Financial advice is changing. The Department of Labor Fiduciary Rule represents a solid step towards requiring that people who deliver advice and/or product must do so in a way that actually benefits clients, must be able to quantify the value delivered, and have a reasonable basis for demonstrating that value is commensurate with the fees charged for the engagement. Inevitably, this environment creates two paths for advisors: either participate in a race to the bottom, maintaining current service levels while cutting fees, or increase the value delivered and identify ways to track and quantify that value. Much of the industry will be involved in a race to the bottom, but there will be significant opportunity for those who choose the latter path. Vanguard calls the value that is delivered through an advisory relationship “Advisor Alpha;” Morningstar calls it “Gamma.”
Covisum is a financial tech company that finds significant gaps in financial understanding and then builds software solutions that help advisors and financial institutions grow by delivering value to their clients.
Social Security Timing
Since the development of our first software as a service product, Social Security Timing® in 2010, we’ve been developing software that identifies and quantifies sources of Advisor Alpha. Social Security Timing allows advisors to sort through the thousands of Social Security claiming options and identify the one that offers the highest lifetime value to clients. The difference between what most people do and what Social Security Timing would suggest they do is often over $100,000. According to research by David Blanchett of Morningstar, spread over a lifetime, the average equivalent “Alpha” an investment portfolio would need to deliver in order to have this impact is approximately 74 basis points annually.
In February of 2016, we launched our second product, Tax Clarity®, which allows an advisor to quickly diagnose client situations in which an additional dollar withdrawn or contributed from a retirement account or a capital gain harvested from a non-qualified account would have an impact far greater than their tax bracket would suggest. For example, a client in the 15% federal income tax bracket can actually face an “effective marginal rate” of over 49.95% on an additional dollar withdrawn from an IRA. Some academics have suggested using this as an important annual process with clients, though no research has specifically quantified the “Advisor Alpha” that may be achieved by doing so.
In August of 2017, we launched our third product, SmartRiskTM, which is a heavy-tailed model to evaluate investment risk developed by Ron Piccinini, Ph.D. We expect a significant change in the market in the next few years that will require advisor risk measurement and communication to align with enterprise risk communication and metrics. SmartRisk is the best solution for advisors to properly align their client’s risk tolerance with the actual risk in their portfolio. We believe a solid risk discussion is the central element of behavioral coaching, which multiple studies have quantified as delivering Advisor Alpha upwards of 1.5% annually. Additionally, our SmartRisk technology is being used to power Portfolio Margin lending for a clearing broker-dealer and has been through extensive FINRA review on its methodology.
In January of 2019, we launched Income InSightTM, our new fully-integrated retirement planning platform that quickly and easily shows the impact of different decisions within a client’s financial plan. Income InSight resolves or eliminates conflicts within the various decisions and deeply integrates with our other tools: Social Security Timing®, Tax Clarity®, and SmartRiskTM, for a more accurate and cohesive financial picture. Income InSight helps financial advisors identify and project how expenses, income streams, accounts, investments, and insurance could be used throughout the client’s lifetime to supply the after-tax retirement lifestyle they desire and provide the client with a clear vision of their retirement.
Each of these individual tools represents an entry-point to a financial planning process that is designed to quantify and deliver Advisor Alpha. Advisors and financial institutions rely on us to help them guide their clients to make the best financial decision. With our proven process, advisors are able to streamline their practices, offer actionable insights and utilize successful marketing tactics.
Grow your business. Use Covisum tools to help you.
Our team of experts will walk you through implementation and answer any questions you or your clients have. We understand that it’s easier for a client to stay on their current path, rather than create a new one. Our actionable client reports help you paint an accurate picture of retirement strategy outcomes, making it easier to define the strategy that helps them meet their financial goals.
“You have convinced me that as a CFP and enrolled agent, I have greatly failed my clients in that I have not had this knowledge to share with those ages 62 and older. I feel it is imperative that I get to know this data well enough to start doing presentations at least to my existing clients, and eventually to the general public.” Read more.