Stochastic modeling module for providing financial planning and advice

• US 8,306,885 B2
• Filed: 05/03/2004
• Issued: 11/06/2012
• Est. Priority Date: 07/31/2001
• Status: Active Grant

• Current Assignee: Ameriprise Financial, Inc.
• Original Assignee: Ameriprise Financial, Inc.
• Inventors: Brose, Gabriela, Jenson, Jodi, Scarlato, Patricia, Vanney, Beth M.
• Primary Examiner(s): Wong, Eric T
• Assistant Examiner(s): Fu, Hao
• Application Number:
  US10/837,871
• Publication Number:
  US 20050004856A1
• Time in Patent Office: 3,109 Days
• Field of Search: 705 35- 37
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The present invention provides systems and methods for facilitating financial advising and planning for a user. The system includes a portfolio integration module that integrates goals, assets, savings, and risk tolerance to develop a customized strategy for financial portfolio planning. A portfolio reconciler module facilitates comparison of the customized strategy to other strategies and projected user financial decisions in order to further facilitate the financial portfolio planning. A stochastic modeling module uses data from the portfolio integration module and the portfolio reconciler module in a stochastic modeling analysis using a synchronous stationary bootstrap sampling method to construct a proposed situation portfolio. A simulator module forecasts the effects of the proposed situation portfolio on the user'"'"'s portfolio, and monitoring, simulating, designing, and testing the portfolio integration module, the portfolio reconciler module, and the stochastic modeling module.

Claims

1. A stochastic modeling system for facilitatng financial advising and planning comprising:

a stochastic modeling processor,

a non-transitory memory configured to communicate with the processor,

the memory having instructions stored thereon that, in response to execution by the processor, cause the processor to be capable of performing operations comprising;

facilitating, by the processor, use of data from a financial portfolio planning of a user in a stochastic modeling analysis using at least one of;

a stationary bootstrap sampling method or a synchronous stationary bootstrap sampling method;

creating, by the processor, assumption data by performing a first stochastic simulation based upon an assumption, wherein the assumption comprises an assumption based upon a disability, a retirement date, a death or a divorce;

determining, by the processor, a customized strategy by performing a second stochastic simulation to analyze assets of the user with respect to fulfilling goals based on the assumption and the assumption data;

aggregating, by the processor, successes and failures produced in the second stochastic simulation to develop the probability of success with respect to fulfilling goals based on an assumption;

performing, by the processor, the second stochastic simulation for a plurality of period increments based on a simulation period frequency, wherein the simulation period frequency is annual and each of a plurality of cashflows is annualized, and wherein the simulation for each of the plurality of period increments is configured to;

project cashflows comprising incomes, savings, liabilities, premiums, and goals expenses;

determine a beginning asset balance for each portfolio in a plurality of simulation portfolios based on an asset owner and asset type of each investment asset;

in response to the simulation period being greater than 1, apply an inflation factor to incomes, expenses, and savings;

in response to at least one of (i) an income and policy benefit cashflows start period being equal to or greater than the simulation period, or (ii) the income and policy benefit cashflows end period being less than or equal to the simulation period, add the income and policy benefit cashflows to a regular asset simulation portfolio;

in response to an adjustment to savings cashflows start period being equal to or greater than the simulation period and the adjustments to savings cashflows end period being less than or equal to the simulation period, add the adjustments to savings cashflows to the regular asset simulation portfolio;

in response to at least one of the savings to regular assets cashflows start period is equal to or greater than the simulation period or the savings to regular assets cashflows end period being less than or equal to the simulation period, add savings to regular assets cashflows and the accumulation piece of a Universal Life premium to the regular contribution simulation portfolio;

in response to the savings to retirement assets start period being equal to or greater than the simulation period and the savings to retirement assets end period is less than or equal to the simulation period, add savings to retirement assets cashflows assets to the retirement simulation portfolio;

in response to the expense cashflows start period being equal to or greater than the simulation period and the expense cashflows end period being less than or equal to the simulation period, subtract a subset of expense cashflows from the simulation portfolios, wherein the subset of cashflows expense comprises expense types comprising at least one of living expenses, goal expenses, liabilities, premiums, or savings, wherein the subset of expense cashflows are subtracted from the simulation portfolios in a withdrawal order including;

     1) regular asset simulation portfolio,

     2) regular contribution simulation portfolio,

     3) retirement simulation portfolio;

for the simulation period, use stochastic sampling to determine a cash rate of return, a bond rate of return, and an equity rate of return;

for each simulation portfolio in the plurality of simulation portfolios, determine an ending period balance by;

calculating an investment return for the simulation portfolio as (a percentage of cash * the cash rate of return)+(a percentage of bonds * the bond return)+(a percentage of equity * the equity return), wherein an allocation is associated with the simulation portfolio, the allocation comprising the percentage of cash, the percentage of bonds and the percentage of equity;

adjusting the investment return for an estimated tax effect; and

adding the investment return to the portfolio balance;

increment a positive balance counter by 1 in response to an ending period balance being greater than 0; and

determine a probability of success by dividing the positive balance counter by the total number of period increments in the plurality of period increments.

2. The stochastic modeling system of claim 1, further configured to include at least one of:

a portfolio integration module, a portfolio reconciler module, or a simulator module in communication with the stochastic modeling module in order to further facilitate the financial portfolio planning of the user and creation of a proposed situation portfolio for the user.

3. The stochastic modeling system of claim 2, further configured to estimate a p value in the bootstrap sampling method using at least one of the following:

autocorrelation depending on lag alone;

estimating standard errors of bootstrapped samples for an original series, and

comparing the estimated standard errors for independent bootstraps.

4. The stochastic modeling system of claim 3, wherein the estimating the p value includes arriving at a 1/p value between 25 and 50.

5. The stochastic modeling system claim 4, wherein the creation of the proposed situation portfolio includes analysis of at least one of:

a normal life span, disability, long-term care, early death, life insurance information, disability insurance information, Social Security, social pension, asset structure, savings goals, retirement information, expenses, tax structure of the assets, savings, company pension information, and educational goals.

6. The stochastic modeling system of claim 5, wherein the creation of the proposed situation portfolio further includes at least one of:

customized timelines for the at least one of;

normal life span, disability, long-term care, early death, life insurance information, disability insurance information, Social Security, social pension, asset structure, savings goals, retirement information, expenses, tax structure of the assets, savings, company pension information;

customized timelines for each member of a family; and

analysis of life expectancy on factors other than retirement information.

7. The stochastic modeling system of claim 6, wherein the stochastic modeling system is configured to perform about 6,750 simulation runs for a lifetime of the user in order to facilitate financial portfolio planning of the user and creation of the proposed situation portfolio for the user.

8. The stochastic modeling system of claim 7, the operations further comprising determining a projection period for a lifetime simulation of the user by calculating a current age of the user by determining if a month of birth of the user is less than or equal to a month of an analysis start date, then the current age of the user is equal to a year of analysis start date minus a year of birth of the user, or else the current age of the user is equal to the year of analysis start date minus one minus the year of birth, wherein a number of years in the projection period is equal to an age at the end of the projection period minus the current age of the user.

9. The stochastic modeling system of claim 8, wherein the determining a projection period for a lifetime simulation of the user includes at least one of:

processing any Required Minimum Distributions (RMDs) and applying a tax on the RMDs; and

adding any savings to non-qualified savings and qualified assets.

10. The stochastic modeling system of claim 9, wherein the determining a projection period for a lifetime simulation further includes at least one of:

determining if any after-tax income of the user and any RMDs exceed expenses and any phantom loan balances and savings to determine any excess, wherein the excess can be added to the non-qualified assets;

determining if the expenses and any phantom loan balances and savings exceed the after-tax income and RMDs to determine any shortage, wherein the shortage can be subtracted from the assets including the non-qualified assets, the non-qualified savings, the qualified assets of the user; and

calculating end of any period asset balances and applying a growth rate to those balances.

11. The stochastic modeling system of claim 10, the operations further comprising calculating any phantom loan balances of the user based on at least one of:

creating a phantom revolving loan balance when the shortage has consumed the non-qualified assets and the qualified assets;

calculating the phantom loan balances as a remainder of the shortage, increased by a phantom interest rate, wherein the phantom interest rate is calculated relative to a modeled inflation rate; and

adding the phantom loan balances to any cash flow shortage or subtracting the phantom loan balances from any cash flow surplus before applying a surplus or the shortage to the assets, so that any regular savings can pay down the phantom loan balances.

12. The stochastic modeling system of claim 11, the operations further comprising calculating any RMDs of the user based on at least one of:

withdrawing the RMDs from the qualified assets starting in a period in which the current age of the user is 71 years old; and

calculating the RMDs by using a beginning of the period balance for the qualified assets divided by a number of periods remaining in the projection period for a lifetime simulation of the user, wherein the number of periods remaining in the projection period is equal to the current age at the end of the projection period minus current age in a current period.

14. The stochastic modeling system of claim 1, the operations further comprising:

receiving group input and associating, based upon the group input, a group goal and a group assumption with economic group data;

simulating a group passage of time, to analyze an economic group'"'"'s available financial resources with respect to fulfilling the group goal based upon the group assumption;

processing a financial position for an economic group based upon an analysis of available financial resources and in response to at least one hypothetical event or transaction;

obtaining demographic data and financial data pertaining to the economic group; and

,

analyzing and solving the group goal in an efficient order, accounting for any dependency of future goals upon prior goals, based upon the group assumption, the demographic data, and the financial data.

15. The stochastic modeling system of claim 14, the operations further comprising

identifying test data to apply to a simulation, wherein the test data includes at least one of:

user input, market projections, economic projections, historical portfolio data, or cash flow from a plurality of scenarios;

retrieving the test data;

selecting a test scenario, wherein the test scenario includes a test goal;

simulating the portfolio integration module, the portfolio reconciler module, and the stochastic modeling module using the test data and test scenario;

assembling simulation results from the simulation;

comparing the simulation results to actual results produced by the portfolio integration module, the portfolio reconciler module, and the stochastic modeling module;

determining when the simulation results do not match the actual results; and

modifying the at least one of;

the portfolio integration module, the portfolio reconciler module, or the stochastic modeling module.

16. The stochastic modeling system of claim 15, wherein the planned hypothetical events include an average lifespan of at least one of:

the user or a family member of the user, and wherein the average lifespan is based on health of the user and family history.

17. The stochastic modeling system of claim 16, the operations further comprising selecting a specific investment instrument based on the customized strategy.

18. The stochastic modeling system of claim 17, the operations further comprising determining an amount of taxable assets to invest in the proposed situation portfolio by dividing a currency value of the goals by a value of the taxable assets.

13. A non-transitory, tangible computer-readable medium having computer-executable instructions stored thereon that, if executed by a stochastic modeling computer, cause the computer to perform a operations comprising:

facilitating, by the computer, use of data from a financial portfolio planning of a user in a stochastic modeling analysis using at least one of;

a stationary bootstrap sampling method or a synchronous stationary bootstrap sampling method;

creating, by the computer, assumption data by performing a first stochastic simulation based upon an assumption, wherein the assumption comprises an assumption based upon a disability, a retirement date, a death or a divorce;

determining, by the computer, a customized strategy by performing a second stochastic simulation to analyze assets of the user with respect to fulfilling goals based on the assumption and the assumption data;

aggregating, by the computer, successes and failures produced in the second stochastic simulation to develop the probability of success with respect to fulfilling goals based on an assumption;

performing, by the computer, the second stochastic simulation for a plurality of period increments based on a simulation period frequency, wherein the simulation period frequency is annual and each of a plurality of cashflows is annualized, and wherein the simulation for each of the plurality of period increments comprises;

projecting cashflows comprising incomes, savings, liabilities, premiums, and goals expenses;

determining a beginning asset balance for each portfolio in a plurality of simulation portfolios based on an asset owner and asset type of each investment asset;

in response to the simulation period being greater than 1, applying an inflation factor to incomes, expenses, and savings;

in response to at least one of (i) an income and policy benefit cashflows start period being equal to or greater than the simulation period, or (ii) the income and policy benefit cashflows end period being less than or equal to the simulation period, adding the income and policy benefit cashflows to a regular asset simulation portfolio;

in response to an adjustment to savings cashflows start period being equal to or greater than the simulation period and the adjustments to savings cashflows end period being less than or equal to the simulation period, adding the adjustments to savings cashflows to the regular asset simulation portfolio;

in response to at least one of the savings to regular assets cashflows start period is equal to or greater than the simulation period or the savings to regular assets cashflows end period being less than or equal to the simulation period, adding savings to regular assets cashflows and the accumulation piece of a Universal Life premium to the regular contribution simulation portfolio;

in response to the savings to retirement assets start period being equal to or greater than the simulation period and the savings to retirement assets end period is less than or equal to the simulation period, adding savings to retirement assets cashflows assets to the retirement simulation portfolio;

in response to the expense cashflows start period being equal to or greater than the simulation period and the expense cashflows end period being less than or equal to the simulation period, subtracting a subset of expense cashflows from the simulation portfolios, wherein the subset of cashflows expense comprises expense types comprising at least one of living expenses, goal expenses, liabilities, premiums, or savings, wherein the subset of expense cashflows are subtracted from the simulation portfolios in a withdrawal order including;

     1) regular asset simulation portfolio,

     2) regular contribution simulation portfolio,

     3) retirement simulation portfolio;

for the simulation period, using stochastic sampling to determine a cash rate of return, a bond rate of return, and an equity rate of return

for each simulation portfolio in the plurality of simulation portfolios, determining an ending period balance by;

calculating an investment return for the simulation portfolio as (a percentage of cash * the cash rate of return)+(a percentage of bonds * the bond return)+(a percentage of equity * the equity return), wherein an allocation is associated with the simulation portfolio, the allocation comprising the percentage of cash, the percentage of bonds and the percentage of equity;

adjusting the investment return for an estimated tax effect; and

adding the investment return to the portfolio balance;

incrementing a positive balance counter by 1 in response to an ending period balance being greater than 0; and

determining a probability of success by dividing the positive balance counter by the total number of period increments in the plurality of period increments.