Method and system for financial advising

• US 7,650,303 B2
• Filed: 06/09/2006
• Issued: 01/19/2010
• Est. Priority Date: 11/05/1998
• Status: Active Grant

• Current Assignee: Wealthare Capital Management IP LLC
• Original Assignee: Financeware Incorporated
• Inventors: Loeper, David B.
• Primary Examiner(s): Patel; Jagdish N
• Assistant Examiner(s): CHANDLER, SARA M
• Application Number:
  US11/423,165
• Publication Number:
  US 20060218068A1
• Time in Patent Office: 1,320 Days
• Field of Search: 705 35- 37
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of providing financial advice to a client that provides sufficient confidence that their goals will be achieved or exceeded but that avoids excessive sacrifice to the client'"'"'s current or future lifestyle and avoids investment risk that is not needed to provide sufficient confidence of the goals a client personally values. The method comprises obtaining typical client background information, as well as a list of investment goals, and ideal and acceptable values in dollar amounts and timing for each goal. The client is then asked to provide their preferences for each goal on the list compared to each other goal in the list, wherein the client'"'"'s preference is expressed in terms of the price, in money or time, that the client is willing to pay in one goal to achieve another goal or a greater amount or sooner timing of other goals on the list. A matrix can be used to express these value contrasts. A recommendation is then created using the portfolio value, and the client goal preferences and the ideal and acceptable values of goals, by simulating models of the relevant capital markets and investing exclusively in passive investment alternatives to avoid the risk of potential material underperformance of active investments under the premise of avoiding investment risk that is not needed to confidently buy the client the goals they personally value. The recommendation may include a range of portfolio values over their life or time horizon within which the client'"'"'s portfolio should remain in order to ensure the recommendation remains within a “comfort zone”, which represents sufficient confidence that the client'"'"'s goals will be achieved while avoiding excessive current sacrifice. Periodic monitoring of the recommendation is also performed to capture changes to the client'"'"'s goals and actual portfolio values based on the results of the capital markets. Appropriate changes to the recommendation can then be made to ensure that the recommendation remains within the “comfort zone”.

Claims

1. A method of financial advising comprising:

obtaining by a computer a list of a plurality of client investment goals from a client, and for each goal, identifying ideal and acceptable values, the ideal value of each goal being the value for that particular goal that the client most prefers to achieve, and the acceptable value of each goal being the value for that particular goal that is less preferable to the client compared to the ideal value but that is still acceptable to the client;

performing a first simulation by the computer of a plurality of model investment portfolio allocations over a first predetermined time period using a capital market modeling technique, the first simulation accounting for investments and expenditures planned to occur during the first predetermined time period;

determining by the computer, using the first simulation and the ideal and acceptable values for each goal, a recommendation comprising an investment allocation and a recommended value for each investment goal, where the recommended value for each goal is not better than the ideal value and not worse than the acceptable value and wherein the recommendation has a measured confidence of exceeding the recommended value for each goal and wherein the measured confidence is within a predefined range;

performing by the computer a second simulation of the recommended investment allocation over a second predetermined time period using the capital market modeling technique, the second simulation accounting for investments and expenditures planned to occur during the second predetermined time period; and

determining by the computer, using the second simulation of the recommended investment allocation, (1) a plurality of upper boundary portfolio values, each upper boundary portfolio value corresponding to a date in the second predetermined time period, each upper boundary portfolio value comprising an amount of money calculated to provide a first predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (2) a plurality of lower boundary portfolio values, each lower boundary portfolio value corresponding to a date in the second predetermined time period, each lower boundary portfolio value comprising an amount of money calculated to provide a second predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (3) a plurality of anticipated future portfolio values, each anticipated future portfolio value corresponding to a date in the second predetermined time period, and (4) an estimated chance that the anticipated future portfolio values will be greater than the upper boundary portfolio value on a corresponding date or be less than the lower boundary portfolio value on a corresponding date.

2. The method of claim 1, wherein the ideal and acceptable values for each goal correspond to at least one of a dollar amount or a time for achieving the goal.

3. The method of claim 1, further comprising:

communicating by the computer to the client the estimated chance obtained in the second simulation.

4. The method of claim 1, wherein the recommended investment allocation includes only passive investments.

5. The method of claim 1, wherein the capital market modeling technique comprises a reverse iteration algorithm.

6. The method of claim 5, wherein performing a first simulation of a plurality of model investment portfolio allocations using a reverse iteration algorithm comprises:

obtaining by the computer a targeted portfolio end date and a targeted portfolio end value; and

for each of a plurality of periodic dates over a time period extending from a present time to the targeted portfolio end date, determining by the computer an amount of money needed to have a targeted confidence of having the targeted portfolio end value at the targeted portfolio end date.

7. The method of claim 6, wherein the periodicity of the plurality of periodic dates is annually.

8. The method of claim 1, wherein the capital market modeling technique of the first simulation comprises a Monte Carlo analysis.

9. The method of claim 1, wherein the capital market modeling technique of the second simulation comprises a Monte Carlo analysis.

10. The method of claim 1, wherein the predetermined time period used in the second simulation is one year.

11. The method of claim 1, further comprising:

determining by the computer an initial value of a client investment portfolio.

12. The method of claim 1, further comprising:

obtaining by the computer a relative value comparison between pairs of investment goals within the list of goals;

wherein the step of determining the recommendation uses the relative value comparison between pairs of investment goals and the simulation of the plurality of portfolio allocations.

13. The method of claim 12, wherein the step of determining the recommendation using the relative value comparison between pairs of investment goals further comprises determining whether one or more low valued goals can be achieved with modifications to the values of other goals on the list.

14. The method of claim 12, wherein the step of obtaining a relative value comparison between pairs of investment goals further comprises developing a matrix of the goals that represents the relative comparison between the pairs of investment goals, and wherein the step of determining the recommendation uses the goal matrix.

15. The method of claim 12, further comprising:

periodically determining whether the client would like to add new goals or remove goals from the list of investment goals, or whether the client would like to make changes to the relative value comparison among the goals; and

re-performing by the computer the first performing and determining steps if the client has added or removed goals from the list of investment goals, or if the client has made changes to the relative value comparison.

16. The method of claim 12, wherein the relative value comparison is represented in terms of the price, in money or time, that the client is willing to pay in one goal within each pair of investment goals to achieve the other goal in the same pair of investment goals on the list.

17. The method of claim 1, wherein the ideal value of each goal is expressed either in terms of a soonest time for achieving the goal or a largest dollar value of the goal;

and the acceptable value of each goal is a smaller dollar value or a later date for achieving that goal compared to the ideal value, and that is still acceptable to the client.

18. The method of claim 1, further comprising:

obtaining by the computer a client targeted end date and targeted end investment portfolio value.

19. The method of claim 1, wherein the measured confidence of exceeding the recommended value for each goal is determined by calculating a percentage of a plurality of different simulations in which the recommended value for each goal is exceeded.

20. The method of claim 19, further comprising:

comparing by the computer the calculated percentage of the plurality of different simulations in which the recommended value for each goal is exceeded to a predetermined comfort zone; and

determining by the computer if the calculated percentage falls within the comfort zone.

21. The method of claim 1, further comprising:

periodically monitoring by the computer the recommendation to determine whether, based on a current value of the client investment portfolio, the measured confidence is still within the predefined range; and

re-performing by the computer the first performing and determining steps if the measured confidence is not still within the predefined range.

22. A device for financial advising comprising:

a processor configured for obtaining a list of a plurality of client investment goals from a client, and for each goal, identifying ideal and acceptable values, the ideal value of each goal being the value for that particular goal that the client most prefers to achieve, and the acceptable value of each goal being the value for that particular goal that is less preferable to the client compared to the ideal value but that is still acceptable to the client;

the processor further configured for performing a first simulation of a plurality of model investment portfolio allocations over a first predetermined time period using a capital market modeling technique, the first simulation accounting for investments and expenditures planned to occur during the first predetermined time period;

the processor further configured for, using the first simulation and the ideal and acceptable values for each goal, determining a recommendation comprising an investment allocation and a recommended value for each investment goal, where the recommended value for each goal is not better than the ideal value and not worse than the acceptable value and wherein the recommendation has a measured confidence of exceeding the recommended value for each goal and wherein the measured confidence is within a predefined range;

the processor further configured for performing a second simulation of the recommended investment allocation over a second predetermined time period using the capital market modeling technique, the second simulation accounting for investments and expenditures planned to occur during the second predetermined time period; and

the processor further configured for, using the second simulation of the recommended investment allocation, determining (1) a plurality of upper boundary portfolio values, each upper boundary portfolio value corresponding to a date in the second predetermined time period, each upper boundary portfolio value comprising an amount of money calculated to provide a first predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (2) a plurality of lower boundary portfolio values, each lower boundary portfolio value corresponding to a date in the second predetermined time period, each lower boundary portfolio value comprising an amount of money calculated to provide a second predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (3) a plurality of anticipated future portfolio values, each anticipated future portfolio value corresponding to a date in the second predetermined time period, and (4) an estimated chance that the anticipated future portfolio values will be greater than the upper boundary portfolio value on a corresponding date or be less than the lower boundary portfolio value on a corresponding date.

23. The device of claim 22, wherein the ideal and acceptable values for each goal correspond to at least one of a dollar amount or a time for achieving the goal.

24. The device of claim 22, wherein the processor is further configured for communicating to the client the estimated chance obtained in the second simulation.

25. The device of claim 22, wherein the recommended investment allocation includes only passive investments.

26. The device of claim 22, wherein the capital market modeling technique comprises a reverse iteration algorithm.

27. The device of claim 26, wherein the processor is further configured for performing a first simulation of a plurality of model investment portfolio allocations using a reverse iteration algorithm by performing the steps of:

obtaining a targeted portfolio end date and a targeted portfolio end value; and

for each of a plurality of periodic dates over a time period extending from a present time to the targeted portfolio end date, determining an amount of money needed to have a targeted confidence of having the targeted portfolio end value at the targeted portfolio end date.

28. The device of claim 27, wherein the periodicity of the plurality of periodic dates is annually.

29. The device of claim 22, wherein the capital market modeling technique of the first simulation comprises a Monte Carlo analysis.

30. The device of claim 22, wherein the capital market modeling technique of the second simulation comprises a Monte Carlo analysis.

31. The device of claim 22, wherein the predetermined time period used in the second simulation is one year.

32. The device of claim 22, wherein the processor is further configured for determining an initial value of a client investment portfolio.

33. The device of claim 22, wherein the processor is further configured for obtaining a relative value comparison between pairs of investment goals within the list of goals, and wherein the processor is further configured for determining the recommendation using the relative value comparison among the goals and the simulation of the plurality of portfolio allocations.

34. The device of claim 33, wherein the processor is further configured for determining the recommendation using the relative value comparison between pairs of investment goals further by determining whether one or more low valued goals can be achieved with modifications to the values of other goals on the list.

35. The device of claim 33, wherein the processor is further configured for developing a matrix of the goals that represents the relative comparison between the pairs of investment goals, and wherein the processor is further configured for determining the recommendation using the goal matrix.

36. The device of claim 33, wherein the processor is further configured for:

(a) periodically determining whether the client would like to add new goals or remove goals from the list of investment goals, or whether the client would like to make changes to the relative value comparison among the goals; and

(b) re-performing the first performing and determining steps if the client has added or removed goals from the list of investment goals, or if the client has made changes to the relative value comparison.

37. The device of claim 33, wherein the relative value comparison is represented in terms of the price, in money or time, that the client is willing to pay in one goal within each pair of investment goals to achieve the other goal in the same pair of investment goals on the list.

38. The device of claim 22, wherein the ideal value of each goal is expressed either in terms of a soonest time for achieving the goal or a largest dollar value of the goal;

and the acceptable value of each goal is a smaller dollar value or a later date for achieving that goal compared to the ideal value, and that is still acceptable to the client.

39. The device of claim 22, wherein the processor is further configured for obtaining a client targeted end date and targeted end investment portfolio value.

40. The device of claim 22, wherein the processor is further configured for determining the measured confidence of exceeding the recommended value for each goal by calculating a percentage of a plurality of different simulations in which the recommended value for each goal is exceeded.

41. The device of claim 40, wherein the processor is further configured for comparing the calculated percentage of the plurality of different simulations in which the recommended value for each goal is exceeded to a predetermined comfort zone to determine if the calculated percentage falls within the comfort zone.

42. The device of claim 22, wherein the processor is further configured for periodically monitoring the recommendation to determine whether, based on a current value of the client investment portfolio, the measured confidence is still within the predefined range;

and

wherein the processor is further configured for re-performing the first performing and determining steps if the measured confidence is not still within the predefined range.

43. A computer-readable storage medium having computer-readable executable instructions that, when executed by a computer, control the computer to implement a method of financial advising comprising:

obtaining a list of a plurality of client investment goals from a client, and for each goal, identifying ideal and acceptable values, the ideal value of each goal being the value for that particular goal that the client most prefers to achieve, and the acceptable value of each goal being the value for that particular goal that is less preferable to the client compared to the ideal value but that is still acceptable to the client;

performing a first simulation of a plurality of model investment portfolio allocations over a first predetermined time period using a capital market modeling technique, the first simulation accounting for investments and expenditures planned to occur during the first predetermined time period;

using the first simulation and the ideal and acceptable values for each goal, determining a recommendation comprising an investment allocation and a recommended value for each investment goal, where the recommended value for each goal is not better than the ideal value and not worse than the acceptable value and wherein the recommendation has a measured confidence of exceeding the recommended value for each goal and wherein the measured confidence is within a predefined range;

performing a second simulation of the recommended investment allocation over a second predetermined time period using the capital market modeling technique, the second simulation accounting for investments and expenditures planned to occur during the second predetermined time period; and

using the second simulation of the recommended investment allocation, determining (1) a plurality of upper boundary portfolio values, each upper boundary portfolio value corresponding to a date in the second predetermined time period, each upper boundary portfolio value comprising an amount of money calculated to provide a first predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (2) a plurality of lower boundary portfolio values, each lower boundary portfolio value corresponding to a date in the second predetermined time period, each lower boundary portfolio value comprising an amount of money calculated to provide a second predetermined likelihood of exceeding the recommended value for each goal from a present date until the corresponding date, (3) a plurality of anticipated future portfolio values, each anticipated future portfolio value corresponding to a date in the second predetermined time period, and (4) an estimated chance that the anticipated future portfolio values will be greater than the upper boundary portfolio value on a corresponding date or be less than the lower boundary portfolio value on a corresponding date.

44. The computer-readable storage medium of claim 43, wherein the ideal and acceptable values for each goal correspond to at least one of a dollar amount or a time for achieving the goal.

45. The computer-readable storage medium of claim 43, wherein the method further comprises:

communicating to the client the estimated chance obtained in the second simulation.

46. The computer-readable storage medium of claim 43, wherein the recommended investment allocation includes only passive investments.

47. The computer-readable storage medium of claim 43, wherein the capital market modeling technique comprises a reverse iteration algorithm.

48. The computer-readable storage medium of claim 47, wherein performing a first simulation of a plurality of model investment portfolio allocations using a reverse iteration algorithm further comprises:

obtaining a targeted portfolio end date and a targeted portfolio end value; and

for each of a plurality of periodic dates over a time period extending from a present time to the targeted portfolio end date, determining an amount of money needed to have a targeted confidence of having the targeted portfolio end value at the targeted portfolio end date.

49. The computer-readable storage medium of claim 48, wherein the periodicity of the plurality of periodic dates is annually.

50. The computer-readable storage medium of claim 43, wherein the capital market modeling technique of the first simulation comprises a Monte Carlo analysis.

51. The computer-readable storage medium of claim 43, wherein the capital market modeling technique of the second simulation comprises a Monte Carlo analysis.

52. The computer-readable storage medium of claim 43, wherein the predetermined time period used in the second simulation is one year.

53. The computer-readable storage medium of claim 43, wherein the method further comprises:

determining an initial value of a client investment portfolio.

54. The computer-readable storage medium of claim 43, wherein the method further comprises:

obtaining a relative value comparison between pairs of investment goals within the list of goals;

wherein the step of determining the recommendation uses the relative value comparison among the goals and the simulation of the plurality of portfolio allocations.

55. The computer-readable storage medium of claim 54, wherein the step of determining the recommendation using the relative value comparison between pairs of investment goals further comprises determining whether one or more low valued goals can be achieved with modifications to the values of other goals on the list.

56. The computer-readable storage medium of claim 54, wherein the step of obtaining a relative value comparison among the goals further comprises developing a matrix of the goals that represents the relative comparison between the pairs of investment goals, and wherein the step of determining the recommendation uses the goal matrix.

57. The computer-readable storage medium of claim 54, wherein the method further comprises:

periodically determining whether the client would like to add new goals or remove goals from the list of investment goals, or whether the client would like to make changes to the relative value comparison among the goals; and

re-performing the first performing and determining steps if the client has added or removed goals from the list of investment goals, or if the client has made changes to the relative value comparison.

58. The computer-readable storage medium of claim 54, wherein the relative value comparison is represented in terms of the price, in money or time, that the client is willing to pay in one goal within each pair of investment goals to achieve the other goal in the same pair of investment goals on the list.

59. The computer-readable storage medium of claim 43, wherein the ideal value of each goal is expressed either in terms of a soonest time for achieving the goal or a largest dollar value of the goal;

and the acceptable value of each goal is a smaller dollar value or a later date for achieving that goal compared to the ideal value, and that is still acceptable to the client.

60. The computer-readable storage medium of claim 43, wherein the method further comprises:

obtaining a client targeted end date and targeted end investment portfolio value.

61. The computer-readable storage medium of claim 43, wherein the measured confidence of exceeding the recommended value for each goal is determined by calculating a percentage of a plurality of different simulations in which the recommended value for each goal is exceeded.

62. The computer-readable storage medium of claim 61, wherein the method further comprises:

comparing the calculated percentage of the plurality of different simulations in which the recommended value for each goal is exceeded to a predetermined comfort zone; and

determining if the calculated percentage falls within the comfort zone.

63. The computer-readable storage medium of claim 43, wherein the method further comprises:

periodically monitoring the recommendation to determine whether, based on a current value of the client investment portfolio, the measured confidence is still within the predefined range; and

re-performing the first performing and determining steps if the measured confidence is not still within the predefined range.