While most financial advisers rely on
financial planning software to steer clients through retirement, many are realizing that charting a retirement path is as much art as science.
The art of retirement planning — specifically, the art of planning to spend down assets during retirement — was brought home to Robert J. Ellis, a senior analyst with the Boston-based research and consulting firm Celent Communications LLC during the process of putting together a recent research report, "Retirement Income and Distribution Planning."
For that report, he evaluated 15 retirement-planning software packages to see how they differ in their approach to planning for the distribution phase of retirement. Mr. Ellis found that much of the software does an adequate job of crunching hard numbers and cranking out bedazzling charts and graphs, but most are inadequate when it comes to factoring the less-precise aspects of retirement such as longevity or health care costs.
"It's great having as long to live after retirement as your entire work life, don't get me wrong, but it presents the adviser with a much more complex set of questions to model," he said. "Financial advisers have become lifestyle coaches and are forced to ask tougher questions like those related to longevity and 'how long did your father live?' and 'what did he die of?'"
That was one of the major points brought home during a panel moderated last week by Mr. Ellis at
InvestmentNews' 2008 Retirement Income Summit in New York.
COMPARING SOFTWARE
In preparation for that presentation, "Technology and Income Planning Solutions," he created a case study and asked three leading software providers to find advisers willing to use their software to carry it out. The software providers were AdviceAmerica Inc. of Fremont Calif., Emerging Information Systems Inc. of Winnipeg, Manitoba, and SunGard Data Systems Inc. of Wayne, Pa.
The hypothetical couple in the case study is fairly typical of the kind of clients that many advisers encounter every day.
The husband is 63 years old, and his wife is 61.
They have a combined income of $146,000 a year and total assets just under $1 million. In addition, they have about $250,000 in home equity as well as some basic insurance.
Although they were given the same information about the couple, each adviser came up with a completely different plan for retirement. One adviser, for example, suggested the husband delay retirement by a few years to build up his savings.
Another suggested that the husband consider a part-time job to see him through his Golden Years.
And therein lies the art in financial planning.
Admittedly, developing a plan from a case study is difficult.
"Half of what you do [as an adviser] is interpreting the client's reactions and body language as opposed to the case study," said Rachel I. Meier, a certified financial planner with Edward D. Jones & Co. LP of St. Louis, who applied SunGard's WealthStation to the case study.
Ms. Meier told attendees that she prefers to do the nuts-and-bolts technical work involved in generating a plan behind the scenes.
"Clients are typically coming in, especially for an initial visit, in a state of high anxiety," she said. "To show them everything up front will only lead to paralysis."
As a result, Ms. Meier usually meets with clients several times in the process of developing a post-retirement plan. WealthStation, she said, allows her to adjust various variables to see how they affect the outcome.
Again, client meetings are integral to the process, Ms. Meier said.
"We all come up with quite possibly great solutions but when we present it to the client and they crinkle their nose, we know that something about the idea has to be addressed, explained, or modified," she said.
Another case study participant, Robert Eby, an adviser with Investors Group Financial Services Inc. of Winnipeg, Manitoba, has used EISI's NaviPlan for the past 15 years. He also told attendees that he typically presents clients with a simple two-page report — at least, initially.
"I usually do four to five scenarios for clients before hitting them with the hard facts,"Mr. Eby said.
As a long-time user of NaviPlan, Mr. Eby said he isn't nearly as overwhelmed by the program's complexity as some newer users might be.
For Stephen L. Williams, vice president of product management at Harris Bank of Chicago, which uses the online software of AdviceAmerica, simplicity is the name of the game.
Unlike the bank's private advisers, who tend to work with more affluent clients and therefore use NaviPlan, advisers in the bank's retail branches, cater to the mass affluent. For these clients, AdviceAmerica's strength in plotting charts and graphs is ideal, Mr. Williams said.
"The software helped me pick up on what could be the biggest potential for catastrophe with our hypothetical clients — a lack of long-term-care insurance coverage," he said of the couple in the case study.
In summing up later, Mr. Ellis made a clear prediction about the future of all planning software.
"The reality is that you've got multiple moving parts, too many really for the software as it exists now — it is simply going to have to evolve in such a way that it starts using calculus," he said.
E-mail Davis D. Janowski at [email protected].
WANT MORE? For the actual case study and the advisers' solutions, go to
investmentnews.com/ritcasestudy.
