Goal-based financial planning, an approach that took off about 10 years ago, is being rethought, revised, and improved in a new application from Advisor Software, a behind the scenes player in software for advisors.
Let’s start with some history. What propelled the adoption of goal-based financial planning software a little over a decade ago was great thinking. Bob Curtis, the founder of MoneyGuide Pro, teamed up with Harold Evensky and Deena Katz, of Evensky & Katz Wealth Management, to rethink financial planning. The simplified methodology that emerged has made MoneyGuide Pro the favorite goal-based planning app of financial advisors.
Now, Andrew Rudd, a great thinker, has rethought goal-based planning and is launching a new app for advisors that updates the goal-based financial planning approach. (Rudd is the speaker at tomorrow’s webinar.)
I first bumped into Rudd in 1993, when I was a reporter at Worth. He was a co-founder and CEO of BARRA, Inc., and I was interested in BARRA’s returns-based style analysis software. To analyze the performance of mutual funds, I recall running BARRA’s software overnight on a speedy Intel 386 MHz processor and getting the results the next morning.
I also recall Rudd as a rocket-scientist financial software designer. Rudd had received his B.Sc. from University of Sussex in England. At the University of California, Berkeley, he earned an M.S. in Operations Research, an M.B.A. and Ph.D. in Operations research and Finance. From 1977 to 1982, he was a Professor of Finance and Operations Research at the Johnson School at Cornell University.
Rudd left BARRA in 1999 to run another software venture that he had founded in 1995, Advisor Software, and I’ve followed him all along. In 2004, Barra was acquired by Morgan Stanley Capital International and renamed MSCI Barra.
About 10 years ago, Rudd released the first incarnation of Advisor Software’s wealth management application. While never was released in a retail version that independent advisors could purchase directly, Advisor Software’s applications were purchased by banks and brokerages and accessible to advisors through those enterprises.
When Barclays Global Investors launched the iShares family of ETFs, Advisor Software provided its client acquisition tool. Vanguard, PowerShares, State Street Global Advisors also signed on to use that app, according to Neal Ringquist, Advisor Software’s CEO. Advisor Software built a rebalancing tool on top of the client acquisition system, and that’s integrated into systems used by advisors affiliated with LPL, Schwab Institutional, and TD Ameritrade Institutional.
By 2005, Advisor Software turned its attention to developing the workflow to combine investment management and financial planning. “Often advisors walk through planning and bolt on asset allocation,” says Ringquist. “But the investment process was disconnected from the financial planning process and the circumstances of the household. The goals were often outlined by advisor in a financial plan but a separate risk assessment was done for investing, so we’ve sought to combine those tasks.” Last week, Advisor Software received its fourth patent on its ASI Wealth Manager system for unifying planning and investing processes for advisors.
A version of the goal-based planning platform was going to be rolled out by CitiGroup’s Smith Barney unit, Ringquist says, in a program that was to be called MyFi, which received a favorable write up in August 2008 in The New York Times. But the Smith Barney deal was derailed by the financial crisis, Ringquist says. When Smith Barney was sold to Morgan Stanley, Advisor Software’s contract stayed with CitiGroup, but Citi’s needs had changed and the Advisor Software app no longer fit into its plans.
“Since then, we’ve been building advisor workflows with an eye toward enterprises but also distribution to independent advisors,” says Ringquist.
What’s different about this planning application? I spent an hour on the phone with Ringquist and the videos show some of the main differences, but here’s a quick list:
applies the liability funding approach used by institutional investors
enables multi-period planning to better reflect long-term investment realities
leverages a household balance construct for client profiling
applies priority classes to goals for planning flexibility
determines the household capacity to bear risk based on the balance sheet
makes dynamic asset allocations and locates assets in accounts based on risk and taxes
maps model security portfolios to account level asset allocation
Two clients are in beta on the enterprise version of Advisor Software’s proposal generation system now and Ringquist says the RIA version will be released by the end of September. It will cost about $1,500 annually. A goal-based balance sheet diagnostic application is being beta tested by an enterprise client and advisor version by end of this month. That will cost $495 a year.
Ringquist says he expects ASI Wealth Manager will be integrated with account aggregation software to automatically update plans with data from brokerage and bank accounts by the end of the year.