Financial Planning Software has always used scenarios as its operational foundation. The client's existing financial situation is modeled and then compared to an alternative with one or more recommendations. For advisors that take planning seriously, there’s a lot more that goes into a “Plan” than a set of suggested actions. Some planning conversations require a deviation in the path that represents their current goals, and there is a huge opportunity here for advisors to separate themselves from the pack.

Scenarios are basically the delivery devices of advice, and each one poses one or more conversation points or education opportunities. Scenarios are created to confirm benchmarks, to deliver actionable advice, and to facilitate a myriad of other conversations advisors should be having with clients. However, the traditional planning experience limits scenarios by constricting the number of scenarios that can be created and what can be done with them. Financial planning software needs to innovate on how scenarios are used with clients by opening up the engagement and empowering the client to interact with the possible decisions of their actual plan.

We’ve identified 7 different uses of Scenarios that engage clients and how the future of financial planning software will evolve these concepts. Not all planning tools are the same, and some of these scenarios are not possible in most financial planning applications available today. Fortunately, a new generation of advisors and clients are shifting the focus of planning software to a more advice oriented and client friendly digital experience. Achieving that goal will require a change in philosophy on Scenarios that expands clients ability to engage with their plan.

The Definition of Planning

The first two types of Scenarios, as discussed previously, are the very definition of planning software and has been since the days of DOS. Every planning software that has ever existed has had these two scenarios represented, but it doesn’t mean there’s no room for improvement.

#1 - The Current Plan

It may sound odd to hear this, but the Current Plan is probably the most underutilized scenario in financial planning software. How can that be if it's the very definition of planning? It's underutilized because it's not taken seriously as a scenario though it's likely the most important scenario you’ll engage the client. This is their life, right now! How can it not create the most emotional investment and act as the facilitator of any future adoration by the client for their plan.

The current plan acts as the benchmark of the entire planning process. No matter what scenarios we talk about moving forward, they will all be ultimately compared to the yardstick of what the client is currently doing for themselves without your help.

Most financial planning processes could be greatly improved by paying attention to the specifics of the Current Plan and how it should emulate the life of the client to the best of the softwares ability. And that's the problem? Most traditional planning softwares treat the Current Plan as an Investments repository that we’re trying to get through as fast as possible. However, the Current Plan is an art and requires expertise. Unfortunately, the expertise you can use will depend on the planning software, which varies greatly in this area.

Data input issues that come standard with the traditional planning experience are usually very limited on their future assumptions. How much income does the client and co-client bring in annually? Most technologies assume it never changes. Will you be moving in the future? One typically can only assume once and that's at retirement. Not good for a post-covid time where so many jobs can now be done from anywhere. We could sit here all day listing the ways the current plan could not adhere to the actual life of the client or prospect in the traditional financial planning experience.

Another very important reason why the current plan carries so much weight in the mind of the client and in our planning process is that it represents the success of our advice. The Current Plan should represent the sum of the value of our advice because if this is a recurring relationship, then the Current Plan will be the one place that should hold all advice actions we’ve suggested that have been executed on.

#2 - Suggested Actions

If the Current Plan is the clients most important plan, then the scenario that represents Suggested Actions would be the advisors. This scenario is your advice and represents your value, depending on how many other types of scenarios you engage the client. A Recommended Plan is one-half of traditional planning but of course financial planning software differs greatly between aps in how that experience is used.

Unfortunately, the user is at the mercy of the software as to what can be offered as advice and the greatest opportunity for vendors is to improve the usefulness of Recommendations. Of course, it's typical to suggest adding an asset or changing how it's invested, but it's not very common in financial planning software to model refinancing credit cards. Maybe this is something you’ll mention to the client, however, you won’t get credit for it because it wasn’t recorded in the financial plan.

A lot of the innovation that will surround the next generation of planning is tracking advice. Certainly, there’s a lot that should be tracked in the plan, such as the inputs that made up the current plan or who has accessed it, but the tracking of any recommendation is critical. The traditional planning experience will typically keep a record of a plan by keeping PDF’s of reports. This is an obviously deficient method of documenting advice because it ignores all the conversations that happened outside of the PDF Report. Additionally, anything setup in the clent portal is ignored by that method.

Typical Players & Cameos

Though way too many plans created today contain mainly our first two scenarios, there are several other Scenarios that are common in planning experiences. Some have recurring roles in most planning experiences, such as a life gap analysis or a re-investment strategy, however so much more can be done with these types of scenarios that could really keep our clients engaged and show our expertise as advisors.

#3 - Personal Events

Risk is the most common type of Personal Event in financial plans. Some of the most popular planning experiences include a gap analysis for Life, Disability and LTC whether you want it or not. Other examples of Personal Events are Job Loss, expectations of decreased pension payouts, etc.. They are all examples of Stress Testing the plan, but instead of planning for global events, Personal Events are specific to the household, thus closer to the client.

To differentiate their services, advisors could be going much deeper within Personal Events and our common risk scenario is the perfect example. The gap analysis for early life expectancy is in most plans, but advisors seldom go the easy extra mile because the software they use seldom gives them the opportunity to do so. Most planning experiences allow for some lite options at the loss of a co-client, but, in real life, more will change in the survivor’s life other than what goals to keep or remove from the plan.

As with any type of Scenario discussed here, there’s opportunity in being more specific with negative scenarios because it gives us the ability to apply expertise, but there’s also opportunity in creating scenarios of hope. There’s a perception that people like hearing bad news, but that's when it applies to someone else. We will improve the client's connection with the plan by engaging them with enjoyable exercises that are about most people's favorite topic … themselves.

Advisors could engage clients with scenarios about a Pay Raise just as easily as a Job Loss. What’s the plan on how that money would be used? It's a dimension of advice advisors seldom take advantage of even though they have software that facilitates the conversation in minutes. There’s opportunity in show-casing advice by going deeper in the typical event scenario than what advisors take advantage of today, but, on the other hand, the traditional planning experience isn’t really helping all that much either.

#4 - Strategies
A low-hanging fruit scenario that typically accompanies Personal Events is a Strategy. The trinity of Strategies for planning solutions since the beginning of time to today is 1) reinvestment of assets, 2) saving more, and 3) spending less. The traditional digital planning experience easily allows for these common solutions and suggestions, but it does not allow advisors to set up scenarios that can better educate and showcase their advice around these or any other actions recommended. How can clients or even the advisors building the plan test out suggestions they are making?

Every strategy suggested to a client could have an additional planning experience setup in the form of a scenario. It's typical to show the client the current plan and then suggestions, but what about other possible recommendations? Chances are your clients aren't completely oblivious to actions that could be taken, and one can increase emotional investment into the plan by presenting a scenario for the client to engage that would have your suggestion as well as some other options. Now, the client can see your suggestions producing the best results.

The largest opportunity in creating Strategy Scenarios is using them to discuss strategies that are not low hanging fruit. Again, the design of the individual planning software will determine if some strategies are even possible to model. They’ll need to allow the creation of multiple scenarios along with the ability to manage many. Additionally, those scenarios need to be separate from each other. If your planning software allows them, there’s an endless supply of strategies that could be modeled that would really impress and educate the client

A prospect who owns multiple properties could sell, rent, upgrade, etc. A discussion around financing and payment could be helpful and very engaging. If you charge for planning, this is exactly how you can engage the client more by letting the technology do the heavy lifting. It's very common during a home upgrade to ask if it is worth financing the new home to the point they could keep their first home and rent it out. What does that strategy look like? Another example is that clients are likely making multiple payments to various debt obligations and saving to multiple assets. If putting those options in front of the client could foster a strategy conversation, then it should be worth the effort for advisors that want to offer more advice and value to their clients.

Where Planning Falls Short

Just about any Financial Planning Software is a powerful tool, but most are designed in a way that prevents advisors from using these last three scenarios as effectively as they could. The main reasons they fall short are that (1) the design limits the number of scenarios that can be created, 2) scenarios are not completely independent, and 3) advice is represented by disparate buttons and levers, rather than specific actions.

#5 - Stress Testing

Checking results after applying pressure to plan variables that represent national or global events is Stress Testing in planning software. The most common form of a stress test is a Recession Analysis, in that applying pressure to down returns due to factors out of your control is by far the most common form of testing a plan. However, there is so much more to testing the macro events that affect a plan than returns, and the future of planning software will find more ways to introduce stress testing scenarios so that advisors can deepen their conversations about the effects of outside influences.

Recent events should easily highlight the need to test plans on more than mere down returns. How about inflation? This recent time of high inflation will be on people's minds for a long time and it's worth taking into consideration when educating the client. Another one that hits a little closer to home and could be considered a Personal Event is job loss, which is another recent event people (Covid) will not forget for a while. Of course, just like any scenario, its effectiveness will depend on what you know about your client and their situation, which brings a little art to this science. Additionally government actions such as changes to Social Security and Taxes are great possible engagement scenarios, but likely only for those hawkish clients who care.

The other low-hanging fruit of Stress Test Scenarios is Goal Testing. It's the ultimate in client engagement because we’re testing the plan elements that the clients have the most emotional investment about. Of course, the better off you are, the more you discover goals and use other strategy scenarios (such as Goals Coaching Scenarios discussed later) to break them apart into units that are more playable and easier to iterate in the plan. Lets say your client has three kids and thus three college goals. There are a lot of ways real life could go, so a Strategy Scenario that brought in the goals and other possible expenses during college could be very engaging and informative.

#6 - Dream-Planning

Financial advisors are frequently presented the opportunity to discuss their clients Dreams, but traditional planning software has not created an outlet for that level of advice. It's true that many planning softwares talk about goals heavily, but goals can be different than dreams. Your goals are represented in the plan as of today, but dreams are about planning for events that are not taken into account in the current goal plan. Some obvious examples are starting a business or taking a sabbatical. There are many traditional dreams that clients and prospects express to their advisors, and, unfortunately, advisors don't have the ability to express those dreams in the financial plan.

Your client has a goal of retiring at a certain age and for a certain amount, but they also have a dream of retiring early …to the beach. What do you do today if a client asks you this question? Do you just speak to it at a high level? Do you copy that client or create a brand new one? Traditional planning software does not allow for scenarios that deviate away from the established goals of the plan, so to retire early to the beach we need to sell our house we were not selling originally and buy a less expensive house that was not already represented. Maybe our income and expenses change. Other goals, etc. Just remember there’s no limit to how simple or general the dream is set up to be and, of course, there's no limit to how sophisticated it can be either for those that need or want it.

Every client has these dreams whether you bother to ask about them or not…the opportunity is certainly there. What if some clients looked at their home upgrade goal and wanted to know what their retirement looks like if they found a way to keep the current house and rent it instead of selling it? Could you confidently answer that question with your existing planning software? Likely not, but you should, and it should only take a few minutes. Dream planning is a game changer for advisors looking for an obvious way to offer more value to their clients.

#7 - Coaching Scenarios

This experience is built to get more out of your planning services but it's likely the least used strategy in scenario usage. Coaching is helping clients get to where they want to be in their financial life, but we use Coaching Scenarios to help clients get to the information for their plan that only they can define. This information is typically not something the client knows off the top of their heads, and It doesn’t make sense to spend too much time up front in data gathering when the plan can move forward with a guess.

If you’re the type of advisor who likes the idea of having better information for critical areas of the plan, then coaching scenarios can be set up by advisors with the creation of themed scenarios. The added benefit of this experience is that it's easily designed to be interactive and sometimes fun, but will always increase the emotional investment into the plan.

Financial planning tools are very different in how a user creates a scenario, and this is the opportunity of the future of planning software. Some traditional planning tools have the ability to use a single scenario for recommendations, which makes coaching scenarios very difficult. However, if your planning software does allow multiples, the idea would be to engage the client with preset options. A perfect example of this would be how much they are spending, which is an absolutely critical number for the plan, but it is most often a pure guess. A coaching scenario would turn off the current guess of $100,000 a year and then add 5 to 10 expense categories that would make up that $100K. The value of this exercise is not for the 10 boxes to add up to $100k, though that would be nice, but to learn if $100K was even a good guess to begin with.

The value of this system ultimately to the advisors is that it allows them to move forward with the planning process early because a coaching scenario can be engaged at any point of the process. Some advisors will prefer to do a coaching scenario in data gathering and some will use it as a touch point in a more service oriented process.

Other ways to use Coaching Scenarios are to set up actions for Travel or College Goals. Both are examples of goals in our plan that are typically guessed and we could turn them into fun exercises, which make Coaching Scenarios extensions to the goal-based conversation. These scenarios could also be extensions to other conversations like the personal event of Life Insurance. In a Personal Event scenario we would take the liberty to present options, but as a Coaching Scenario, it's more of a discovery conversation on what the surviving spouse would or would not do that goes into more details than a simplistic gap calculator type of experience.

Conclusion

​Our world of plan-tech should be changing rapidly around us, but it has come up short in the obvious area of improving the engagement of the digital planning experience for clients. Every micro-generation’s usage of technology increases and so do their expectations of empowerment. Advisors should be using financial planning software to its fullest extent by connecting clients to fun and interesting experiences designed to increase their emotional investment into their plan. Ultimately, technology should make it easier to model real world scenarios with clients rather than being the reason they cannot take advantage of those fertile areas of opportunity.