Using Conflict of Interest [COI] Method and System in Creating Investment Portfolio

• US 20100070347A1
• Filed: 07/13/2008
• Published: 03/18/2010
• Est. Priority Date: 07/13/2008
• Status: Abandoned Application

• Current Assignee: William Cheng
• Original Assignee: William Cheng
• Inventors: Chen, William
• Application Number:
  US12/172,240
• Publication Number:
  US 20100070347A1
• Time in Patent Office: Days
• US Class Current: 705/11
• 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 99/00 Subject matter not provided for in other groups of this subclass

Abstract

In the past, the practice of creating investment portfolio has been focused on the diversification of investment without specifically identifying investment risks. This invention is related to a method of diversification which considers the level of potential for conflict of interest (COI) risk as part of a diversification process. The COI has its origin in the interaction among market participants, market structure, business arrangement and practice. The advantage of the present invention is that the COI becomes a primary factor in creating the portfolio. This method provides a direct analysis of the COI risk that associates with entire investment process and the manager, and it is further integrated into the portfolio creation process. The COI Method opens new paths to perform risk analysis and could be integrated into decision process in other fields of investment.

Claims

1. A method for selecting investment manager and investment process comprises qualitative assessment of the potential level of Conflict of Interest (COI) for relevant factors relating to the components of the investment process;

the relevant factors including the background of the client, interaction among market participants, business arrangement and practice, operational environment, market structure, rule, regulation and all other related considerations;

the components of the investment process including the client, research, investment manager, trader, broker-dealer, dark pool, exchange and regulatory agency, and all other related entities.

2. The method of claim 1, wherein the qualitative assessment of each relevant factor for potential of conflict of interest is based on the nature and characteristics of the factor, its interaction with other relevant factors, in conjunction with information and knowledge available on the compliance issues, illegal practices and litigations in the court system.

3. The method of claim 2, wherein each of all the relevant factors is assigned one of the three potential levels of conflict of interest:

low, medium or high, representing by a numerical value of 1, 2 or 3, respectively;

the numerical values representing the Conflict of Interest Score (COIS).

4. The method of claim 3, wherein the COIS for each of the relevant factors is compiled into a COIS Assignment Matrix (COISAM) consisting of two parts:

Part 1, column 1, grouping of relevant factors by the components of the investment process;

Part 2, column 2, consisting of the COIS corresponding to the relevant factor in the column 1.

5. The method of claim 4, further comprising Input Check List (ICL) which has two parts;

Part A;

COISAM; and

Part B;

Manager Related Data (MRD), consisting of the investment-objective, investment manager (IM) name, IM years of experience, asset under management (AUM), fund name, fund type, yield, portfolio turn-over rate, 1, 3, 5 and 10 years return data, volatility and market index consistent with the fund type.

6. The method of claim 5, further comprising the steps of:

collecting of the inputs;

matching the inputs with the Column 1 of the COIS Assignment Matrix of the ICL and selecting the corresponding COIS from the column 2;

these steps are repeated for each manager.

7. The method of claim 6, further comprising the summation of the selected COIS to generate an Overall COIS for the manager and related investment process;

this summation operation is repeated for each manager wider evaluation.

8. The method of claim 7, further comprising the ICL Database consisting of the Overall COIS and the manager related data (MRD);

the ICL Database is populated by entering Overall COIS and MRD for each of the managers and related process under evaluation.

9. The method of claim 8, further comprising the investment manager and related process selection policy in term of Overall COIS, manager performance and other selection criteria listed in MRD;

the policy is restated into database query language to obtain desire result.

10. The method of claim 9, further comprising the following interpretation modules regarding to the Overall COIS:

A. Overall COIS indicating the degree of independent of the manager and the complexity of the investment process, where degree of independent is expressed as the inverse of Overall COIS;

B. Maximum Overall COIS value indicating the need to implement a monitoring program to assure investment process integrity which will have direct impact on the performance of the investment;

C. Minimum Overall COIS indicating performance data is a reflection of the manager'"'"'s investment ability due to minimum influence by the conflict of interest.

11. The method of claim 9 further comprising the use of Overall COIS as decision factor in implementing a portfolio which leads to the selection of mangers who can support the level of COI risk while maintain other requirements.

12. The method of claim 9 further comprising the diversification of portfolio base on the mathematical distribution of the Overall COIS.

13. The method of claim 9 further comprise the use of Overall COIS as a basis for monitoring service provider'"'"'s performance.

14. A Conflict of Interest (COI) system for selecting investment manager and investment process comprises hardware:

input and output devices, memory, processor; and

software;

spread sheet and database applications and operating system.

15. The method of claim 14, wherein the spread sheet is used to compute the Overall COIS according to the Input Check List for each manager.

16. The method of claim 15, wherein the ICL database is populated by the Overall COIS and the MRD from each of the managers.

17. The method of claim 16, wherein the input device is used to enter query command specifying the selection policy in database language to access record.

18. The method of claim 17, wherein the processor interpreting the query language, searching the database and placing the result on output device that displays the manager'"'"'s names and related information that satisfy the selection requirements.