Online financial planning tools are not new, but the pandemic has accelerated the move to these channels. Today, being digitally literate has become a prerequisite to being financially literate.
If you have met with your financial professional in the past year and a half, chances are you met over Zoom or FaceTime. Depending on your tech-savviness, your financial professional’s office either delivered a hard copy of your financial report to you, emailed you a PDF ahead of your meeting time, or shared their screen during the video call to review it with you. If the latter, they may have been able to change factors in the reporting program in real time to show you how different investment amounts or asset allocations might change your projected outcomes.
These new capabilities – being able to see instant analyses of how your financial future could look, depending on certain variables – can feel magical to investors who are used to decades of “analog” financial advice. In our new remote realities, the trope of adult children attempting to teach their parents how to log onto their Zoom meeting has already been played out. Today, being digitally literate has become a prerequisite to being financially literate. It is nearly impossible to separate the two, because the investment world has migrated so completely online.
While the trend toward using online tools for financial planning began over a decade ago, the pandemic has necessitated, and therefore greatly accelerated, the move to these new channels for all clients, not just millennials. In years prior, a financial professional might have reserved remote meetings only for younger clients, who are comfortable with computers because they grew up with them and who also put a higher premium on the time spent commuting to and from the firm’s office. Now, across all age groups, in-person meetings with financial professionals can feel as rare as house visits from doctors.
Investors are also getting more comfortable with the robo-advisors available today, which in some cases cut a human financial professional completely out of the picture. In the past, a financial professional was often necessary because of the time and energy it would have taken to gather information on all the various investment options available. Now that information is widely available online, and investors themselves spend a lot of time figuring out which sources they can trust to deliver unbiased information, reviews, and commentary. Recognizing the rise of online planning, many firms have introduced their own digital calculators or other online tools to attempt to provide a hybrid model to investors who first want to figure out some elementary calculations on their own.
Beyond simple transactions, most major investment firms and smaller advisor shops host or partner with companies who develop sophisticated calculators. These can illustrate an asset allocation’s projected growth and the approximate taxation on that growth; how attainable your retirement goals are; if you’re saving enough for your child’s education; or how the cost of a long-term plan policy compares to saving and paying out of pocket. These calculators can look at every facet of your planning needs and aggregate your various bank, investment and retirement accounts, insurance cash value, and real estate holdings into one place. They can also synthesize the data with assumed inflation and growth rates so that you can have single top-down view of your entire financial life – and where it may be headed.
While those results might sound like a complete picture, the calculator is only as knowledgeable as the person inputting and running the numbers. For example, the average annual inflation rate of the last 50 years is 3.79%, and a financial professional might believe that that should be figured into a yearly increase of how much you need in retirement.1 However, up until the past 6 months, there hasn’t been much broad inflationary pressure on the economy in over 30 years.2 As a result, some might see that increase as unnecessary and lower the rate, or they might even remove it from the equation altogether. Adjusting just one input can drastically change the outputs of these calculators. Ultimately, there is no replacement for a knowledgeable financial professional to walk you through these scenarios and calculations.
Whether you want to embrace the bare technological minimum or go fully digital, migrating to an online format can make it easier to involve others in your meetings with your financial professional, such as an attorney regarding estate-related planning or an adult child who lives in another state and otherwise could not attend. While at first it may seem that meeting remotely would be a barrier to an active and frank consultation, a virtual option can bring more relevant participants to the table to work through the planning process efficiently.