Nocember 24, 2008
Financial Planning’s Software Survey 2008
By: Joel P. Bruckenstein
Welcome to Financial Planning magazine's second annual software survey. We are happy to report that more than 350 of you responded to our survey this year, so our findings are based on the reports of a broad swath of readers. Next year, we hope even more of you will respond.
Economic and political events over the last few months have served to increase the likelihood that demand for independent financial advisors will soar over the coming year. The collapse of several prominent wirehouses and banks, combined with the weakening of others, should lead clients of these firms to consider the benefits of working with independent advisors.
In addition, the poor performance that many self-directed investors have experienced recently will cause some of them to seek professional guidance. On the political front, the election of Barack Obama, combined with Democratic gains in the House and the Senate, will surely lead to changes in tax and economic policies. Americans will need help sorting through the new economic policies and determining strategies that are appropriate for the altered environment.
While many of you are currently focused on reassuring existing clients and tax-loss harvesting, 2009 could prove to be one of the best years ever for financial planning firms to bring in new business. But in order to do so, firms will need to become more efficient. Since adding qualified new staff is challenging and costly, firms that leverage existing staff through improved technology and better practice management techniques are the ones most likely to prosper in the coming year. We hope that this survey will help you pinpoint some products that can help you take advantage of the growth opportunities that lie ahead.
This year, about 350 of you told us what software you use and how satisfied you are with it; that's a 46% increase in our survey sample over last year. As was the case a year ago, a few of your answers surprised us. Some of your perceptions about what specific programs can or cannot do were off base. These misconceptions could be holding some respondents back: By choosing the wrong program for a job, advisors are failing to achieve the return on their technology investment that they should. This in turn could cause them to underinvest in the future. We hope that some of our findings will help correct some common misconceptions, thereby helping readers make better technology decisions in the future.
CRM Software
Client relationship management (CRM) is arguably the single-most important factor in establishing and maintaining a successful financial advisory practice. Clients are paying for your advice, and in order for clients to value your advice, they have to trust you. Clients may initially come to you through referrals, your reputation in the community or through some other channel—but to retain them, you are going to have to nurture relationships over time and continue to prove that you are worthy of your clients' trust.
Many factors go into creating and maintaining trust, but a fundamental one is keeping in contact. Successful advisors stay in touch with their clients during good markets and bad ones. They have a system in place that ensures that they make a predetermined number of phone calls to clients every year, that they send them a predetermined number of emails each year, and that they meet with each client an appropriate number of times annually, either in person or virtually via video conferencing. These advisors also make sure they never miss a client's birthday, anniversary or other important date. All of these client "touches" are initiated, monitored and recorded using CRM software.
CRM software can also play a critical role during times of economic crisis, such as the one we've been experiencing. One excellent trust builder is to proactively contact your most nervous clients when unexpected volatility strikes. With a good CRM system in place, it is possible to segment your clients ahead of time, so when an unexpected crisis does occur, you can automatically generate your list of clients who will need hand-holding the most.
Yet another way of generating trust is to insure that tasks involving multiple steps are always executed in a uniform manner and that no detail falls through the cracks. Creating and managing automated workflows through the use of CRM software ensures delivery of uniform service. As an added bonus, it improves office efficiency, thereby lowering the cost of delivery. And since all work is recorded, the CRM system can produce valuable time-management information that allows managers to eliminate bottlenecks and streamline workflows.
Clearly, most survey participants are recognizing the value of CRM software in their practices: 97% of participants say that they use it. But—as was the case last year—some respondents use the term loosely. This year, 25% of respondents tell us that they are using Microsoft Outlook for CRM. That's down from 36% last year, but it is still the most popular selection in the category by far. MS Outlook is not a true CRM program, however. While Outlook possesses several CRM features, it lacks some of the most valuable features that top CRM programs possess, such as the ability to store industry-specific information and the ability to track complex workflows. ACT!, a well-known general-purpose CRM program, held steady this year in the No. 2 spot with 15%, versus 14% last year.
We were encouraged to see a significant jump in the popularity of industry-specific CRM applications. Usage of Junxure, a comprehensive industry-specific program, jumped to 11% versus a relatively modest 6% last year. Mentions of Redtail, an industry-specific online CRM application, more than quadrupled, from 2% last year to 9% this year. ProTracker also showed a nice gain, from a disappointing 1% last year to a more respectable 4% this year.
As we pointed out last year, there is a growing acceptance of web-based CRM applications, although adoption is somewhat slower than we would have expected. Redtail is showing significant strength, but we are not seeing much growth from other online CRM packages, such as Upswing, reflected in our survey numbers yet.
Overall, the trends in CRM usage bode well for the industry going forward. Advisors seem to be slowly abandoning Outlook for more robust applications. Comprehensive packages such as Junxure, Redtail and ProTracker are starting to pick up market share. These trends should lead to increased productivity among users of their applications.
Financial Planning Software
Although we do not classify Morningstar Advisor Workstation as a true financial planning program, we still included it on last year's list of choices to see how many respondents would "bite." You didn't disappoint us: 29% of those responding last year made Morningstar Advisor Workstation their financial planning pick. This year, in order to get a more accurate reading, we moved Morningstar Advisor Workstation out of this category and introduced a new category—multifunction software—that we considered more appropriate. Even so, a few respondents felt compelled to write in Advisor Workstation under planning software.
Of the remaining contenders in this category, there were a couple of big surprises. The first was the extremely strong showing by MoneyGuidePro. The program, which ranked fourth last year with a 10% showing, rocketed to the top with a 23% share in 2008.
Overall, EISI, which makes Financial Profiles, NaviPlan Standard and NaviPlan Extended, remained the top supplier of financial planning software to survey participants. As a group, its three entries garnered 29% of the responses: 10% chose Financial Profiles; 12% chose NaviPlan Extended; and 7% chose NaviPlan Standard.
Among other programs, 13% of respondents use MoneyTree and 8% use SunGard. Six percent of respondents wrote in that they use eMoney, which was not on our list of programs.
Eleven percent of respondents say they were not currently using any financial planning software. Presumably, these folks are not doing financial planning work, because it is almost inconceivable that professionals are doing financial planning today without the help of some software application. Twenty-seven percent are using something other than programs mentioned above, including other commercial programs, proprietary or B/D supplied software and, in a few cases, spreadsheets.
While there are a wide variety of software programs in use among respondents, EISI and MoneyGuidePro clearly dominate. Between the two, they account for 52% of responses. Add in third-place finisher MoneyTree (13%) and the top three software providers command an impressive 65% market share.
We suspect the strong showing of our top three finishers reflects their strength in the area of retirement income planning. According to the 2008 FPA Financial Planner Attitudes and Perceptions about Retirement Income Planning study, demand for retirement income planning software is increasing, driven by a greater understanding on the part of Americans of the important differences between the two broad phases of retirement—accumulation and distribution. Financial planners expect retirement income planning to be a key foundation of both their short- and long-term business growth. Over the next 12 months, nearly one-quarter of advisors surveyed report that more than 50% of their new clients and assets will come from IRA rollovers alone. Furthermore, financial planners surveyed report that 50% of their clients will retire over the next five years.
Portfolio Management
The portfolio management results were somewhat puzzling. This year, two applications, Albridge and Schwab PortfolioCenter, were in a virtual dead heat for the top spot on our charts, with 18% each. The strong showing of these two applications does not surprise us. Many independent broker-dealers subsidize their advisors' use of Albridge; Schwab, the largest RIA custodian, helps to underwrite the ongoing development costs of PortfolioCenter, and it offers additional subsidies to good customers.
The surprise was that the number of respondents who use Morningstar, last year's leader, dropped from 28% to roughly 10%. Part of the drop may be attributable to the way we listed Morningstar this year. Last year, we clearly listed Morningstar Advisor Workstation. This year, since Morningstar purchased dbCAMS, we listed them together as dbCAMS/Morningstar. Clearly, some respondents thought the listing only referred to dbCAMS, because a number of respondents wrote in Morningstar Advisor Workstation. We'll try to list the two programs separately next year.
The only other firm that even approached double digits was Advent, with a 9% share. Four newcomers to this year's survey: Black Diamond, Orion, Portfolio Director and PowerAdvisor each debuted with a modest 1% share. As a result, we placed them in the "other" category in our charts.
Perhaps the most confounding statistic in this grouping is the 28% of respondents who say that they don't use any portfolio management system at all, a figure that's up from 24% last year. We assume that some financial planners do not manage money, and others turn to third parties for portfolio management and reporting. Nevertheless, that 28% figure strikes us as high.
Account Aggregation
Adaption of account aggregation among advisory firms remains dismally weak. A shocking 75% of respondents say they do not use aggregation software, up from 68% last year. The few firms that are using data aggregation appear to be relying on a handful of companies. This year, CashEdge, at 6%, leads the pack, up from 1% in 2007. ByAllAccounts, last year's leader at 3%, garnered 4% this year, good enough for a second-place finish. Yodlee and write-in eMoney tied for third at 3%.
Many advisors who forgo aggregation say they do not have enough confidence in the quality of the data to use it for performance reporting. We think they may be missing an opportunity. Even if you believe that the transactional data is lacking for performance reporting, there may be opportunities to use the data to automate the population of financial planning programs, to create "live" personal balance sheets and any number of other applications. Any time you can move data automatically, as opposed to using a staffer to type it in, there are potential efficiencies to be gained.
Multifunctional Software
We created a new multifunction category for platforms like Morningstar Advisor Workstation that don't neatly fit into any of the other categories. As expected, Workstation trounced the competition here with a 21% showing. It also came as no surprise that eMoney was the runner up at 9%. Bringing up the rear was Trust Company of America with 2%, followed by both BridgePortfolio and IAS at 1%.
The fact that 65% of advisors do not use a multifunctional platform comes as no surprise. Independent advisors, who comprise the majority of respondents, continue, for the most part, to follow a best-of-breed mentality as opposed to an all-in-one approach. To date, only Morningstar and eMoney have been able to lure independents to an all-in-one solution in meaningful numbers.
Document Management
While respondents' use of paperless office technologies continues to increase, there is a real lack of sophistication in this area. This year, only 29% of respondents say they do not use document management software, a sharp drop from 38% in 2007. Unfortunately, 31% of respondents (roughly the same amount as in 2007) say they use Adobe Acrobat as their document management product of choice, and another 11% named PaperPort (versus 9% in 2007). Unfortunately, Adobe Acrobat does not meet the definition of a document management system, nor does PaperPort. At a minimum, a document management system includes a filing system, a retrieval system and storage. In addition, financial professionals require special capabilities, including: document creation (scanning a paper document to create a digital file); optical character recognition (OCR), which makes an image file searchable by converting the image to text; archiving; retention policies; security; disaster recovery; authentication.
Of the 19% of respondents who say they use some other document management system, four-fiths of them mentioned programs that fail to qualify as document management systems. So, although 79% of respondents think that they are using a document management system, when you subtract those using Acrobat, PaperPort and 80% of the "other" responses, the actual number of respondents using a true document management system is closer to 14%! That is a huge discrepancy, but one that spells opportunity for the true document management firms listed in our survey, such as Cabinet NG, CEO Image Systems, Laserfiche, NetDocuments and Redtail. In order to capitalize on this knowledge gap, however, vendors will have to do a much better job of educating advisors about the advantages of a true document management system.
One other change of note this year is the entry of Pershing into the field of document management. iNautix, an affiliate of Pershing LLC, recently launched a document management solution that integrates with the Pershing platform, making it an attractive choice for B-Ds and RIAs doing business with Pershing. We attribute Pershing's modest 1% showing to the fact that its product is only a few months old, and we expect to see some significant growth over the next couple of years.
New Questions Lead to Surprises
We added a number of new questions this year to get a better feel for certain aspects of your business. One area we failed to explore last year was which computer operating system you use. Although Windows VISTA was released two years ago, in January 2007, we knew last year that advisors were slow to adopt it because some of their vendors were not yet VISTA-compatible. By now, though, we expected to find a significant number of you migrating to VISTA.
Boy, were we wrong! An overwhelming majority of respondents, fully 87%, say they are still using Windows XP, at least in some capacity. This compares with 19% who say they are using VISTA alone. A hesitancy to upgrade is also evident when it comes to server software. While 17% of respondents say they are using MS Windows Server 2003, only 4% say they are using MS Windows Server 2008. Apparently, when it comes to operating systems, financial advisors do not want to be early adopters!
We were also curious to see if any brave souls were willing to use non-Microsoft operating systems. Our expectations were modest here, but we wanted to start benchmarking Apple and Linux systems, so that we can follow usage trends. Our initial findings are that 2% of respondents are using Apple's O/S, while 1% are using Linux. As expected, Apple and Linux usage is modest today, but it is up from next to zero a few years ago. We expect usage to increase over time, though. Here's why. Until recently, no professional financial planning, portfolio management or CRM software was written for Macs, making it virtually impossible to use Apple computers as the technological foundation of a financial planning practice. Things began to change when Apple made the decision to move to Intel processors. As a result, advisors can now find powerful tools for running Windows software on a Mac.
There are two ways to do this: One entails using Apple's Boot Camp software. This allows you to "boot" your Apple computer using Windows instead of Mac. The other involves using a virtualization program such as Parallels or Fusion. This allows you to run a "virtual" session of Windows within the Apple operating system. In effect, it allows you to run both Windows and Mac at the same time.
In addition, as the survey reveals, there are many popular professional programs that are web based. Since these programs, in most cases, require nothing more than a web browser to operate, many, but not all of them are compatible with Macs.
Linux is primarily used today as an alternative to Microsoft's server software, but it is also being used to run very inexpensive netbooks. These are small laptop computers that are gaining popularity among those who need a very portable laptop to perform basic tasks such as email, web surfing and word processing. Examples include the ASUS Eee, Acer Aspire, and the Lenovo S10. As more advisors climb on the netbook bandwagon, some of them will be exposed to Linux for the first time.
What Else?
There are a number of areas in which technology has the potential to improve efficiency, but advisors are failing, for the most part, to take advantage of those opportunities. For example, 71% of advisors tell us that they are not using any software to help with their compliance needs. Since compliance can be time- and data-intensive, it is difficult to picture a scenario where technology could not offer some benefit.
Rebalancing, a notoriously time-consuming task, is another area that most advisors are apparently doing manually. According to our survey, at least 78% of advisors are performing this task without the help of software—if they rebalance at all. In either case, they are doing themselves and their clients a disservice. Admittedly, iRebal and Tamarac, the two leading programs in this field, can be expensive, but just about any firm that has automated the rebalancing task will tell you that they would never go back to doing the job manually.
Satisfaction
Last year, when we asked you how satisfied you were with various products and services, we allowed respondents to supply a neutral response, and many of you did. In order to get a clearer read on attitudes, we eliminated the "neutral" response from most questions this year in order to force you to take sides—and you did.
Overall, financial planning software programs scored highest in overall satisfaction, with 39% very satisfied and another 39% somewhat satisfied. Only 2% of users were very unsatisfied. Since usage in this category was highly concentrated, our top three firms—EISI, MoneyGuidePro and MoneyTree probably deserve much of the credit here.
With 45% somewhat satisfied and 25% very satisfied, CRM looks okay, but the 7% "very dissatisfied" was the poorest showing in the survey-as was the total of 19% that reported dissatisfaction. In addition, only 55% of users were either somewhat or very satisfied with document management. We believe this reflects the fact that many respondents don't actually have a document management system, although they think they do. In both cases, respondents may be using the wrong tool for the job.
Integration of data between various programs-or the lack thereof-continues to trouble respondents. Only 10% are very happy with their current level of integration, and 54% voiced some level of dissatisfaction. On the other hand, ease of use seems to be improving. Sixty-six percent think usability is at least okay, versus 34% who don't. Advisors are also more satisfied than not with the level of documentation they receive. Furthermore, most advisors say that pricing is not an issue, with 16% saying their tech costs are very reasonable and another 56% saying they're somewhat reasonable.
Lessons to Be Learned
Our second survey provides some interesting nuggets of information for both advisors and vendors. The most striking fact, and one that permeates the survey, is that advisors are failing to use technology in some areas of their practice, thereby perpetuating inefficiencies. There is negligible usage of compliance, rebalancing and account aggregation software. While there may be valid reasons that an individual firm fails to use one or more of these applications, taken in aggregate, the numbers suggest a great deal of inefficiency.
Perhaps the single most disturbing finding is the disconnect between what advisors think they have and what they actually do (or don't) have with regard to document management systems. The 65-point gap between those who think they have an adequate document management system (79%) and those who probably do (14%) is scary indeed. Advisors clearly share a portion of the blame here, but as a group, document management software vendors need to do a much better job educating advisors about the benefits of their products than they have in the past.
On a more positive note, 63% of advisors are willing to spend more on technology if they can be persuaded that it will improve their firm's overall efficiency. Hardware (44%) tops the list of anticipated future purchases, but plenty of advisors plan to purchase financial planning (16%); document management (14%); CRM (13%); portfolio management (13%); and account aggregation (13%) software soon as well.
If advisors follow through with their spending plans, and if vendors do a better job of educating potential customers, it is likely that advisors will continue to reap the benefits that better technology can afford them.
Joel P. Bruckenstein, CFP, is publisher of Virtual Office News (www.virtualofficenews.com).