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A Guide to Financial Planning Software for RIA Firms

Posted by RIA in a Box

Jan 20, 2015 9:23:00 AM

As a follow up to our recently released Guide to RIA CRM Software for Investment Adviser Firms and Guide to Portfolio Management and Reporting Software for RIA Firms, we wanted to provide some similar guidance as it relates to financial planning software systems for registered investment adviser (RIA) firms. Using data from our 2014 RIA Systems and Operations Survey, we have provided some details to consider when selecting a financial planning software tool for your advisory firm.

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According to our recent survey, around 61% of emerging ($50 million or less in assets under management) RIA firms that provide financial planning services utilize financial planning software compared to approximately 78% of established ($50 million or more in assets under management) firms. 

The Key Components of RIA Financial Planning Software Systems

To better understand the differences between systems, here are the key features to consider:

  1. Goal-based vs. cash-flow based: Traditionally, financial planning software has been placed in either the goal-based or cash-flow based bucket. Historically, cash-flow based software tools tended to be a bit more "detail oriented" compared to more "simple" goal-based solutions. As software has evolved over the last few years, the line between these two approaches has blurred.
  2. Reports: A hallmark of any such solution, most of the top systems offer both simple and robust reports that can be generated and easily shared with clients. Often, these reports are accessible via a PDF file or an online client portal.
  3. Automated Account Aggregation: Years back built-in account aggregation was a rare feature, but in the past 12 months, top vendors have raced to add account aggregation features. Most of the top systems now have the ability to automatically pull account data feeds from traditional custodians as well as "held-away" assets. This key feature eliminates the need for the advisor or client to manually input account values. It also should not be dismissed how often investment advisers do not realize the amount of "held-away" assets a client may possess before having this capability.
  4. Integrations: Similar to automated account aggregation, over the past few years, the top providers have invested heavily into building an array of software integrations with most RIA custodians as well as CRM and portfolio management and reporting software vendors. Some of these integrations reduce the need to re-enter client data and also allow the advisor to view the results of the client's financial plan within an integrated 3rd party system.
  5. Client portal: Many advisors like the ability to share financial plans 24/7 with clients while also allowing clients to update goals or assumptions to see what the new results may yield. This feature can also allow a small advisory firm to offer a very professional online client experience.

Which types of RIA firms need financial planning software?

Unlike some other types of RIA technology, we often see the adoption of financial planning software less directly correlated to the assets under management (AUM) of the firm. Rather, we tend to see this software primarily embraced by firms that either directly charge for client financial plans or approach investment management with a more holistic wealth planning mindset. Given that the majority of the solutions can suit the needs of a mix of client types, we see firms serving the mass affluent along with those catering to the ultra-high net worth segment both making this purchase. 

We also find that most firms that employ Certified Financial Planner (CFP) holders will also make this investment given that the firm will likely have the human expertise to properly utilize these powerful systems. However, there are still a significant minority of planning-focused advisory firms that use Microsoft Excel. When asked why, most of these firms respond that they are either 1) very cost conscious or 2) value the simplicity that Excel offers. As it relates to simplicity, an occasional critique of many financial planning software solutions is that they can be a bit over complex and incapable of allowing for simple "back of the envelope" calculations that some investment advisers like to employ.

The Systems to Choose From

The two RIA industry leaders are:

  1. MoneyGuideProStarting at $1,295/year for the solo advisor, MoneyGuidePro (MGP) is generally viewed as the most popular financial planning software tool. Originally conceived as a goal-based platform, the cloud-based system has evolved considerably over the years and gets strong reviews from advisors. Recently, MGP rolled out a new automated account aggregation feature powered by Yodlee to address one of its feature gaps. Furthermore, advisors' clients also have access to a robust online portal within which clients can test different scenario assumptions.
  2. eMoneyWith the basic version available at around $2,600/year, eMoney has also received strong industry reviews. Unlike MGP, it was originally built as a cash-flow based system but it too has evolved to encompass both forms of planning. Cloud-based eMoney was also very early to the automated account aggregation game and many long-time eMoney users have heavily utilized that feature. It also offers a slick online portal for clients to track spending and cash flow.

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Others to consider include:

  1. Platforms
    1. Morningstar: The Morningstar Advisor Workstation also includes financial planning tools alongside its portfolio management and research platform.
    2. Interactive Advisory Software: This advisor platform features cash-flow and goal-based scenario capabilities.
  2. Standalone solutions
    1. Moneytree: Focused on smaller advisory firms, offers both desktop and cloud-based solutions starting at $495 annually.
    2. inStream: Starting at $1,260/year for a single user, this is a goal-based online system.
    3. Finance Logix: Offers a robust platform featuring a number of 3rd party integrations.
    4. NaviPlanCaters to more advanced users focused on the ultra-high net worth client segment.

Investment News also conducts an annual RIA technology survey. In 2013, according to Investment News, among firms utilizing financial planning systems, the top 5 most popular providers were:

  1. MoneyGuidePro (45.5%)
  2. eMoney (11.9%)
  3. Morningstar Advisor Workstation (5.4%)
  4. NaviPro Planning Suite by Zywave (4.6%)
  5. Advisor created (custom) (3.3%)

As RIA compliance consultants, we are happy to further discuss how to utilize your firm's financial planning system as a component of your RIA firm's compliance management solution. In our observations, investment advisers that successfully implement such software tend to be much more organized when it comes to gathering the necessary client information in order to provide accurate investment recommendations.

Lexington Compliance and RIA in a Box LLC are not law firms, investment advisory firms, or CPA firms. Lexington Compliance and RIA in a Box LLC do not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Compliance, RIA Operations, RIA Technology

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