Financial advisory system

• US 7,788,155 B2
• Filed: 09/02/2005
• Issued: 08/31/2010
• Est. Priority Date: 12/02/1997
• Status: Expired due to Fees

• Current Assignee: Financial Engines, LLC.
• Original Assignee: Financial Engines Incorporated (Edelman Financial Engines LLC)
• Inventors: Jones, Christopher L., Sharpe, William F., Scott, Jason S., Maggioncalda, Jeff N., Grenadier, Steven R., Park, Ronald T., Watson, John G., Bekaert, Geert
• Primary Examiner(s): Kramer; James A
• Assistant Examiner(s): Vezeris; James A
• Application Number:
  US11/219,513
• Publication Number:
  US 20060010060A1
• Time in Patent Office: 1,824 Days
• Field of Search: 705/36.R
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A financial advisory system is provided. According to one aspect of the present invention, return scenarios for optimized portfolio allocations are simulated interactively to facilitate financial product selection. Return scenarios for each asset class of a plurality of asset classes are generated based upon estimated future scenarios of one or more economic factors. A mapping from each financial product of an available set of financial products onto one or more asset classes of the plurality of asset classes is created by determining exposures of the available set of financial products to each asset class of the plurality of asset classes. In this way, the expected returns and correlations of a plurality of financial products are generated and used to produce optimized portfolios of financial products. Return scenarios are simulated for one or more portfolios including combinations of financial products from the available set of financial products based upon the mapping.

Claims

1. A computer-implemented method comprising:

determining feasible exposures, by a financial product mapping module being executed by one or more processors of one or more computer systems, to a plurality of asset classes achievable by a particular investor by determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products available to the particular investor for investment, wherein the limited set of financial products available to the particular investor is a proper subset of a set of all financial products available for investment via public markets; and

identifying, by a portfolio optimization module being executed by the one or more processors, a recommended efficient portfolio of financial products from the limited set of financial products by maximizing an expected utility of wealth for the particular investor based upon the feasible exposures.

2. The method of claim 1, further comprising modeling expected future asset class returns as a function of one or more economic factors by generating return scenarios for each asset class of the plurality of asset classes based upon future scenarios of the one or more economic factors.

3. The method of claim 1, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products comprises performing returns-based style analysis.

4. The method of claim 1, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products comprises surveying the underlying assets held in the financial product.

5. The method of claim 1, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products comprises obtaining exposure information based on a target benchmark associated with the financial product.

6. The method of claim 1, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products comprises categorizing exposures based on standard industry classification schemes.

7. The method of claim 1, further comprising forecasting the probability of the particular investor meeting an identified financial goal based upon the recommended efficient portfolio.

8. The method of claim 1, further comprising receiving information indicative of the particular investor'"'"'s risk tolerance.

9. The method of claim 8, wherein said maximizing an expected utility of wealth for the particular investor comprises determining expected returns and volatility of the expected returns for each of a plurality of efficient portfolios comprising a combination of one or more financial products from the limited set of financial products based upon said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product.

10. The method of claim 1, wherein the limited set of financial products available to the particular investor for investment comprises financial products offered through an employee-directed defined contribution plan.

27. The method of claim 10, wherein the employee-directed defined contribution plan comprises a 401(k) plan of an employer of the particular investor.

11. A computer-readable storage medium readable by one or more computer systems and tangibly embodying a set of instructions executable by one or more processors of the one or more computer systems to perform method steps for identifying a recommended efficient portfolio of financial products, the method steps comprising:

determining feasible exposures to a plurality of asset classes achievable by a particular investor by determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of a limited set of financial products available to the particular investor for investment, wherein the limited set of financial products available to the particular investor is a proper subset of a set of all financial products available for investment via public markets; and

identifying a recommended efficient portfolio of financial products from the limited set of financial products by maximizing an expected utility of wealth for the particular investor based upon the feasible exposures.

12. The computer-readable storage medium of claim 11, wherein the method steps further comprise modeling expected future asset class returns as a function of one or more economic factors by generating return scenarios for each asset class of the plurality of asset classes based upon future scenarios of the one or more economic factors.

13. The computer-readable storage medium of claim 11, wherein the method steps further comprise forecasting the probability of the particular investor meeting an identified financial goal based upon the recommended efficient portfolio.

14. The computer-readable storage medium of claim 11, wherein the method steps further comprise receiving information indicative of the particular investor'"'"'s risk tolerance.

28. The computer-readable storage medium of claim 11, wherein the limited set of financial products available to the particular investor for investment comprises financial products offered through an employee-directed defined contribution plan.

29. The computer-readable storage medium of claim 28, wherein the employee-directed defined contribution plan comprises a 401(k) plan of an employer of the particular investor.

15. A computer-implemented method comprising:

a step, performed by a financial product mapping module being executed by one or more processors of one or more computer systems, for determining feasible exposures to a plurality of asset classes achievable by a particular investor based upon a limited set of financial products available to the particular investor for investment, wherein the limited set of financial products available to the particular investor is a proper subset of a set of all financial products available for investment via public markets; and

a step, performed by a portfolio optimization module being executed by the one or more processors, for identifying a recommended efficient portfolio of financial products from the limited set of financial products.

16. The method of claim 15, further comprising a step for modeling expected future asset class returns as a function of one or more economic factors.

30. The method of claim 15, wherein the limited set of financial products available to the particular investor for investment comprises financial products offered through an employee-directed defined contribution plan.

31. The method of claim 30, wherein the employee-directed defined contribution plan comprises a 401(k) plan of an employer of the particular investor.

17. A computer system comprising

a storage device having stored therein one or more routines operable to determine feasible exposures to a plurality of asset classes achievable by a particular investor and identify a recommended efficient portfolio of financial products from a limited set of financial products available to the particular investor for investment;

and

one or more processors coupled to the storage device and operable to execute the one or more routines, where

the limited set of financial products available to the particular investor is a proper subset of a set of all financial products available for investment via public markets;

the feasible exposures are determined by determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of the limited set of financial products; and

the recommended efficient portfolio is identified by maximizing an expected utility of wealth for the particular investor based upon the feasible exposures.

18. The computer system of claim 17, wherein the one or more routines are further operable to model expected future asset class returns as a function of one or more economic factors by generating return scenarios for each asset class of the plurality of asset classes based upon future scenarios of the one or more economic factors.

19. The computer system of claim 17, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of the limited set of financial products comprises performing returns-based style analysis.

20. The computer system of claim 17, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of the limited set of financial products comprises surveying underlying assets held in the financial product.

21. The computer system of claim 17, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of the limited set of financial products comprises obtaining exposure information based on a target benchmark associated with the financial product.

22. The computer system of claim 17, wherein said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product of the limited set of financial products comprises categorizing exposures based on standard industry classification schemes.

23. The computer system of claim 17, wherein the one or more routines are further operable to forecast the probability of the particular investor meeting an identified financial goal based upon the recommended efficient portfolio.

24. The computer system of claim 17, wherein the one or more routines are further operable to receive information indicative of the particular investor'"'"'s risk tolerance.

25. The computer system of claim 24, wherein said maximizing an expected utility of wealth for the particular investor comprises determining expected returns and volatility of the expected returns for each of a plurality of efficient portfolios comprising a combination of one or more financial products from the limited set of financial products based upon said determining a combination of one or more asset classes and proportions thereof that characterize future performance of each financial product.

26. The computer system of claim 17, wherein the limited set of financial products available to the particular investor for investment comprises financial products offered through an employee-directed defined contribution plan.

32. The method of claim 26, wherein the employee-directed defined contribution plan comprises a 401(k) plan of an employer of the particular investor.