Note: Descriptions are shown in the official language in which they were submitted.
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TITLE
ASSET ALLOCATION, REBALANC1NG, AND
INVESTMENT MANAGEMENT SYSTEM
CROSS-REFERENCE TO RELATED APPLICATIONS
This application is based upon and claims priority to related applications
U.S.
Serial No. 60/517,647, filed November 6, 2003; and U.S. Serial No. 60/524,571,
filed
November 6, 2003.
FIELD OF THE INVENTION
This invention generally relates to the field of financial advisement.
Specifically,
this invention relates to a computer implemented or enabled system for asset
allocation
management to assist investment management firms and/or advisors in servicing
a broad
range of investors through mass replication, distribution, and execution of
investment
methodologies and advice.
BACKGROUND OF THE INVENTION
Computer implemented or enabled financial advisor systems are known in the
art,
but none of them offer dynamic fluidity in terms of adapting the investment
portfolio
over time to adjust to the investor's needs. Instead, such financial advisor
systems are
focused on portfolio creation and optimization, focusing on just one point in
time and
creating an optimal portfolio based upon data entered at one point in time
(such as prior
to actual investment).
U.S. Patent Application No. 2003/0097324 discloses an investment plan creation
tool which presents and compares several options to the investor as a result
of investor
responses to a targeted questionnaire. US Application No. 2003/0120574
discloses an
advisor tool for creating electronic portfolios for investors and a user tool
for managing
the advisor-created portfolio. US Application No. 2003/0120575 describes an
investment
planning tool which enables investors to obtain prepackaged investment advice
from
advisors and/or to create their own investment portfolios. US Patent
Application No.
2002/0091605 discloses an investment portfolio optimization whereby asset
allocation
categories are utilized in displaying potential investment portfolio choices.
US Patent
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Application No. 2003/0088489 discloses an advisor tool for optimizing
individual
investor portfolios wherein results from an investor risk questionnaire and
asset classes of
current investment holdings are comparatively analyzed yielding suggested
changes to
the investor's portfolio based upon the analysis. US Patent No. 6,292,787
discloses an
investment portfolio optimization tool for diversifying investments, thereby
alleviating
unnecessary investment risk. None of these foregoing inventions dynamically
readjust an
investor's portfolio in relation to the dynamic reallocation and/or
rebalancing of an
investor portfolio upon purchase, withdrawal, andlor time considerations
(i.e., as the
investment goal end date draws nearer). There is a need in the art to maximize
the
potential of a computer-implemented or enabled financial management system. An
advisor must manually manipulate investments to accommodate the investor's
changing
needs as investment goals change or as the time horizon draws nearer to the
investment
goal date.
As a result, advisors and/or investment firms have to accommodate to the
individual investor's changing needs on an ad hoc basis. As a result, cost
efficiency is
lowered since advisor fees, investment transactional fees, and the like
reflect the time,
effort, and attention required to adjust an individual's portfolio to his or
her changing
needs. Because these fees can be cost prohibitive to an investor, especially
one who is
not a high net worth individual, that non-high net worth individual is
oftentimes in an
unadvised situation and may make poor financial choices. Further, advisors
andlor
investment firnzs typically charge higher fees than otherwise for those non-
high net worth
individuals who cannot meet certain minimums.
However, with a cost efficient computer-implemented or enabled method which
would automatically accommodate to an individual investor's changing needs on
an ad
hoc basis, the time, effort, and attention required by the advisor would be
greatly reduced.
Thus, advisors would not have to impose surcharge fees as a result of non-high
net worth
individuals not investing a required minimum. A broad spectrum of investors
could
benefit from such an advancement in the art. Thus, there is a need in the art
to provide all
investors, regardless of net worth, with a cost effective and efficient
investment vehicle
for growing their financial portfolio.
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Further, investors who are either unadvised and/or who are faced with the
dilemma of a static investment portfolio (i.e., one which does not adapt with
time or other
transactional occurrences, as described above) are at a significant
disadvantage as their
portfolio is not optimized to the extent that it otherwise could be with an
adaptable,
dynamic system for managing their finances which considers each transactional
event in
deciding whether to readjust or stay static. If this need could be addressed,
then investors
could fully optimize their investments, yielding potentially greater returns
and/or positive
results (instead of poor investment choices). Thus, there is a need in the art
to afford
unadvised individuals (such as, but not limited to, non-high net worth
individuals) with
an effective investment tool and a need for providing all investors with a
dynamically
updated financial portfolio as a result of ever changing investor needs (as a
result of
transactional flow, changes in investment goals, or the like).
SUMMARY OF THE INVENTION
Generally, this invention is a computer implemented or enabled method
(hereinafter referred to interchangeably as "method" or "system") that enables
an advisor
and/or investment firm to create and manage asset allocation models that
encapsulate
proprietary investment advice. These asset allocation models are grouped into
an asset
allocation model set comprising investment vehicles, such as for example
funds, at
varying proportions and having an associated investment risk level that is
linked to a
plurality of investors each having investment goals with associated time
horizons. The
models in the asset allocation set change over time to adjust the level of
risk and rate of
return as the deadline for the investment goal draws nearer. The system
matches an asset
allocation model set to an investor based upon the investor's investment
profile. The
system may optionally be integrated into a back office, record keeping,
advisory support,
or transfer agency system. This system can be used with a wide array of
investments -
securities and non-securities alike. Non-securities may include healthcare
spending
accounts or any other investment vehicle which does not involve securities.
Non-
securities can be liquid in nature in that individuals can purchase and redeem
as needed
without penalties. Further, the investment vehicles that can be used With this
system
include those currently in existence and others to be developed. To illustrate
the
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flexibility of this system in accommodating future investment vehicles, one
example is
privatized social security. Each investor may individually and/or through his
or her
employer contribute to a private social security account.
More specifically, the present system assists financial advisors in delivering
personalized investment services, on a mass scale through mass customization,
to
investors. This present invention is a computer implemented or enabled
automated asset
allocation management system for delivering and managing investment services
to
multiple investors. The heart of the allocation management is the asset
allocation matrix.
The asset allocation matrix comprises the following: (1) at least one asset
allocation model which is prepackaged or user defined, wherein the asset
allocation
model comprises at least two investment vehicles, each comprising a portion
thereof to
total one-hundred percent; (2) at least two asset allocation model groups,
each comprising
at least two' or more models spanning a unique time horizon which consists of
a period of
time until an investment end goal date, and (3) at least one asset allocation
model set
comprising at least two asset allocation model groups, wherein the set
comprises an
investment portfolio of at least one investor. A data manager manages the
matrix by
creating the following: creating allocation models for the asset allocation
model set,
storing the asset allocation model set, linking at least allocation model set
to at least one
investor account with a database, retrieving the model from the model set for
a unique
time horizon for at least one investor, and changing the allocation model from
an initial
time horizon to a subsequent time horizon for at least one investor upon
reaching the goal
date.
As a result, the mass customization benefits are two-fold: 1) mass utilization
of
customized, proprietary asset allocation models for particular segments of
investors; and,
2) reduced transactional costs, including advisor fees and transfer agency
fees, which
enable both the advisors/investment firms and individual investors to take
advantage of a
comprehensive investment management system. Investors include companies,
pension
plan managers, high net worth individuals or any others interested in
investing.
In one embodiment, the system contains prepackaged global allocation models.
In another embodiment, the global allocation models may be configured by an
administrator. In yet another embodiment, the mass customization may be
further refined
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by advisors to tailor these global allocation models to customized allocation
models for
use with their client investors. In still another embodiment, the mass
customization may
be configured by an administrator for use by at least one advisor. The mass
customization afforded by this invention is a dynamic, fluid process that
adapts to the
investor's current and changing needs. Through an investment suitability and
risk
questionnaire and any other questionnaires which the advisor or investment
firm may
wish to add, an allocation model set is automatically selected for a
particular investor.
The investment firxn/advisor is free to associate this preselected allocation
model set or
an alternate allocation model set may be selected for or by this particular
investor. As a
result, the transactional fees, including advisor, transfer agency, trading
system, and
electronic fund transfer fees, are reduced due to the utilization of a global
template for
certain categories of investors with respect to certain allocation model sets
(which are
created by the advisor). Using this system, previously unadvised investors can
access
and utilize prepackaged financial advice from licensed advisors to assist them
with
making investment decisions.
In addition, the allocation model set may change over time as a result of
changing
investor needs. Whether the investor chooses to purchase assets, make a
withdrawal of
assets, and/or otherwise modify his or her asset allocation set to accommodate
a
shortening time window with respect to an approaching end goal date, this
adaptable
system addresses these changing investment concerns and needs. As a result,
this
invention fully utilizes the advantages of a computer-implemented or computer-
enabled
method.
The allocation model set is either preselected by the system or is selected
instead
by an advisor. The selection process is aided and adjusted to investor
profiles. Such
profiles are created based upon results from a suitability and risk
questionnaire designed
to capture investor risk tolerances based on one or more user defined risk
tolerance
factors. The advisor may complete this questionnaire on behalf of the investor
or the
investor may complete the questionnaire. The questionnaire is typically
designed by an
advisor. In general, it comprises a series of questions that are displayed in
text or
pictorial format to prompt the information helpful to understanding an
investor's
preference for certain funds or investment vehicle types. A specific
allocation model set,
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containing certain investment vehicles and risk levels pertaining to these
investment
vehicles, is linked to a particular investor having such investment needs,
based upon an
analysis of the investor responses. In compliance with governmental
regulations, where
at least one investment vehicle used in an allocation model set requires the
advisor to
distribute a prospectus to the investor, the system enables the investor to
view the
prospectus via the Internet, Intranet, and/or web. Further, when the investor
is presented
with a question in the questionnaire that asks which investment vehicles the
investor
wishes to utilize, the investor is presented with electronically readable
prospectuses that
are transmitted over the Intranet, Internet, and/or web.
Over an advisor designated time horizon, the allocation model set may be
rebalanced and/or reallocated over time on an automatic, semi-automatic, or
manual
basis. Where semi-automatic is selected by the advisor, s/he has the option of
canceling
any pending rebalancing and/or reallocation transactions prior to their
occurrence.
The allocation model set comprises at least two allocation models. Over an
advisor designated period of time, the allocation model changes to further
adapt to the
investor's changing needs - this especially concerns the shortened time window
as the
investment goal date approaches over time. As a result, over a time horizon,
there are
certain allocation models which are cycled through depending upon the
proximity to the
investment end goal date. This system automatically transitions from one
allocation
model to another as triggered by a specific point in time along the investment
time axis
In yet another embodiment, the advisor and/or investment firm may service not
only an individual investor, but also an institutional investor or any other
potential
investor having a suitability and risk profile which can be determined through
a
suitability and risk questionnaire. In an additional embodiment, "advisors"
may broadly
include not only licensed advisors, but all other financial intermediaries
that can utilize
this method, such as but not limited to brolcers, financial advice providers,
mutual fund
companies, other investment firms, banks, and the like. It is emphasized that
this system
is not limited only to securities investments, but also to non-securities
investments for
example, savings accounts, certificates of deposit, investments of semi-
precious or
precious materials. Investments can be construed to include frequent flyer
miles,
frequent stay hotel points, and the like.
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Further, in another embodiment, the method may be supplemented with a record
keeping system, an electronic fund transfer system, trading system, and/or
communication interface (e.g., advisor-investor client). The cost and
transactional
efficiency of this system is further enhanced when these components are
plugged into the
kernel. As an example, omnibus level trading may occur whereby investments of
like
identity are aggregated and executed at a designated time, thereby saving
transactional
costs. The reduced transactional costs are then passed on as a benefit to the
investor or
any other entity or individual that benefits as an "end user" of this system.
In yet another embodiment, an investor interface is provided to interact with
an
asset management system. The investor can set up an investment account and can
monitor any pending or completed investment transactions. If the investor is
advised, the
investor may communicate with his or her investor through e-mail or secure
messaging.
The investor may also receive updates, notices, and other information
regarding his or her
investment account. Where the investor is unadvised, the investor may select
predefined
allocation models to accommodate his or her investment goals. The investor may
also
utilize this system to invest in non-securities, where an advisor is not
needed to perform
these transactions. In an embodiment, there may be a record keeping,
electronic fund
transfer, and trading system linked to the system. This investor interface may
be utilized
by organizations to offer their investment products and services to consumers
and/or to
offer their other products and services to consumers through an e-commerce
facility.
BRIEF DESCRIPTION OF DRAWINGS
Figure 1 is an overview of an embodiment of the system and processes of the
present invention.
Figure 2 is a graphical depiction of user processes, specifically
administrator and
advisor settings.
Figure 3 is an architectural drawing showing the technical operation of an
embodiment of the present invention.
Figure 4 is a graphical depiction of a hypothetical set of allocation models,
different for time periods on a time line, at a given risk level.
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Figure 5 is a table presenting an example of an allocation model set from a
time
perspective using hypothetical dates for the start, end (goal), and model
changes in
between.
Figure 6 is a matrix representation of asset allocation model sets, all of
which use
the same mutual funds. There are three model sets for each time horizon, and
these are
referred to as a group. Each of the three is associated with one of the
following risk
tolerance levels: conservative, moderate, and aggressive.
Figures 7a-7d are tables presenting examples of rebalancing an account when
the
risk tolerance threshold of 7% is exceeded (see Figure 7a), rebalancing upon
purchase
(see Figure 7b), rebalancing as part of a withdrawal (see Figure 7c), and
reallocation to a
new model (see Figure 7d).
Figures 8 screens 500-A to 500-AH show various display screens, which are
representations of those that would be seen by a user (system administrator,
investment
advisor, or an individual investor) during typical interaction with the system
according to
an embodiment of the present invention.
Figure 9 is a matrix representation of the risk profile questionnaire result
using
one question category where the system automatically links each question
category type
to allocation model sets.
Figure 10 is a matrix representation of the risk profile questionnaire result
using
two question categories where the system automatically links each combination
of two
question categories to allocation model sets.
Figure 11 a is an example of a question and answer from an investor
suitability
and risk questionnaire.
Figure 1 1b is an example of an image that may be associated with an answer
choice in an investor suitability and rislc questionnaire.
Figure 11 c is an example of an allocation set assignment as a result of a
review of
the investor responses to the investor suitability and risk questionnaire.
Figure 12 is an example of an email message that the system creates and sends
to
alert an advisor of pending reallocation or rebalancing of an investor
account.
Figure 13 is an example of a secure message that the system creates
automatically
for direct use by clients/investors via the world wide web.
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DETAILED DESCRIPTION OF THE INVENTION
The present invention is a method directed towards providing a broad spectrum
of
investors with making professional investment advice in a cost-efficient and
computer-
implemented or enabled manner. In one embodiment, the system is implemented by
at
least one advisor and/or an investment firm. In another embodiment, a non-
traditional
intermediary is the provider of the system and a brokerldealer, mutual fund
company,
bank brokerage department, insurance company, or a registered investment
advisor is
integrated with this system. The investment vehicles themselves may be
securities or
non-securities. Each allocation model represents an investor's portfolio for a
given point
in time, wherein the specific funds and/or allocations may change with time,
depending
upon which allocation models the advisor and/or administrator on behalf of the
advisory
firm has chosen to best suit that investor's needs. Because each portfolio is
an allocation
model set with more than one investment vehicle, the portfolio is well
diversified such
that the rate of return is maximized while the level of risk is minimized.
The system is designed to provide an investor with a choice of whether to be
advised or unadvised. If the client elects to be advised, the system enables
the client to
communicate with the advisor via a secure messaging and/or e-mail system, as
described
below. The system conveys client advice from the initial creation of the
investment plan
until the end goal date of the investment. In contrast, the unadvised client
is a self
directed investor. The system presents the client with professional advice
from advisor-
selected asset allocation models and model sets that have been arranged to the
investor's
goals understood based on investor input information, the goals, time horizon,
etc., the
unadvised client self directs the path of his or her investment. With respect
to either
advised or unadvised clients, these individuals have the benefit of receiving
professional
investment advice, whether prepackaged or administrator and/or advisor
created, through
the use of allocation model sets.
As a preliminary step to using the system, the investor first sets up an
investment
account, to determine which allocation models are appropriate for an investor.
Personal
information such as, but not limited to, contact information, banking
information and/or
information relating to other electronic fund transfer sources that the
investor has access
to, and investor profile information is collected by the system. The investor
is prompted
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to complete an investor suitability and risk questionnaire from which an
investor profile
is determined. Using this information, the advisor uses the system to
recommend a
portfolio for the investor along with certain investment type(s).
Alternatively, the advisor
may select an investment portfolio from a listing of possible portfolios as
previously
defined by the administrator. Or, the client may select an investment
portfolio from a
listing of possible portfolios as previously defined by the administrator,
thereby rejecting
the advisor's choice of an investment portfolio. In an alternate embodiment,
based upon
the investor profile, the advisor and/or client may be presented with possible
investment
vehicles and/or portfolios of paid advertisers that market their products
according to
certain investor profiles. Each investment vehicle comprises an allocation
model. More
than one allocation model comprises an allocation model set. Each allocation
model is
designated for use with respect to a certain time frame in light of the
investment end goal
date. The current investment portfolio is reflected by the current allocation
model in use
for an investor. A broad overview of the investment plan itself is shown
through the
designated allocation model set, as each allocation model is used for a
certain time
horizon as it relates to the investment end goal date. The system retrieves
information
about the investment vehicles from at least one pre-existing back office
system which
contains such information.
The administrator may either create a global allocation model set or utilize a
prepackaged global allocation model set which is pre-installed in a software
embodiment
of the computer-enabled or implemented system. The administrator created or
prepackaged global allocation model set is globally available to all advisors.
Each of the allocation model sets comprise at least two allocation models.
Each
allocation model itself comprises at least two or more funds or other
investment vehicles.
Each fund within the allocation model has a certain allocation wherein the
investment
consists of a certain proportion of a certain investment as defined by the
designated
allocation amount. As an example, one allocation model set has two allocation
models.
Each allocation model itself comprises two funds, Mutual Fund A and Mutual
Fund B.
The allocations of Fund A to Fund B are fifty-percent (50%) each. By
allocating among
two or more investment vehicles, the investor's investment is diversified such
that the rate
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of return is maximized while the level of risk is minimized. The global
allocation model
sets which are globally available to all advisors for use in servicing their
investors.
The advisor can use the prepackaged or administrator-created global allocation
model set by itself or the advisor can modify either allocation model set to
adjust to his or
her investment style and/or investor's needs. The process of using a
prepackaged or
administrator-created global allocation model set is further described below.
Whether the
advisor uses a prepackaged or administrator-created global allocation model
set o~
modifies such a set, the advisor can use that designated allocation model set
and link this
to at least one or a plurality of investors. A database keeps track of which
allocation
model sets are associated with which investors. In a preferred embodiment, the
database
is a relational database.
A unique feature of the system enables the advisor to make multiple changes in
investor accounts. This features is when the advisor has linked one or more a
global
allocation model set, any change the administrator performs on that set will
produce
transactional consequences with respect to any linlced investors to that
allocation set. In
one 'embodiment, if an administrator attempts to change a global allocation
model set
which is linked to at least one investor account, he or she is presented with
a warning that
these linked investor accounts) will be affected as a result of the change.
For example, if
the administrator chooses to remove a fund from a global allocation model,
s/he
effectively modifies the model used by any linked investors. When a record
keeping
system, trading system, and electronic fund transfer system is linked to the
system in this
example, this action prompts an automatic redemption wherein an investment
vehicle is
sold from the investor account and money is deposited into the investor
electronic fund
account. In the event where the administrator has added a new fund in its
place, instead
of a redemption occurring, the purchase of the new fund occurs along with a
corresponding debit from the investor's electronic fund transfer source.
When the allocation model set is used for an investor, the assets can
fluctuate over
time. As a result, the actual investor assets and the relative proportions of
these
investment assets in relation to one another can deviate from the model
allocations, and
the system makes adjustments to offset these fluctuations. The system
manually, semi-
automatically, or automatically reallocates and/or rebalances as needed to
adjust the
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actual percent of each asset to reflect the model's percentage for each asset.
Where this
system is coupled with an optional recording keeping, trading, and electronic
fund
transfer system, the system manually, semi-automatically, or automatically
reallocates
and/or rebalances and at the same time performs required investment
transactions, credit
or debit fund transfers from the linked electronic fund transfer source(s),
and updates
and/or pulls or pushes data to and from the recording keeping system.
This system may optionally be utilized in conjunction with a record keeping
system, an electronic fund transfer system, and a trading platform. In one
embodiment,
the system is tied to at least one record keeping system containing items such
as, but not
limited to investor risk and suitability questions, investor profile
information, investor
account balance where an account is linked to the system, a log of investment
transactions for each investor, 401I~ transaction information, 401I~ statement
information, tax reporting for the investment transactions for each investor,
and the like.
An electronic fund transfer system, such as but not limited to an Automated
Clearinghouse ("ACH") system, may be optionally tied to this record keeping
system to
enable an automated, electronic means for electronic funds transfer (influx or
efflux of
funds from an investor's bank account or other account containing monetary
funds). The
use of the ACH system enables the system to perform on behalf of the investor
electronic
funds transfers involving direct debits of savings and checking accounts
through the use
of debit cards or other authorized electronic debits; further, the use of the
ACH system
can also enable automatic deduction from direct payroll deposits of the
investors. As
used in this application, electronic funds transfer ("EFT") is broadly defined
to
encompass any electronic means of transferring funds (e.g., online third party
payment
systems, ACH systems, ATM networks, or the like). Relatedly, there may be an
influx
only or an efflux only fund system (e.g., a credit card or debit card used to
purchase
investments) or a credit or funds system which only accepts money in (as
opposed to
money out). Further, a trading system may also be tied to the EFT and record
keeping
systems. The trading system may accomplish omnibus level trades, as further
described
below.
When the record keeping system, EFT, and trading system are coupled with the
system, this allows the investor to have automated trade transactions based
upon
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allocation model changes and/or other events, such as but not limited to
reallocation
and/or rebalancing. In a preferred embodiment, this combined system utilizes
omnibus
trading. Omnibus trading is utilized where there is a large dumber of
investment
transactions for a limited number of investment vehicles. The net purchases
axe balanced
against the net redemptions. The trading occurs in one transaction,
efficiently utilizing
resources, time, and cost. In an alternate embodiment, dynamic trading may
occur,
especially where the number of transactions is small.
From an operational perspective, the administrator configures the logistics
involved in other administrative tasks relating to computer-implemented or
enabled
financial advisement, other than those described above. Where a record keeping
system
is linked to the system, the administrator sets the organization's account
service fees,
advisor fees, and any other necessary fees such that the advisor and/or
investment firm
charges the appropriate fees and types of fees. The amount of each fee is
determined by
the administrator's organization (e.g., an investment firm). Where a record
keeping
system and an electronic fund transfer source is linked to the system, the
administrator
may set account balance minimums, an initial investment minimum, automatic
investment minimum, and a redemption minimum, a withdrawal/redemption service
charge, a cash reserve minimum, an NSF (i.e., nonsufticient funds) fee, and
any other
administrative fees or related items to these fees which are necessary for the
advisor
and/or investment firm to financially integrate with the system. These fees
and other
restrictions are set so that the system automatically enforces these rules.
Further, where a
record keeping system is linked to the system, the administrator can also
enter in
organizational information that is necessary for financial statements, taxes,
necessary
reporting to any governmental agencies, and the like.
The above described method is further described below in accordance with an
explanation of the appended figures.
Figure 1 is an example of an overview of the present invention - a computer
implemented or enabled automated asset allocation management system. A user
100
such as an administrator or an advisor interacts with the system through a
computer
implemented or enabled device with an embedded advisor interface 115. The
device has
a connection to a network, such as the Internet or an Intranet. An optional
web browser
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and interface 110 enables a user 100 to interact with the embedded advisor
interface 115
using a web browser. In one embodiment, the user 100 utilizes a computer-
implemented
or enabled system which is remotely situated with respect to the embedded
advisor
interface 115, wherein interface 115 resides on the remote system. User 100
may access
the remote computer-implemented or enabled system via the Internet or the
Intranet. In
yet another embodiment, the user 100 interacts with the embedded advisor
interface 115
on the same computer-implemented or enabled system using a web implementation
of the
embedded advisor interface 115 or a software implementation of the embedded
advisor
interface 115. Functionally, the embedded advisor interface manages investor
accounts,
allocates, reallocates, and rebalances investor portfolios, allows for the
user to create
and/or modify allocation models and model sets, and the like.
The administrator creates an investor questionnaire which comprises questions
relating to investment suitability and risk tolerance used to determine what
investment
types are appropriate and investment risk level is appropriate, for example,
conservative,
moderate, or aggressive).
In a preferred embodiment, the advisor answers the questions on behalf of the
investor, using information s/he previously collected from the investor. In
another
embodiment, the investor himself or herself answers those questions. The
embedded
advisor 115 collects the responses to the investment questions and the
investor data
creates an investor profile for that investor. In one embodiment pertaining to
the creation
of the specific investor profile, a suitability and risk tolerance
questionnaire is also
utilized, which questionnaire may be as tailored by the advisor and where
applicable, as
mandated by the Securities and Exchange Commission ("SEC") and/or other
governmental entities. These questions include an investment goal end date to
determine
how quickly the investor wishes to achieve his or her discrete investment
goal, age of the
investor, investment goals, rislc tolerance, time horizon, current assets,
income required
from an investment, and the like. The questions are weighted according to
their relative
significance and each answer choice of each question is given a value.
In terms of answering the questions, the advisor may answer the questions on
behalf of the investor or the investor may answer the questions. The responses
to the
investor questionnaire are scored based upon the associated weights of the
questions and
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answer choices. The results of this quantitative analysis are used in
deternzining which
investment types, in which proportion, and what risk level that are
appropriate for
matching with the particular investor. This data is collected to create the
tailored investor
profile 150 for each investor. The system proposes an asset allocation model
set which is
suited to the investor's needs according to the investor profile 150. The
advisor may
accept this proposed model set for the investor or s/he may reject the
proposed model and
select another allocation model set. In one embodiment, the investor
questionnaire is
responded to as an initial step of the investment process, whereby the
responses are used
to select an initial allocation model set.
In another embodiment, however, the investor questionnaire may be utilized at
a
later point in time in the investment process where the investor's needs
charge. The
advisor can change the allocation model set to reflect the investor's changed
investment
needs.
In an alternate embodiment, instead of a list of discrete, text-based
questions
comprising the questionnaire, the questions may be in a visual format wherein
certain
parameters and/or questions are displayed and the user may select an answer
from a
plurality of answer choices. The answer choices may be finite answer choices
such as a
risk level. For instance, risk levels include, conservative, moderate, or
aggressive answer
choices may also be represented within a continuous spectrum of potential
answer
choices. For example, the question or parameter may relate to age and the
potential
answer choices range from 18 to 100 years of age - the user may select an age
that falls
anywhere within this range. Another example of a question/parameter with an
associated
continuous spectrum of potential answer choices includes desired risk level -
instead of
being confined to certain risk levels, one can select a numeric value related
to the desired
rislc level such as on a scale of 0 to 5, wherein 0 is most conservative
whereas 5 is most
aggressive. This "sliding scale" approach provides a more accurate method of
characterizing the desired level of risk, compared to characterizing a desired
level of risk
as conservative, moderate, or aggressive, as many investments fall within a
broad
spectrum of risk ranging from most conservative to most aggressive. In yet
another
alternate embodiment, the investor questionnaire may be a combination of
"sliding scale"
questions and text-based questions. Further, unless otherwise indicated below,
where the
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term "questionnaire" is used, it is to be construed broadly to encompass both
of these
embodiments (text-based questions and visually formatted
questions/parameters).
The allocation model set reflects a certain investment type such as, if using
mutual funds, a growth fund, a large cap fund, a small cap fund, an
international fund, or
the like. Each investment type has an associated level of risk. The advisor
chooses a
particular allocation model set associated with a certain investment type
depending upon
the type of investment which the investor chooses to invest in and the risk
tolerance level.
Risk tolerance levels may be conservative, aggressive, moderate, and various
degrees
thereof. For example, an investor's profile may indicate that s/he has a.
moderate risk
tolerance level. As a result, the advisor will choose an investment type that
reflects this
risk tolerance level.
In an optional but preferred embodiment, actions steps 115, 150, and 155 as
previously described may be tied to record keeping andlor trading systems 160,
ACH
and/or other electronic fund transfer systems (not shown), and/or
communication
interfaces) (e.g., advisor-investor client) (not shown).
Generally, the action steps 115, 150, 155, and 160 (previously described)
assist
the administrator and/or advisor in setting up and maintaining global sets of
allocation
models 120, setting up and maintaining advisor sets of allocation models 125,
setting up
and maintaining client-specific sets of allocation models 130, linking
allocation models to
specific accounts 135, setting up and maintaining rebalancing and reallocation
schedules
140, and creating trades in accordance with schedules 145 and/or creating
other
investment transactions with schedules (not shown).
The administrator may use prepackaged global allocation model sets (not shown)
or the administrator may create his or her own global allocation model sets
120. Where
the administrator chooses to create the global allocation model sets 120, the
administrator
sets up these global allocation model sets. At least two allocation models
comprise the
allocation model set. The administrator creates at least two allocation
models.
The administrator may import a list of available funds and other investment
vehicles from a back office record keeping system. From the collection of
investment
vehicles, the administrator selects investment vehicles to create various
allocation
models. In one embodiment, the administrator chooses one fund per allocation
of each
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allocation model. The administrator may then designate the allocation
percentages of
each fund or other investment vehicle. For example, the administrator may
select Fund A
and Fund B to comprise an allocation model. The administrator then chooses to
designate 50% for Fund A and 50% for Fund B. In an alternate embodiment, the
administrator can designate a plurality of investment choices per allocation
such that an
advisor can subsequently choose which investment choice to use in servicing
his or her
investors. For example, the administrator may select Fund A, Fund B, and Fund
C as
funds which comprise an allocation model but configure the arrangement of
funds such
that either Fund A or Fund B can be chosen for one allocation and Fund C can
be used
for another allocation. For example, Fund A or Fund B can comprise 50% of the
allocation model with Fund C comprising the remaining 50% of the allocation
model.
The global allocation models are grouped into a "set" such that the global
allocation models are used in a certain defined sequence across a time horizon
specific to
the investor's needs (this is further explained in Figure 2, described below).
In an
alternate embodiment, the administrator creates the initial global allocation
model and
designates an algorithm for use in calculating the subsequent allocation
models in the set.
The algorithm generates subsequent global allocation models for use within
that global
allocation set, based upon administrator input of predefined criteria (e.g.,
risk level,
number of years to goal, etc.). The algorithm takes into account factors such
as, but not
limited to, age of the investor, current assets, current savings, income
required from an
investment if any, risk tolerance, and time horizon.
Further, the administrator also designates which advisors have access to the
system. In one embodiment, the administrator and advisor may be the same
individual.
In another embodiment, the administrator and advisor may be different
individuals. The
separation of administrator vs. advisor roles is further discussed below in
Figure 2.
In setting up advisor sets of allocation models 125, the advisor chooses
global
allocation model sets and/or administrator created allocation model sets. The
system
links which model sets a particular advisor uses and keeps track of this using
a database.
The advisor can choose certain global allocation model sets as is to service
his or
her clients, designating these as advisor-owned. Or, the advisor can modify
the global
allocation model sets 120 in creating the advisor-owned allocation model sets
125 to suit
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his or her style. For instance, the advisor can add additional investment fund
types that
are available on the system which are not available through the global
allocation model
sets 120 as set up by the administrator. Further, the advisor may further
refine the
advisor-owned model sets 125 by creating client-specific allocation models 130
which
axe uniquely tailored to the client's needs. The advisor may create and/or
edit each
allocation model which comprises the allocation model set. In yet another
embodiment,
the advisor may create and/or edit an initial allocation model and utilize a
global
(administrator-level) algorithm or an advisor-owned algorithm. In still
another
embodiment, the advisor can create his or her own algorithms for automatic
configuration
of an allocation model set based upon an initial allocation model and other
predesignated
criteria. The algorithm takes into account factors such as, but not limited
to, age of the
investor, current assets, current savings, income required from an investment
if any, risk
tolerance, and time horizon.
In another embodiment, in. lieu of an algorithm, the advisor may define how
much
of a percentage change in risk there should be at each time interval along the
time
horizon. For example, the advisor may wish to choose only a fifteen-percent
change in
risk level from one allocated model set to another. In another example, the
advisor may
wish to make the allocation models progressively more aggressive by choosing a
negative
fifteen-percent change in risk level from one allocation model to another.
The advisor can link the advisor-owned allocation models 125, 130 to client-
specific investment accounts 135. The administrator or the advisor can set up
and
maintain rebalancing and reallocation schedules. The administrator can set up
and
maintain global rebalancing and reallocation schedules for the global
reallocation model
sets. The advisor can also set up and maintain asset rebalancing and
reallocation
schedules 140 for his or her client-specific and/or advisor-owned asset
allocation model
sets, which may or may not differ from the global rebalancing and global
reallocation
schedules. Further, the advisor can also set up automatic, semi-automatic, or
manual
scheduling for rebalancing and reallocation transactions (not shown). Where
the
scheduling is semi-automatic, the advisor can cancel pending rebalancing
and/or
reallocation transactions for certain investors; absent this cancellation,
these otherwise
pending transactions will occur as scheduled.
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In an optional embodiment, at least one trading system 145 interfaces with the
system such that any investment transactions results of certain asset
allocation of
investors are executed on a predetermined schedule.
Figure 2 illustrates the system administrator 300-advisor 320 dichotomy of
roles
in the system. While the roles are separately defined as shown, one individual
may be an
administrator and advisor, although these roles may be served by different
individuals.
The administrator oversees the investment policies of the firm or other
organization
utilizing the system. The advisor manages investment portfolios for the
investors.
As discussed above in the overview in Figure 1, the administrator 300 of the
investment firm can maintain funds by designating which funds will be globally
available
funds for the global and advisor allocation model sets, maintain global
allocation models,
maintain a global asset rebalancing schedule, maintain a global reallocation
schedule, and
maintain an authorized list of advisors and customer service reps with respect
to access
rights to the system. Additionally, the administrator customizes the templates
provided
with the system of secure messages and email alerts that the system
automatically creates
for certain system events. The administrator also maintains the system
calendar on behalf
of the firm, which determines when system events are started, such as updating
transactions processed, trade amounts for redemptions, set statuses, check
account
balances for rebalancing due, reallocation due, close the day for cash
transactioins, create
ACH payout transactions, transmit omnibus trades to broker/dealer, load
today's NAV
for each mutual fund, process end of day activities, sweep all fees, post fee
transactions,
post dividends, capital gains, accruals, etc. Also the administrator sets up
and maintains
all fees, both periodic and manual result from special service requests, as
well as the
minimums associated with account balances, account statuses, investments, and
redemptions. The administrator sets up the firms Investor Profile
Questionnaire in the
system such that the appropriate scoring results in the presentation of the
correct asset
allocation model set. The administrator sets up periods for statements to be
automatically
available for investors, such as monthly, quarterly, and annual. The
administrator also
creates and maintains the firm's profile, which includes the firm name,
address, logo, key
contact names, lcey telephone numbers and emails, much of which will
automatically be
posted for use by the investors. For example, a customer service telephone
number is
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kept in the system database so that the system can post it in appropriate
places for use by
investors.
Also as shown in Figure 2, the advisor 320 can conduct client setup and
maintenance with the system, create customized advisor-owned and/or client-
specific
allocation model sets, select his or her own rebalancing and/or reallocation
schedule
including designating whether it is manual, automatic, or semi-automatic, and
also has
the ability to view the current asset allocation model which is being utilized
by a
particular client in addition to viewing the next allocation model in the
allocation model
set as related to that particular client. The advisor can also view and modify
the
investor's account on behalf of the investor.
A working example of the system is illustrated for example in Figure 3.
Advisor
action pages are displayed on a web browser 400 in this example. The web pages
which
are displayed on the advisor's computer-enabled or implemented device are
served
'through a web server 405. The asset allocation management system is shown in
the web
server and asset allocation manager application 405, a Simple Object Access
Protocol
("SOAP") 410, the asset allocation manager web services 415, at least one
database 420,
and an integration manager 425.
The asset allocation manager application 405 runs on top of the web server
405.
The Simple Object Access Protocol 410 allows the asset allocation manager
application
405 to interface with asset allocation manager web services 415. The database
420
interfaces with the asset allocation manager web services 415 to a database
420 wherein
the database information is web-enabled for instance, data can flow in and out
of the
database through this web interface which connects with 400 (web browser) and
405
(web server, asset allocation manager application). The database 420 keeps
track of
investor profile information, trades, reallocation/rebalancing schedules,
allocation model
set associations, and the like - essentially, any information pertaining to
administrator,
advisor, and/or investor concerns. In an alternate embodiment, the database
420 may
comprise a plurality of databases.
An integration manager 425 interfaces with the database 420 and the record
keeping transaction server 435. The integration manager's role is to
synchronize data
between the record keeping transaction server 435 and the database 420. Trades
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executed, client profile creation and updates, and the like are examples of a
few types of
synchronized data. Finally, the record keeping transaction server 435
interfaces with, in
an optional but preferred embodiment, ACH systems (shown) or other electronic
fund
transfer systems (not shown) and, also in an optional but preferred
embodiment, an
omnibus trading system 455. As a result of the record keeping transaction
server 435,
ACH 450 or other electronic fund transfer system (not shown), and omnibus
trades 455
interactions, the system is instructable to automatically execute omnibus
level trades of
an aggregate of investors at fixed, predefined intervals such that fiends
required to
purchase certain investments axe automatically deducted from an investor's
account or
redemptions to investor's accounts are performed where selling certain
investments.
Furthermore, like trades and/or investments can be executed at a fixed,
predefined time
(e.g., all buys of IBM common stock) such that cost and volume efficiency is
maximized.
The system achieves this by adding the investment transactions to the next
day's trading
and/or investment transaction list. The net purchases and net redemptions axe
synchronized in the list so that the net trades for all investors for that day
are sent to the
designated trading or other investment system. The other investment system may
include
a broker-dealer (e.g., a gold broker for the purchase of a certain quantity of
gold). The
investment transactions are settled and cleared through the National
Securities Clearing
Corporation or other suitable entity.
Transfers of information in between the record keeping transaction server 435,
ACH 450 or other electronic fund transfer systems (not shown), and omnibus
trades 455
occur via a secure data transfer protocol such as FTP ("File Transfer
Protocol") through
automated means (i.e., a batch process such as RJE ("Remote Job Entry")). The
omnibus
trades are executed via integration with the investment firm's trading system.
National
Securities Clearing Corporation ("NSCC")or another suitable entity may be used
for
settlement and clearing. In yet another embodiment, where the number of trades
are
small in number, such trading may occur dynamically.
In an embodiment, the system is designed to interface with any type of back
office record lceeping transaction server of the user's existing system 435.
The interface
utilizes an integration manager, such as Application Program Interface ("API")
425
provided by the record keeping systems for posting trades triggered by the
time triggered
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reallocations and rebalances. The trades for the day are processed not on a
dynamic
basis, but rather queued up for occurring at a predesignated point in time
(e.g., at 11:59
PM each weekday); also, the reallocation and rebalancing for each investor
account is
modified according to the execution of the investment transaction. In one such
example,
the record keeping system handles all Automatic Clearing House("ACH") and
transactions 440, 445, 450, 455. As an alternative to the traditional
electronic funds
transfer to and from savings and checking accounts using the ACH system, any
other
form of automated electronic funds transfer may occur (e.g., automatic credit
card charge,
automated payroll deduction, or any other cash transfer method). The
integration
manager 425 handles all the necessary transactions to synchronize the system
with the
record keeping system for these transactions.
An example allocation model set is shown in Figure 4. Depending upon the
investor's investment goals, the relevant time horizon may be long-term (e.g.,
20+ years)
or it may be short-term (e.g., 5 years). As discussed above, the advisor can
pick and
choose which allocation models are appropriate for the specific investor's
needs. For
instance, allocation models 200, 205, 210, and 215 are appropriate for a long-
term 20+
year goal (such as saving for college or retirement). As can be seen in Figure
4,
allocation models 200 and 205 are designated for long-term when the investment
goal
date is far off in the future (e.g., 10 or more years). However, also shown in
Figure 4, as
the goal approaches the models adjust as allocation models 210 and 215 are
better suited
for shorter term.
As a result, for a long-term life goal such as college and retirement savings,
models 200, 205, 210, and 215 are selected by the advisor to fulfill that
investor's long-
term needs. But, if the investment goal is short-term, models containing
progressively
more concentrated investments are selected such as 225 and 230, which are used
only as
these allocation models are more catered to short-term investments (and the
level of
productivity and risk involved). In a preferred embodiment, as time approaches
the
investment goal date, the investment risk involved grows more conservative
(i.e.,
involves less risk). Similarly, in a preferred embodiment, as time is farther
away from
the investment goal date, the investment risk involved entails more risk (and
hence the
potential for much growth) to help ensure that the investment goal is met by
the end goal
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date. Thus, in these preferred embodiments, risk decreases (and
conservativeness
increases) along the time horizon axis as the investor's end goal date draws
nearer and
there is less and less time remaining to recover should any losses occur.
For example, referring to Figure 5, if a goal is fifteen years from today and
the
allocation model set contains six models for 11-15+ years to goal, 8-10 years
to goal, 6-7
years to goal, 4-5 years to goal, 2-3 years to goal, and 1 year to goal
respectively, we
begin the count down by allocating our assets in accordance with the 11-15
year
allocation model 610 until we reach 10 years from goal. At that point in time,
the system
automatically moves the assets to the 8-10 year model 615 within that set by
initiating
reallocation and continues to use that model until we reach 7 years from the
goal. At that
point in time, the system automatically reallocates the assets in accordance
with the 6-7
year model 620 until we reach 5 years from the goal. At that point in time,
the system
automatically reallocates the assets to the 4-5 year model 625 within that set
by initiating
reallocation and continues to use that model until we reach 3 years from goal.
At that
point in time, the system automatically reallocates the assets to the 2-3 year
model 630
until we reach 1 year from goal. At that point in time, the system
automatically
reallocates the assets to the one-year model 635. Specific answers on the
suitability and
investor profile questionnaire are used by the present system to correlate a
client with an
appropriate asset allocation model set.
Figure 6 is previously described.
Figures 7a-7d illustrate the risk level tolerance threshold with respect to
rebalancing, as previously described. Referring to Figure 7a, as an example,
the
tolerance or threshold fox this asset allocation model set is 7%. This
tolerance level is
assigned by the creator of the model set to indicate that when the assets in
any of the
investment vehicles are under or over the prescribed weights for that
investment vehicle,
such as Fund A and Fund E are per line 5. On the prescheduled date for
rebalancing, the
system automatically rebalances the account as indicated in Figure 7a when no
advisor is
associated with the account or the model set is on automatic. If the model set
is owned
by an advisor, and the model set is on semi-automatic mode, the advisor is
notified
Figure 11 that a scheduled rebalancing is valid (the tolerance threshold has
been met or
exceeded) and due on a given date. Unless the system receives a cancellation
from the
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advisor, the remaining calculations are done as presented in Figure 7a, lines
4-5. The
rebalance actions, i.e., redemptions and purchases, necessary to bring the
account in
balance with the model are calculated automatically by the system as in Figure
7a, lines
6-7 and respective trade requirements are presented to the advisor. Once those
trades are
authorized by the advisor, executed, and settled, the account is updated
accordingly using
data transmitted to the present invention from the record keeping system.
After
rebalancing, the assets in each fund agree with the model weights (see Figure
7a line 3),
which is confirmed by comparing Figure 7a line 4 and line 8. If the advisor
cancels the
pending action, the system resets to the next rebalance date, at which time
the same
notification process is repeated.
The system automatically manages the rebalancing process in terms of
calculating
the current weights (percentage of the total asset balance) for the amount
allocated to
each investment vehicle, scheduling, calculating the difference between the
actual
weights in each investment vehicle, comparing the actual to what the
associated model
dictates, calculating necessary purchases and redemptions to restore balance,
and creating
trade orders. In this manner, the advisor is freed of the need to personally
monitor his/her
accounts for rebalancing and reallocation, but retains control of whether or
not such
change occurs as scheduled.
The reallocation process is similar to the rebalancing process, except that a
different model in the set is used. Figure 7d presents an example of the
calculations that
the system does to determine which investment vehicles need to be purchased or
redeemed in order for the account to be balanced to the new model weights.
Where a
ftxnd or other investment vehicle was previously present in a prior allocation
model but is
no longer present in the new model, that investment is automatically redeemed
by the
system. Where the system is tied to an electronic funds transfer system (e.g.,
such as an
ACH), a record keeping system, and a trading system, the investment is sold
(i.e.,
redeemed) and proceeds from that, if any, are deposited into the investor's
account (which
is tied to the electronic fund transfer system).
But, where the investment vehicles are identical in both models in the
reallocation
process, the system compares the current model weights in Figure 7d line 2
with the new
model weights and calculates the difference (line 5). According to the
calculations on
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line 5, the account holds 5% more of Fund A than the new model dictates, 10%
more of
Fund B than the new model dictates, exactly the right amount of Fund C, a
shortage of
10% of Fund D, and a shortage of 5% of Fund E. Therefore, the system
automatically
creates the redemption and purchase orders shown in lines 6-7. After these
orders are
executed, the account will be reallocated as confirmed by line 8 to agree with
line 4. If
the investment vehicles in the new model are not the same as those in the
current model,
the investment vehicle columns Figure 7d are expanded to include the new
investment
vehicles. Then the same calculations are executed.
The present invention determines for each contribution to an account which of
the
mutual funds or other investment vehicles will be purchased and in what
quantity to as
nearly as possible maintain balance with the allocation model weights for each
Figures
7a-7d. Optionally, if the existing record keeping or transfer agency system
maintains the
records, the purchases for all accounts are aggregated to arrive at total
omnibus trades for
each investment vehicle. That is, at the Internet level or other global level,
trades
concerning a particular investment may be aggregated, thereby reducing
transactional
costs for all of the investors involved in this particular trade, including
advisor fees,
brokerage account fees, and other transactional fees associated with the
trade. For those
accounts that are scheduled to be rebalanced or reallocated, the combination
of purchases
and redemptions are identified by the system processes Figures 7a-7d. If the
present
invention is set to create omnibus trade orders, all of the purchases and
redemptions,
regardless of reason, are netted to reduce the aggregate purchases and
redemptions of
each mutual fund or other investment vehicle to the minimum required. All
client level
sub-accounting is handled by the investment firm's record keeping or transfer
agency
system.
Referring to Figure 7c, when the investor or other account holder decides to
withdraw a dollar amount from an investment account, the system automatically
piclcs
which investments) to redeem in order to redeem that specified amount with an
eye
towaxds retaining the investment account allocations to be in line with the
model
allocations in the current allocation model being used. Next, where the system
is coupled
with a trading system, the system adds those redemptions to the next day's
trade list
(consisting of an aggregate of other investors' trades), synchronizes that
list with the next
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day's purchases to net opposing trades 150, and sends the net trades for all
investors for
that day to the trading system of record. These are referred to as omnibus
trades, as
discussed above.
In an example, the system utilizes a graphic user interface ("GUI") of the
system
that is depicted in a series of screen displays which are illustrated in
Figure 8. Screen
500-A is an example of an administrator login screen and a list of
administrator actions
that s/he can take is listed on the left. Screen 500-B is an example of an
advisor login
screen and a list of advisor actions that s/he can take is listed also on the
left.
As shown in screen 500-C, administrators can create global allocation models
by
selecting funds or other investment vehicles for use in particular global
allocation
models.
In screen 500-D, the administrator creates a new global allocation model set.
The
configuration information includes the following: a model set name, the number
of
models the set contains, a text description of the model set, the owner or
creator's name,
the relevant investor time horizon as reflected in discrete year increments
(shown in
descending order), whether rebalancing is desired when contributions to each
model are
made, whether rebalancing is desired when redemptions are requested, how often
periodic rebalancing should occur for this asset allocation model set, and
what the
rebalance tolerance percent is that will trigger periodic rebalancing.
Periodic rebalancing
occurs where the rebalance tolerance percent is met or exceeded. The rebalance
tolerance
percent is reached or exceeded where the actual assets of an investment
account of an
investor are allocated in such a way where the relative allocations deviate at
less than or
in excess of the rebalance tolerance percent. See Figures 7a-d.
Also as shown in screen 500-D, the rebalancing or reallocation may be manual,
automatic, or semi-automatic. Semi-automatic rebalancing or reallocation
occurs in the
same manner as automatic except that the advisor may cancel certain
rebalancing or
reallocation events. The administrator selects a classification category for
the allocation
model set. Examples include "Risk Tolerance Level" (e.g., conservative,
moderate, or
aggressive) or "Investment Strategy" (e.g., small-cap, mid-cap, large-cap).
These
classification categories correlate to certain responses from investors in
suitability and
risk questionnaires.
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Depending upon which classification category is chosen in screen 500-D, the
administrator selects a certain correlated type. For instance, if "risk
tolerance level" were
chosen as a classification category, the choices (for "type") would be
conservative,
moderate, or aggressive; further, the "Risk Level" option would be grayed out
(i.e.,
disabled) (as this would be redundant). The administrator may then choose
aggressive to
designate the specific risk tolerance level belonging to this particular
allocation model
set. However, when "Investment Strategy" in screen 500-D is selected as a
classification
category, the choices, for example, would be small-cap, mid-cap, or large-cap
for the
answer type (hereinafter, type). As an example, an investor may choose small
cap for
investment strategy and conservative for the risk level. The system would
propose an
allocation model set to the investor's advisor which is a large cap,
conservative
investment tailored to that investor's time horizon.
It is emphasized that the classification categories and type may be
administrator-
created. In other words, risk tolerance level and investment strategy are not
the only
possible classification categories nor are the prior mentioned examples of
types the only
possible types that may be configured on a particular system.
The group ID in screen 500-D optionally identifies an asset allocation model
as
one model selected from a group of at least two models having at different
risk levels
(e.g., conservative and aggressive).
In screen 500-E, the administrator selects the funds or other investment
vehicles
that comprise the allocation model set - the funds may be the same across all
allocation
models within the set or they may vary. The same funds or other investment
vehicles are
presented by the system in each model in the set unless the administrator
specifically
changes the funds in an individual model. The information relating to
available funds
may be, in an optional but preferred embodiment, imported from a record
keeping
system, a transfer agency system, or another similar back office system.
In an alternate embodiment, the administrator can select an initial model for
the
allocation set and select a global algorithm to automatically create
subsequent allocation
models for the set based upon predesignated criteria. In still another
embodiment, the
administrator can create his or her own algorithms for automatic configuration
of an
allocation model set based upon an initial allocation model and other
predesignated
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criteria. In yet another embodiment, the administrator can edit his or her own
algorithms.
And in a further embodiment, the administrator can choose a different
algorithm for the
calculation of subsequent allocation models in an allocation model set. In yet
another
embodiment, the administrator can edit his or her own algorithms. And in a
further
embodiment, the administrator can choose a different algorithm for the
calculation of
subsequent allocation models in an allocation model set.
In screen 500-F, the administrator adjusts the allocations of the funds in
each of
the allocation models which will comprise the allocation model set. The
administrator
also can adjust the identity of the fiends, if needed. The administrator
designates how
many allocation models comprise the allocation model set. And, based upon the
number
of allocation models, the system reiteratively requests input from the
administrator for
each allocation model which comprises the allocation model set (e.g., 1 of 6,
2 of 6, etc.).
In screen 500-G, the administrator has a bird's eye view of the allocation
model
sets. The sets can be viewed by risk level, classification category, owner,
rebalance
preference (i.e., related to rebalance tolerance threshold as discussed
above), type, or
group (i.e., Group ID). In each view, the administrator can select the asset
allocation
model set name of his or her choosing and examine details specifically
pertaining to the
allocation model set (e.g., funds used, allocation percentages, and the like).
The next items at screens 500-H and 500-I, the administrator performs advisor
reassignment of allocation model sets shown in screen 500-H, removes advisors
from the
authorized list (not shown), and sets up new advisors by adding new advisors
to the
authorized list as shown in screen 500-I. Each allocation model set may be
advisor-
owned or.may be globally owned.
Screen 500-J shows an example of a utility which enables the administrator to
create an investor profile questionnaire for risk tolerance and suitability.
As shown in
screen 500-J, the Profile Questionnaire Wizard ("Wizard") is used by the
administrator
to create a custom investor questionnaire. The system prompts the
administrator to
select or name at least one question category as shown in screen 500-J.
Ideally, the name
should reflect the category purpose for ease of use. An example of a category
is "Risk
Tolerance Level." Another is "Investment Style." Then, as shown in screen 500-
K, the
administrator then has to input the number of possible types for each question
category
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and selects what the types are to be. As an example, the question category
"Risk
Tolerance Level" may be answered with three possible types: conservative,
moderate, or
aggressive. As an example, the administrator may create a risk tolerance level
questionnaire wherein each answer choice of each question correlates to one of
the
possible answer types - conservative, moderate, or aggressive. Depending upon
the
overall score of the investor's responses, the overall result may be
conservative,
moderate, or aggressive. Depending on how the administrator sets up the
questiomlaire,
the results may be scored or averaged (voting method). This overall result is
used as the
risk tolerance level for the investor.
In screen 500-L, the administrator inputs each question and possible answers)
for
the investor risk and suitability questionnaire. As shown in screens 500-L and
500-M,
the system allows the administrator to add on an additional question and
answers) when
the administrator clicks "Next"; similarly, the system allows the
administrator to
complete the questionnaire setup by selecting "Done."
The Wizard repeats this process as shown in screens 500-L and 500-M for all
question categories as designated by the administrator. An embodiment
pertaining to
setting up the questionnaire to determine an investor's profile, including the
method by
which a score is calculated as a result of the investor's responses to that
profile is
discussed in connection with Figures lla-c (discussed in further detail
below).
As the final step as shown in screen 500-N, the system associates question
categories with certain types, linking this information to the allocation
model set risk
levels. For instance as shown in Figure 9, for the question category "Risk
Tolerance
Level," the system will link the allocation model sets with certain risk
tolerance level
types. As a result, when the advisor inputs the investor responses to this
question
category, where the investor's risk tolerance level is conservative, the
proposed allocation
model set may be "Environmental-1" or "Mike's Best Model" since the advisor
previously designated these allocation model sets as having a conservative
risk level.
Furthermore, when there is a second question category (such as fund family
type),
allocation model sets that comprise of funds relating to that particular fund
family (in
addition to risk level, as described above) are linked, as shown in Figure 10.
The
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administrator can confirm these associations (described above), as shown in
screen 500-N
by confirming that the allocation model sets as assigned are accepted (i.e.,
valid).
Screen 500-O shows an optional embodiment wherein the advisor' can make this
system available to existing investor accounts by linking investor accounts in
existing
record keeping, transfer agency, or other systems containing those accounts.
This linking
process is a method of importing investor accotult information into the
system. The
advisor may choose to import one or more investors from a record keeping
system into
this system.
As shown in screen 500-P, the advisor can view and/or edit allocation model
sets.
These may be global allocation model sets created by an administrator or
advisor-created
allocation model sets.
When the advisor chooses to create a new asset allocation model set instead of
using the global allocation model set as a template o~ using a prepackaged
global
allocation model set, slhe can enter in information about the allocation set
as shown in
screen 500-Q. The information. entered is the same as that described above in
screen
500-D where an administrator creates a global allocation model set. The
advisor can link
at least one of these global allocation model sets for use by at least one
investor (not
shown). The system proposes one allocation model set based upon an investor's
prof 1e
score, which the advisor may accept as the default asset allocation model or
reject (and
instead choose an alternate asset allocation model) (not shown).
Next, in screen 500-R, the advisor selects the funds or other investment
vehicles
that will be used in the advisor-created asset allocation set. In one
embodiment, the
system then presents the advisor with each model in the set and its respective
criteria in a
reiterative fashion as shown in screens 500-S, 500-T, 500-U, 500-V, 500-W,
prompts for
fund or other investment vehicle changes, and prompts for an allocation
percentage of
each fund or other investment vehicle. All of the models within the set are
presented
until the set is complete. In another embodiment, the system prompts the
advisor with
the initial allocation model in the set. The advisor then selects an algorithm
which will
generate the subsequent global allocation models in that set. The algorithm
takes into
account factors such as, but not limited to, age of the investor, current
assets, current
savings, income required from an investment if any, risk tolerance, and time
horizon.
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In an alternate embodiment, when the advisor is creating a new asset
allocation
model set, several investment vehicles may be designated as potential choices
for a
particular asset allocation within one or more of the allocation models
belonging to the
asset allocation model set. When the advisor subsequently edits the advisor-
created asset
allocation model set, s/he can choose one of the potential choices for the
particular asset
allocation. As an example, when the particular asset allocation involves mid-
cap funds
and where a client prefers one fund family over another, the advisor will
select the fund
family which the client prefers when creating a client-specific asset
allocation model set.
In yet another embodiment, the advisor may create an asset allocation model
set wherein
each particular allocation of a model is designated one particular investment
vehicle o~ a
plurality of potential investment vehicle choices. Where a plurality of
potential
investment vehicle choices are presented for an allocation of a model, the
advisor must
pick one of those choices for that allocation. For example, allocation model A
may
potentially utilize Furnds A, B, and C. Funds A and B may be alternatives of
each other.
In this example, Fund A or B may comprise fifty-percent of the model
allocation whereas
Fund C may comprise the remaining fifty-percent.
The system then presents views of the investor accounts belonging to the
advisor
and allows editing of account linkages (i.e., investor account to a particular
allocation
model set) where no asset allocation models are in use by these accounts as
shown in
screens 500-X, 500-Y, 500-Z. Account information can be accessed by last name,
account number, or model set as shown in screen 500-X. The system provides all
investor accounts managed by the advisor as shown in screens 500-Y and 500-Z.
Screens 500-Y and 500-Z provide two alternate views of the viewing of investor
information. In screen 500-Y, the user selects a client name to list accounts
associated
with that client name. In screen 500-Z, the advisor can view all client
accounts
associated with a particular client using a drop down list.
Screen 500-AA shows an advisor action screen for canceling pending account
rebalancing or reallocation. The advisor receives a prospective notice of a
pending
rebalancing or reallocation transaction for a certain client (see Figure 11).
This screen is
presented where the advisor has configured the allocation model set to have a
rebalance /
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reallocation schedule (a.k.a. rebalance or reallocation preference) which is
semi-
autorraatic.
Since an investor's needs change over time, the asset allocation model must
change in order to accommodate those changing needs. Each asset allocation
model in a
set has a predesignated period of validity. Each asset allocation model is
used for a finite
period of time; when that time expires, the next allocation model in the set
is used.
During the use of each allocation model for a certain time period, the
investor's assets are
managed according to the designated allocation model for that time period.
When a
record keeping system, trading system, and electronic funds transfer system
are
associated with the system, trades and other investment transactions are
automatically
executed in response to maintaining an investor's funds in accordance with the
allocation
model. Investments are manually, automatically, or semi-automatically redeemed
and/or
purchased as needed in order to meet the investment goal. In an embodiment,
the advisor
and/or investor may schedule such investments when the purchases and/or
redemptions
are semi-automatically (i.e., advisor and/or investor may reject a pending
transaction) or
manually done. For example, from the point in time where the investor starts
an
investment plan using the system until the investment end goal date, a unique
allocation
model is used for each predefined point in time. The risk level vaxies across
the
allocation models used over time. Similarly, purchases and/or redemptions are
regularly
carried out by the system manually, semi-automatically, or automatically in
order to
ensure that the investor meets his or her investment goal.
Screen 500-AB shows an advisor action screen wherein an advisor can view
client
accounts by last name. The advisor can select a client name from the general
list of
clients in 500-AB to render more specific information for that client as shown
in Screen
500-AC. The advisor can select an investment account to view of that client
from a drop-
down menu as also shown in screen 500-AC.
Figures 9-10 axe previously described (see discussion regarding Figure 8,
screen
500-N).
In an embodiment (not shown), a calendar is maintained by the administrator to
identify business days that are to be used by the system for event scheduling
(e.g., trade
execution, rebalancing, reallocation, or the like). (As described above, the
administrator
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can configure global rebalancing and reallocation schedules. Further, where
the system is
integrated with (optionally) a trading system, the administrator can configure
trading
schedules.)
Figure l la, previously described above, is an example of a question and
answer
from an investor suitability and risk questionnaire. Figure llb is an example
of an
image which may used in conjunction with the questionnaire. Specifically,
Figure llb
shows an example of an image showing a conservative investment model in a
graph. The
user answering the questions in the questionnaire may view the image
associated with the
conservative investment risk level as an aid in determining whether a
conservative
approach is best for the individual investment needs.
The questionnaire is used in creating the investor profile. 'Typically,
investment
advisors ask clients to complete a suitability and profile questionnaire that
contains
questions pertaining to their risk tolerance and investment style/strategy
with multiple
choice answers (including questions such as a written description of the goal,
how long to
achieve the goal, how much money is needed in an emergency, and the like). In
this
invention, the advisors input the investor responses to the questions in the
system. Each
question may be assigned a different weight compared to other questions in the
questionnaire, reflecting the importance of each question. Each answer of each
question
may likewise be assigned a particular weight. In an alternate embodiment, each
answer
of each question is assigned a particular weight, but each question is not
assigned a
weight such that all of the answers are totaled according to the assigned
weight and
divided by the number of questions in the questionnaire.
After the system has analyzed the user responses to the questionnaire, the
system
proposes an allocation model set. For example, as shown in Figure 11c, the
desired
investment sector may be technology. The level of risk for the investor may be
aggressive. Based upon an investor profile which reflects these attributes,
the system
proposes an allocation model set which is characterized by an aggressive
technology
investment.
In another embodiment, the investor questionnaire may be used subsequent to
the
creation of an investment plan whereby the investor's needs change and so the
allocation
model set may need to change to reflect this. In yet another embodiment, the
questions
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can be subsequently modified. In still another embodiment, the weight
attributed to each
question and/or answer may be modified.
Figure 12 is previously described, in part, above (Figure 8 500-AA, Figures 7a-
d). The administrator can modify prepackaged templates to create customized e-
mail
messages for advisors pertaining to such events (described above) - e.g.,
rebalancing,
reallocation, pending trades (see, e.g., Figure 12). Further, the
administrator may also
create secure message content to advisors and/or clients (see, e.g., Figure
13). The e-
mail (Figure 12) and secure message content (Figure 13) may be manually filled
in by
an advisor and/or client o~ automatically filled in by the system. In one
embodiment, the
advisor and/or client may manually fill in e-mail and/or secure message
content. In
another embodiment, the e-mail and secure message content may be automatically
generated by the system where an event occurs which affects an investor
account. In yet
another embodiment, the e-mail and secure message content may be modified by
the
aclininistrator and/or advisor, including the data fields which are populated
with particular
data from at least one database.
In this embodiment, the system has pre-existing e-mail and secure message
content templates with data fields which are populated using particular client-
specific
information retrieved from a database which contains this client-specific
information.
The secure message content also conies with prepackaged templates. The
configuration
' and look of the e-mail and secure message content may be configured by the
administrator. In one embodiment, if the system is integrated with a website
or other
communications medium that has secure message content capability, then a
secure
message can be exchanged from advisor to client and vice versa in an
interactive fashion
whenever transactions or other events of concern occur (e.g., received
dividend is
reinvested by the system as per the investor's instructions to the advisor).
As an example, where the purchase of a certain fund has been made in
accordance
with the investor's current allocation model or an automatic investment is
executed in
accordance with the schedule preset by the investor, s/he is automatically
notified by the
system via secure message content, wherein the investor received this notice
in a secure
message format. The secure message format is any format which may be networlc-
accessible only by the investor due to password and other security
protections. One
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example would be a secure website using high encryption technology. When a
secure
message is posted, the system automatically triggers the appropriate email
message to
notify the investor that a secure message is now available the next time the
investor logs
on to the system.
In one embodiment, the secure messaging system is one-way, wherein the system
and/or advisor transmits message content to the investor. In another
embodiment, the
secure messaging system is two-way, wherein the system and/or advisor
transmits
message content to the investor and where the investor may transmit a response
back to
the system and/or advisor.
Privacy policies, investment account agreements, terms and conditions, fund
prospectuses, a statement of advisor fees and other associated fees and costs,
solicitation
disclosures, legal forms, and the like, are constantly available to the
investor.
In another embodiment of the invention, an investor interface is provided to
interact with an asset management system. The asset management system may be
an
asset allocation management system as described in the foregoing or it may be
an
alternate asset management system. At least one database integrates the
information
between the asset management system and the investor interface.
In another embodiment of the invention, a GUI enables the user to keep track
of
and/or communicate with his or her advisor through certain communication
means. To
aid in the exchange of client information to the advisor and vice versa, this
system
incorporates in one embodiment an e-mail messaging system, such as in Figure 1
l, a
secure messaging system, such as in Figure 12, or an alternate messaging
system, such as
but not limited to instant messaging (not shown). As an example, as described
above, the
investor may himself or herself respond to the investor questionnaire in lieu
of the
advisor doing so. This may be communicated through the above communication
means.
Further, the investor may be notified of trades and other investment
transactions.
Essentially, the investor may communicate or receive communications pertaining
to any
phase of the investment process vis-a-vis his or her advisor.
In a further embodiment, when an investment vehicle does not involve
securities,
the system may be self service wherein an advisor need not be involved in the
investment
process. As an example, an investor who wishes to invest in certain semi-
precious or
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precious materials (e.g., gold or rare semi-precious stones) may utilize this
system to
create his or her own allocation model sets (the investor effectively acts as
an "advisor"
and the above described roles and functions of the advisor apply here). If a
record
keeping, electronic fund transfer, and trading system is linked to the system,
the system
can execute any purchases and other transactions pertaining to these non-
securities. The
"trading system" here should be broadly construed to include, as an example, a
broker of
semi-precious stones or gold, a bank (wherein the investment may be, as an
example, a
savings account).
In another embodiment, self service investors can update their investor
profile as
life conditions are altered, such as a source of income, a changed income
amount, receipt
of a large sum of money, a disability or other events that alter financial
conditions arise.
As a result, the system will re-evaluate which allocation set is appropriate
for the investor
once the investor profile is changed. The change will be provided to the
system in the
form of revised answers to the investor profile questionnaire. If a different
allocation set
fits the new profile, the system will present both the current allocation set
and the new
one, asking the investor' which they would prefer. If the investor accepts the
new
allocation set, a reallocation event will be scheduled to move the assets in
the investor's
account to the correct model in the new allocation set.
In yet another embodiment of the foregoing self service investment scheme,
"investment" may be broadly construed to include frequent flyer miles or
frequent hotel
stay points. When the system includes a linked record keeping, electronic fund
transfer,
and trading system, the "trading system" may be a predesignated hotel which
offers
frequent hotel stay points for a certain monetary value. Self management of
the
allocation model sets occurs using the steps and procedures as previously
described. The
investor in this case also has the role of "advisor" because this is a self-
directed
investment.
In still another embodiment, the advisor may advise the investor with
securities or
non-securities investments, including the foregoing described "self service"
investment
schemes.
In another embodiment, the investor sets up through the GUI at least one
virtual
account. Each virtual account, at minimum, has a finite balance, is capable of
storing and
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withdrawing funds, and has a unique identifier. As an example, the unique
identifier may
reflect the investor's particular investment goal.
In still another embodiment, where the system is coupled with a record keeping
system and an ACH system or other electronic funds source, the investor may,
through
the GUI, deposit monetary funds from his or her bank account (or other account
where
monetary funds may be electronically withdrawn) into one or more virtual
accounts.
Figure 8, screen 500-AD shows the investor setting up an electronic fund
transfer source,
such as a bank account coupled with an ACH system, for use with this system.
The
investor can then set up an automatic investment and/or redemption wherein
money is
transferred to or from the investor's electronic fund transfer source account
to the
investor's virtual investment account and vice versa. The investor may have
one or a
plurality of virtual investment accounts. The virtual investment accounts can
reflect the
iaivestment type and/or investment goal.
In a fiuther embodiment, where each virtual account correlates to a unique
investment goal, the funds available with respect to these particular
investments are
withdrawn from the specific virtual account. The user accomplishes this by
linking a
certain virtual account to a certain investment goal. The investment goal is
then linked to
the relevant asset allocation set. Investment transactions (i.e., purchases
and
redemptions) occur in accordance with the models within the asset allocation
set.
Regular contributions and redemptions may occur on a manual, semi-automatic,
or automatic basis from/to an investor's electronic fund transfer source
(e.g., an ACH
system tied to a bank account) and the investor's virtual investment account.
Where
automatic investments occur on a semi-automatic basis, the user has the
ability to cancel
one or more pending transactions (i.e., purchases and/or redemptions). A
screen display
showing the investor's ability to change an automatic investment is shown in
Figure 8,
500-AE. Further, the investor can view the transactional activity in each
investment
virtual account. As shown in 500-AF, the investor can view transaction posting
dates,
types, transaction descriptions, status, date on which the transaction was
processed,
amount of the transaction, and the balance of the virtual investment account.
In a further embodiment, the investor may view investment transaction
schedules,
modify the investment transaction schedules, elect to redeem certain
investment vehicles,
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and the like. According to the investor's modifications, the system, by
default, will
readjust the investor's current portfolio, wherein the investor's current
investments are
compared with the current allocation model. Purchases and redemptions are made
on an
as needed basis, in accordance with these instructions of the investor.
Alternatively,
where the investor wishes to choose an alternate allocation model to better
suit his or her
needs he/she can override this default action of the system by choosing an
alternate
allocation model set from a listing of available allocation model sets as
created by the
administrator.
In yet another embodiment, regardless of whether the investor is self directed
investor, the GUI also includes a web-based e-commerce component wherein the
investor
may purchase from certain designated merchants. Where the investor purchases
from
these merchants, the investor earns "cash back" money which is deposited in
his or her
investment account. Similarly, where the investor purchases from these
merchants with a
merchant-branded credit card, money is deposited in his or her investment
account.
Where the investor does both - purchase from a merchant and use a merchant-
branded
credit card -- the investor reaps the benefit two-fold of "cash back" money
which is
deposited in his or her investment account. Furthermore, discount coupons of
designated
merchants may be utilized as a further incentive for investors to purchase
products or
services from designated merchants. Figure 8, screen 500-AG shows an example
of the
e-commerce component.
In screen 500-AG, the investor registers the designated merchant credit cards
with
the system so that the system keeps track of all purchases in the record
keeping system
and also as a cash back rebate which is deposited into a designated virtual
investment
account. If the investor does not have a card, s/he can register for a
designated merchant
credit card to reap these benefits. To further facilitate purchases of goods
and services
from designated merchants, the investor can print out and subsequently use
discount
coupons with designated merchants. Further, the investor may access an e-
commerce
portal which allows the investor to access one or more designated merchant
sites for
online purchase of goods and services.
A rewards program manager keeps track of the redemptions and/or rewards.
When the investor purchases from one of these designated merchants, the
merchant
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returns to the system a cash rebate or reward. The amount of the cash rebate
or reward is
calculated by a merchant formula and reconciled by the record keeping system
to the
correct investor account. The method for transferring certain cash from the
merchant to
the investor occurs through an electronic fund transfer system. Where this is
a reward
(i.e., not monetary in nature), the reward information is transferred via the
record keeping
system to the investor account. The merchant keeps track of the reward points
for the
investor. For example, a consumer may earn, through a purchase at a
predesignated
merchant, 100 frequent flyer miles with a certain airline. Information
pertaining to this is
transferred from the merchant through the system to the investor account. The
airline
itself keeps track of the 100 frequent flyer miles, associated with this
particular investor.
While the foregoing has been set forth in considerable detail, the examples
and
figures are presented for elucidation and not limitation. It will be
appreciated from the
specification that various modifications to made to the system and
combinations of
elements, variations, equivalents, or improvements therein may be made by
those slcilled
in the art, and are still within the scope of the invention as defined in the
appended
claims.
39
