“We’re thinking we’ll create our own software,” a prospective client told me recently. I sighed, partly because I might lose a sale, but more so because I am well aware of the difficulties of developing your own software.
In-house software development is more work than most people think. As we talked, the prospective client asked me to send him an email with reasons they may not want to develop their own software. If your company is considering writing its own software when other solutions are available, please take a moment and review the considerations below. They might apply to you—or they might not—but at least take a moment to ensure you are up to the task.
Here are ten reasons to work with a proven software development company rather than developing your own software. My focus here is with working with 401(k) plans, but the logic could be applied to any retirement planning solution.
- Starting from the ground up is difficult, and it’s hard to realize just how difficult it is. Running a software development team requires discipline. If software is your specialty, then you have a fighting chance, but there are so many software projects that have nothing to show despite significant investments. If you haven’t developed software before, trying to limit what features get implemented can be overwhelming. (Read Edward Yourdon’s insightful book, “Death March,” which describes how software projects can grow and grow and never come to completion—I’ve experienced that at several companies.).
- Few realize how complex the math becomes. Even the seemingly simple task of calculating the accumulation of an account involves multiple factors:
- 401(k) contribution limits for the employee and employer, as well as the employer’s own limits, may change over time.
- Participants can contribute to both a pre-tax and Roth account with an overall limit.
- Employer contribution options include typical matching, class-based profit sharing, safe harbor, a specific dollar value, and more. TRAK (The Retirement Analysis Kit) allows 10 contribution options, which can be combined. (TRAK accommodates employer contribution options that match every request we’ve received to date.)
- Contribution rates can increase over time (“auto escalation”), which must be taken into account and can increase in complexity when a Roth account is in the picture, raising questions about which account receives the increase in contributions.
- Glide paths allow for changing the rate of return as a participant gets closer to retirement.
And these complications are just the “easy” math. Many other, more complex aspects of retirement planning further complicate the calculations.
- Reports for the plan sponsor show how participants are doing by various demographic characteristics (e.g., age, income level). A typical report can provide 20 pages of charts and grids, but typically each advisor has his or her favorite 4–5 pages, customizing the report by selecting which charts should be printed and in which order.
- Developing great-looking reports is challenging. We have a designer and a detailed process whereby we work hard to keep the reports looking professional and sharp. (We updated 100+ reports last year, which required four months of a programmer’s time.) Advisors often want report elements printed in a particular order, or they want to turn features on/off in specific reports. Our professionals can do all of this, making it seem much easier than it actually is.
- Data display and visualization are also key. Many individuals are happy with a graphical summary of the data, but others want to see annual breakdowns of cash flow, and still others want to see projections on a monthly basis. And seeing this information in a single chart is often insufficient; it needs to be visualized in different ways for different scenarios.
- The best retirement planning software encourages interaction with the participant. In two of my recent podcasts with advisors (Ann Vanderslice, who works with federal employees, and Eric Stevens, who works with 403(b) clients), we discussed the importance of allowing individuals to express concerns regarding their retirement illustration and instantly make changes to what they are seeing. This heightens their engagement in and understanding of the pursuit of a successful retirement solution.
- The industry is constantly changing, from regulatory demands (e.g., last year’s SECURE Act brought changes that had to be implemented in just a few weeks over the holidays) to what advisors want from their solutions (e.g., future escalations in contributions as a solution to a retirement shortfall). We are constantly listening to and logging requests from advisors as we continually improve the software solution.
- Any good software tool requires tutorials, manuals, videos, webinars, podcasts, and a support desk. We provide all of these. I continually seek input from our users, and my employees consistently receive high marks on their helpfulness and knowledge. We provide full service and technical support, including weekly web training classes, a library of videos, and a 600-page user manual that also shares sales insights drawn from 30+ years of experience.
- Advisors always want additional features. Managing these requests, prioritizing them, and implementing them are key to the continued success of any product.
- The National Tax-Deferred Savings Association (NTSA), the 403(b) arm of the American Retirement Association, recommends TRAK software because of our commitment to the pension plan world. TRAK can illustrate the cash flow of over 600 public pension plans. No other company comes even close to this—and we offer superior features within pension plans compared to any other company in the market.
I hope this list persuades you to go with a proven company—even if it is not us—rather than trying to develop your own in-house software.