How To Effectively Use Financial Planning Software

Investments, insurance, income taxes, estate taxes, retirement plans, budgeting, college funding … financial planners must thoroughly explore each of these issues for their clients, and then assist them with implementing their recommendations. Of course, each of these issues can be quite complex on its own, let alone when combined with all of the other facets of a client's financial picture. Fortunately, modern technology has provided financial advisors with a wide array of powerful computer programs that are able to calculate, synthesize and present comprehensive financial plans that address all areas of a client's finances. This article examines the nature and function of these programs and the types of programs that may be appropriate for a given type of client. (For a related reading, see Is A Career In Financial Planning In Your Future?)

TUTORIAL: Basic Financial Concepts

Which Program Is Best?
Although there are a few financial planning programs that are generally considered to stand out above the rest in terms of sheer computing power and financial and mathematical complexity, this type of program may not necessarily be appropriate for many types of clients. There are many factors that advisors must consider when choosing a program. Some of these include:

  • Computing power – ability to make sophisticated mathematical calculations for investments, tax and estate planning
  • Comprehensiveness – modules for every aspect of personal finance versus one or two
  • Presentation – graphics, such as bar and line charts, color coding and other visual aids
  • Cost – both the initial cost and the price of annual updates and revisions
  • Investment scenarios – consider whether the program use actual historical data vs. hypothetical returns, Monte Carlo simulations, individual security analysis

Many programs that are designed to address more complex issues often present their results in some sort of spreadsheet format, while simpler programs may use a power point or similar style of visual presentation instead.

The Client Factor
Of course, one of the main criteria that advisors choosing a program must consider is the type of clientele that the advisor works with; an advisor who works with corporate executives, small business owners or high net-worth clients will obviously need programs that can perform complex tax and investment calculations. Someone who specializes in working with senior citizens, blue collar workers or the military should probably consider a program that contains more simplified calculations or estimations and easy-to-read and understand visual presentations. Some programs can break down the same information in several different formats, such as pie or bar charts or numerically. Programs that allow clients to choose the method of presentation used may have more educational value than single-format models. (For more, see Choosing A Tax Preparer.)

Cost and Value
Financial planning programs can cost anywhere from a few hundred to a few thousand dollars to purchase, and the cost of annual updates and revisions can easily run into hundreds of dollars per year as well. Although the more expensive programs are generally more sophisticated and comprehensive, there are several programs available with modest pricing structures that can compete with top-of-the-line packages in many respects. But the value of these programs must be weighed against their cost. Clients who can see their entire financial picture in a single report may be much more able to understand and follow their planner's recommendations.

Clients who are inured to any method of emotional persuasion may be far more amenable to taking action when they see what happens to their assets in a realistic, generic illustration that computes the cost of two years of home health care with no coverage. Furthermore, many planners charge a separate fee to their clients for these plans, and this cost can make clients take the illustrations presented inside much more seriously. A client who pays $1,500 for a comprehensive plan will most likely consider any recommendations made within reason rather seriously. When coupled with the possible sales leverage provided by the plans, the fees charged by planners can allow them to recoup the cost of these programs rather quickly.

Planners who specialize in a single aspect of finance (such as retirement planning) may find that a program dealing exclusively with this subject is sufficient for their needs, but remember that the numerical projections made by this type of program may affect other areas of the client's financial picture that will not be addressed in its reports.

Updates and Revisions
Programs will need to be updated whenever any tangible event takes place in a client's life, such as a birth, death, marriage, divorce, new job, layoff or a child who has started college. These events can materially alter the rest of the client's financial picture in many cases. Some clients will need to have their financial plans revised much more often than others, and advisors should evaluate the probable frequency of these updates and charge their fees accordingly. (For a related reading, see Estate Planning: 16 Things To Do Before You Die.)

Conclusion
There are many factors to consider when choosing a financial planning program, such as complexity, computing power and detail. Most advisors need to evaluate their clientele in order to choose a program that best fits the needs of their clients and their practices. Some programs will offer a free trial period where planners can use the product for a short time to get a feel for it and get some feedback from clients. Many broker-dealers and professional financial planning organizations also offer substantial discounts on various programs. But the right type of computer program can provide clients with helpful and informative reports that clearly illustrate the wisdom of the advisor's recommendations and help them to achieve their financial goals. (For more, see Tax Tips For Financial Advisors.)

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