Retirement Income: Retirement software evolution

Advisers are generally satisfied with the dozen-plus retirement-planning software applications and calculators available to them. But many say they would welcome more sophisticated tools, especially software that could handle the expected growth of distribution-related issues. In fact, the distribution phase of retirement planning has begun to get the attention it deserves only in the last two years, according to a report released last month by Celent LLC, a research firm in Boston, which evaluated 15 retirement-planning applications available to advisers. "I would say that most of the software vendors realize this is a need," said Robert J. Ellis, a senior analyst at Celent and author of a report, "Retirement Income and Distribution Planning."

EYE ON DISTRIBUTION

"I think that in a few years, distribution planning will end up being the larger component of financial planning," he said. Among the software applications evaluated in the Celent report, those from eMoney Advisor Inc. of Conshohocken, Pa., SunGard Inc. of Wayne, Pa., and Naviplan from EISI of Winnipeg, Manitoba, possess the greatest breadth of functionality and advanced technology and are the most popular, according to Mr. Ellis. Products from Lumen Systems of San Jose, Calif., and AdviceAmerica Inc. of Fremont, Calif., have fewer users but were seen as providing good functionality, he said. Adviser Robert Klosterman, who said that about 20% of his clients are currently in the distribution phase, believes that planning is likely to become more complex as more clients begin to draw down their portfolios. But he also believes that software will keep pace. "It's always easier to look back than look ahead when modeling a portfolio, but if you've got the standard deviation, the portfolio value and your basic tax pots, you can model anything you want," said Mr. Klosterman, who is president and chief executive of White Oaks Wealth Advisors Inc., a fee-only independent wealth management firm based in Minneapolis and Sarasota, Fla., which manages $270 million.
Sabrina F. Lowell, an adviser with Mosaic Financial Partners Inc. of San Francisco, said that 30% of Mosaic's clients are in the distribution phase. The firm manages $390 million. Ms. Lowell said the firm's retirement-planning software, from Money Tree Software Ltd. of Corvallis, Ore., is intuitive and flexible. She said that Money Tree's comprehensive Golden Years module and its high-level Silver module work well for planning and modeling yearly hypothetical changes in income and expenses, but they "sometimes make it difficult to share data back and forth, which is supposed to be a forte of the software." Software from most vendors could benefit from being updated with an ability to incorporate new planning concepts, especially in light of current market conditions, Ms. Lowell said. In an effort to be more conservative, some advisers are laddering money market certificates of deposit or setting up other types of scenarios as secondary income streams, which are difficult to model in current planning software, she said. "The problem is that Monte Carlo simulations assume that the market is up sometimes and down other times, and even though you can modify rates of return, you just don't have the flexibility to switch the income source in a down year from the client's portfolio to a money market reserve," she said. Ms. Lowell doesn't think that the retirement asset-distribution phase is really all that different from the accumulation phase. "Most [clients] need to continue with a growth-oriented-type portfolio, and we find that a lot of people will need the same amount of equity they have now to maintain their lifestyle throughout retirement," she said. Michelle Ogden, a fee-only adviser in Oviedo, Fla., who specializes in retirement planning and analysis, likes MoneyGuidePro from PIE Technologies Inc. of Midlothian, Va., but would like to see the software enhanced to cover the conversion of traditional individual retirement accounts to Roth IRAs. In response, Robert Curtis, chief executive of PIE Technologies, said that his and most other planning software was focused on long-term planning, and would remain so. "When we look at a plan it can be up to 50 years out with all the taxes and other consequences. That's about as granular a plan as we want to make at a given time," Mr. Curtis said. "Dealing with shorter-term, tactical issues is really more for a simpler tool, like the many calculators available to advisers," he added. Tom Taylor, a certified public accountant and fee-only financial planner, is a fan of software from Lumen Systems. "I can't get enough of their web-based NorthStar product," he wrote in an e-mail. "The analysis tools are comparable with any financial planning software, the interface matches the client questionnaire to a tee, which really cuts down on input time, and the [reports are] impressive," wrote Mr. Taylor, who is a principal at Thoma Capital Management LLC of Towson, Md., which manages about $17 million in assets. Mr. Ellis emphasized that little in the way of long-term conclusions could be drawn from his current evaluations of vendors and their retirement technology. "This space is in a great state of flux. All the vendors understand the need for such offerings and many have improved tools in the works that they can't or won't discuss," he said. "In the next year or two, [retirement-planning technology] can, and probably will, change dramatically." E-mail Davis D. Janowski at djanowski@investmentnews.com.