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The Software You Need Now
Trends sweeping the planning industry are driving new technology solutions in the
By Joel P. Bruckenstein
December 1, 2005- Next year is shaping up as a pivotal one in the realm of technology for
advisers. In 2006, a number of trends will continue to evolve which could have a widespread
impact on the way advisers practice for years to come. The new products coming to market are
based on three emerging themes that are transforming the financial planning universe: the rise
of distribution planning for retirees, the need for a one-stop shop software system and the
proliferation of portfolio management alternatives.
BABY-BOOM BOOM: The Year of the Distribution Planner
The baby boomer business is where the money is. "In 2006, $10.9 trillion in retirement assets
will be held by individuals over 60 years of age," says David McClellan, vice president of
Advisor Business Development at Morningstar. Most experts estimate that more than $20
trillion will be held by retiring baby boomers within a decade or so.
The top concern of these retiring boomers is managing their assets to insure a steady stream of
income they won't outlive. So it's no surprise that developers of financial planning software are
rushing to supply new tools to help advisers serve these clients.
NaviPlan, the leading distributor of financial planning software in North America with more than
70,000 licensees, recently released Version 10.0 of the NaviPlan Suite of products (NaviPlan
Standard and NaviPlan Extended), which contains a number of retirement income-related
enhancements. These include the ability to designate expenses as fixed or discretionary, a new
scenario planner with predefined retire-early and retire-late scenarios, Social Security planning
enhancements for retired clients and support for immediate annuities.
Version 10.1, due in Feb. 2006, will significantly expand the scenario planner by adding
scenarios for annuitizing to need at retirement or to a need at a given time after retirement,
alternative asset-withdrawal orders at retirement, a comparison of alternative Social Security
start-date strategies, a Monte Carlo analysis of scenarios to determine success probabilities and
enhanced retirement-distribution reporting capabilities.
Financial Profiles, with over 50,000 users in North America, will introduce retirement-income
planning capabilities in the summer of 2006. David Oates, director of marketing, says these will
include the ability to model phased retirement, distinguish between fixed and discretionary
expenses, detail coverage of healthcare costs, allocate assets for income, take control over
liquidation orders and analyze a plan's probability of success.
Morningstar plans to release a standalone Retirement Income Planning Tool in the second
quarter of 2006. It will target the mass affluent, defined as clients with $250,000 to $2 million
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in financial assets. The program's function is to rapidly identify key variables that can affect a
client's financial situation and present alternative scenarios for consideration. Clients will be
able to express goals, such as the desire to generate a specific income (in real terms), limit
volatility or leave a bequest. Advisers can then illustrate the impact of altering the withdrawal
rate, the asset allocation or the product selection. In addition, wizards will walk advisers
through the process of modeling the impact of taking early Social Security, accessing home
equity, working part-time and other scenarios. The Retirement Income Planning Tool will offer
probability analysis to gauge the likelihood of a scenario's success and produce a short report
tied to each scenario. Pricing has not yet been finalized.
ADVISORY IN A BOX: The One-Stop-Shop Providers
A number of relatively new third-party providers are offering one-stop shopping for advisers
who want to outsource their entire support process, from back-office operations to investment
selection and monitoring. These firms could really take off in 2006 due to two trends that are
stoking the sector.
First, the exodus of reps from wirehouses and broker-dealers will continue. As more of these
advisers go independent, they will seek to replace the infrastructure provided by their broker-
dealers with a broad suite of tools that includes everything necessary to run an advisory
practice. The quickest and least painful way to do that is to buy software from one provider.
Second, awareness of the inefficiencies in independent RIA firms-which has been widely
publicized in industry studies and reports-is likely to prompt some advisers to try to improve
their practices by outsourcing some or all of their needs to third-party providers. From both a
cost and operational standpoint, a single provider will be more convenient than multiple
providers. Two of the most promising products in this niche are coming from Engagement
Systems LLC and BridgePortfolio.
When it's fully built out, Skill Weighted Portfolio from Engagement Systems will offer a total
"investment advisory firm in a box." Currently, Skill Weighted Portfolio offers a sales tool, a
client education tool, portfolio construction and management combined with a workflow tool
that can effortlessly guide the adviser through each step of the process. But Skill Weighted
Portfolio's stand-out feature is that it can help advisers differentiate their practices with a
methodology that is widely accepted in the institutional world, but still underutilized by those
counseling individuals: the core/satellite portfolio.
The core/satellite methodology is based on the premise that some sectors of the market, such
as large-cap equities, are efficient, and therefore investments there should be indexed so that
investors can at least capitalize on lower costs and greater tax efficiency. The satellite portion
of the portfolio is generally invested opportunistically to capture alpha. Skill Weighted Portfolio
offers its own twist on the core/satellite strategy by dividing the non-core portion of the
portfolio into two parts; a somewhat more risky active allocation, for asset classes such as
small-cap stocks, real estate and high-yield bonds, and an alpha allocation for even riskier
vehicles such as sector funds, emerging markets, private equity and hedge funds. The Skill
Weighted allocations and models were developed in conjunction with Standard & Poor's
Investment Advisory Services LLC.
The existing Skill Weighted platform is designed to educate prospects and close them fast. It
includes a script, which can be downloaded from the site, explains the rationale for a low-cost,
indexed core portfolio and introduces the Skill Weighted strategy. A PowerPoint presentation
demonstrates how a traditional portfolio can be reconstructed as a Skill Weighted portfolio and
what the potential advantages might be. The adviser then offers the prospect a customized
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The software generates a report in PDF format that advisers can present to clients, generally
showing that the Skill Weighted approach is preferable to the prospect's current approach due
to lower anticipated management fees, transaction costs and taxes. If the prospect agrees to
become a client, the adviser will arrange another meeting to profile and educate him or her.
Specific recommendations are presented based on the client's responses to the profiler. The
recommendation report includes a restatement of the client's answers to the profiler, an
explanation of the recommended allocation to core, active and alpha allocations and a
suggested diversification for each tier. The adviser then implements the investment plan with
help from an appendix that illustrates the historical performance of the various allocations. The
basic program costs $3,000 per user per year, with volume discounts available.
Enhancements: Skill Weighted Portfolio is available now, but the company is adding more
optional features in 2006 that could make it even more attractive to asset gatherers and others
looking to outsource the whole investment management process, according to Lou Day,
president of Engagement Systems.
One enhancement is Skill Weighted Research, which offers institutional-quality, forward-looking
research from consulting firm RogersCasey, with coverage of separately managed accounts
(SMAs) and mutual funds. Advisers receive custodial-specific buy/sell recommendations for the
core and satellite portions of the portfolio. Skill Weighted Research is available, but Day says it
is still being tweaked. During the introductory period, which runs through 2005, the charge is
$5,000 per year-a 50% discount, with volume discounts available.
Also scheduled for release by the end of the first quarter is Skill Weighted Lead Generator,
which is designed for CPA firms expanding into the investment advisory field as well as advisers
partnering with CPA firms. Using a proprietary system, Lead Generator will search through a
CPA firm's database and identify tax clients who are prospects for investment advisory services.
The system will then suggest and order appropriate marketing pieces for the selected
prospects. The user just places the order and mails out the materials when they arrive. Results
of the campaign are tracked from within the system. Lead Generator will cost $5,000 plus
printing and mailing costs.
Engagement Systems will release a performance-reporting component later on in 2006. In
addition to composite reports, there will be a separate report for each of the three allocations
within the portfolio (core, active, alpha) so that expectations for each allocation can be aligned
with performance. There is no pricing available for the performance module yet.
Unlike traditional turnkey investment services, which tend to employ an asset-based pricing
structure, Skill Weighted charges a fixed cost for its services. This fixed fee should appeal
particularly to larger firms or those that are growing rapidly.
BridgePortfolio was originally designed to deliver institutional separate account managers to
advisers' clients cost-effectively and efficiently, but it has grown into something that is much
While many technology firms take an "If we build it, they will come" attitude, BridgePortfolio
based its service on customer feedback. "Clients came to us asking for help with websites and
back-office technologies, so we accommodated them," says BridgePortfolio Chief Marketing
Officer David Edstrom, who formerly ran his own investment advisory firm.
While advisers can mix and match services, the easiest way to explain the BridgePortfolio
system is in terms of three tiers of service: back-office outsourcing, portfolio accounting and
reporting and separate account managers. BridgePortfolio works with the adviser's existing
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Three Tiers: The back-office tier includes building and hosting an adviser's website or creating
a private-label BridgePortfolio site within the adviser's existing website that contains a database
of client information. This can populate all client forms including custodial account applications,
transfer forms and investment advisory agreements. The database will also populate the online
suitability analysis and the investment proposal generator. If a firm doesn't have suitability and
proposal documents, BridgePortfolio will help the adviser create them. At all service tiers, a
granular permissioning system is included so that advisers can grant the appropriate level of
access to assistants, advisers, supervisors and portfolio managers.
Virtual account administration rounds out the back-office service. If forms require a client
signature, the firm will print them, mail them to the client, receive the signed form back from
the client and submit it to the custodian. The workflow surrounding all account applications,
transfers and required minimum distribution requests can be monitored by Bridge from start to
finish--a level of automated service that most companies just don't offer.
Portfolio accounting and reporting is the second tier of service. It includes daily custodial
downloads and reconciliation, conversion and entry of historical data into the BridgePortfolio
system, cost-basis and tax reporting and online report viewing. Standard reports are generated
online in HTML format, but they can be printed to PDF files as needed. Custom reporting and ad
hoc reports are available, too. This tier of service includes automated account billing and fee
On the custodial side, the system generates a fee spreadsheet for the adviser's review that
Bridge then uploads to the custodian. On the client side, Bridge generates invoices on the
website where clients can find them or advisers can download and mail them. This tier also
includes portfolio modeling and trading. Advisers can establish models, assign them to
portfolios and generate block trades across accounts based on the models.
The third level is a SMA program that includes manager selection and due diligence. When an
adviser chooses a manager on the system, he or she supplies a portfolio template for each
strategy, and BridgePortfolio generates the trade orders at the adviser's custodian of choice. If
an adviser wants an outside manager, Bridge will try to negotiate a favorable agreement for
him or her.
The cost for all this is surprisingly reasonable. For the first $10 million in assets, the fee is 15
basis points for the first tier, 25 bp for the first two tiers and 30 bp (plus managers' fees) for all
three. Breakpoints reduce the charge at higher asset levels. For example, a firm at tier three
with $100 million on the platform would pay a cumulative 23 bp. There is a $3,000 annual
minimum plus an extra one-time fee for data conversion.
INTO THE ETHER: Web-based Portfolio Management
After a period of consolidation that left many advisers bemoaning the lack of portfolio-
management software choices, alternatives are suddenly proliferating. While larger firms tend
to use either Advent or Portfolio Center, small and mid-sized firms may not need all that power
but have had few alternatives. But in 2006, three new programs created by familiar industry
names will offer this group web-based software solutions. That not only gives advisers more
flexibility, but also more security. The systems can be accessed from anywhere, using any
computer and are responsible for backing up data. A small firm would no longer have to worry
about damage to a lone server.
Intuit, the developer of Quicken, QuickBooks, TurboTax and professional tax programs is due to
release PortfolioMinder early next year. This application, which is currently in beta testing,
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sports a clean, intuitive user interface. PortfolioMinder is expected to offer all of the essential
features advisers look for, including performance reporting, tax-lot accounting, grouping
accounts by household, billing and the ability to create model portfolios and assign them to
One excellent feature is Client Portal. Intuit lets advisers establish a password-protected portal
for each client, where advisers can upload reports, invoices and other documents. The client
can then log on to the website and securely retrieve the data as well as upload information to
the adviser. Currently setting up such a function tends to be cost-prohibitive, but in
PortfolioMinder, this feature is integrated--and free.
A number of question marks still surround the program. An early prototype had some portfolio
modeling limitations. Portfolio tracking and reporting was more than adequate for equities,
mutual funds and ETFs, but PortfolioMinder isn't yet ready to handle more complex assets. And
the download and reconciliation process, which is key to advisers, was clumsy.
However, the pricing is very attractive. At $150 per month, with a one-time setup fee of $995
($495 through 12/31/2005) this program is probably the least expensive functional portfolio
management system available. While it doesn't match the functionality of high-end professional
packages, it should be more than adequate for smaller firms managing equities, mutual funds
and ETFs. Given Intuit's heft and successful track record, this product is likely to succeed.
Morningstar's portfolio management solution, due out in the first quarter, will, like Intuit
PortfolioMinder, target the small to mid-size market. While still under development, it is
expected to handle all of the assets (stocks, mutual funds, ETFs, closed-end funds, SMAs)
Morningstar covers. It should be able to handle basic fixed-income vehicles, although complex
income vehicles with uneven cash flows may be beyond its scope.
It will be offered as part of the Workstation Office Edition ($5,000) at no extra charge to
subscribers. It may also appeal to advisers who subscribe to multiple Principia modules.
Workstation Office has been overpriced, but with data, portfolio management, portfolio
analytics, light planning tools and integrated email, it's a good value. It's not clear whether
Morningstar plans to offer a standalone portfolio management application.
Morningstar's entry will sport a few unique advantages. One is the company's superior data.
Advisers are all too familiar with the occasional problematic pricing file from custodians.
Advisers can use Morningstar's proprietary pricing data instead, which could greatly reduce
errors. The other advantage Morningstar offers is integration. MoneyGuidePro, a popular
planning package, has collaborated with Morningstar to share data.
On the downside, Morningstar shares with Intuit a somewhat cumbersome downloading and
uploading process. In the beta version, advisers must download files from a custodian, save
them to a local drive and then upload them to Morningstar. Hopefully, this will be more fully
Major Technology Resources, the developers of the new AssetBook system, may not have the
brand recognition of Intuit and Morningstar, but many advisers are familiar with Rob Majors
through Techfi, where he was chief of marketing and a 15% shareholder before Advent
purchased the firm.
Major's new offering is AssetBook, an online portfolio management system, plus a downloading
and reconciliation program service for a bundled price. Advisers actually pay Major's firm for
that service and they get to use AssetBook "free" as part of the deal. Basically, fees start at a
reasonable $24 per account per year for the software, downloading and reconciliation.