Journal of Financial Planning: May 2011
Bill Winterberg, CFP®, is a technology consultant to financial advisers in Dallas, Texas. His comments on technology and financial planning can be viewed on his blog at www.fppad.com.
Every day it seems like technology companies are announcing their latest gadgets aimed at improving our lives and personal productivity. The constant introduction of new cloud-computing services, smartphones, and tablet computers certainly makes it challenging to keep up with the latest and greatest innovations coming to market. Financial planners have benefited tremendously from new technologies introduced in the digital age by being able to conduct much of their business while on the go.
However, one area of the digital movement that financial planners have been slow to adopt is document management technology. According to Financial Planning magazine’s 2010 Technology Survey,1 nearly 70 percent of all respondents are not using some form of document management software. In my conversations with planners, I have recognized many misconceptions they have regarding document management that cause them to maintain inefficient and cumbersome paper-based systems in their businesses. In this column, I will highlight five common misconceptions regarding document management and explain how embracing this technology can best position a planner’s business in the digital age.
1. Server File Storage Is Adequate
Many firms scan paper documents to Adobe PDF files, save them in a complex hierarchy of folders on their server, and call it document management. This misconception is fairly common, as roughly one out of four respondents to the 2010 Technology Survey selected Adobe Acrobat as their primary document management system.2 Storing electronic files and scanned documents on a server is an important component to running a paperless office, but it doesn’t represent a complete document management system.
Saving files and scanned documents to a server is fraught with problems. File naming conventions are often long and tedious to enter and most do little to convey the specific content of a document. Sub-folders on the server can be inconsistent. For example, one client’s directory may have a folder for Legal Documents while another client has a folder for Estate Planning. Which of the two folders contains the client’s will? Comprehensive searches for specific keywords across all of a client’s files produce sporadic results, and if optical character recognition (OCR) isn’t applied to scanned PDF files, no matches for the keyword search will be returned because the document’s text isn’t searchable. Finally, documents saved on a server cannot be managed effectively with work-flow processes, such as routing a document for review and approval or sending e-mail notifications triggered by document updates.
Using document management software eliminates a lot of these drawbacks. Such software applications categorize each document using profiles or templates. These profiles populate specific fields that identify the document’s characteristics and content, commonly referred to as metadata. For example, a profile for a tax document may identify the client to whom the document was issued, the form number, applicable tax year, and tax entity (individual, LLC, rental property, etc.).
Profiles enforce good naming conventions that ultimately facilitate document search and retrieval because data about a document’s content is standardized and well-defined. In addition, sophisticated searches are supported in most document management programs, including full-text search, the ability to add stemming (for example, deduct, deducted, deduction), and logical operators (for example, income not dividend) in search phrases.
2. Going Paperless Adds Unnecessary Risk
Financial planners are rightfully concerned about operating a paperless office environment. There are significant risks to the integrity of a document management system, such as a catastrophic server crash or a hard drive failure, that have the potential to erase tens of thousands of documents. But such concerns shouldn’t lead to a mistaken belief that going paperless adds unnecessary risk. Implementing a document management system can actually reduce business risk, provided certain best practices are followed.
Physical files are subject to the risk of loss from disasters. Most modern office buildings have excellent fire suppression systems, but smoke and water damage to documents can still be devastating. Depending on the severity and number of documents affected, recovery and restoration can run well into six figures, not to mention the cost of lost business productivity during the recovery process. On a smaller scale, individuals with access to a planner’s office can photocopy papers or steal folders outright—access to physical records is difficult to control and nearly impossible to track and log.
Document management software allows planners to combine all electronic documents into one central repository. The main repository can be backed up onto devices in multiple physical locations and can be mirrored on a backup server to minimize interruptions to business continuity. Document management software can also restrict access to documents, folders, and virtual file cabinets with strict permission settings. If a user doesn’t have access to a cabinet (for example, the company’s human resource files), the user doesn’t even know the cabinet exists in the system; the cabinet is completely hidden from the user’s view.
For those users who do have access to sensitive or confidential files, document management software maintains a log of each user’s activity in the system. Should an issue develop with a disgruntled employee, compliance personnel can see which files the employee accessed and when. The activity record can be used to identify potential abuse and misuse of access to client and company confidential information.
3. Clients Want Hard Copies
Many planners object that if clients don’t want paperless delivery of documents, why should the firm invest in a document management system? While it may be true today that clients prefer to receive financial planning documents in hard-copy form, I suspect it is because clients have no practical alternative to store their personal documents. They leave a planner’s office with a folder full of paperwork and promptly file it in a cabinet at home, likely never to touch it again. From the planner’s perspective, the only practical way to deliver electronic documents to clients in the past was by e-mail, which has never been a secure way to send files containing confidential information. So the realistic alternative for planners was to deliver hard-copy documents either in person or through the mail.
But as personal scanners, cloud computing, and mobile devices continue to gain acceptance in the consumer marketplace, clients are using new technology to apply viable alternatives to storing physical paper. They’re scanning important papers and storing them on large external USB hard drives, or even more secure, encrypted cloud file storage services. In many cases, clients are now able to find and review their electronic documents right from their smartphones without ever needing to open a file cabinet again.
Planners have the opportunity to lead by example, demonstrating to clients the security and efficiency benefits of document management systems. Today, planners can upload confidential documents to secure web portals where clients can view and download them anytime they wish. Documents can also be loaded on an encrypted USB flash drive and given to clients in lieu of printed reports. In addition, there are services emerging today that automatically synchronize documents directly to smartphones and tablet computers, enabling safe and secure delivery of documents to the most mobile of clients.
4. Document Management Software Is Too Expensive
I contend that the misconception of document management software being too expensive is less dependent on the actual cost of software and is more dependent on the principle of relativity, explored in greater detail by author Dan Ariely in Predictably Irrational.3 Certainly, stand-alone document management systems can cost many thousands of dollars as the number of system users increases. But when the costs of operating without document management are evaluated, the systems begin to appear more and more affordable.
Consider the cost of conducting business without a document management system in place. File cabinets need to be purchased to hold all of the hard-copy documents generated by the firm, and extra square footage is needed to store the cabinets. Add on the costs for consumables, including reams of paper, printer toner, file folders, labels, and miscellaneous supplies. High volumes of printing mean more wear and tear on printers and fax machines, requiring more frequent maintenance and periodic service, all of which adds to the firm’s operating expenses.
These costs are fairly easy to quantify, but what is often forgotten in a cost comparison of document management systems is the cost of time required to find lost paper files. Searching for lost or misplaced files can easily cost an organization tens of thousands of dollars per year. For example, if a planner’s hourly rate is $200 and she spends just one hour each week searching for misplaced paperwork, it equals a cost of over $10,000 in lost productivity over a year. Multiply that figure by other staff and employees at their respective hourly rates, and document management software doesn’t seem so expensive after all.
5. Documents Are Captive in Proprietary Systems
Many financial planners are wary of adopting document management systems because they fear they will be locked into a software program for perpetuity. The concern is that the systems use proprietary databases to store documents and all of their metadata, and converting potentially large volumes of data to another program is next to impossible. So instead of possibly selecting the “wrong” software and moving forward, planners make no choice at all.
Nearly all popular document management systems store files and documents in their native format, so PDF files remain unaltered, Microsoft Office files are not changed, and so on. Also, these systems support the export of complete repository metadata information to common formats widely used to exchange data between programs. In common conversions, metadata can be exported to comma-separated value (CSV) files that can be read by any text editor. In some cases, document management vendors provide conversion utilities that reformat existing database files to be compatible with a new system’s specifications, skipping the intermediate CSV files altogether. Most export utilities do require additional labor and support costs of a few thousand dollars, but they do exist, so planners should not be stuck using one document management program that no longer meets their needs.
Overcome Objections
By clearing up these common misconceptions regarding document management technology, I trust that planners will be inclined to explore how such software can improve a firm’s operations and efficiency. These systems can standardize the way the back office processes documents, dramatically improve business continuity, and demonstrate the firm’s readiness to embrace mobile technology. Few will argue that the new tools and devices of the digital age have opened up new ways of collaborating and doing business, and by overcoming common objections to document management systems, both planners and clients stand to benefit from the use of this innovative technology.
Endnotes
1. Bruckenstein, Joel P. 2010. “Technology Survey 2010.” Financial Planning (December): 60–69.
2. Ibid., p. 67.
3. Ariely, Dan. 2008. Predictably Irrational: The Hidden Forces That Shape Our Decisions. New York: HarperCollins Publishers, 2–22.