The two most dominant financial planning software vendors of the independent advisory channel each made announcements this week, with one delving deeper into borrowing and refinancing decision making, while the other is creating more robust end-of-life cash flow modeling.
On Monday, Envestnet | MoneyGuide announced the addition of two new financial planning modules, known as “Blocks”: “One concerns loan option considerations and the other concerns refinancing ongoing mortgage debt. On Wednesday, eMoney Advisor then released updates to its simulation engine regarding longevity risk as well introduces a new metric called Confidence Age, which an adviser can use to determine the exact age at which a customer would see their customer’s success. The financial plan begins to fall below a preset threshold.
The newest MoneyGuide blocks, numbered 34 and 35, are called “Spend vs. Borrow” and “Mortgage Refinance.” “Spend vs. Borrow is a planning module that allows customers to choose between liquidating assets and taking out a loan. Loan Options take into account interest rates and credit scores, but perhaps most importantly, the block “can give advisors the ability to issue a credit referral and keep funds under management with the firm,” the announcement says. Firms using the block , can embed their own product solutions, and Envestnet plans to incorporate certain planning modules into the Advisor Credit Exchange, which Envestnet Credit Exchange operates.
The mortgage refinancing block is designed to help the customer analyze whether current interest rates and other factors are supporting the refinancing of a mortgage. Similar to Spend vs. Borrow, this block can also “lead to new credit opportunities” according to the announcement. “The timing is just right for our latest blocks to further enhance those kind of meaningful conversations that advisors have with clients,” Tony Leal, president of MoneyGuide, said in a statement.
eMoney addresses longevity risk and introduces a new metric
In the meantime, eMoney is adding features designed to give customers peace of mind if they fear they might outlive their fortune. A feature called “longevity risk analysis” helps clients prepare for a longer-than-expected retirement. Essentially, product improvement uses actuarial data to better project cash flows over time. According to the announcement, the “interactive experience” should “facilitate critical discussions” and “inform consultants and customers about the often surprising statistics on life expectancy”.
In addition to the new function, eMoney has invested in and developed a new metric called “Confidence Age”. The metric offers advisors a specific age at which the probability of success of a financial plan falls below an adjustable threshold. An example is given in the announcement where the consultant wants to provide a plan with a greater than 85% chance of success. The confidence age is the last age at which the success rate stays at 85% or more.
“There’s confusion about a Monte Carlo score, so we have the confidence score and the confidence age,” said Matt Rogers, director of financial planning at eMoney. He pointed to the 75th percentile in a simulation as an example of one that customers think is low but that is actually “pretty good.”
Instead, consultants can now refer to age instead of percentiles. “People are getting old; rather than percentiles, ”he added. “It’s a better context than one based on percentiles.”
The MoneyGuide and eMoney enhancements are now available to advisors using their platforms.