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How To Select and Efficiently Use Software for Financial Advisors

Financial advisors provide input and can help you out with tasks such as retirement planning, estate planning, wealth transfer to inheritors, education funding, net worth evaluation, cash flow evaluation and others. However, they need effective financial planning software to save time and enhance their productivity so that they don’t get bogged down with labor-intensive and time-consuming work.

To start, the system must be fast, efficient, integrated, and automated. Since you need to advise your clients about their finances and portfolio management, the software should enable an interactive experience. Plus, you need to maintain transparency to build trust and create long-term mutually beneficial client relationships.

However, selecting a suitable financial software can be a difficult task as they come in range of budgets, types, and features. The high-powered system used by large advisory firms can be too complex and expensive for solo practices and small companies. Another thing to remember is advisors use financial software in different ways, so what is a good solution for one may turn out to be unsuitable for another.

To help you, we have prepared this guide to selecting a good financial planning system keeping in mind that an important feature used by one advisor could well be insignificant to another. We hope it helps you choose the right solution for your needs or at least makes you try an alternative application that better suits your work and client requirements.

The Challenges Posed in Software Selection

It is essential to use technology to find out the long-term effect of trade-offs which is important for a client to make a sound decision. Planning software comes to the aid as it can perform number crunching to give results and consequences of particular decisions and financial trade-offs. Another main factor here is you should be able to use the app live to collaborate with your client in real time.

We have kept in mind that different advisors serve different types of consumers, focus on varied problems, and have diverse approaches to analyzing situations. Therefore, there is clearly no single ideal software that can be recommended as a one-size-fits-all solution. Rather, to select a suitable system you should consider the needs of your clients and how you plan to integrate the platform with your existing processes and technology. It is always a sensible approach to read some detailed business software reviews from actual users first and learn more about their experience and problems with each potential product.

Cash Flow Based vs Goals Based Software

“Cash flow based” and “Goals based” are two different types of software. They indicate how a solution handles a household’s cash flows.

Cash-flow-based software calculates a household’s income from different sources such as wages, portfolio funds, etc. and matches it with outflows such as spending, saving, etc. If the outflows are greater than the income the software will recognize the deficit in cash flow.

In contrast, goals-based software calculates the amount that is allotted for specific goals and tells you whether you will be able achieve the goal. If you commit a certain monthly amount to your retirement savings fund, the application will evaluate whether the savings plus growth rates will be adequate enough to reach your goal. This software does not consider the total household earnings, it simply calculates the dollars allocated for specific goals and projects the outcomes. The advisor has to sit with the client and plan whether the latter can afford to set aside a specific monthly amount for the savings goal.

You can select cash-flow-based software if your need is to calculate cash flow over the long term especially if your client has multiple significant sources of income and insists on focusing on their details. But if your aim is to concentrate on savings towards specific goals over the long term and you don’t wish to trouble yourself with the minute details of cash flow, then you may go for goals-based financial software.

Different Software Models

You should also consider how a software solution models the estimates. Does it offer a simple linear projection, for example, a flat return of 6% or 8% annually, or does it use Monte Carlo analysis to provide a bigger range of the return rates?

Other questions you need to ask are:

  • Does the system analyze and project alternative scenarios?
  • Can it offer a side-by-side comparison of the trade-offs and decisions that your client is considering?
  • Can it project a scenario for “bad returns” and help the client to adapt their spending to remain on track?
  • Is it possible to change the inputs so that the software shows the appropriate outcome for each input? (This will help the client to understand what are the reasons driving a particular outcome).

Software applications also differ in the way they handle taxes. Some solutions use only a simple assumption for tax rates and split them into rates for the working years and different ones during retirement. Others perform more detailed calculations and take into account the tax brackets, and limitations and rules for deductions. The software platforms also differ on whether or not they take into account income tax regulations for specific states.

Output Types: Printed Reports vs Interactive Tools

Previously, financial software used to provide a huge number of printout pages offering details of the various projections and results. Plus, financial advisors used to add their own commentary and analysis, action items, and summaries. In short, the software was used to input data and generate reports.

However, today’s top software solutions are more than mere tools for calculating numbers. They help financial advisors to interact with their clients too. So, after inputting the data in the software, the advisor and client can sit together and test their plan to check how it handles various conditions.

Thus it is now possible to test alternative scenarios easily. For example, a client might wish to know the results if they saved an additional $10,000 per year so that they can retire a couple of year earlier. Many software applications provide handy sliders you can use to change the savings amount and retirement age as you please to view the outcomes. Therefore, select a software solution that allows you make quick changes to your plan in front of the client and get fast results so that you both don’t end up wasting time on what-if scenarios.

Easy and Flexible Input

It is essential that the software makes it easy and flexible to input data. This will shorten the learning curve and you wouldn’t need a great amount of time to learn to use the application effectively. Select a tool that has a natural layout to enable easy data input. Typically, cash-flow-based software needs greater input work which is why goals-based solutions are more popular.

Finally, the software should be able to handle flexible assumptions without constraints. Ideally, you should be able to determine your own inputs based on client needs instead of being forced to utilize pre-set inputs stipulated by the solution’s vendor. This flexibility will help you to change input data for different scenarios so that you can offer a variety of calculation options to your clients and get their outcomes and results with ease.

Bottom Line

We hope this article has educated you on the features and factors to consider in your search for the perfect financial planning software to help serve your clients. Feel free to provide your own views on this topic and the specific elements you look for in financial planning software. If you know about a suitable software solution for financial advisors, provide us your feedback on the application.