Broken Plans

Posted by Brent E. Bentrim on 21 January 2011 | 26 Comments

Last fall when we were diligently working to develop Folioscore.com, an application that allows investors to audit how well their advisor is managing their portfolio towards achieving their financial planning goals, Andy Gluck sent me an insightful article, Broken Plans.

Gluck's core theme was if financial planning software would allow advisors to forecast various economic scenarios over shorter, 5 year time periods, then they could better meet their client's needs.   Creating a hypothetical couple, the Smiths, Gluck illustrates how to manipulate MoneyGuidePro to show how $600,000 in assets could grow to either $875,319 or shrink to $397,959 over a 5 year period.   Using some sort of simulation, his experts conclude the 'most likely' scenario results in only $32,000 in appreciation.

The largest take away from the article is an industry out of touch of investor's needs.  The financial services industry still largely views planning and portfolio management as two distinct and separate practices although clients view the relationship with their advisor as seamless. 

Despite all the 'expertise' to create various economic forecasts,  'most likely' scenario fails to achieve the goal.  Their hypothetical portfolio needs to only generate $17,000 before inflation and taxes annually, a meager 2.8% return over the next 5 years, assuming the Smiths do not want to spend their principal.

Because I have long recognized that financial planning software is designed to illustrate how much better off an investor would be by switching firms, Folioscore is my attempt to offer investors an unbiased manner to assess if their advisor is watching the market or their goals.

Over the course of the next few months, I will illustrate how Folioscore arrives at calculations, how we will continue to monitor and evaluate the Smith’s hypothetical situation outlined by Gluck and examine what hurdles the financial services industry must overcome to provide a seamless goal based portfolio management to individual investors and institutions.

At the outset, I also might appear overly critical of Gluck, who I admire and respect as a thought leader in this industry.  The reality is while I do disagree with his theory in this article, I found this to be one of the best articles written of various approaches in financial planning software.   So in the spirit of a blog, lets start a conversation, debate positions and see if in the end some betterment to assisting investors can be considered.

Tags: folioscore, broken plans, advisor skill, financial goals, The Smiths, Andy Gluck