The present invention claims priority to U.S. Provisional Application No. 60/587,949 entitled “METHOD AND APPARATUS FOR ALLOCATION OF FINANCIAL PORTFOLIO INVESTMENTS, WITHDRAWALS, AND DISTRIBUTIONS IN ORDER TO STRUCTURE A SUSTAINABLE INCOME STREAM” filed Jul. 13, 2004, which is hereby incorporated herein by reference for all purposes.
The present invention relates generally to financial investment management, and more specifically, to methods and apparatus for determining investment allocations and sustainable withdrawals.
An increasing percentage of the population is seeking a financial management solution for retirement. While much has been written about the aging generation of World War II “baby boomers” (those individuals born from 1946 through 1964) and their focus on retirement, this issue affects a broader population. Currently, 12% of today's population is over the age of 65 and, by 2030, this percentage is projected to grow to approximately 20%. Beginning in 2008, approximately 3.8 million baby boomers are expected reach age 62. Baby boomers, in many cases, are more affluent and formally educated than their parents' generation. A significant concern of these baby boomers and all retirees is the disappearance of traditional pension programs and potential reductions in Social Security coverage and payments. Currently, there are several products that attempt to offer solutions to retirees' or pre-retirees' need for an investment-based income generation solution. However, these products fall short of providing people with the means to use existing savings to create a sustainable, reliable income stream. For example, retirement calculators, on-line websites, expense estimators and traditional advisory services offer complex and often contradictory advice that can be expensive upfront and even more expensive if the information is misapplied. Traditional retirement products such as annuities, CD's, TIPS, bond funds, reverse mortgages, mutual fund dividend withdrawals and generic stock, bond and cash portfolios with a 4% annual withdrawal rate, include their own set of pitfalls but generally fall short in that they are either too risky or too conservative. Some of these products require the client to give up control of their principal balances for an extended period of time (i.e. CDs) or, as in the case with certain annuity products, to give up complete rights to any remaining principal at the termination of the contractual term. What is needed is a product which allows the client/investor to retain the full ability to regain total control over their investment dollars or, upon the death of the client(s), to turnover the existing (and hopefully increased) principal balances to their heirs. Additionally, existing products are designed to only provide a partial answer to the end client. A specific or total solution to the question, “What will a client's income be once retired?” is not provided by existing products. An investor in such products is typically not able to gain an intuitive understanding of the level of risk involved, nor an opportunity to test such investments against the realistic worst case market scenarios that one is likely to face in the next forty years.
Today's retirees and pre-retirees have had access to safer working conditions, better nutrition and more modern medical techniques than previous generations. It is no surprise that their life expectancies have increased and are anticipated to continue to increase. Therefore, the retirement income solution they select must work for a much longer time period than those approaches utilized by previous generations. Many current projections assume that a healthy retiree at age 65 could expect to live for 20 or 30 years after retirement.
Prior, conventional investment strategies have maintained that the closer an individual gets to retirement, the more their investments should shift toward a defensive or a less risky portfolio. Thus, investments in bond or fixed income portfolios have been traditionally utilized for a majority of a retiree's income. These types of portfolios accept the decrease in real purchasing power due to the impact of inflation as an acceptable trade off for the specific and known amount of pre-tax income provided by this strategy in the short run.
Given that today's retirees are expected to live longer than previous generations, a dependence on fixed income portfolios will generate an income stream which will see a steady long term decrease in real purchasing power over the life of the retirees. Therefore, the previously accepted or traditional investment strategy (i.e. low risk) needs to be changed to deal with the new reality of longer post retirement periods. Thus, there is a substantial and growing need for an investment solution that can generate a sustainable, reliable, and increasing income stream over an extended period of time while, at the same time, growing the individual's principal balances as well. This need is also felt by organizations such as non-profit groups, educational institutions, and for profit corporations such as insurance companies, etc.
The annual rate of planned withdrawals from an income producing investment significantly impacts a portfolio's ability to endure long enough to serve a retiree. Conventional thought is that an annual withdrawal rate greater than 4% per year (adjusted upwards for inflation each year) is not sustainable even with a well balanced portfolio, and that a rate greater than 6% per year cannot last more than 20 years. Thus, based upon conventional theory, an investor is significantly restricted in the size of the annual withdrawal amount a traditional financial advisor would recommend.
What is needed are systems and methods to facilitate an investment allocation that is capable of generating a sustainable, increasing income stream based on a withdrawal rate significantly greater than the conventional 4% per year rate within acceptable risk parameters.
The present invention overcomes the above and other drawbacks of the prior art by offering systems and methods for management of financial investments that generate a sustainable and increasing income stream even in declining and fluctuating market conditions.
In a first aspect, the present invention includes determining an investment amount for purchasing an investment and a minimum distribution rate, allocating the investment amount among investments of different types, determining a distribution amount based upon a performance level of the individual investments and the minimum distribution rate, and determining an individual investment from among the investments to liquidate to fund the distribution amount. The minimum distribution rate may be greater than a predefined percentage of a current value of the investment per year and is maintained at a level at least equal to a highest level of all prior years.
In a second aspect, the present invention includes determining an investment amount and a minimum distribution rate, allocating the investment amount among investments of different types, determining a distribution amount based on a predefined periodic adjustment and independent of a performance level of the plurality of investments, and determining a portion of an investment from among the investments to liquidate to fund the distribution amount. The minimum distribution rate may be greater than a predefined percentage of the investment amount per year.
In a third aspect, the present invention includes selecting investments having contrary investment philosophies, investing an amount in the contrary investments, reinvesting, over time, any earnings from the investments back into the investments, determining, periodically, a distribution amount that is greater than or equal to a prior period's distribution amount, selling a portion of the investments sufficient to fund the distribution amount if the determined amount is greater than the prior period's distribution amount, and selling a portion of the investments based on any growth in the investments to fund a first part of the distribution amount and selling a portion of a different investment sufficient to fund a second part of the distribution amount such that the first part and second part sum to equal the determined distribution amount if the investments are worth less than the determined distribution amount.
In a fourth aspect, the present invention includes investing in income generating investments and principal protection investments, and drawing a periodic distribution amount from the investments based upon a withdrawal percentage of the value of the income generating investments. The periodic distribution amount may be equal to or greater than all prior periodic distribution amounts. The distribution may be funded first by selling a portion of the income generating investments, and second by selling a portion of the principal protection investments if the withdrawal percentage of each of the income generating investments combined are insufficient to fund the periodic distribution amount.
In a fifth aspect, the present invention includes determining an investment amount for purchasing an investment, determining a minimum distribution rate, allocating the investment amount among a plurality of individual investments of different types based upon predefined ratios and historical performance information, determining a distribution amount based upon a performance level of individual investments and the minimum distribution rate, and determining a portion of an individual investment from among the investments to liquidate to fund the distribution amount. The minimum distribution rate may never decreased and the distribution amount may be paid out indefinitely as long as the investment performs no worse than the historical performance information indicates.
With these and other advantages and features of the invention that will become hereinafter apparent, the nature of the invention may be more clearly understood by reference to the following detailed description of the invention, to the appended claims and to the several accompanying drawings attached hereto.
FIG. 1 is a block diagram illustrating an example of a system according to some embodiments of the present invention.
FIG. 2 is a block diagram illustrating an example of an alternative system according to some embodiments of the present invention.
FIG. 3 is a block diagram illustrating an example of a controller as depicted in FIGS. 1 and 2 according to some embodiments of the present invention.
FIG. 4 is a table illustrating an example data structure of an example historical net asset value (NAV) database as depicted in FIG. 3 for use in some embodiments of the present invention.
FIG. 5 is a table illustrating an example data structure of an example investments database as depicted in FIG. 3 for use in some embodiments of the present invention.
FIG. 6 is a table illustrating an example data structure of an example portfolio performance database as depicted in FIG. 3 for use in some embodiments of the present invention.
FIG. 7 is a table illustrating an example data structure of an example results summary database as depicted in FIG. 3 for use in some embodiments of the present invention.
FIG. 8 is a flow diagram illustrating a first exemplary process according to and for use in some embodiments of the present invention.
FIG. 9 is a flow diagram illustrating a second exemplary process according to and for use in some embodiments of the present invention.
FIG. 10 is a flow diagram illustrating a third exemplary process according to and for use in some embodiments of the present invention.
FIG. 11 is a flow diagram illustrating a fourth exemplary process according to and for use in some embodiments of the present invention.
FIG. 12 is a flow diagram illustrating a first exemplary process for determining a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 13 is a flow diagram illustrating a first exemplary process for funding a periodic distribution amount according to and for use in some embodiments of the present invention.
FIGS. 14A & 14B are a flow diagram illustrating a second exemplary process for determining a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 15 is a flow diagram illustrating a second exemplary process for funding a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 16 is a flow diagram illustrating a third exemplary process for determining a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 17 is a flow diagram illustrating a third exemplary process for funding a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 18 is a flow diagram illustrating a fourth exemplary process for determining a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 19 is a flow diagram illustrating a fourth exemplary process for funding a periodic distribution amount according to and for use in some embodiments of the present invention.
FIG. 20 is a table comparing different distribution method types according to and for use in some embodiments of the present invention.
FIG. 21 is a graph comparing different distribution method types according to and for use in some embodiments of the present invention.
FIG. 22 is a table illustrating the performance of an example investment portfolio using historical data according to and for use in some embodiments of the present invention.
FIG. 23 is a graph depicting an example of growth of an investment according to some embodiments of the present invention.
FIG. 24 is a graph depicting an example of growth of an annual distribution amount according to some embodiments of the present invention.
FIG. 25 is a graph depicting an example of growth of a monthly distribution amount according to some embodiments of the present invention.
In the following description, reference is made to the accompanying drawings that form a part hereof, and in which is shown by way of illustration, specific embodiments in which the invention may be practiced. These embodiments are described in sufficient detail to enable those skilled in the art to practice the invention, and it is to be understood that other embodiments may be utilized and that structural, logical, hardware, software, mechanical, and electrical changes may be made without departing from the scope of the present invention. The following description is, therefore, not to be taken in a limited sense, and the scope of the present invention is defined by the appended claims. Note that although most components or elements are referenced using a reference numeral whose most significant digit (or digits) correspond to the figure number within which they appear, components or elements appearing in more than one figure are referenced using the reference numeral with which they were first identified.
The inventors of the present invention have recognized that a need exists for an improved, sustainable income generation solution. It is an object of the present invention to provide a methodology that will safely, systematically, and routinely provide a predictable income stream from a long term investment.
As indicated above, it is clear that dependence on fixed income portfolios alone will not suffice to avoid a decrease in purchasing power over a retirees' life assuming that retirees will live longer than previous generations. Therefore, conventional (i.e. low risk) retirement investment strategy should be adapted to accommodate the reality of longer post retirement periods. The inventors of the present invention have determined that a new strategy or approach should be weighted primarily towards equities to provide the required continued growth in value over an extended retirement period. The present inventors have determined that such an approach can support the continued long term appreciation in principal balances needed to provide increasing levels of income and to offset the effects of inflation. In some embodiments, the present invention uses a balanced, diversified investment strategy to provide a maximized but steady income stream over a period of at least thirty to forty years that does not decrease year to year. The present invention provides a guideline for allocation of investment resources across a number of investments having varied styles. According to the present invention, a diversified plurality of income generating investments may be counter-balanced and individually supported by one or more principal protection investments. In other words, for a given income generating investment failing to perform in a given period, the share of periodic distribution associated with that investment may be funded via liquidation of a portion of a principal protection investment.
The present invention further provides an array of distribution types that allow an investor (or advisor) to select a distribution method that best suits the investor's requirements. The distribution type selection provides methods in accordance with the present invention for determining the amount of a distribution for a given period and how the distribution is to be funded. More specifically, in some embodiments, the distribution type selection may be used to determine how much of a raise an investor is to receive in any given year and which investments (and how much) are to be sold to fund the distribution. The present invention further provides that if the selected distribution method and initial allocation guidelines are followed, the investment will, with a very high probability, continue to generate income for as long as the market does not experience cumulative conditions less favorable than experienced during a historical time period of equal length extending backward from the inception of the investment.
In other words, the present invention can provide a steady, non-decreasing income stream indefinitely if the market performs no worse than it has in the past.
The present invention further provides software tools, including database structures, adapted to present the results of applying the initial allocation guidelines and various distribution methods to historical data. An example embodiment of computer code that implements such software tools is provided in the Appendix attached hereto and included as part of the present detailed description of the invention. Note that the computer code of the Appendix is written in Microsoft® Visual Basic as a Microsoft® Access Database Application.
In addition to retirees, the present invention is also applicable to meeting the income needs of other groups and organizations such as non-profit groups, educational institutions, and for profit corporations such as insurance companies, etc. who have financial assets or endowment funds from which a predictable and growing income stream is needed over a long term.
The present invention avoids storing income and selling investments that are performing better than average. From the inception of an investment plan based on the present invention, total assets may be put to work for income generation. These assets may be placed in an arrangement from as conservative as 81% income generating and 19% principal protection, to as assertive as 90% income generating and 10% principal protection. The withdrawal percentage may be set comfortably anywhere between 6.5% to 8%. Income is withdrawn from the income generating investments from inception. The present invention does not require that earnings be saved for future support of the income stream.
The present invention does not attempt to “time” the market. The present invention systematically withdraws shares of all funds to produce income and reinvest all dividends as they are paid. The taxation of dividends is the same in a non-qualified account whether paid out as cash or reinvested. Therefore, when an income percentage is determined according to the present invention, it is only altered in accordance with predefined algorithms and there is no attempt to time the market. All funds not used as withdrawals remain invested to generate income. The present invention takes advantage of the fact that the repeated dollar cost averaging of shares remaining invested in a broad sense will rise remarkably over time. Therefore, the present invention does not attempt to liquidate assets that are performing above average at a particular point in time to try to maximize gains.
The present invention employs several investment styles to create a balancing factor that does not require active tactical rebalancing. Excessive rebalancing in accounts holding non-qualified monies increases costs to clients. Rebalancing also generates reportable gains that trigger unnecessary short and/or long term capital gains taxes.
Throughout the description that follows and unless otherwise specified, the following terms may include and/or encompass the example meanings provided in this section. These terms and illustrative example meanings are provided to clarify the language selected to describe embodiments of the invention both in the specification and in the appended claims.
The terms “products,” “goods,” “merchandise,” and “services” shall be synonymous and may refer to anything licensed, leased, sold, available for sale, available for lease, available for licensing, and/or offered or presented for sale, lease, or licensing including packages of products, subscriptions to products, contracts, information, services, intangibles, and investments.
The term “merchant” may refer to an entity who may offer to sell, lease, and/or license one or more products to a consumer (for the consumer or on behalf of another) or to other merchants. For example, merchants may include sales channels, individuals, agents, companies, manufacturers, distributors, direct sellers, re-sellers, service providers, advisors, and/or retailers. Merchants may transact out of buildings including stores, outlets, malls, and warehouses, and/or they may transact via any number of additional methods including mail order catalogs, vending machines, online web sites, and/or via telephone marketing. Note that a producer or manufacturer may choose not to sell to customers or service clients directly and in such a case, a retailer or distribution outlet may serve as the manufacturer's or producer's sales channel.
The terms “distribution outlet” and “DO” shall be synonymous and may refer to a select merchant who has met rigorous standards and requirements to qualify to employee advisors to practice methods of the present invention to serve clients. Distribution outlets may include banks, CPA firms, law firms, brokerage firms, financial planning firms, investment managers, insurance firms, hybrid firms, and the like.
The term “advisor” may refer to an employee or operator of a distribution outlet that has been specifically trained to practice methods of the present invention to serve clients. In some embodiments, advisors may be required to pass an exam and/or otherwise qualify or be certified to practice methods of the present invention.
The terms “server” and “controller” shall be synonymous and may refer to any device that may communicate with one or more operator terminals, one or more third-party servers, one or more user devices, one or more distribution outlet devices, and/or other network nodes, and may be capable of relaying communications to and from each. Servers may include facilities to support secure communications using encryption or the like. In some embodiments, distribution outlet advisors may employ one or more controllers to automate or partially automate the servicing of clients.
The terms “operator terminal” and “remote controller” shall be synonymous and may refer to any device that may communicate with one or more servers, one or more user devices, one or more distribution outlet devices, one or more third-party service provider servers, and/or other network nodes. In some embodiments, operator terminals may, for example, include personal computers, laptop computers, handheld computers, telephones, kiosks, personal digital assistants, point-of-sale terminals, point of display terminals, cellular phones, automated teller machines (ATMs), pagers, game consoles, vending machines, and/or combinations of such devices. They may include facilities to support secure communications using encryption or the like.
The terms “user device” or “client device” shall be synonymous and may refer to any device owned or used by users/clients/potential clients capable of accessing and/or displaying online and/or offline content. User devices may communicate with one or more servers, one or more distribution outlet devices, one or more third-party service provider servers, one or more operator terminals, and/or other network nodes. In some embodiments, user devices may, for example, include personal computers, laptop computers, handheld computers, telephones, kiosks, personal digital assistants, point-of-sale terminals, point of display terminals, cellular phones, automated teller machines (ATMs), pagers, game consoles, vending machines, and/or combinations of such devices. User devices may include facilities to support secure communications using encryption or the like.
The terms “distribution outlet device,” “DO device,” and “advisor device” shall be synonymous and may refer to a device that may be capable of receiving instructions from an advisor and of communicating instructions to a server or controller. The instructions may indicate investments to sell, pricing information, benefits, offers, promotions, non-commercial messages, and NAV data. In some embodiments, distribution outlet devices may, for example, include personal computers, laptop computers, handheld computers, telephones, kiosks, personal digital assistants, point-of-sale terminals, point of display terminals, cellular phones, automated teller machines (ATMs), pagers, game consoles, vending machines, and/or combinations of such devices. Distribution outlet devices may include facilities to support secure communications using encryption or the like.
The term “input device” may refer to a device that is used to receive an input. An input device may communicate with or be part of another device such as a point of sale terminal, a point of display terminal, a user device, a server (e.g., a pressure sensor in a keyboard of a computer), an operator terminal, a controller, etc. Some examples of input devices include: a bar-code scanner, a magnetic stripe reader, a computer keyboard, a point-of-sale terminal keypad, a touch-screen, a microphone, an infrared sensor, a sonic ranger, a computer port, a video camera, a motion detector, a digital camera, a network card, a universal serial bus (USB) port, a GPS receiver, a radio frequency identification (RFID) receiver, an RF receiver, a thermometer, a pressure sensor, and a weight scale.
The term “output device” may refer to a device that is used to output information. An output device may communicate with or be part of another device (e.g., a user device, a point of sale terminal, a point of display terminal, a controller, etc.). Some examples of output devices include: a cathode ray tube (CRT) monitor, liquid crystal display (LCD) screen, light emitting diode (LED) screen, a printer, an audio speaker, an infra-red transmitter, a radio transmitter.
The terms “I/O device” and “input/output device” shall be synonymous and may refer to any combination of input and/or output devices.
The terms “downside deviation” and “downside risk” shall be synonymous and may refer to an alternate measure of risk to standard deviation. The concept of downside risk assumes that each investor has a Minimal Acceptable Return, (MAR), and that the investor is only concerned with deviations below this MAR. Unlike standard deviation, if the investor's investment realizes a return above the MAR, then the return is observed as acceptable and should not be indicative of risk. In a downside variance framework, only deviations below the MAR are considered when computing the measure of risk.
The term “Sortino Ratio” may refer to a measure that is similar to the standard Sharpe Ratio, but provides risk-adjusted return information in a different risk framework. The numerator is similar to the standard Sharpe Ratio, except that instead of the risk free rate, the investor's minimal acceptable return (MAR) is used. Also, where the Sharpe Ratio uses standard deviation in the denominator, the Sortino uses a measure of semi-deviation called Downside Risk. Essentially what the Sortino ratio provides is a measure of how far the manager's returns are above the MAR relative to the amount of Downside Risk he or she is taking. Note that the Sortino Ratio is not the same as the Upside Potential Ratio. The Upside Potential Ratio uses a probability-weighted function of returns.
The term “upside potential ratio” may refer to a measure of the ability to exceed an investor's minimal acceptable return (MAR) relative to the amount of downside risk he or she is taking. It is the ratio of Upside Potential to Downside Risk. Using the Upside Potential Ratio provides a unitless number that indicates how likely you are to experience returns above the MAR while accounting for the risk of experiencing returns below the MAR. For example, an Upside Potential Ratio of 1.5 means your chances for success (getting a return above the MAR) are 50% higher than your risk of failure (getting a return below the MAR).
The term “downside risk-adjusted return” (DS RAR) may refer to the return of a portfolio after being adjusted for downside risk. It is calculated by taking the return earned, measured as a fraction, minus a risk tolerance variable multiplied by the downside variance (or downside risk squared). The value of risk tolerance depends on the investor's degree of risk aversion. In M-Search, a value of 3.0 is used because it is the average risk-averse measure for the average investor (as determined by the Pension Research Institute). With the M-Search Style Analysis option, you can set a value for risk tolerance ranging from 2.0 to 4.0 (with 2.0 being aggressive and 4.0 being conservative).
Referring now to FIG. 1, a system 100 according to some embodiments of the present invention includes a controller 102 that is in one or two-way communication via the Internet 104 (or other communications link) with one or more user devices 106 , 108 , 110 , and/or distribution outlet devices 112 , 114 , 116 . In operation, the controller 102 may function under the control of a distribution outlet, merchant, or other entity that may also control or own the user devices 106 , 108 , 110 . For example, the controller 102 may be a server in a bank's ATM network, a server in an insurance company's branch office network, and/or a server in a merchant's vending machine network. In some embodiments, the controller, the user devices, and/or the DO devices may be one and the same.
Referring to FIG. 2, an alternative system 100 ′ according to some embodiments of the present invention further includes one or more third-party service provider servers 118 . A third-party service provider server 118 , or third-party server 118 , may also be in one or two-way communication with the controller 102 . However, as shown in the embodiment depicted in FIG. 2, the third-party server 118 may be disposed between the controller 102 and the user devices 106 , 108 , 110 or distribution outlet devices 112 , 114 , 116 .
The primary difference between the two alternative embodiments depicted in FIGS. 1 and 2 is that the embodiment of FIG. 2 includes the third-party server 118 which may be operable by an entity both distinct and physically remote from the entity operating the controller 102 . The third-party server 118 may perform the methods of the present invention by sending/receiving signals to/from the controller 102 to be relayed to/from the user devices 106 , 108 , 110 and/or distribution outlet devices 112 , 114 , 116 . For example, a broker dealer/clearing house firm may operate a third-party server 118 that communicates with a distribution outlet server (functioning as a controller 102 ) to receive a transaction request from a client's personal computer (functioning as a user device 106 ). In some embodiments such as those depicted in FIG. 1, the functions of the third-party server 118 may be consolidated into the controller 102 .
An additional difference between these two example embodiments relates to the physical topology of the systems 100 , 100 ′. In both embodiments, each node may securely communicate with every other node in the systems 100 , 100 ′ via, for example, a virtual private network (VPN). Thus, all nodes may be logically connected. However, the embodiment depicted in FIG. 2 allows the controller 102 and/or the third-party server 118 to serve as a single gateway between the nodes that will typically be operated by the owners of the user devices 106 , 108 , 110 (and the owner's family, employees, and/or customers) and the other nodes in the system 100 ′, i.e. nodes that may be operated by merchants or others. Thus, in the case that either or both WAN A 120 and WAN B 122 are private networks (e.g. a private LAN and/or WAN not part of the Internet), the user devices 106 , 108 , 110 and the distribution outlet devices 112 , 114 , 116 are physically segmented and can easily be physically separated for security, control, and/or other reasons. In some embodiments, WAN A 120 may be implemented using the Internet while WAN B 122 remains a private LAN or WAN. In some embodiments, WAN B 122 may be implemented using the Internet while WAN A 120 remains a private LAN or WAN. If both WAN A 120 and WAN B 122 are implemented using the Internet, the system 100 ′ is effectively the same as system 100 with an added direct connection from the controller 102 to a third-party server 118 .
In some embodiments, the distribution outlet devices 112 , 114 , 116 may each be controlled by different merchants or distribution outlets. The controller 102 may be operated by an entity that uses the present invention, for example, to deliver potential clients to distribution outlets, provide distribution outlets with information and/or application services, provide clients of distribution outlets with portfolio information or other services. If there is a third-party server 118 , it may be operated by an unrelated entity that merely permits the operators of the controller 102 to have access to different services such as information brokers, financial brokers, financial networks, payment services, transaction services, and the like.
Thus, in such an example embodiment, the system of the present invention may involve merchants (operating distribution outlet devices 112 , 114 , 116 ), an applications service provider (operating the controller 102 ), a financial clearing house firm (operating third-party servers 118 ), and clients (operating user devices 106 , 108 , 110 ). In alternative embodiments, a distribution outlet may operate a combined controller/DO device directly and the system may only involve an distribution outlet.
In both embodiments pictured in FIGS. 1 and 2, communication between the controller 102 and the distribution outlet devices 112 , 114 , 116 , the user devices 106 , 108 , 110 , and/or the third-party server 118 , may be direct and/or via a network such as the Internet 104 .
Referring to both FIGS. 1 and 2, each of the controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 , and the user devices 106 , 108 , 110 may comprise computers, such as those based on the Intel® Pentium® processor, that are adapted to communicate with each other. Any number of third-party servers 118 , distribution outlet devices 112 , 114 , 116 , and/or user devices 106 , 108 , 110 may be in communication with the controller 102 . In addition, the user devices 106 , 108 , 110 may be in one or two-way communication with the distribution outlet devices 112 , 114 , 116 . The controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 , and the user devices 106 , 108 , 110 may each be physically proximate to each other or geographically remote from each other. The controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 , and the user devices 106 , 108 , 110 may each include input devices (not pictured) and output devices (not pictured).
As indicated above, communication between the controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 , and the user devices 106 , 108 , 110 may be direct or indirect, such as over an Internet Protocol (IP) network such as the Internet 104 , an intranet, or an extranet through a web site maintained by the controller 102 (and/or the third-party server 118 ) on a remote server or over an on-line data network including commercial on-line service providers, bulletin board systems, routers, gateways, and the like. In yet other embodiments, the devices may communicate with the controller 102 over local area networks including Ethernet, Token Ring, and the like, radio frequency communications, infrared communications, microwave communications, cable television systems, satellite links, Wide Area Networks (WAN), Asynchronous Transfer Mode (ATM) networks, Public Switched Telephone Network (PSTN), other wireless networks, and the like.
Those skilled in the art will understand that devices in communication with each other need not be continually transmitting to each other. On the contrary, such devices need only transmit to each other as necessary, and may actually refrain from exchanging data most of the time. For example, a device in communication with another device via the Internet 104 may not transmit data to the other device for weeks at a time.
The controller 102 (and/or the third-party server 118 ) may function as a “web server” that presents and/or generates web pages which are documents stored on Internet-connected computers accessible via the World Wide Web using protocols such as, e.g., the hyper-text transfer protocol (“HTTP”). Such documents typically include one or more hyper-text markup language (“HTML”) files, associated graphics, and script files. A web server allows communication with the controller 102 in a manner known in the art. The distribution outlet devices 112 , 114 , 116 and the user devices 106 , 108 , 110 may use a web browser, such as NAVIGATOR® published by NETSCAPE® for accessing HTML forms generated or maintained by or on behalf of the controller 102 and/or the third-party server 118 .
As indicated above, any or all of the controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 and the user devices 106 , 108 , 110 may include, e.g., processor based cash registers, telephones, interactive voice response (IVR) systems such as the ML400-IVR designed by MISSING LINK INTERACTIVE VOICE RESPONSE SYSTEMS, cellular/wireless phones, vending machines, pagers, personal computers, portable types of computers, such as a laptop computer, a wearable computer, a palm-top computer, a hand-held computer, and/or a Personal Digital Assistant (“PDA”). Further details of the controller 102 , and/or the third-party server 118 , are provided below with respect to FIG. 3.
As indicated above, in some embodiments of the invention the controller 102 (and/or the third-party server 118 ) may include distribution outlet devices 112 , 114 , 116 , and/or user devices 106 , 108 , 110 . Further, the controller 102 may communicate with advisors directly instead of through the distribution outlet devices 112 , 114 , 116 . Likewise, the controller 102 may communicate with clients directly instead of through the user devices 106 , 108 , 110 . Although not pictured, the controller 102 , the third-party server 118 , the distribution outlet devices 112 , 114 , 116 , and the user devices 106 , 108 , 110 may also be in communication with one or more user and/or advisor credit institutions to effect transactions and may do so directly or via a secure financial network such as the Fedwire network maintained by the United States Federal Reserve System, the Automated Clearing House (hereinafter “ACH”) Network, the Clearing House Interbank Payments System (hereinafter “CHIPS”), or the like.
In operation, the distribution outlet devices 112 , 114 , 116 and/or the user devices 106 , 108 , 110 may exchange information, for example, about the investments, portfolios, historical net asset value (NAV) data, and the like via the controller 102 . In embodiments with a third-party server 118 , the distribution outlet devices 112 , 114 , 116 and/or the user devices 106 , 108 , 110 may exchange information about the investments, portfolio maintenance, and performance via the third-party server 118 . The distribution outlet devices 112 , 114 , 116 may for example, provide customer information, transaction information, and/or other information to the controller 102 (and/or the third-party server 118 ). The user devices 106 , 108 , 110 may provide client account information, registration information, transaction requests, and/or other information to the controller 102 (and/or the third-party server 118 ). The controller 102 (and/or the third-party server 118 ) may provide information about investment performance, client account information, product presentation information, and/or application software to the distribution outlet devices 112 , 114 , 116 and also send qualified clients to the DO devices 112 , 114 , 116 for registration and service.
FIG. 3 is a block diagram illustrating details of an example of the controller 102 of FIG. 1 (and/or the third-party server 118 of FIG. 2). The controller 102 is operative to manage the system and execute the methods of the present invention. The controller 102 may be implemented as one or more system controllers, one or more dedicated hardware circuits, one or more appropriately programmed general purpose computers, or any other similar electronic, mechanical, electromechanical, and/or human operated device. For example, in FIG. 2, the controller 102 is depicted as coupled to a third-party server 118 . In the embodiment of FIG. 2, these two servers may provide the same functions as the controller 102 alone in the embodiment of FIG. 1.
The controller 102 (and/or the third-party server 118 ) may include a processor 300 , such as one or more Intel® Pentium® processors. The processor 300 may include or be coupled to one or more clocks or timers (not pictured), which may be useful for determining information relating to, for example, whether a mutual fund transaction deadline has occurred, and one or more communication ports 302 through which the processor 300 communicates with other devices such as the distribution outlet devices 112 , 114 , 116 , the user devices 106 , 108 , 110 and/or the third-party server 118 . The processor 300 is also in communication with a data storage device 304 . The data storage device 304 may include any appropriate combination of magnetic, optical and/or semiconductor memory, and may include, for example, additional processors, communication ports, Random Access Memory (“RAM”), Read-Only Memory (“ROM”), a compact or DVD disc and/or a hard disk. The processor 300 and the storage device 304 may each be, for example: (i) located entirely within a single computer or other computing device; or (ii) connected to each other by a remote communication medium, such as a serial port cable, a LAN, a telephone line, radio frequency transceiver, a fiber optic connection or the like. In some embodiments for example, the controller 102 may comprise one or more computers (or processors 300 ) that are connected to a remote server computer operative to maintain databases, where the data storage device 304 is comprised of the combination of the remote server computer and the associated databases.
The data storage device 304 may store a program 306 for controlling the processor 300 . The processor 300 may perform instructions of the program 306 , and thereby operate in accordance with the present invention, and particularly in accordance with the methods described in detail herein. The present invention may be embodied as a computer program developed using an object oriented language that allows the modeling of complex systems with modular objects to create abstractions that are representative of real world, physical objects and their interrelationships. However, it would be understood by one of ordinary skill in the art that the invention as described herein can be implemented in many different ways using a wide range of programming techniques as well as general purpose hardware systems or dedicated controllers. The program 306 may be stored in a compressed, uncompiled and/or encrypted format. The program 306 furthermore may include program elements that may be generally useful, such as an operating system, a database management system and “device drivers” for allowing the processor 300 to interface with computer peripheral devices. Appropriate general purpose program elements are known to those skilled in the art, and need not be described in detail herein.
Further, the program 306 is operative to execute a number of invention-specific modules or subroutines including but not limited to one or more routines to allow an DO to describe an investment method via a user device 106 , 108 , 110 and/or a DO device 112 , 114 , 116 ; one or more routines to receive information about an investment opportunity and/or client; one or more routines to receive transaction information or client information from an advisor or a client; one or more routines to determine withdrawal payments for clients; one or more routines to compute a withdrawal rate, a distribution amount, and a source of funding; one or more routines to generate investment performance reports and status information; one or more routines to present fund information and customized client presentations to advisors; one or more routines to compensate advisors for services provided to clients; one or more routines to facilitate and control communications between distribution outlet devices 112 , 114 , 116 , user devices 106 , 108 , 110 , the controller 102 , and/or a third party server 118 ; and one or more routines to control databases or software objects that track information regarding clients, advisors, third parties, user devices 106 , 108 , 110 , qualified investments, payments, actual investments, and fulfillment. Examples of some of these routines and their operation are described in detail below in conjunction with the flowcharts depicted in FIGS. 8 through 19.
According to some embodiments of the present invention, the instructions of the program 306 may be read into a main memory (not pictured) of the processor 300 from another computer-readable medium, such from a ROM to a RAM. Execution of sequences of the instructions in the program 306 causes the processor 300 to perform the process steps described herein. In alternative embodiments, hard-wired circuitry or integrated circuits may be used in place of, or in combination with, software instructions for implementation of the processes of the present invention. In some embodiments, the methods of the present invention may be performed entirely by one or more humans communicating and/or interacting. Thus, embodiments of the present invention are not limited to any specific combination of hardware, firmware, and/or software.
In addition to the program 306 , the storage device 304 is also operative to store (i) a historical net asset value (NAV) database 308 , (ii) an investments database 310 , (iii) a portfolio performance database 312 , and (iv) a results summary database 314 . The databases 308 , 310 , 312 , 314 are described in detail below and example structures are depicted with sample entries in the accompanying figures. As will be understood by those skilled in the art, the schematic illustrations and accompanying descriptions of the sample databases presented herein are exemplary arrangements for stored representations of information. Any number of other arrangements may be employed besides those suggested by the tables shown. For example, even though four separate databases are illustrated, the invention could be practiced effectively using one, two, three, five, six, or more functionally equivalent databases. Similarly, the illustrated entries of the databases represent exemplary information only; those skilled in the art will understand that the number and content of the entries can be different from those illustrated herein. Further, despite the depiction of the databases as tables, an object based model could be used to store and manipulate the data types of the present invention and likewise, object methods or behaviors can be used to implement the processes of the present invention. These processes are described below in detail with respect to FIGS. 8 through 19.
Although not pictured in detail, user devices 106 , 108 , 110 and distribution outlet devices 112 , 114 , 116 according to the present invention may each include a processor coupled to a communications port, a data storage device that stores an institution or advisor program, and an I/O device. An distribution outlet program may include one or more routines to facilitate and control communications and interaction with the controller 102 as well as an interface to facilitate communications and interaction with an institution or the institution's computing system. Likewise, a user or client program may include one or more routines to facilitate and control communications and interaction with the controller 102 as well as an interface to facilitate communications and interaction with an advisor or an advisor's computing systems. As indicated above, user devices 106 , 108 , 110 and distribution outlet devices 112 , 114 , 116 may be implemented by any number of devices such as, for example, a processor based cash register, a telephone, an IVR system, a cellular/wireless phone, a vending machine, a pager, a personal computer, a portable computer such as a laptop, a wearable computer, a palm-top computer, a hand-held computer, and/or a PDA.
As indicated above, it should be noted that although the example embodiment of FIG. 3 is illustra