By Guest Blogger, Michael Kitces, MSFS, MTAX, CFP, Pinnacle Advisory Group

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As financial planning begins its transition into the digital age, the tools and technology that we use to deliver financial planning will change. Increasing use of account aggregation platforms by consumers, like Mint.com, will mean that clients come to the first meeting with their financial lives already detailed, from a net worth statement to asset allocation details to a breakdown of cash flow. This allows planners to greatly expedite the planning process – plugging in data immediately in the first meeting to begin crafting financial planning projections live, with clients, who discuss and input their goals on the spot. The end result – an electronic plan will provide clients with actionable steps and recommendations and the ability to drill down for further detail. And the entire process will be completed not in a series of meetings, split up by a multi-week break for analysis, but instead in a single meeting, drastically enhancing the efficiency of the process for both parties. In turn, planners must add value not by just helping clients get their financial house in order but by delivering quality advice and a good planning experience.

For instance, in the digital age, the first financial planning meeting – which is traditionally a data gathering meeting that works through the minutiae of documents and a fact-finding discussion with the client, to accumulate a list of detailed information and goals that can be analyzed behind the scenes – might look something more like this:

• As more sophisticated account aggregation tools like mint.com go mainstream, people will have access to their own personal financial dashboard. Accordingly, when a client starts a relationship with a new planner, the planner will request a connection to the new client’s dashboard, and once the client grants access, the planner can see the client’s financial details. This would include aggregation of financial accounts, which provide a glimpse of everything from the client’s net worth statement to the current asset allocation, and aggregation of debit/credit card expenditures that would provide a snapshot of household spending and budgeting. The financials portion of the data gathering process is significantly curtailed. For clients who have never set up a financial dashboard, an ancillary service of financial planners might be helping clients to do so for the first time, as a supplement to the data gathering process itself.
• The client’s financial dashboard data is imported into the planner’s financial planning software, and the planner adds details about the client’s stated financial goals. This allows for an immediate snapshot of where the client stands relative to their goals. The client then has the opportunity, live and on the spot with the planner, to begin to adjust goals, such as savings, retirement spending, and retirement age, to see the impact of goals on the plan, and decide on a course of action.
• Once agreeing upon a course of action, the planner makes recommendations appropriate to achieve the goals. This may include amounts to save, where to save, and how to invest the savings. For a retired client, this might include how much to safely spend, and what accounts to draw spending from in a tax-efficient manner.
• At the end of the meeting, the client receives electronic access to the financial plan analysis and a list of action items and recommendations. This electronic financial plan allows the client to click through to see the underlying details of the projections and change them, or get more information and details about the recommendations. For instance, clicking through on the recommendation “Save $5,000/year in your Roth IRA” would provide information about what a Roth IRA is, how it works, and what the rules are for qualified distributions, so the client can drill down to as much detail as desired.

What’s notable about the financial planning meeting above, is that it was one meeting. That one meeting covered everything – data gathering for goals, crafting an accumulation or distribution plan, and the development of action items the client can walk away with. Of course, for the client who had not already established a financial dashboard, an initial client data gathering meeting will likely be needed, where the planner works with the client to get organized by connecting electronic accounts and scanning electronic documents. But for the client who already has a financial dashboard, what might have been a two-hour meeting, followed by two weeks of data gathering and another two-hour meeting, all encumbered by software, instead has become a single meeting with an immediate outcome for the client. Talk about a productivity enhancement for the planner.

On the other hand, the caveat is that this ultimately does not capture the entire financial plan. A subsequent meeting would occur to review insurance-related issues, and estate planning, which can be more time consuming due to the need to review the client’s individual contracts and documents. Nonetheless, the client walks away from the first meeting and with a concrete plan and actionable recommendations, and buys into the solutions because they helped craft them.

However, the fact that technology will help a client keep their financial house in order means that planners will have to deliver on a value proposition over and above just helping clients get organized and providing basic guidance. Instead, differentiation will be based on the expertise of the advice, the quality of the planning experience, and the extent to which the client is motivated to take action and implement the right solutions, enhanced by both advisor and client software that helps to monitor implementation.

The software to accomplish all of this is not quite ready yet, but it’s getting closer every year.

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Michael Kitces, MSFS, MTAX, CFP, Pinnacle Advisory Group