FI360 TOOLKIT FOR ADVISORS: Models Guide

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1 Models Overview The My Models section of the Fi360 Toolkit for Advisors provides both asset class and investment specific models. Strategic (asset class) and tactical (investment specific) views are available within a single model version. You may also have multiple model versions of a model under a single model group name, (e.g. Conservative, Moderate, Aggressive, etc.). These models can either stand alone or link up to existing clients, within the Client Cabinet. Depending on the customization and approach of your firm s model provision, two hierarchies are usually applied for the overall structure in the My Models section of the Toolkit : Assigning one model under one group to many clients-this option is more streamlined since one change in a model flows through to multiple clients Fi360, Inc

2 Assigning one model under one group to one client- This option is more custom When entering a model for the first time, use the Create new model version function on the right hand side of the page and input the follow information at minimum: Model Group Name (e.g. Conservative, Aggressive, Balanced, etc.) Version Name (e.g. Default, Version A, 80/20, etc.) Inflation Assumption (Default 2%) Hypothetical Amount Rebalancing Frequency When selecting the rebalancing frequency, choose the option that reflects the rebalancing method you re using for the model. If you re not rebalancing the model on a set schedule, but are rebalancing by making tactical decisions, choose the Manual option. After creating your first model, you can click on its version name to access the Strategic and Tactical Asset Allocation interfaces. We ll start on building an asset class model in the next section, also known as a Strategic Asset Allocation, and proceed onto adding investments into the model in the Tactical Asset Allocation. PLEASE NOTE: You are not required to build both allocations, although, it is recommended that each section is completed to provide the most comprehensive final reports. Fi360, Inc

3 Strategic Asset Allocation You may to create a strategic asset Allocation by manually entering the peer group details. Click on the underlined option, to proceed to the next step. You will want to highlight one and click the Add button to bring the selection to the right hand side of the page. Once you ve selected your peer groups, you can change strategic values, lower and upper limits, and number of investments. You may hide or reveal lower/upper limits by using the functions on the right hand side of the page. Your selection may look something like this: Fi360, Inc

4 From our Capital Market Assumptions, provided by MacroRisk Analytics, you will be provided 5 yr Portfolio Growth, Annualized Return, Standard Deviation, Likely Range of Returns, and Large Loss Scenario based on your Peer Group Allocation. Fi360, Inc

5 Tactical Asset Allocation The Tactical Asset Allocation is where investments and weightings are added to a model these values are tracked over time and help build the performance sections in model reports. The section may look like this in the beginning: After click on Create new! you may select a time period and build the allocation from scratch. After building your first time period, you can copy it into other time period by using the Copy existing function in the screenshot below: Fi360, Inc

6 Once you ve clicked on the Create Time Period button, you can click on the time period to access the interface for investment selection and allocation input. Within the time period interface, you have the option to type in tickers, fund names, or cusips. Click on the dropdown menu when you see the fund you would like to select to add it to your model. Once you add all of your funds, you should have a list of investments and allocations assigned to each of them. Your model list may look something like this if you do not have a Strategic Asset Allocation: Fi360, Inc

7 If you created a Strategic Asset Allocation, you will also see Peer Group Model Requirement headers: You can document new time periods once they are available in the Toolkit, or you could continue building out the historical holdings of it by adding more time periods and investments. If a model was created in December 2010, your list may look more like the screenshot below: Fi360, Inc

8 Using Models in the Client Cabinet and My Proposals In Retirement Plan Participant Directed clients, you may assign multiple model portfolios that have Tactical Asset Allocations in the Holdings Model Portfolios area, as well as input # of participants, dollars invested, and model specific notes. These models will show up in your reports, alongside any investments that are listed under the Investments tab. Create, assign, and un assign functions are located on the right hand side of the Model Portfolios section. Fi360, Inc

9 In My Proposals, a Strategic Asset Allocation may be combined with a Recommended Fund List to create a final proposed lineup. You may also add Tactical Asset Allocations within Current and/or Proposed lineups by clicking on the Model Portfolios tab after the proposal is created; this interface looks very similar to the Model Portfolios section in My Clients with options to assign, un assign, and create models. Fi360, Inc

10 Creating Reports You may generate reports on by selecting a model via check box, clicking on the View available reports button on the right hand side of the My Models page, clicking on the PDF symbol next to the report you want, and then accessing the finished report in the Report Queue. You may also generate reports within the Client Cabinet by accessing the Reports area under a specific client and selecting the same model reports mentioned in the previous section. This report will include models that you have assigned in the Models Portfolios area of the client. Fi360, Inc

11 Performance Reporting Model reports display both Historical and Hypothetical model performance. The report charts will always show a return of the model portfolio. Additional returns include the tactical peer group benchmark, strategic peer group benchmark and custom benchmark Hypothetical Performance reporting If you ve created only one tactical time period for your model, the Hypothetical model data is the best chart to use in your reporting. Performance is calculated for a hypothetical model by taking the current tactical investments and allocations and building a return stream with this information starting ten years from the most current period shown in the report. Starting ten years ago, a weighted average return is calculated for each month based upon the current investment asset allocations entered for this model The model is rebalanced according to its defined rebalancing schedule to these original allocations If an investment does not have a full 10yr return history, the weighted average return for those month(s) is calculated excluding that investment s allocation. Once the investment has return history, it is included in all calculations from that point forward. This allocation is rebalanced according to the rebalancing frequency set for the model. Historical performance reporting Historical performance reporting relies solely on the tactical data entered into the Fi360 Toolkit. If only one data period is entered, the report will only show one month of return data in the reports. Ideally, the model should contain two or more time periods spanning at least three years to generate a meaningful report. This is very important if you re seeking 3 yr or 5 yr standard deviation measures for models too. Historical performance is calculated starting at the beginning data of the oldest time period entered for a model. The historical performance ends at the end date of the newest period entered. In between, the portfolio is rebalanced first by following the rules of the rebalancing frequency assigned to the model. Secondly the tactical changes made to the model help to rebalance and reallocate the plan. However, the tactical changes will only take place on the date of the rebalancing period. This means that if a tactical change has been made in between rebalancing periods, the tactical change will only be made on the date of the rebalancing period, not the date of the tactical change. Fi360, Inc

12 A weighted return is calculated for each month based upon the actual model investments and allocations stored for that period. If manual rebalancing is selected, the model will continue to grow each month until a new period allocation is specified within the system. At that point, it will rebalance to the new allocation and repeat the process. If monthly, quarterly, semi-annual or annual rebalancing is selected, the model will continue to grow for the specified time period and then it will automatically re-balance to the latest period allocation specified within the system. It will continue to repeat this process. If an investment does not have a return for a month, the weighted return for that month is calculated excluding the investment's assets. The individual monthly returns are then compounded to result in the corresponding annualized returns shown in this report. Benchmark Performance The performance of the tactical peer group benchmark, strategic peer group benchmark (if included), and custom benchmark (if included) are not an exact representation of any particular investment, as you cannot invest directly in an indices or peer group median that are used in the calculations. The tactical peer group benchmark represents the median manager return of the model investments. Tactical Peer Group Benchmark performance is calculated as follows: o Returns are reflective of the median manager's performance for each peer group utilized in the model. o A weighted return is calculated for each month based upon the actual model investments and allocations utilized for that month. o The same rebalancing schedule used in the model is applied to the tactical benchmark. o If a peer group does not have a median return for a particular month, the assigned index return will be used instead. o The individual monthly returns are then compounded to result in the corresponding annualized returns shown in this report. Fi360, Inc

13 The strategic peer group benchmark represents the median manager return of the strategic allocation of the model. Strategic Peer Group Benchmark performance is calculated as follows: o If a strategic benchmark is assigned, the returns are reflective of the median manager's performance for each peer group utilized in the strategic model. o A weighted return is calculated for each month based on the current strategic peer group allocations. o The same rebalancing schedule used in the model is applied to the strategic benchmark. o If a peer group does not have a median return for a particular month, the assigned index return will be used instead. o The individual monthly returns are then compounded to result in the corresponding annualized returns shown in this report. The custom benchmark represents the index benchmark assigned to the model for comparison. Custom Benchmark performance is calculated as follows: o If a custom benchmark is assigned, the returns are reflective of the specified indices included in the benchmark. o A weighted return is calculated for each month based on the current index allocations. o The same rebalancing schedule used in the model is applied to the custom benchmark. o If an index does not have a return for a particular month, it will be excluded from the calculations. o The individual monthly returns are then compounded to result in the corresponding annualized returns shown in this report. Risk/ Return Analysis The risk/return analysis report section provides a quick review of a models return and standard deviation compared to the tactical peer group benchmark, strategic peer group benchmark and custom benchmark. The axis of the graph represents the risk and return of the tactical peer group benchmark. The model, strategic peer group, and custom benchmark are plotted in comparison to this benchmark. This view provides a convenient way to compare models and gauge the differences between the model and benchmarks. Fi360, Inc

14 Performance Attribution The performance attribution report breaks down different components of a model s return to help explain the value added by it s different components. Each row represents the additional value added (or subtracted) over the return in the previous row. For example, the 4.65 return shown below in the 3 Month column represents the additional return gained by adding the strategic asset allocation decisions to the model over the 3 Month T Bill. The breakdown is as follows: Starting from the top of the table, the 3 Month T Bill is used as a baseline for return. The next row shows the value added by adding different asset classes to the portfolio as represented by the strategic asset allocation of the model. The median peer group manager for the strategic asset classes is used to calculate the return. The third row shows the value added by tactical asset allocation decisions made over the course of the history of the model. The median peer group manager for the tactical asset classes is used to calculate the return. The fourth row shows the value added by selecting investment managers that outperform the median manager represented in the tactical asset allocation Fi360, Inc