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Podcasts

The Case for and Against Financial Projections

Asset management software is great at projecting specific points in the future. And that works in an investment world where financial planning means retirement forecasting. Today, however, clients want to be shown that the steps they’re taking are actually leading to progress.

On this Elementality podcast, Reese Harper and Matt Glazer discuss why traditional planning software falls short of the needs of the XYZ generation client—and why, as the definition of financial planning changes, new tools are needed that provide strong indicators of ongoing financial health. Forecasting software misses the incremental steps that are critical to real progress. Those are the measurements the next generation wants to see.


Podcast Transcript

Matt Glazer:
Our clients are constantly asking, “How are we doing? Am I doing okay? Am I doing the right things? Am I going to make it?” Whatever phase of life they’re at, that’s the question at the root of pretty much everything that they’re coming back to, Are we doing okay? And we can’t keep trotting out this overly precise version of the future to answer that question and satisfy that piece of mind and expect that to gain buy-in, understanding, and agreement from the client.

Jordan Haynes:
Welcome to Elementality. I’m Jordan Haynes, Financial Planning Specialist at Elements. Each episode, Reese and Matt will discuss major challenges faced by financial advisors and the things they can do to navigate the complexities of delivering quality financial advice to clients. We hope you enjoy this episode.

Reese Harper:
Welcome to another episode of Elementality, everybody. Here with my good friend, Matt Glazer in the rolling hills of Pennsylvania.

Matt Glazer:
I think it’s a tree…

Reese Harper:
Matt…

Matt Glazer:
I think there’s some root word that stands for trees, lots of trees in Pennsylvania. Rolling hills is…

Reese Harper:
It’s really not.

Matt Glazer:
Well, and the Appalachians run through PA, so I don’t know. I’ve never been outside of Philadelphia very far.

Reese Harper:
When Matt comes, wants to go to the mountains, we fly him out to Utah and he gets chased by a moose. Yeah, I’m excited for you to experience that again next season. It’s an annual tradition now. I don’t know if I can, honestly, cue a moose to attack you.

Matt Glazer:
Oh, I can tell you exactly what you did. And we can redo that. That’s not a problem.

Reese Harper:
Alright, well, shifting to the life of advisor-land, talk to me about what’s the topic of the week.

Matt Glazer:
Yeah, this is another good one. It’s interesting, when you have a lot of conversations in rapid succession, you can pull out the really common questions pretty easily. And one of the common ones is when we talk to people about Elements is, Okay, well, I’m using eMoney or MoneyGuidePro or RightCapital, or Orion’s Advizr, whatever it is, one of the traditional planning software tools out there, it’s like, “So do you guys replace that for me or sit next to it, or how do I use those things together or separately?” And it’s a bit of a loaded question ’cause it really depends on how you run your service model and who you advise. And I think what the core question here, this is what it comes down to it’s, Where is traditional planning software helping our relationships with our clients and helping the value we deliver, and where is it hurting, getting in the way, falling short? I think there’s room for both answers in there. So I’d like, take a stab at that one to start.

Reese Harper:
Well, okay, so let’s start with where does it sit in the stack? For me, traditional planning software served its purpose when the bulk of the market… When, A, we were… When financial planning meant retirement forecast, and when the customer type that we were targeting was, rollover IRA. In that context of like, “I’m modeling how much money you’re gonna have and how long it’ll last, now that you’re about to roll over those assets,” and it’s a one-time interaction, and I kind of need to either get you to switch from someone else to me, or I’ve gotta get you to buy into putting your money with me. That’s where… It’s sad, but I’m sorry, folks. Financial planning software did not originate with an analysis of the actual holistic financial needs that people had, and then we built software around it. It originated with a fairly product-centric motivation, and that doesn’t line up well today with the X, Y, Z generation who’s already distrusting of institutional corporate like finance. They love craft local. They want this local advisor, the RAA community’s having massive growth and wire houses are losing share, the customer wants trust. There’s an absence of trust in the industry.

Reese Harper:
And these traditional software systems that we use, while they do represent a very… They do represent a valuable use in infrequent circumstances, they also have a hint of like, “Oh yeah, I thought you guys were just about taking my money and investing it.” There’s a hint of that, right, ’cause it’s like every time you interact with them, it’s like, “Here is how your money’s gonna grow, here’s how your money’s gonna grow.” And I don’t think everyone feels like that is like means financial advisor, financial… As a financial advisor, you’re already paid in a way that they’re questioning, which is an AUM fee that’s only tied to the growth of the assets or only tied to their assets themselves. Some of you have fixed fees, some of you are trying to move to a different model. I personally still charge on an AUM basis and fixed fees, subscription fees, so I’m not throwing AUM under the bus, but I don’t get paid commission, so maybe I’m a step towards a little bit more objective model.

Reese Harper:
But these products originated at a time when we were competing for assets and selling Asset Management, and they solve the asset management use case of modeling, forecasting, retirement readiness, but it reinforces this already underlying low grade of trust around, you can’t really give me advice, can you? Because you’re just gonna take my money and invest it. That’s what most people are thinking, like, You’re gonna take my money, you’re gonna invest it and you’re not gonna do anything. And so every time we’re interacting with them, the user interface that we’re showing is, we take your money, we invest it, and that’s what we do. Every time we talk, we did invest your money, and we show you how it’s gonna grow. I’m not saying that that’s not one of the very important jobs that we do. It’s a very important job, but I’m just trying to highlight that this next generation of X, Y, Z customers, they’re already a little bit skeptical that, Do you really even know how to help me in all the jobs that I have to do with my finances, or are you just gonna take my money and charge me and then not really do anything?

Matt Glazer:
I’m gonna give…

Reese Harper:
You’re gonna give me some push back on that, so I’m taking it a little harsh, Matt, and seeing if you can lighten up my view on the industry.

Matt Glazer:
Yeah, I wanna give it a little bit of a different lens, and I think it’s… Not I think. It is still relevant. And that’s where is traditional planning software helping? It’s helping in and around a really specific conversation about a precise forecast, and we can call that a retirement projection in many cases, or we can just call it a cash flow projection if it doesn’t happen to be at retirement. When we look at the 30, 40, even 50-year relationship, perhaps, with some of our clients, and we think about that entire life cycle, that relationship, the points in time we need to get really specific about the future to give great advice, are kind of few and far between.

Matt Glazer:
For example, Retirement Red Zone, highly valuable. Just getting into retirement or just past retirement, highly valuable. When all this stuff is in motion and the money is coming from different places now, modeling out the specificity and precision of that is a really [0:08:20.6] ____ exercise. Legacy conversation, we’re talking about distribution and flow is really important. Even for a younger client where there’s some sort of cash flow crisis, perhaps they’re an entrepreneur and there’s a lot of decisions to evaluate, and the money is coming from all these different places and we just need to make heads and tails of a really complicated situation. There are points in time throughout that really long relationship where this is really valuable, and that’s what I wanted to say to the answer, where is traditional planning software helping.

Matt Glazer:
But to transition to the flip side of the coin, how do we use that to drive this year in and year-out relationship, because I don’t think it’s running the projection over and over again. Our clients are constantly asking, How are we doing? Am I doing okay? Am I doing the right things? Am I going to make it? Whatever phase of life they’re at, that’s the question at the root of pretty much everything that they’re coming back to, Are we doing okay? And we can’t keep trotting out this overly precise version of the future to answer that question and satisfy that peace of mind, and expect that to gain buy in, understanding and agreement from the client.

Reese Harper:
Or engagement.

Matt Glazer:
Or engagement, yeah. Maybe they’re agreeable to it, but the agreement usually is, Alright, Reese. I take your word for it, you know what you’re talking about, and that chasm never closes between shared understanding with our clients. So I think there’s a really, really valuable set of use cases for traditional planning software, but I don’t think it’s the one that is, How do I drive my relationship year in, year out?

Reese Harper:
If you look at the… Even with traditional planning software, most of your interactions are conversations. That’s your value. If you think about where you add value and where customers actually say they’re getting value from financial advisors, it’s in the conversations. It’s not… That’s where you’re actually moving the needle, people feel like you’re doing emotional jobs during that time, you’re actually making decisions that result in functional job implementation or changes. What I find is I don’t like it… I don’t like my whole relationship to revolve around the forecast being the focal point of our relationship.

Reese Harper:
So I think a first personal financial statement is a great way to orient our relationship, like the accuracy of a personal financial statement, and I think that there are some… The element score card, these are key performance indicators or scores that I think are very reasonable to orient your relationship around a conversation around those scores because they’re more dynamic, they point to at-risk areas, they point to issues that are immediate and that can be adjusted on a regular cadence that actually move the needle over time and improve the probability of someone’s overall financial success. I don’t wanna say that we have this whole thing figured out. I just think that conversations with the client around tasks, half the stuff that right now people… That really matters to the client, is living inside the CRM.

Reese Harper:
And so completion of things and reminders and follow-ups and items like that, we’re trying to… You can see that both CRM’s trying to do that, traditional planning software is trying to add task management. But then this challenge is, if we put the simulation in front of the client too early or too often, I think we end up taking the focus away from areas that are at risk, because it’s not just the forecast being off or the simulation being at 70% probability that puts a client in an at-risk situation. There’s a lot of factors that are specific to their cash flow and their balance sheet allocation, and the achievement of certain tasks that are age-specific and career-specific that are more important to focus on in our regular interactions.

Jordan Haines:
A big challenge for advisors is delivering a consistent, ongoing financial planning experience to clients. Knowing what to do initially with a client is easy, but how do you consistently add ongoing value to strengthen that new relationship? The Elements financial planning system is centered on key indicators of the client’s financial health, and it gives you the structure you need to deliver ongoing value through financial planning. Start by evaluating key client financial data, then deliver timely insights that are both valuable and appreciated. To learn more, schedule a time to talk with us today by going to getelements.com/meet.

Reese Harper:
I’m kinda trying to emphasize that the origin that traditional financial planning software came from was a very investment-centric world. That’s where it came from. And that is becoming less the case as investment management becomes… As crypto starts gaining steam, now traditional assets start having a little bit different pressure on them. Now you have platforms like Titan that probably have as much growth in their crypto space as they do their active space. Their products are becoming different. So I think we’re gonna get into a world where products themselves continue to become more commoditized, whether it’s insurance products, annuity products, investment products, and we have to figure out what are some things that we can actually hold on to as indicators of overall financial health and progress.

Reese Harper:
And that’s where I think we’re trying to orient our product is that there’s this place where financial planning software is more of a point solution that you use periodically, but it’s not the central place for interacting with your customer because it just orients them around a pretty narrow, infrequent problem use case.

Matt Glazer:
Yeah.

Reese Harper:
I’ll let you wrap up with your final thoughts on this topic, ’cause I know it’s something that you’ve been answering a lot this last couple weeks.

Matt Glazer:
Yeah. It’s hard to wrap this thought, but I’ll share I guess one parting thought. It’s really hard to get a client to take action against the output of a forecast and understand why that action is being recommended, what the action is to take, and what the expected impact is of that action and then see that happen. We wrap all of that up, and these are really like… These can be really tactical things as simple as just starting a $200 a month auto draft to an account, which is not gonna impact anything in a probably of success. Maybe if you’re talking about a negative net worth client or someone where $200 bucks a month is meaningful. But in a 30-year projection, 40-year projection, little micro actions that make huge differences both emotionally and functionally in the short-term and the long-term, just don’t show up in these projections.

Matt Glazer:
And it’s really hard to create that kind of comprehension and understanding, and again, buy-in. I keep on saying “buy-in” because it’s so important from the client. It’s really hard to create that and get that out of a long-term projection where these small incremental steps, which is what we’re all about, we’re just gonna make progress incrementally over time, they don’t show up. And that’s why it’s a hard tool we use for those conversations. And so anyway, there’s a whole host of sides to be had here on both sides of this coin, and I think this is just a small sliver of those views. But ones that I feel pretty strongly about from experience and once Reese I feel that you’ve experienced the same, so thanks for entertaining me on this topic today.

Reese Harper:
Yeah, it’s a good one. I think people have heard us hound on… This is a difficult thing to pull away from. As we’re wrapping here, I wanna leave a couple of thoughts. This is a difficult thing to pull away from for most advisors because they literally have spent the last 10 or 15 years orienting their relationship around some deliverable. Because in a slow way, the asset management business has slowly been shifting towards financial planning, financial wellness, financial advice, financial coaching and accountability. It’s been slowly shifting there as products continue to become more and more commoditized. I’m not saying that they’re gonna become complete commodities. Bitcoin’s a good example of how very quickly overnight a product is not a commodity.

Reese Harper:
And there will be a lot of product evolution over the next 10 or 15 years, but we come from a place where the industry used to have something to distribute, which were public securities bundled in funds and wrap accounts and SMAs, and that’s slowly starting to become disintermediated and decentralized, and we’re using a set of interactions or a value proposition that’s reflected in our technology. And I literally have people in their 30s and 40s almost joking about it with me when they’re like, “I was gonna hire a financial advisor, then I sat down with him and realized that all they did… ” And they started trying to describe this projection thing, and they’re like, “They just kind of like say this is what’s gonna happen in the future, or this is how things are gonna go. I just didn’t feel like that was enough value. There wasn’t enough there to hire them in that interaction.”

Reese Harper:
And I’m like, “Well, what would be enough value?” And they start listing off all of the pain points that they have in their life. And for each person it’s very different. For a dentist it’s a little bit different than it would be for an attorney, but each customer has a bunch of pain points, and we all know, any advisor who’s worked with a client knows that they’re gonna list them all to you, you’re gonna know what their pain points are, and if you can orient your conversation or orient your interaction around those pain points and getting accomplished, accomplishing those jobs that they’re articulating are important, and then also you bringing jobs to the table that they haven’t thought of, and you’re getting things done. That’s what they’re gonna feel like value is. They’re gonna feel like value is, “Wow, you’re getting a lot of things done,” and a projection is one of those things once in a while that shows up that will be a pain point that comes up. But because we…

Matt Glazer:
Really hard to keep pushing things along using that over and over again.

Reese Harper:
Yeah. Anyway guys, a lot of fun. Thanks for tuning in and we’ll catch you again here in another week. Thanks, Matt.

Jordan Haines:
Next time on Elementality.

Reese Harper:
My grandpa told me once, he’s probably… I think he’s in his late 90s.

Ryan Isaac:
I like your grandpa stories, man. 90-year-old farmer. He still works on his farm, doesn’t he?

Reese Harper:
He’s more of a rancher.

Ryan Isaac:
Okay.

Reese Harper:
But he does have a farm and a ranch.

Ryan Isaac:
For us city folk, that seems like the same thing.

Reese Harper:
For you city slickers. So he told me, he said, “It’s sure a lot easier to borrow than it is to pay it back.” He probably said it more like, “It’s easy to borrow it, but it’s real hard to pay it back.” He may have cussed in there somewhere.

Ryan Isaac
Like a pig analogy and some anatomy of a farm animal in there.

Abby Morton:
You can learn more about the Elements financial planning system at getelements.com/meet, and schedule a time to speak with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Matt Glazer. Elementality is produced by Abby Morton and directed by Jordan Haynes. Have a good one.

 

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