Industry White Paper SeriesInvestment PolicyStatementsThe Technology Return on Investment (ROI)for Financial Advisors
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 2Table of ContentsExecutive Summary……………………………………….………3Areas of Return On Investment.…….……….…….….…………4• IPS Creation• IPS Client Updates• IPS Firm UpdatesConclusion………………………………………………....……….8Appendix…………………………………………………………….9• Methodology
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 3Executive SummaryThe financial services industry is undergoing rapid change due to recent financialcrises on Wall Street and the impacts of a prolonged recession. Market volatilityhas increased, creating uncertainty and angst in investors’ minds. The demandfor transparency has increased, as have the expectations for better “prudentpractices.” As a result, there has been a renewed focus for investment planningby financial advisors and the use of the time-tested approach ofInvestment Policy Statements (IPS).Considered a “best practice” in modern wealth management,documenting advisor-client agreements in an IPS provides asystematic discipline for decision-making, bringing transparency,clarity and shared understanding to the advisor-investorrelationship, helping to build an increased level of trust.Many financial advisors are using word processing softwaresolutions combined with manual processes to perform the relatedtasks of creating, updating and maintaining IPSs and the resultinginefficiencies cause higher costs and lack of controls, which resultin declining profitability.Industry experts all agree that the best solution is to adopttechnology to increase efficiency, streamline operations andenable rapid response to market changes. New advances andinnovations in technology specifically designed for financialadvisors to provide web-based investment planning tools forcreating Investment Policy Statements that allow advisors to meetthese challenges head on and provide a substantial return oninvestment (ROI) is now available.By having an online platform that is flexible, dynamic and easy touse, advisory firms can lower the costs arising from the writing ofIPSs by tens of thousands of dollars on an annual basis. Thebottom line result is that not only do advisors realize substantialcost savings, they are also empowered with a very robustinvestment planning capability that frees them up to pursue growth opportunitiesand reallocate staff resources to revenue generating and client-facing activities.Table 1.0 – Annual Savings from Web-Based Investment Planning Systemvs. Traditional Word Processing SystemsSize of Firm (# of clients) 50 100 250Word Processing Solution $22,500 $45,000 $112,500Online Solution $6,200 $12,400 $31,000Savings $16,300 $32,600 $81,500“If we tried tocreate our ownWord document,the problem wesee is that it wouldbe extremelydifficult to maintainconsistency, whatwith re-enteringand re-casting theallocations forhundreds ofclients. By usingthe templates inIPS AdvisorPro®we know that weare achieving a bigtime savings andROI.”David Strege,CFP®, CFA®, Co-Founder andSenior WealthCoach, SyversonStrege & Company
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 4Return On Investment OpportunitiesAn in-depth study into the operational costs associated with the investmentplanning process for creating, updating and maintaining Investment PolicyStatements (IPS) has revealed opportunities for cost savings and a significantROI for technology solutions. These include the operational tasks for:o IPS Creationo IPS Client Updateso IPS Firm UpdatesIPS CreationThe typical process for creating an IPS for a client involvesmultiple manual steps using word processing software, such asMicrosoft Word. These include:• Filling out client related data intake questionnaires• Organizing client data for IPS creation• Entering in client data and recommendations• Finding and inserting the appropriate Asset Allocationmodels• Selecting benchmarks• Customizing/Revising the IPS based on client requests• Proof reading the entire document to ensure accuraciesand fixing typos• Compliance review• Save / print to client filesWhen IPSs are created with word processing software, this manual process cantake several hours to complete, creating many opportunities for errors andinconsistencies across multiple advisors in the firm or from one client to the next.Other problems arising from using word processing software to create anInvestment Policy Statement include the potential to skip over asking allquestions pertinent to the IPS as well as the fact that word processing templatescan easily and are often mistakenly over-written, resulting in the original intendedwording lost forever. Other areas of concern are that there are no “checkpoints”in a word processing template to make sure that each place in the document thatneeds to be examined are addressed. As a result, some areas can beoverlooked and the final document may contain sections that are not appropriateor even places where the wrong clients’ names or information are used.“From just a timestand point, ittypically only takesabout 1 hour tocomplete a detailedand comprehensiveIPS with IPSAdvisorPro®vs. the5 or 6 hours itnormally would takeif we did it on ourown and it wouldn’tbe nearly ascomprehensive.”Eric Golberg, CFP®,Vice President ofPrivate WealthServices, Bellatore,LLC
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 5Because of these potential areas for mistakes, each word-processed IPS mustbe carefully reviewed, increasing the total amount of time for the overall process.Contrast this software / manual process with an online investment planning toolwith consistent templates and information that is auto-populated into thedocument or is just a click away, as well as being stored in a secure system, andmany of these tasks and staff time are reduced dramatically, with a much higheraccuracy rate. Incorporating compliance-approved language and disclosureinformation, pre-programmed into the system, shortens and streamlines thecompliance review process and ensures consistency across the firm.For many advisory firms, creating IPSs can only be done by the advisor sincemany of the tasks are customized to the client situation and are very difficult todelegate to lower cost employees. At a conservative rate of $75 per hour1, thecost savings for firms is substantial, ranging from $6,000 to upwards of $30,000per year, depending on the size of the firm (Table 2.0).Table 2.0 – IPS Creation CostsSize of Firm (# of clients) 50 100 250Word Processing Solution $9,700 $19,400 $48,500Online Solution $3,550 $7,100 $17,750Savings $6,150 $12,300 $30,7501Source: Industry compensation benchmarking surveys reflect advisor compensation is~$150,000 per year, divided by a 2000 hour work year equals $75 per hour.
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 6IPS Client UpdatesOnce a client’s Investment Policy Statement has been created, it should beregularly updated as part of the quarterly or annual review process. Clients’needs, situations, account values and objectives change frequently, requiringfirms to periodically update their financial and investmentplanning documents.As part of this process, there are again many manual stepsrequired for firms using word processing software. Theseinclude:• Updating client contact data• Updating account values• Updating description of client circumstances• Updating Investment objectives• Updating asset allocation• Updating investment constraints/restrictions• Proof reading the entire document to ensure accuraciesand fixing typos• Compliance review• Save / print to client filesContrast this software / manual process with an onlineinvestment planning tool with the ability to access the storedIPS from anywhere and update with information that is just aclick away or can be downloaded from other programs such asCRM and financial planning tools, and many of these tasksand staff time are reduced dramatically, with a much higheraccuracy rate.At a conservative rate of $75 per hour, the cost savings forfirms is substantial, ranging from $4,000 to upwards of$20,000 per year depending on the size of the firm (Table 3.0).Table 3.0 – IPS Client Update CostsSize of Firm (# of clients) 50 100 250Word Processing Solution $6,250 $12,500 $31,250Online Solution $2,000 $4,000 $10,000Savings $4,250 $8,500 $21,250“The standard processand the flexibletemplates in IPSAdvisorPro®allow usto create one formatand approach forgenerating consistentdocuments from eachadvisor for every clientwith the appropriatedisclosure languageand our pre-determined assetallocation models.Without that, ourcompliance andsupervisoryrequirements wouldgrow exponentially ifwe had everyoneusing their ownapproach, wordingand content.”Jim Arnold, SeniorVice President andInvestment GroupManager, MonroeBank and Trust
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 7IPS Firm UpdatesIn these current volatile markets, investment strategies, asset classes and overallasset allocation models are constantly being reviewed, changed andimplemented as part of the firm’s approach to managing client portfolios. Thesefirm-level changes then need to be manually applied to eachand every client situation since they cannot be globallybroadcast through word processing software to include thecorresponding updates to client investment and financialplanning documents. These required manual steps include:• Modifying asset classes to be included in the client’sasset allocation model• Updating the percentages of each included asset classwithin each asset allocation model• Selecting the appropriate asset allocation model for eachIPS• Updating the various descriptions for the firm’sphilosophy and approach to managing portfoliosContrast this software / manual process with an onlineinvestment planning tool with the ability to simply use a “checkbox” approach to modify asset allocation models andpercentages along with the ability to change descriptions in oneplace that are then automatically, globally carried through to allclient IPSs, and many of these tasks and staff time are reduceddramatically, with a much higher accuracy rate. This ability toquickly update client documents based on changes in theinvestment approach provides firms a great deal of flexibility torespond to the market environment, be consistent throughoutthe firm as the changes are implemented and provide a muchhigher level of service.At a conservative rate of $75 per hour, the percentage cost reduction issubstantial (90%) as well as the overall dollar costs, ranging from nearly $6,000to $30,000 per year depending on the size of the firm (Table 4.0).Table 4.0 – IPS Firm Update CostsSize of Firm (# of clients) 50 100 250Software Solution $6,550 $13,100 $32,750Online Solution $650 $1,300 $3,250Savings $5,900 $11,800 $29,500“IPS AdvisorPro®with its flexibletechnology allows usto truly customizethe IPS by importingour detailed,complex andinnovative assetclassificationmethodology into theIPS. Additionally,through its onlineplatform, we areable to provide aconsistent approachacross our 150employees and 7offices nationwide,all the whilecontrolling theprocess.”Steve Braverman,President, HarrismyCFO
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 8ConclusionWhile every advisory business is different and actual dollar and time savings willvary from firm to firm, it is clear that a web-based, secure, and flexible investmentplanning tool for creating IPSs can deliver a significant return on investment ascompared to writing and updating an equal number of Investment PolicyStatements using word processing software.Financial advisors owe it to their clients, their firms, their staffand themselves to explore how new technology solutionscan streamline their back-office, provide scalability, enhanceservice to their clients and ultimately improve profits and theability to grow.While many advisory firms have enjoyed success with theircurrent approaches, in today’s volatile markets, leadingadvisory firms are taking the initiative to adopt newtechnology to stay ahead of the curve. The opportunity forsuccess has never been greater: higher revenues, increasedefficiency, lower business risk, all you have to do is take theeasy steps necessary to make them a reality for your firm.“Because IPSAdvisorPro®providessuggested wordingand formats calledtemplates we caneasily customize theseupfront to fit ourallocations,benchmarks,disclosure informationand our investmentprocess for workingwith clients. Havingthese templates inplace dramaticallyshortens the time ittakes to develop anIPS for a client. Oncethe client data hasbeen entered by thesupport staff, I canpolish off a 20 pageIPS totally customizedto our firms investmentstrategies andpractices and specificto that client in roughly15 minutes.”~Jim Mathias, ChFC,President, FocusFinancial Group
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 9Appendix – MethodologyTime in Minutes for Various TasksAssociated with Creating,Updating and Storing IPS per clientWordProcessing/ ManualProcessOnlineInvestmentPlanningToolTime and $Savings perClient @$75/hr*IPS Creation 155 minutes 57 minutes 98 minutes$123Fill out questionnaire / organize clientdata15 15 0Find and insert Asset Allocationmodels15 4 11Select Benchmarks 15 0 15Customize IPS for specific clientrequests30 15 15Enter client recommendations andproof read entire document60 15 45Compliance review 20 5 15Run IPS and save to system 0 3 -3IPS Client Update 100 minutes 32 minutes 68 minutes$85Update client contact data 15 4 11Update account values 10 3 7Update description of clientcircumstances20 10 10Update investment objectives 10 2 8Update asset allocation 15 2 13Update investment constraints 10 3 8Compliance review 20 5 15Run IPS and save to system 0 3 -3IPS Firm Update 105 minutes 10 minutes 95 minutes$119Modify asset classes 30 5 25Update each model with new assetclass percentage30 5 25Enter appropriate model in each IPS 15 0 15Update description for how firmmanages money30 0 30Totals 360 minutes 99 minutes 261 minutes$326*Hourly cost is determined by using industry compensation benchmarking studies for advisors,which is ~$150,000 per year divided by a 2000-hour work year, which equates to $75 per hour.
IPS AdvisorPro®- Industry White PaperIPS: The Technology Return on Investment For Financial Advisors 10About IPS AdvisorPro®Created by financial advisors for financial advisors, IPS AdvisorPro®is designedto work with all types of wealth management professionals and their practices.IPS AdvisorPro®offers a flexible solution to creating and managing InvestmentPolicy Statements that are easy to use through an encrypted, secure web-basedenvironment. With over 1,000 users and 17,000 IPSs created, IPS AdvisorPro®is the industry’s leading technology solution. IPS AdvisorPro®was named in2006 by Morningstar as the “Software of the Year” and was a CPA WealthProvider “Financial Planning Awards Winner” in 2009. For more information,please visit www.IPSAdvisorPro.com.9130 South Dadeland BoulevardSuite 1625Miami, Florida 33156www.IPSAdvisorPro.com