Income Discovery, a software product designed by New York City-based entrepreneur, Manish Malhotra, is an excellent tool for any serious investment advice professional. If you’re not using it, you probably should be.
I’ve written highly favorable reviews of new professional software for investment advisors only twice (that I can recall) in the last four years: one was the first review of Income Discovery and the other was about inStream Solutions, which took an entirely new and original approach to advisor-client interaction leveraging the Web.
Income Discovery is a breakthrough app for a few reasons:
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ID enables a comprehensive picture of a retirement income plan based on behavioral finance research
. Clients are presented results in a different, new way. Instead of showing people Monte Carlo results showing the percentage of people likely to fail, ID presents the clients with a picture how what failure might look like. This presentation is very different from showing someone the chances of success and expressing retirement in terms similar to gambling or sports betting. Instead of presenting a retirement plan results as statistics, ID tells a client how many people on the proposed plan are likely to get the full-income, the goal amount. Each client report includes information about an “unfortunate” retiree. It turns the traditional report about statistics into a story about an individual who runs out of money in retirement. People—that includes your clients and prospects—learn better when told stories than given statistical reports. ID tells that story. Because people better understand the cause-and effect-relationship of their retirement income decisions, they are likely to be more invested in the process and behave rationally.
ID is the right tool for the job. Malhotra says he knows of no other retirement planning tool that lets you see the impact of introducing a bond ladder on a portfolio or that can run “what ifs” testing all variants in Social Security claim strategies, or that can model the impact of changing the order of withdrawals from accounts with different tax treatments. I’ve spent many hours with him over the past year talking about retirement planning and advisor technology and he’s not prone to hyperbole or exaggeration. If you want to structure withdrawals across qualified and non-qualified accounts, for example, I believe you will not find another retirement income app with the same level of detailed forecasting and analysis of different strategies.
Determining a client’s optimal age to annuitize is a big deal. About 70% of A4A members do not sell variable annuities, but you do come across clients and prospects that own VAs all the time. In fact, some of you have made a career out of helping clients burned on high commission VAs. If a client already has a variable- or fixed-annuity, you can use ID to advise on when to annuitize. The dearth of professional tools for optimizing VA income streams is hard to understand, considering how fundamental this is in retirement income planning. Say you have a client with an income/benefit base that is higher than the VA’s contract value. You don’t want to kill the contract by annuitizing too soon. Based on the guarantee in the contract, it’s wise to find the optimal time to annuitize. The decision on when to annuitize may seem like a small decision but can have significant impact on a client’s retirement plan. ID presents reports analyzing three options to present to clients. ID runs the same assumptions for future rates of return, inflation, correlation coefficients, and risk to see which one performs relatively better by isolating one variable: the age to invoke a lifetime guarantee and annuitize. ID runs 1000 simulations to tell you the optimal age to annuitize. Maybe I’m not reading the trade publications enough but I challenge any of our readers to show me a tool that tells clients when to annuitize their contract—much less in such depth and context.
ID has Manish Malhotra
. Since I first wrote about Manish in March 2013, we’ve met for dinner and lunch several times and have come to know each other. I am so impressed with this guy. Malhotra came to America from India after college and post-graduate studies and earned his way up to running Citigroup’s wealth management platform. About 3 1/2 years ago, he left the corporate world to capitalize on his ideas by building his own company. As the son of immigrants to the U.S., I am always impressed by people who come to New York from other cultures and kick ass. Malhotra is a gentle soul with a brain built for quantitative analysis. On top of that, the groundbreaking behavioral finance work of Nobel prize-winning economist Daniel Kahneman shapes Malhotra’s approach to helping advisors communicate complex financial concepts to clients. I love that.
On Friday at 4 ET, Manish is going to talk about how retirement planning decisions that advisors and their clients make, that may seem trivial, can be game-changers for clients. Register here
. (Requires a $60 annual fee to A4A, which gives you access to timely continuing education based on what’s happening in the profession and real world.)