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Kitces: Planning software’s biggest blind spot

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The advice itself isn’t the hard part. It’s the time it takes to deliver it.

For an advice-giving professional, the support time needed is even more arduous because of the planning and analysis itself, plus the time needed to gather all the relevant information and translate it into advice that can be presented and implemented.

To address this roadblock, a number of planning software solutions — billed as streamliners of processes and builders of efficiencies — have entered the market. But while they are designed to simplify planning, survey results suggest they actually add time to the planning process.

The most time-consuming part of creating a financial plan is developing an understanding of the client’s circumstances. In fact, the CFP Board defines planning as a six-step process, which will soon welcome a seventh under new standards taking effect later in 2019:

  1. Establish and define the client relationship
  2. Gather client data and determine goals and needs
  3. Analyze client’s financial situation
  4. Develop financial planning recommendations
  5. Present financial planning recommendations
  6. Implement financial planning recommendations
  7. Monitor progress and update

In practice this planning process typically takes at least three meetings, along with a non-trivial amount of work between — particularly to analyze and develop planning recommendations.

Consequently, in our research we found that the median time to create and deliver a comprehensive plan is 10 hours, with a mean of 15 hours and a long positive tail of in-depth time-intensive plans.

Of course the planning process itself typically does not end at the delivery of the plan, both because it takes time to implement recommendations and because monitoring must begin. Advisors accordingly spend an average of 34.5 hours in the planning process throughout the first year.

Given the time-consuming nature of the planning process, the median cost of a standalone plan is $2,225, which at a median time to construct and deliver of 10 hours amounts to a typical professional rate of $223 per hour.

More significantly though, the time it takes to deliver a comprehensive plan also limits the number of clients an advisor can serve. After all, presuming a typical 2,000-hour work year and an advisor needing at least one-quarter of that time devoted toward professional development and managing the business, there simply wouldn’t be the capacity to take on more than about 40 new clients, or roughly three per month — and that’s with no other clients to serve. If the advisor has existing clients he or she might not have the capacity to take on more than one or two new clients per month.

Accordingly, there has been a growing demand for planning software solutions that address and ease this investment of time. For planners it’s a matter of advisor productivity and capacity to construct and deliver plans more efficiently. For advisors who already have a book of clients, it’s often not feasible to do time-consuming planning at all.

Technology can bring great efficiency to repeatable, scalable processes, but it’s not clear that planning software actually saves advisors much time.

Of the seven aforementioned steps defined by the CFP Board, more than half pertain to client-facing meetings and activities — i.e., things that technology alone would struggle to replace, expedite or improve on.

That’s not to say individual parts of the process cannot be improved with technology. Data gathering might occur via account aggregation technology instead of asking the client how much they have in each account. The more personal aspects of establishing the relationship — i.e., delving into more qualitative goals and the entire goals discovery process itself, presenting the plan, implementing the plan and sustaining client involvement to ensure they stay on track throughout the year.

This work typically requires three in-person meetings upfront, plus implementation and ongoing client monitoring and review meetings. Technology can’t do much to improve on this.

While a subset of self-directed consumers might solely use technology to do all of this themselves, the whole point of hiring an advisor is to have a professional guide and support them.

In fact, arguably the only stages that can be materially impacted by technology efficiency at all are the analysis and recommendation stages, where all the number crunching occurs.

This means even if better technology saved advisors half the time of the analysis and recommendations stage and one-quarter of the time for the data gathering phase, it would still be a 28-hour planning process throughout the first year, down from 34.5 hours. That is certainly an improvement, but planning would remain a time-consuming process — the kind that technology cannot and would not alone be able to impact.

Realizing time savings in client interactions, meanwhile, is contingent on how quickly clients absorb potentially life-changing information and advice, how receptive they are to changing their outlooks and attitudes, and how willing they are to implementing the plan’s recommendations.

Time savings of any kind would be welcome of course, yet it turns out that advisors don’t necessarily save time with planning software.

The average advisory firm that prepares a plan using third-party software spends anywhere from 11.7 hours (Advizr) to 15.6 hours (eMoney Advisor) to a high of 17.2 hours (RightCapital).

These are non-trivial differences, and do suggest there are some material differences in the depth and time-efficiency of various planning software tools. Yet notably, the most time-consuming advisor software has the highest user satisfaction ratings.

In fact, in our research comprehensiveness, customizability, interactivity and the ability to present that information in a polished manner were the usability factors that most directly correlated to each planning software platform’s user satisfaction rating, while ease of use and simplicity ranked at the bottom.

With the growth of account aggregation software, it would seem that data gathering would be expedited. Yet our research showed the exact opposite to be true. Advisors who use such tools to automate their data gathering spend more time in the gathering phase. That’s because automating that aggregation allows planners to go deeper on the more enriching, qualitatively driven goal discussions with clients.

This tendency suggests that good software doesn’t make advisors faster and more productive. instead, it makes them better at their jobs.

The significance of planning software making advisors better — or at least empowered to go deeper and be more comprehensive — but not faster is two-fold.

First, it suggests that the effort predominantly in the broker-dealer community to develop simpler and easier planning tools is destined to fail. To the extent that brokers don’t want to use planning software because planning itself is too time-consuming, software alone doesn’t appear capable of closing this gap. After all, as previously noted, even software that reduces the time it takes to create a plan by 50% only reduces the overall time of the process by approximately 20%.

Second, advisors tend to simply reinvest any time saved in the initial data gathering to go even deeper, not faster. It turns out that the biggest constraint to doing planning more expediently may not be software at all, but a human capital problem of broker training. While the data shows the advisors who use planning software tend to go deeper with the technology, having CFP certification is the single greatest determinant of being able to realize time savings in the planning process itself.

So while technology allows advisors to go deeper without necessarily being faster, CFP certification actually seems to create time savings and enhanced productivity for the advisor team — an effect that appears to be driven in large part by the more knowledgeable CFP certificant not needing to rely so heavily on staff support for key parts of executing the planning process, precisely because they feel equipped to answer questions and resolve issues on the spot.

Furthermore, as advisors become more experienced, the more efficient they become. The average experienced CFP, i.e., one with 20-plus years of experience, gets through the first-year planning process in only 29 hours, but an experienced non-CFP takes a whopping 52 hours on average.

The other significant implication is that recent efforts from the leading software companies to go down-market into simpler planning software — e.g., eMoney Advisor’s Foundational Planning and MoneyGuidePro’s new MoneyGuideOne — may be missing the true opportunity in the space, which is to go upmarket into more comprehensive planning software solutions. The wish-list items of surveyed advisors all skewed toward greater comprehensiveness, more depth and more tools for modeling complex situations interactively with clients. Meanwhile simplicity isn’t even a top-10 request.

This means in the end that firms struggling with planning software adoption are trying to solve with technology what is actually a human capital and advisor training problem. It’s not about making planning software simpler, but rather incentivizing brokers to get CFP certification and adopting a more planning-centric approach. Software companies are neglecting wholesale how real planners use their software — i.e., to go deeper and demonstrate their value.

The key point is simply to recognize that as the tools become more and more capable, the ultimate value proposition of planning software technology is not to make advisors faster and more productive per se, but to help make advisors better.

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