Financial Planning Software Tools – Episode #444

by | May 25, 2023 | Podcasts

Financial Planning Software Tools Used by Our Advisors

What are some of the tools used in financial planning by the advisors at Mullooly Asset Management? As we discuss in episode #444 of the podcast, there are several widely-used financial planning software tools used by the largest firms in the industry.   You may be surprised – we swipe a little from ALL of them!

Over time, we have found that there is no one perfect software tool.  So we have constructed our own, and kept it flexible.
This way, we can tweak it as needed, to customize a solution for your situation.

We have also learned that relying heavily on one software almost keeps us “married” to their modeling. And when their models change – your plan can break!  Or things simply will not work.
We would prefer not to be beholden to one (or even two) hard-wired financial planning software tools.

Listen in for 28 minutes about the financial planning software tools used by us!

Time Stamps for “Financial Planning Software Tools Used by Our Advisors”

1:10 – Wide proliferation / wide adoption of similar financial planning software tools
2:55 – Gauging compounded inflation rates
4:29 – A relevant question from the CFP exam!
7:12 – Pro’s / Con’s of wide adoption of financial planning software tools
12:11 – How we treat projections, and “plan” (the noun) vs “planning” (the verb)
14:45 – Recent financial planning software developments, and some industry backlash
16:50 – Planning software can often be internally hard-wired & more “one size fits all”
17:45 – Sometimes advisors need to “trick the software” to get the desired options.
20:30 – How “data accuracy” is crucial to developing plans
23:29 – Gaining “awareness” through the plan process, better planning for “the gaps”

Thanks for listening to podcast episode #444, and be sure to subscribe to the Mullooly Asset Management podcast wherever you tune in to your favorite shows.
You can also find all of our previous Mullooly Asset Management podcasts here.

Transcript for “Financial Planning Software Tools, Episode #444”

Welcome back to the Mullooly Asset Management podcast This is episode number 444.
This is Tim Mullooly. Today with me is Tom and Brendan. Welcome to the show guys.

I’m happy to be here.

What are we going to talk about today?  We’re going to talk about:
-our planning process
-how other people plan
-the projections and estimates,
-how “we do it” versus “how they do it.”
-Differences, similarities, good, bad… and everything in between.

Who wants to jump us off here?

I will. We’ve had a few opportunities over the years to see what some of our peers have done in terms of planning work – when clients bring in financial plans put together by someone else.
It’s easy for us to see, because we have seen all of the software out there.

We can see what other people in our industry are using, in terms of tools and software. Easy for us to pick out. Not so easy for our individual clients to understand what we’re even talking about! So, we wanted to put this episode together to really kind of talk about some of the tools proliferating through the financial planning industry.

Yeah “financial plan” is such a nebulous term. And it depends on who you’re talking to! There are some advisors out there that might tell you a financial plan is just a portfolio proposal that they’re sliding across the table to you. Others are going to use a planning software. There are only so many in the industry. So I think every advisor has probably test-driven each of them. So we can, as Tom said, pick out what other folks are using.

And see, you can dig in with these tools, but you can see to the extent that some of it is just boilerplate. In a way where you can enter the information, and it spits things out. And it looks neat and tidy, and professional. But I think that you really have to dig in and understand the numbers and what’s baked into those financial plans, to fully appreciate how much confidence you you should have in them. Because at the end of the day, we’re just making educated guesses about the future.

And we can make it sound more professional (or certain) than educated guesses. But I think that that’s the honest truth. And anybody who tells you they’re doing more than making educated guesses; I think, is giving you a false sense of certainty which I don’t believe is very honest. In my opinion.

It’s interesting to to see that; years ago …and not that many years ago; when we would put together projections for clients we would use numbers like 2% inflation. We had several years; back to back to back, where we weren’t, the economy wasn’t even generating 2% inflation! So we felt kind of silly using these numbers. Now we’re coming off a year where we had, at one point last year, in 2022, we had 9% inflation.
A fluke? Probably! But it does make these numbers – it makes you sit down and look at this and say wow, “…how trusty” can these numbers be?

I think it’s important to understand what numbers are going into it, though. Because, to that point, you know you don’t want to be typically making plans with just …going based off of the last 12 months, or even three-to-five years. You want to use long-term numbers when you’re making these plans, because the plan was going to look a lot different if you used less than 1% inflation – that we had before this spike up. And it’s going to look even more different if you decide to use the current inflation rate… or last year’s inflation rate! Because it’s always moving.

I think it’s, you can make… you can manipulate numbers in ways to tell you anything you want! But it’s – I think – it’s just more important to understand what’s going into those, or what numbers they’re using. And sometimes with with planning software it’s not necessarily “cut and dried” what’s going into it. It’s kind of black box. We don’t really know what they’re working with here.

Before we get to the black box, you just mentioned a phrase that we’ve seen on the CFP exam. About how you can’t use last year’s inflation rate. Do you remember how that was positioned on the exam?

Well I just remember there was a question about “if you’re making a plan for the long-term, what would be the most appropriate way to account for inflation?”
And they gave you a bunch of different options. One of them was if you wanted to use the current inflation rate, or last year’s inflation rate.
And the correct answer was using the historical average.

Even stepping back from the historical average (with something like inflation or even investment returns), I think it’s important to just be “directionally correct.” Like at a really, really basic-high-level, things are going to cost more in the future. To what extent do we want to project that they’re going to cost more? And I agree that, you probably rely on history for that.

Because we’re going on a spectrum here:
It’s like “all right, so either we’re going to use the last 12 months…
Which, at a point last year, would have been like, “Cool, everything’s going to cost 9% more per year, forever.” That’s ridiculous!
Nobody’s plan is going to work!
Nobody’s plan’s going to work.
Or for a few years there, we’re going to project that things are not going to cost more “at all!” Because they haven’t in the last couple of years.
Which is preposterous.

It’s probably going to lead people to believe that they don’t have to take ANY risks with their money; and can just draw it down, in a straight line.
Would love it if it worked that way for everybody – because most of the time – people are risk averse, and would prefer not to take any more risks than they need to.

But I think a little naive to believe that… over the long-term, things won’t cost more.
I think we all have anecdotal experiences that would suggest the opposite.

These are the things that really need to get baked-into-the-cake when we’re sitting down with folks and talking about what the future two-three, five years, are going to look like.

And we’ve been talking about inflation assumptions. But the same thing can be made for investment returns as well. Any plan could work if you’re going to assume 9-10-11% annual returns on your investments. But how realistic is that?

We know over the span of history, what the returns have been, on average. Again you can manipulate those numbers to say “yeah, you’re in a good spot.”
It’s “okay, well, why?”
It’s like “well we’re assuming 10% annual returns on investments.”
Whether you end up getting 10% for a few years there, at at one point or another, in back-to-back years. Or say the market’s really good for two, three, four, five years…

…the way that we think about it is, when you’re planning, you want to plan pessimistically. So assuming numbers that high would just be a little reckless.

Sure! And if the plan works with, say, a 4% or 5% return; then it’s certainly going to work if you’re making 8-9-10% for a few years.


Back to this business of the planning software. So more and more financial planning firms – and financial planners – are using more of this software.
But at the same time we’re seeing more and more financial planning software companies merging.

And so the choices… more and more people are using the software, but the choices are becoming fewer and fewer.
What are some of the pros and cons of that?

I think a “pro” of planning software is that it makes it “a process” and it relies less on individuals, and their own input into it. Than, like a macro level input into some of these assumptions that are the lifeblood of a financial plan.

It’s not it’s not your “personal feeling” of what inflation is going to be.

It’s like, “Joe Schmo, Advisor” doesn’t need to have “Capital Market” assumptions – the firm is going to use a planning software that provides those for that person. From an advisory firm standpoint that’s preferable than having advisors create plans from scratch. Because those could vary in quality, and just what kind of information is being provided really really broadly. So, especially for larger firms, I think it’s probably (from their perspective), beneficial to have something that streamlines it, puts the firm’s stamp on it, makes it all the same. So it’s like “quality control” across the board.

Yeah it’s all uniform. You know same kind of assumptions (everything) for everybody.

On the other hand, a “con” would be that plans that you’re making for your clients are not fully in your control. In the sense that, you know, if the planning software that you choose to use – because you like the way they do things – if that company gets taken over by another planning software and changes – you have to adapt to the way someone else is doing something. Then your plans might get thrown all out of whack or or you’re using a planning software that you weren’t intending to use.

The company control is out of your hands. You can’t stop them from merging, or being bought, or acquired, or sold to another company. So, that’s a little difficult to to deal with (I think), from a adviser perspective at least.

Along the along the same lines… we are not just seeing financial planners — but we’re seeing some of the do-it-yourself websites that have their own financial planning calculator (or tool) on their website.

So in those situations – and like where advisors are using them – I think it’s really important to understand, if you fully understand all the things that are baked into a plan using a piece of software or a tool or a calculator, then I think you’re good to go. And it can help you to streamline the process that can otherwise be (not kind of) labor-intensive. We’re not here like moving rocks.

But from from the perspective of…
It can be tedious, time-consuming!
Yeah exactly! If you’re doing this in a spreadsheet it can be a little time consuming to do on your own. So if you understand the information, it can speed up the process. But I think that what “gets lost in translation” are some of the assumptions that are baked in. That people – especially maybe individuals just using the tool on their own, are not fully appreciating what is baked in. And that can be a problem.

So what kind of things do get baked into some of these software tools?

I mean, we’ve covered a couple of them already. Investment returns, which…
I think investment returns would probably be the biggest swing factor on some of these.
Yeah it seems like of the different factors that go into it, I feel like that’s the one that has the biggest potential for change variables.
Inflation does move up and down, but this the spike that we’ve seen over the last year, is the biggest that we’ve seen in four decades.
So inflation’s not swinging from 10% to 0% every other year. It’s generally relatively calm.

But investments – yeah. You could change the assumptions. Just say “I’m going to invest more aggressively!” And bump the assumptions up to 9%, 10%!
Or “I’m going to go the opposite route!” And bump it down to 1% – 2% a year.

Or the interplay between those two data points is especially important for people who are going to be withdrawing from the portfolio. So not only inflation and returns, but the…
How they worked together….
…your real rates of return matters in retirement! Especially when you’re living off of your portfolio. And that’s often something we’re talking about in meetings with with people. In terms of “being the most important number” is rate of return minus rate of inflation. Because that’s what you are actually… that’s what you’re “eating” in retirement.
Like it doesn’t matter if you get a nominal 10%, and inflation’s 10%; that does nothing for you! Or you know, change those around.
So the interplay between those two points matters too.

Would both of you like to address how we handle “making projections” and “putting together plans” here at the firm?

I’ll defer to Brendan because he laid the groundwork for how we outline everything.
Well I think one of the big flaws in planning software that we try to “remedy” in our process; is just when you’re talking about assumptions in financial plans.
They make the financial plans more and more “fragile,” the further we are projecting out. And so I think the value of planning projections is pretty limited to the immediate future. Meaning maybe the next decade or so if you’re looking ahead.

And even those educated guesses we’re making about the next five to ten years, let’s call it, are probably going to become obsolete along the way.
Which is why we talk about “planning” (the verb) and not “plan” (the noun).
And because we we need to update those assumptions over time, to make sure we’re tracking based on reality — and not guesses.

But I think especially the kind of “false sense of precision” that projecting out 20-30 years into the future has, when you’re making assumptions about things like rates of return, about spending, and how things will go.

I think that, as a result of seeing those things in the real world, when people bring us financial plans they’ve done on their own – or with another firm – we try to step back and maybe focus on a smaller window of time. With the idea being that if we continue to capture a period of the next five to ten years; and we’re feeling good about the numbers over that period of time; updating it as we go along – adding another year – after after we’ve lived through one and refreshing the data with that information …I think that’s valuable.

And if we feel good about that period of time, then that speaks to how we feel about the longer-term, to the extent that we can have an opinion on that.

Yeah! And I think in terms of “planning software or no planning software,” the way we do it here – we still use Excel. And you know we said before that it does tend to be a little time-consuming. But for us it’s more important to know all of the assumptions going in, and and we control those assumptions.

They can change over time. But it’s important to us for us to know all of the numbers that are going into all of these projections.
We don’t want to just assume “well, we put the numbers into the program and it gave us these numbers!” So we want to make sure that all of the calculations are correct, and we know what input and outputs came from those calculations too.

I think it’s also helpful (in the sense that) when you use Excel; yes it is a little more time consuming. But it’s less of a “black box.”
And if you want to go back and say “well let’s use 4% inflation,” or “let’s use a different rate of return,” or “let’s look at over the next three years vs the next seven years,” we have some flexibility and we can do that.

Yeah! And I think pairing together my point and Brendan’s point… we’ve seen some planning software recently change some of their inflation assumptions. Just a tiny bit – like maybe not even 1% difference. But when you extrapolate those differences (over the span of 30 years), the compounding effects of that – change the numbers wildly. So it’s more important for us to focus on the short term.

It’s more about gaining more certainty, in an uncertain exercise. Because like we’ve seen people getting a little frustrated – online – on Twitter, other advisors expressing frustrations that these planning software are changing their assumptions! And they’re changing the way that they calculate these returns and whatnot.

Their plans are breaking!
Right. Because even the smallest tweak, over the span of 20-30 years, is going to make a huge difference in terms of dollars and cents.

Before we turned the mic on, I was saying to Brendan that in the fourth grade, Sister Alice taught us that each side of the railroad track has to be parallel the whole way through. And if you start deviating… it may seem very small now! But, go a mile down the road and these tracks don’t meet.

Brendan had the same analogy with an airplane.
Yeah. A few degrees difference – if you’re taking off from Newark, could put you in San Francisco or San Diego. You know what I mean?

Not a big adjustment at the onset.
But it takes you to a very different place.

I think there are some good things with the planning software. Like, a lot of the problem-solving that we end up doing in Excel. The way that it’s expressed, or conveyed in a “tidy way” in the software or the information that you need to input to get the answers – came from looking at different pieces of planning software. And I do like seeing how the software applies methodology to get answers that people are looking for from advisers. So it’s, I think, about kind of understanding maybe how the different providers out there – all slightly differently – approach communicating many of the same points to people.

Then, just taking the best of those – and trying to put it into what we’re bringing to folks. Even in some cases – maybe it’s not the best – but it’s adapting to a specific way – that will speak more clearly to what somebody’s question was when they came to us. Because, kind of the software is a little bit like “one size fits all.” And so if you can take “parts of each of them,” I think you can better answer people’s questions in more satisfying ways. Or at least that’s what we found in practice.

People come in with different priorities, and different wants and needs…
Not the same things every time somebody comes to us!
You can’t just put – most of the time you’re working with – similar inputs. But you’re getting to a different answer, and you’re answering different questions.
So to just input the same stuff into the same program and (get) expect different answers…
Or to answer different questions. It doesn’t add up.

Sometimes you end up sitting there “trying to trick the software” to do the thing that you want. Because it’s just not a very common question. There’s a tweak there, or there’s a one-off question – because everyone’s situation is different. So like one little variable in there and if that doesn’t fit into what the software is used to; then you’re not getting the correct answers – because you can’t account for it properly.

They are getting better! Because they’ll listen to feedback from advisors and be like “Hey, I see this client has this going on, it doesn’t appear to fit in what you guys have!” And, so like there are updates over time that are good and useful. And a lot of these places are adding new features. So this isn’t to, like, bash them entirely!

I think there’s a lot of what we do that we’ve kind of just taken from software – and we have software on the backend to use, but it’s not the sort of thing like you might see. Where in other advisers, or people doing it themselves or kind of just punching the numbers in and then using the kind of like boilerplate plan that gets spit out… once you fill in enough information. Those plans, I’m not sure have a ton of value.

Especially if you don’t understand everything that’s going into them.

And I would venture to guess that the people who are “putting data in, spitting out a report, and handing it to their clients…”
These are the people who are melting down on social media. There’s been some some real backlash, regarding the changes that some of these software companies have, have recently made.

In that situation, I kind of feel, I feel for them a little bit – because it’s out of their control – whether they’re making those changes or not. And sometimes, they might not be a one-man shop or a small independent firm that they can, you know, do their own thing. They might be “given” this software from their employer – and say “you need to use this!” And now it’s just spitting out different stuff. And they can’t do anything about it. So it’s, I understand the frustration for sure.

One thing I’d like to ask both of you is… when we sit down with folks, we have different experiences from case to case.
We’ll go through the data gathering process and some people will be meticulous! To the penny, on certain expenses and numbers.

And then we have other folks who say, “Monthly expenses? Just put us down for $10,000 per month!”
Do you want to just speak to how “data accuracy” really helps with the plan – the further you go out into the future?

I mean it’s “garbage in – garbage out.”
We’re making projections for people in retirement, that are very important.
You know it’s not just a “throw-away exercise.”
Like we’re projecting out – the rest of their lives – and their finances, to cover that span of time. So it’s important to us. We would hope it’s important to them as well, that we’re working with the most accurate numbers possible. Because we carry those numbers forward. So, that “$10 grand a month?” Okay… that’s what we’re going to project.

That factors into the projections moving forward. So if that’s not accurate, then the results we get from the projections aren’t going to be accurate
And the exercise essentially, you know, accumulates to nothing of value.

So I think the spending differences on a year-to-year basis; I mean we pretty much, we never know what the market is going to give us in a specific year, or inflation. But I think the historical averages – and then us – applying our own conservative nature to planning assumptions in that area, will probably just play out over the long-term, as we anticipated.

Although we’ve got to bear with the year-to-year volatility in between.

But the expenses, I mean, surprises on that front that we didn’t factor in (or account for) can can really start to make a plan ugly. In terms of, if distributions are (say) double what we projected – uh then that’s going to be a problem. And I think, you know to some degree that is, of course out of our hands – life happens. And sometimes we have to spend in areas that we didn’t anticipate or foresee. But to the extent that we can, again just being a little conservative, with spending. Meaning I would rather be high on things like expenses, inflation, taxes – when we’re making assumptions about the future. And low on things like investment returns. Just completely “neg” everything out. Let’s imagine a world where we get a little bit less than what we were thinking, in all fronts. And are we still going to be okay in those situations?

And then applying that, and saying “all right” if you want to run things a little higher than that, then you just know the trade offs you’re making.
And the probability of those things working out over time.

I also think that there’s a certain amount of “awareness” that comes from the exercise of building a cash flow projection.

There’s been times where we’ve had folks that will show us what they’re bringing home from work. And then they have far less that they’re reporting as spending in their expenses. But we can’t figure out where the rest of the money is going – because it’s not winding up in savings, or investment.

It’s disappearing from month-to-month through the lines.

And Tim – I shared a story with you:
My first branch manager as a broker. I went in for my annual review. So this was like 1986 or 1987. And he’s like “Hey Tom Mullooly – smiling Tom Mullooly! What are you doing?”
I’m like “I’m cold calling all day long.”
And he said “Is that right?”
And I’m like “yeah all day long I’m cold calling!”
He’s like “Oh. Okay.” And he pulled out the phone records!
He said, “in the month of October you average 71 minutes per day on the phone. You’re here for eight hours a day. What are you doing with the other six and a half hours?”

And I had no answer for him.
So it was very eye-opening to me that – I thought I was really doing what I should be doing – but the proof in the numbers was not there.

So there are times where we’ll sit down with folks. And we’ll say “Hey you’re bringing home X,” and “you’re only spending Y,” We may be able to do some things here to help you pay down debt faster, or to save more money.

And sometimes it’s just a little bit of “awareness” going through the exercise.

Or perhaps the projection should account for the gap. Because I think there are settings in different planning softwares that you can check for things like your RMD. Where in like a planning software if in the year that you have an RMD, your projected expenses don’t require you to spend it – you’re not going to consume all of the RMD.

Then you can check a box that says, “reinvest,” which of course would make your plan look better; because you’re going to get your RMD – you’re going to spend what you need to spend, and then any excess you’re going to into a brokerage account — something along those lines.

In reality I think that when that happens in most cases people just spend it. And I think, in reality, when there’s a gap like that – and there’s no clear explanation for where the money has gone, then it’s probably being spent. And that might be a good guide to say, “Hey we’ve got our base expenses, but perhaps the difference here are those “one time things” that just happen more than one time per year, and add up to the difference here. Or something close to it. “What do you think about looking at a set of numbers that looks closer to your net take-home pay?”

Because I’m thinking that might be a better guide about how the future looks and how “spending patterns” look than the reported expenses. And that’s not (I think) a function of people “not taking the process seriously.” It’s just a matter of “the one-off things are not budget-able.” They’re not occurring every time. And you really have to sit down and think about them, and they look different every year – so it’s tough to build them out in a budget.

They’ll look different every month! And month to month there’s going to be something else that comes up that was “unplanned.”
It’s a great exercise to do the cashflow and balance sheet reports with your financial planner.

Yeah. I think that was a good discussion, and insight into what goes into some planning software, how we approach planning, and the exercise of putting projections together for folks.
We hope that you guys found it interesting.

That’s going to wrap up episode 444 of the podcast.
Thanks for listening. We’ll see you next time.


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