Planning is just as much an art, as it is a science and would need the planners exclusive design each time, rather than a prototype, churned from a planning software.”

    Completely agree. In fact the science (ie. the math associated with calculations) can be learnt by anybody who is eager to do so. There are many situations beyond the math. An experienced planner is essential for this.

  3. I’m not sure where the assumption comes from that doing financial planning live with a client represents “a prototype, churned from a planning software.”

    To the contrary, the trend we see here in the US is that the firms that use the financial planning software behind the scenes tends to produce large, voluminous plans that their clients don’t read or act upon. The planners who actually do the planning work live, with clients, making adjustments on the spot, end out with radically more customized plans, that more directly address their personal needs, concerns, and goals, and which are dramatically more likely to be implemented because the client has buy-in to the process.

    – Michael

  4. Yogin Sabnis says:

    I believe Mr. Kitces has hit the nail on the head when he says that FP software is just a tool, an important tool nevertheless.
    I am not sure that the no. of hours required for plan preparation mentioned in the study are total nos. including the client meeting time or just the amt. of time required to prepare the plan. If it is the latter, it is preposterous.Again more time is not necessarily only required when client financial situations are complex, it could also be when client personal situations are complex and sometimes as planners it takes a lot of time and possibly more meetings to understand the finer nuances of these relationships and their financial implications. In Indian context this takes time because clients are not always forthcoming with their personal situations in first meetings.
    One thing is for sure that FP softwares would always have limitations and a planner who totally relies on the software to churn out a quality financial plan does so at his own peril.

  5. Yogin,
    The study was intended to measure plan construction time outside of the actual meeting time with clients. Yes, we really are this crazy here in the US in many firms.

    The fact that it is difficult to get clients to be forthcoming in first meetings is not unique to India, as I’ve written in the past on my blog (http://www.kitces.com/blog/archives/173-Are-We-Being-Too-Forward-With-Our-Clients.html), although I suspect the cultural challenges on your side of the ocean are worse than here in the US.

    But the unwillingness of clients to open up in the meeting actually makes the “prepare the plan behind the scenes” approach worse, and the live “use the software with the client on the spot” approach even better. Given how clients withhold information, the first iteration of the plan is almost guaranteed to be “wrong” and omitting some facts and information, potentially important. If the planning is done live with the client, those adjustments can be made on the spot – and in fact, clients often open up about details once they can see that providing more information is immediately rewarded.

    Just food for thought!

    – Michael

  6. Hello Michael

    I am big fan of your blog and thanks for your contribution to Network FP. I agree with your thought process and appreciate the way you are challenging Financial Planners to bring more efficiency in their practices and traditional way of thinking. I think this is of paramount importance to reach out to masses.

    So far planners across the world have been mostly catering to affluent and mass affluent class. If this kind of planning and delivery mechanism continues our profession cannot cater to masses.

    As per my experience of making financial plans… More than 80% of the client cases are really not very complex that we take several days to complete a plan. So there is no merit in justifying several weeks taken to deliver a plan.

    However each client is unique to some extent and that is where customization is required which a financial planning software including Excel-based spreadsheets can not handle on its own. Manual intervention and planner’s scenario analysis becomes important. Plus we have to consider the emotional aspects of family in question.

    According to me 4-8 hours is sufficient to make a comprehensive plan (excluding data gathering and plan presentation). I think without this… we may miss out on critical scenario analysis and giving recommendations a second thought (both are important)

    Having said that data gathering in itself is huge activity. In fact I have always maintained that 50% of the plan is complete once have the complete data organized. And in this most of the time goes into digging out details of past investments and insurance policies. And too some extent employment benefits and tracking household expenses. But this work can be delegated to a para-planner.

    I envision a day when most of planners can finish working on a plan in a single working day and can deliver the plan in not more than 5 working days including data gathering. I think this is very much possible with experience, technology and streamlined processes.

    One very implement element would be to train and orient our prospects to co-operate with us the way we want. This is a skill which can be developed by planners overtime. I don’t think its fair to blame the client for not opening up. They are just being normal human beings. We have to take up that responsibility.

    • Sadique,
      Indeed, I think the data gathering process is a unique difficulty unto itself – in point of fact, I’ve challenged my fellow professionals in the US to step up and make the process less painful for clients as well in a blog post last year (http://www.kitces.com/blog/archives/203-Making-The-Data-Gathering-Meeting-Into-A-Client-Centric-Positive-Experience.html).

      In reality, most steps of our process could use improvement I suppose. 🙂

      But circling back to the software conversation, a few people have appropriately noted that the customization of the software itself is complex and difficult enough that it’s not necessarily conducive to doing live with a client.

      Which to me raises the real question: How would you change the interface, input, and output of your financial planning software if you intended, up front, to do it interactively with your client? I think viewed from that perspective it becomes clear that the program isn’t “it can’t be done” but “it can’t be done with the software we have now” – which was the point of my blog post, that we’re doing things inefficiently because our software has now become a constraint, rather than a tool!

      – Michael

      • Once again, an excellent post on Data Gathering. When we interact with many financial planners in US. They say they use a combination of softwares along with even a few Excel Models.

        I think what some of the traditional planners around the world do lack is simplicity, technology orientation and streamlining of processes.

        Have you come across any softwares and/or any planners trying to make the plan sitting with a client? And they have been successful with it? But let’s talk only about comprehensive financial plans which also addresses the past investments and insurances of a client.

  7. Apurva says:

    I have so far used only excel based software, my own and the current one is through Sadique’s XLFP. I am not too sure about how flexible are the prototype online financial software. After preparing about a dozen plans in last three months, I can say, that the amount of modification that needs to be done for different clients is considerable. The excel based templates (XLFP) prepared a couple of months ago and the ones that I am using currently have undergone considerable change.
    Maximum time is spent in data collation, especially if the client is not very organised with his data. After preparing the financial plan in my office, I once again meet the client for fine-tuning. This part is done “live” with the client. Often information omitted during the previous meetings, for various reasons is shared during this phase, hence the plan turns out to be more suited to the client’s goals. The total time taken behind each plan is about 8 – 10 hours. To conclude, a prototype online financial planning software cannot be a panacea for all. Manual intervention, subjectivity and the emotional aspects of the client need to be considered too.

  8. My opinion is that the Plan is not the main problem ; we should focus our attention in the 1st and , mainly, in the 2nd step of the process because the plan is the consequence of these steps , it is the consequence of the relationship we have been able to built BEFORE collecing data …we can offer the best plan of the world but if data are not correct and true our plan is unuseful or dangerous to the needs of the client …I would focus the attention on the relationship,,,than there are a lot of tools but the tools work based on the information they receive
    So, new tools are welcome but , in my opinion, they are not the problem : many times, we, as planners/advisors, are the problem because we want to “surprise” the client with graphs and forecasts and prefer to show sophisticated “papers” instead of clear and simple solutions (I am a very small advisor and may be I have views that the industry or big professional have not )
    As usual these are personal opinions , only to share thoughts and not with the aim to teach

  9. SUJITH NAIR says:

    Hi Michael Kitces,

    I always try to set aside the time for reading your enlightening articles, Yes your articles are also read in India and I am a great fan of you. Your articles are always out of the box thinking process. Great, keep it up… and now you contributed your thoughts in the netwrok fp forum also… Thanks to you and Mr. Sadique for creating the platform.

    Mr. Partha is one of the senior planners who relentlessly connect with other professional planners. Thank you Partha for introducing Mr. Michael Kitches to us. I think, he is the connecting link between West and Eastern part. Financial planning profession is nascent stages in India and your contributions would be a great moral booster to us.

    Take care,
    – Sujith Nair

  10. Manish Jain on Linkedin Groups;

    If FP software were to provide all answers, then one does not need to be a CFP to create a plan. A data-entry operator’s qualification is enough. We try and explain to people that every plan is unique and tailor-made and then go back and feed all data into a software and in less than 5 minutes, the plan is ‘served’. What crap!

    Software should be used to collate data and provide linkages and not for creating a plan. There are so many subjective issues than software cannot deliver. Since each person’s problems are unique, how far can one go to design software which can cater to an individual person’s needs and requirements.

    I think it is a dis-service to the profession if people are creating plans using software.

  11. Dear Sadique/Michael

    A very interesting premise that any financial planner has to look in to! Also, facts about US are quite revealing.

    Out here, I have no much experience with any financial planning software. Couple of them that we evaluated did not meet our requirements fully. One which was done couple of years before was quite top heavy and it may have led us to the same experience as in US had we started using it. Also, it was not fully indigenised when it was showcased. So we have partially automated our process using other office-automation tools such as Excel and PDF creator. Huge power of Excel can be tapped wisely if planned well.

    Software as a productivity tool is what everyone looks for and it may become ‘unproductive’ due to life-cycle changes that occur over period of time. Also, in my opinion, sometimes technologists fail to see the human factor because they are more concerned with engineering features, speed and analytical power and so on. A planner should have clarity as to what are the activities that need to be replaced by a machine/software tool. It is quite evident that a planner’s time is better spent with the client than in front of her laptop.

    My view is that financial planning software as an office automation tool should be viewed as such. There is no denial of the fact that software tools are more powerful when it comes to analysis, number crunching etc. and also they can do things that are humanly impossible or very costly to implement. A simple example would be graphical rendition of data. The plausible scenario explained by Michael may lead to comments such as ‘Planner is in a hurry and not taking enough time to prepare the plan” even if it is done in all earnestness. What about such situations when there are no readymade answers for a particular problem and more research needs to be performed? Availability of interactive software, as and when it happens, would have the greatest advantage of running the process through various ‘what-ifs’ before finalising. Any client would love such an interaction whether she is technology savvy or not. It will also bind her to the financial planning process/plan well. Technology enabled interaction is always superior to the process of reading the plan at home either as a paper document or as a soft-document.

    On a lighter note, we as a financial planners would be happy to give as big a plan as possible so that there are no scope for future litigations!

    Having said that, using appropriate technology for office automation is a challenging task even for a hard-core technologist and what chance a financial planner who need not necessarily be having technology background would stand? ‘Easy-to-Use’ technology seems to be a utopian idea because making things easier is in my opinion the most difficult challenge. Ask your client about the financial plan you have created and then you will know. No financial planner would like to be called a Neo-Luddite and use of technology would increase in India as well. Once technology is enabled, you are enslaved to it (remember land-line?) and you really can’t do without it, productivity or less productivity.


  12. No corner of your heart can be completely waste, because that is a corner of your heart. No thought of mind can be completely irrational, because that is a thought coming out of your mind. As per me, each and every goal is somewhere a corner of your heart and somehow a thought of your mind.

    As a planner, I agree that there are n numbers of planning activities (that mostly deal with crunching numbers such as analyzing client’s existing situations, risk return optimization, cash flows and etc.) which can be done with the help of tools and even with low involvement of client.

    But now the question is “how it can help, if client is taking the lead or active participating in the “GOAL PRIORITIZATION” and “RESOURCE OPTIMIZATION” DECISION MAKING PROCESS?

    Few days ago I got a call from a financial planning software company and eventually one demo plan (created by that particular software). After running all the analysis that software guy gave me a plan and told that only 4 goals (out of 7) can be met as my cash flows and future surplus is not supporting.

    I was simply amazed: “Only 4, what about other 3?”. One top of that “a software tool and a planner was deciding which 4”.

    How can a planner or tool can tell me that household expenses are more important than charities? What if I enjoy eating 1 bread and donating 1 bread rather than eating 2?. Goals can not be seen in isolation. Pleasure of goal fulfillment (of 4 goals) must be adjusted by the pain of 3 unmet goals and only after that one can come with the optimum solution.

    As per me, an interactive planning can be done even without doing much of the planning work live, if logical and active decision making participation of the client is factored….!!!

  13. Anurag Verma on Linkedin Groups says;

    Financial Planning is a continuous,long-term exercise not just a matter of figures and mathematical jugglery alone. it involves a lot many number of complex aspects like human aspects, customer needs, etc. which can be tackled by the technical and professional skills of a financial planner alone. These things if left for a financial planning software would distort plans and things would go totally awry.

  14. dipta says:

    My view as a client: I suppose, planners need to do a quick poll of what their clients think about the process driven plans. As a client, I would want to be a part of the ‘interactive live’ planning, going through several ‘what if’ situations.

    However, as a client, expecting to get serious advice and follow it, I would not be in a hurry to get the final plan. I am sure, clients would appreciate being given some time to think over what has been discussed during the interactive session. They would want to discuss the possibilities (with others in the family) and come back to clear thier doubts before being handed over a final plan.

    This will ensure, the final plan will be appreciated and followed by the client.



  15. Interesting discussion so far…

    Well I believe that Efficient Financial Planning Practice requires a perfect blend of Software Support (to cover the Science of Financial Planning) as well as Planner’s Expertise (to do justice to the ART of Financial Planning). The keywords here are ‘BLEND’ and ‘PERFECT’.

    There is no doubt that software support help us in increasing our productivity and hence the rationale for incorporating technology into our practice (BLEND). But, we should also be aware when to rely on software support and when on our expertise which calls for the perfection in balancing technology with planner’s personal touch (PERFECT).

    I agree with Michael on the idea of Interactive Planning Experience with Clients. It will help in solving the bigger issue of Client Involvement faced by many planners, both pre and post planning. But the idea seems highly futuristic, definitely in Indian context.

    Also agree with Sadique on the ‘Pareto’s Principle of Financial Planning’ that 80% of plans are not very complex and as such don’t need weeks to deliver. And looking forward to achieve the One-Day One-Plan milestone as proposed by you in few months from now.

    On the software options available in India, there is a long, very long way to go. Most of the available software options may be good for a person who wants the latest buzzword title of ‘financial planner’ by getting access to a simple Input-Output program. But they lack, rather fail miseralbly, on the features and flexibility required by REAL FINANCIAL PLANNERS.

  16. Ashwini Bidwalkar says:

    Hello everyone,

    I believe the financial planning exercise, as all the plans go, is based on various variables and assumptions. The variables, to name a few are Income, expenditure and financial goal amount as well. The assumptions are Rate of inflation, rate of return on investments and rate of increase in income etc.
    Our duty as financial planners is to make the client understand the dynamics of these variables and assumptions on his goals. Incidently, the goals amounts are likely to undergo change when we speak of decades to achieve a goal like childrens’education (when the children are toddlers at the planning stage).
    My takeaway from Mr Michael’s article is not to fall prey to the number crunching game by relying on the softwares, but to take help of simple calculators to explain the client the road map prepared by us to reach his goals. When the external environment is so dynamic, he has to understand the importance of asset allocation to meet hia short term and long term goals.
    I have not used the readymade softwares for financial planning as I could not customise them to cater to different clients, each with a unique set of environment.
    However, recently I have taken a few clients through the process of charting out the financial plan. The session was interactive and the clients could see the effect of simple what if scenarios, which helped them in prioritising their goals.
    Last but not the least, the client needs to understand the plan is not sacrosanct and the strategies to meet the goals will have to undergo change when the variables and assumptions in the plan change drastically.
    When the client knows the premises on which the roadmap is chalked out, he will understand the importance of REVIEW!


    Ashwini Bidwalkar

  17. Pramod Kumar of ICRA Online on Linkedin says;

    This depends on the state of mind..As per my view FP softwares is required for the growth of business & actual wealth management of the investors…

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