Financial advisor Daniel Milan uses software to ensure there are no gray areas managing clients’ money. Financial planning tools reduce the odds that an investment could be later viewed as too risky. And it helps avoid conflicts as to who said what if a portfolio dispute arises.
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Tech tools help set expectations and minimize client complaints. Another benefit: They can quantify a portfolio’s risk level and its suitability for a client. Further, they provide a paper trail that documents how assets are invested.
Financial Planning Tools: Clarity For Clients
More importantly, the software explains why an investment was conducted in such a way.
“It allows us to be able to deliver hard data that we both agree to and sign off on,” said Milan, managing partner at Cornerstone Financial Services. “The client knows exactly what we will be investing in with their money. It’s in black and white.”
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Today, managing other peoples’ money is all about making unbiased, transparent, and compliance-friendly investments. Backing up portfolio choices with measurable data is also key.
“Prove it and show it,” said GJ King, president of RIA in a Box, a firm that provides regulations compliance software. “From a regulatory standpoint, the firm must show that it wasn’t asleep at the wheel.”
Increasingly, financial advisors are using technology to help ensure they’re meeting their fiduciary duties. In addition, they use software to make certain that they abide by regulatory rules and are audit-proof.
The days of jotting down notes of client conversations on a legal pad are over. So is building portfolios based on “feel.” Software helps advisors go beyond determining a client’s risk tolerance by simply asking, “Are you a conservative, moderate or aggressive investor?”
Don’t Cross Ethical Boundaries
Software helps advisors avoid crossing ethical lines by flagging things that could come back to haunt them.
“What (software) really does is it keeps the financial advisor and client on the same page, which takes conflicts off the table down the road,” said Aaron Klein, CEO of Riskalyze. The company’s software generates a “risk number” for each client that helps advisors align portfolio risk with a person’s risk tolerance.
“It doesn’t let advisors operate by feel anymore,” Klein said. “It’s pushing them toward operating with data.”
Technology assists in many ways. It objectively calculates a client’s risk tolerance, and it identifies appropriate funds. Software also tracks performance and archives trading history.
Keeping Good Notes
Software also stores “notes” of what was discussed in client meetings. It bolsters client recruitment and provides compliance-related alerts. Also, it allows advisors to use data as a jumping off point to discuss issues with clients. And it provides advisors with a paper trail in the event of a regulatory audit or client complaint.
“Everything we do is designed to store, hold and retrieve data,” said Brian McLaughlin, CEO at Redtail, a customer relationship management (CRM) software firm built specifically for financial advisors. Tech is the “golden source of truth.”
Technology can’t eliminate all bad actors, but it can act as a deterrent.
“It gives unethical people no place to hide,” Klein said.
Tips For Avoiding Compliance Errors
To avoid compliance missteps, financial planning tools can assign objective “risk scores,” which leads to suitable portfolios. Software that calculates a “risk score” that measures how much risk a client is truly willing to take is invaluable. For example, using risk scores — which range from 1 (conservative) to 100 (aggressive) — helps advisors better align a portfolio with a client’s risk tolerance. And helps them avoid situations where clients lose money and blame the advisor for putting them in risky assets they never agreed on.
Take an investor with a risk number of 50, or someone comfortable taking moderate risk. They shouldn’t be placed in a high-octane, high-risk portfolio better suited for an aggressive investor with a risk score of 100.
“The risk score is a tool that helps the FA pinpoint who their clients are, how much risk they want to take, and how much risk they need to take to reach their goals,” said Klein of Riskalyze.
Meanwhile, providing a digital “paper trail” is another way that financial planning tools minimize client disputes. For example, CRM software offered by firms like Redtail captures notes of meetings that address a client’s risk tolerance, recommended investments, and probable return outcomes. Having a digital record of what was discussed helps limit client disputes and more easily resolve performance-related complaints.
Permanent Record
Also, uneditable digital notes can often become a part of a client’s permanent account record. “Without a notes history, what’s to say a client won’t say, ‘That’s not what we talked about,’ ” Redtail’s McLaughlin said.
Matt McGrew, chief operations officer at USA Financial, says the more documentation, the better. “You need to be able to prove: Here is what we did and why we did it.”
Also, making sure performance data is reported accurately is made easier by software, adds Alex Reffett, co-founder of East Paces Group in Atlanta. His firm uses Black Diamond software to track account history and provide clients with statements, performance reports and account archives in a “very transparent way.”
Another item that financial planning tools can help with is forming data points, which can lead to “talking points.” The more you know about your client, the less chance a portfolio choice can be questioned later. Analyzing computer-generated data about a client can be the starting point to meaningful conversations.
“It can be a window into the mind of a client,” said McGrew. “Software breeds more collaboration.”
Reasonable Expectations From Financial Planning Tools
Data points set reasonable — and measurable — expectations. And that could be the difference between retaining or losing a client, McGrew says.
Software sifts out inappropriate investments. Another tool in Milan’s toolbox is Fi360, a fund monitoring and reporting software that provides accurate investment product data. The software uses a color-coded system to rank and select funds that meet fiduciary performance standards, he says. For example, it helps weed out poor-performing ETFs.
The technology behind financial planning tools can also boost marketing compliance. Software also helps advisors develop acceptable marketing materials and client recruitment tools. Sales enablement software from Seismic, for example, only allows compliant content to be sent out.
“What we’re trying to control is the promotional information going out to clients,” said Bill Finnegan, managing director of financial services marketing at Seismic. The software allows the advisor to see what a prospective client did and did not read. So, if the reader skipped over risks, the advisor could circle back and discuss downsides.
“It provides the advisor with the information to make sure that the customer prospect understands what they are buying,” Finnegan said.
The bottom-line: Computer software takes out the emotion and limits behavioral miscues that lead to investment mistakes.
“It takes away what I call human nature,” Milan said. “There are more strict rules in place. There is less wiggle room.”
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