NAVIPLAN PREMIUM LEARNING GUIDE. Analyze, compare, and present education and major purchase scenarios

Transcription

1 NAVIPLAN PREMIUM LEARNING GUIDE Analyze, compare, and present education and major purchase scenarios

2 Contents Analyze, compare, and present education and major purchase goals 1 Learning objectives 1 NaviPlan planning stages 2 Client case 2 Assess the clients current financial situation 4 Modify Financial Data details 5 Analyze Goals details 6 Create recommendations in an alternative education and major purchase scenario 7 <education goal> details 8 Objectives tab 10 Transfers tab 11 Compare Scenarios/Scenario Reports button 12 <major purchase goal> details 13 Present your recommendations to your clients 14 Financial Needs Summary client report 14 <education goal> page Education Needs vs. Abilities graph 15 Assumed Asset Mix Asset Allocation for Education page 16 <major purchase goal> - Proposed page 17 Exercises 18 Exercise questions 18 Conclusion 20 Answers to exercise questions 21 NaviPlan Premium resources 23 i

3 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios ii

4 NaviPlan Premium Resources Analyze, compare, and present education and major purchase goals This learning guide will help you to analyze your clients education and major purchase needs, compare alternatives, and present a recommended scenario to help your clients achieve their education and major purchase goals. This learning guide assumes that you have completed the Start planning module (available at support.eisi.com/naviplan) and that you already know how to create a client file. This learning guide was created using the Average Tax method. In NaviPlan, all strategies and recommendations are entered using alternative scenarios on the Results section Analyze Goals category Scenarios page. For information about how to use the Scenarios page or the Scenario Manager dialog box, see the Analyze, compare, and create plan scenarios learning guide. Once you have entered your clients financial data, set their goals, and verified their current financial situation (the current plan) using reports and graphs, you are ready to put together recommendations to help your clients meet their education and major purchase goals. Learning objectives Upon successful completion of this module, you will be able to Assess the clients current financial situation. Create recommendations in an alternative education and major purchase scenario. Present your recommendations to your clients. Note: Each learning objective is identified with a puzzle piece icon. 1

5 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios NaviPlan planning stages The following diagram shows the planning stages you can follow in NaviPlan Select, from creating a client file to presenting results. The learning objectives in this module are part of the following stages: Analyze goals and develop recommendations and Present results. Client case This module includes practice exercises using one of the sample clients provided in NaviPlan. The exercises have been designed specifically for this module and assume that you are working with the original data in the plan named Base Plan in the Dixon, Jim & Maria client file. Throughout the module, we will be using this client case as an example. For example, your clients Jim and Maria Dixon have a daughter named Sophie who will be 18 in They plan to send her to college for four years and they have $97,500 in accounts allocated to this goal. The Dixons would also like to purchase a motor home for $20,000 in the year Using the Scenario Manager feature, you can assess their current plans for these goals and then, if necessary, apply planning strategies to create an alternative Recommended Plan scenario for the Dixons. 2

6 NaviPlan Premium Resources Here is an example of some output you might show Jim and Maria after creating a Recommended Plan scenario. This page from the Financial Needs Summary client report compares their current plan that falls short of the goal with the proposed plan which achieves 100% coverage. It also displays the recommendations that were used to get to this result. Figure 1: Financial Needs Summary client report <education goal> page Education Needs vs. Abilities graph (Results section Client Reports category Client Report page Generate button beside Financial Needs Summary) The Current Plan scenario and the Recommended Plan scenario are always included in client reports. Optionally, you can also include two alternative scenarios. Note: This learning guide is based on using the Ibbotson Asset Allocation option, using actual Ibbotson return rates with NaviPlan calculations. 3

7 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Assess the clients current financial situation Before you can experiment with various planning strategies to create recommendations for your clients, you must assess your clients current financial situation. You can use the Scenario Manager dialog box Current Plan tab to do this analysis. Figure 2: Results section Analyze Goals category Scenarios page Review Current Plan button Scenario Manager dialog box Current Plan tab <education goal> link Note the two tabs at the top of the dialog box: Current Plan and Recommended Plan - Alternative 1. All the fields on the Current Plan tab are inaccessible because the clients current plan represents the clients current financial situation and is intended to be used for comparison purposes only. If you notice any errors in current plan data or assumptions, you will have to revisit the Plan Management, Enter Financial Data, and Set Goals sections to make changes. In the next few pages, we will examine the following: A. Modify Financial Data details B. Analyze Goals details 4

8 NaviPlan Premium Resources Modify Financial Data details Figure 3: Scenario Manager dialog box Current Plan tab Modify Financial Data details (Cash Flow link, Preretirement link) Key points In the Current Plan scenario under Modify Financial Data, you can view your clients net worth and cash flow situation, as well as any strategies your clients are currently using. When you click the Net Worth link, the graph on the right side of the dialog box shows your clients net worth situation. Use the tabs to view details such as lifestyle assets, real estate, liabilities, accounts, and annuities. o If you need more information about your clients net worth, generate the Multi-Year Net Worth Summary report. When you click the Cash Flow link, the graph on the right side of the dialog box shows your clients cash flow situation. Use the tabs to view details such as incomes, pensions, as well as existing and new expenses. o o If the graph shows that a surplus exists, and the surplus is realistic, it can be used to save toward retirement, education, and major purchase goals. To obtain more information about your clients cash flow, generate the Itemized Cash Flow Projection for Family report. If you selected the Client(s) are already retired check box when you created the plan, the Pre-Retirement cash flow goal coverage will be hidden. Clicking the Pre-retirement link in the Cash Flow details section for the Jim and Maria Dixon client file shows that they have cash flow surpluses for all the years in preretirement except 2019 (due to the shortfall in Sophie s education goal funding). 5

9 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Analyze Goals details Figure 4: Scenario Manager dialog box Current Plan tab Analyze Goals details (<education goal> link) Key points Use this section of the Scenario Manager dialog box in the Current Plan scenario to analyze if the clients financial goals are on track in the current plan. Clicking the Sophie s College link in our sample client file shows us that the Dixons current capital and savings will cover 78% of Sophie s four-year education goal. o o o On the Objectives tab, we can see that the investment objective defaults to Current - Rebalanced since it is based on current plan accounts that are linked to the education goal. Under Return Rates, we can see the weighted average rate of return for all accounts linked to the education goal is 4.93%. The Transfers tab does not apply to the Current Plan scenario. Clicking the Motor Home link in our sample client file shows us that the Dixons current capital and savings will cover 100% of their major purchase goal. o On the Objectives tab, we can see that the investment objective defaults to Current - Rebalanced since it is based on current plan accounts that are linked to the major purchase goal. 6

10 NaviPlan Premium Resources Create recommendations in an alternative education and major purchase scenario The fields in the Recommended Plan - Alternative 1 scenario are editable. Use the tabs to edit return rates or to transfer funds. Figure 5: Results section Analyze Goals category Scenarios page Edit Recommended Plan button Scenario Manager dialog box <education goal> link In the next few pages, we will examine the following: A. <education goal> details B. Objectives tab C. Transfers tab D. Compare Scenarios/Scenario Reports button E. <major purchase goal> details 7

11 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios <education goal> details Figure 6: Scenario Manager dialog box <education goal> link <education goal> details Key points The Goal Coverage graph shows the success rate of this scenario. Clicking What Are My Options? opens a dialog box displaying three options that will achieve the education goal at 100% goal coverage. Figure 7: Scenario Manager dialog box <education goal> link What Are My Options? button What Are My Options? dialog box Cover % of Expenses Changes the percentage of planned expenses included in the education goal to the highest percentage the clients can afford. Save Monthly Creates a monthly savings strategy; the savings are directed to a system-generated, joint non-qualified account. Save a Lump Sum Creates a one-time savings strategy; the savings are directed to a system-generated, joint non-qualified account. If you don t want to use any of the options, you can select Continue Planning to achieve the goal using a combination of methods. 8

12 NaviPlan Premium Resources Use the slider bars to change assumptions immediately and watch the effect the change has on the Goal Coverage, Net Worth, and Cash Flow values. For the Dixons, NaviPlan is suggesting additional savings of $286 per month to achieve Sophie s education goal. Note: You can alternate between the Current Plan scenario and the Recommended Plan - Alternative 1 scenario for comparison purposes. You can click the Cash Flow link and then the Pre-retirement link for one scenario, and then repeat these steps for the other. Compare the results. 9

13 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Objectives tab Figure 8: Scenario Manager dialog box <education goal> link Objectives tab Key points In the Recommended Plan scenario, when the Asset Allocation module (included by default) is included in the plan, the investment profile and resulting suggested asset mix is based on o o The questionnaire results if you are using Ibbotson asset allocation. The Investment Objective selected if you are using user-defined asset allocation. You can override the Investment Objective associated with the education goal if, for example, the clients want to be more conservative in their savings approach due to a shorter time horizon. In the example on this page, all assets linked to the education goal are earning the rate of return shown. Note that the Recommended Plan and Current Plan scenarios have different cash flow and net worth values due to differences in the rates of return resulting in changes to investment incomes. The Dixons default investment profile is Moderate, but it may be beneficial to use a more conservative profile for Sophie s education goal due to its imminent time horizon. Changing the investment profile for this goal to Moderate Conservative reduces goal coverage (the Dixons will have to save more money to achieve the goal), but increases the certainty that they will achieve the goal. 10

14 NaviPlan Premium Resources Transfers tab Figure 9: Scenario Manager dialog box <education goal> link Transfers tab Key points On the Transfers tab, you can create strategies to transfer funds from one account (Source Account) to another (Destination Account). The Destination Account can be a new or existing 529 plan, or a non-qualified account. For example, you could use this tab to transfer funds from a nonqualified account to a 529 plan account. o Funds from 529 plan accounts can only be transferred into other 529 plan accounts. Clicking the Event Calendar shows possible events and event types that can be used to define the transfer date. If you selected the Client(s) are already retired check box when you created the plan, be sure to use a fixed date rather than the event of Retirement. To add a transfer strategy 1. From the Choose Source Account list, select the account to which you want to add a strategy. 2. Click Add Transfer Strategy. New fields appear under Transfers. 3. Select the Destination Account, and then enter the remaining transfer information. 11

15 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Compare Scenarios/Scenario Reports button Figure 10: Scenario Manager dialog box <education goal> link <education goal> details, showing the scenario probability feature available when the Monte Carlo Analysis module is selected on the Modules page Key points The Scenario Reports button with the Scenario Probability option only appears when the Monte Carlo Analysis module is selected on the Modules page. o o The scenario probability feature uses multiple projections and randomized return rates to estimate the odds of reaching financial goals in the future (such as education). It can help you to factor risk into the equation and to demonstrate the effects of market volatility to clients. For more information about the scenario probability feature, see the Help and the Likelihood of Success: Monte Carlo and scenario probability learning guide. Clicking Compare Scenarios allows you to view an on-screen comparison of two scenarios on the following tabs: o o The Detailed Comparison tab includes a summary of investment objectives, return and index rates, and a graph that shows the clients ability to cover needs and any shortfalls or surpluses. The Assumptions Comparison tab displays a comparison of the strategies used in both scenarios. Strategies adopted in the alternative plan appear in bold text. 12

16 NaviPlan Premium Resources <major purchase goal> details Figure 11: Scenario Manager dialog box <major purchase goal> link <major purchase goal> details Key points Analyzing a major purchase goal is similar to analyzing an education goal. You will make recommendations to help your clients achieve a specific goal. Clicking What Are My Options? opens a dialog box displaying three options that will achieve the major purchase goal at 100% coverage. Figure 12: Scenario Manager dialog box <major purchase goal> link What Are My Options? button What Are My Options? dialog box In the Dixons case, their current savings cover 100% of their goal to purchase a motor home. However, they could get the motor home earlier than they thought. The What Are My Options? dialog box shows that the motor home can be purchased May 1, 2013 (instead of Dec. 1, 2014). You can now tell Jim and Maria they can Buy the motor home earlier than their original purchase date. Keep the original purchase date and spend more on a motor home. Keep the original purchase date and use the extra savings for another goal. 13

17 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Present your recommendations to your clients If you have created more than one alternative scenario, be sure to click the Recommend Plan button on the Results section Analyze Goals category Scenarios page for the scenario you want to present as your main recommendation. To include extra alternative scenarios in reports, click the Include Alternatives in Reports button. A dialog box opens where you can select which alternative scenarios you want to include. If you want to add your own text to be included in specific report sections, you can do this on the Results section User-defined Text category Userdefined Text page. Once you have examined different scenarios and decided which scenario will be the recommended scenario, you are ready to present a client report to your clients. Financial Needs Summary client report In the Select Document Sections dialog box, you can select the sections to include in the report. Figure 13: Results section Client Reports category Client Report page Select Document Sections button (next to Financial Needs Summary) Select Document Sections dialog box (Education and Major Purchase details only) In the next few pages, we will examine the following in the Financial Needs Summary client report: A. <education goal> page Education Needs vs. Abilities graph B. Assumed Asset Mix Asset Allocation for Education page C. <major purchase goal> - Proposed page 14

18 NaviPlan Premium Resources <education goal> page Education Needs vs. Abilities graph Figure 14: Financial Needs Summary client report <education goal> page Education Needs vs. Abilities graph Key points The Education Needs vs. Abilities graph in the Financial Needs Summary client report shows your clients how goal coverage may improve with your recommendations. Determine the solution that works best: save more, reduce the goal, earn more, or a combination of these strategies. 15

19 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Assumed Asset Mix Asset Allocation for Education page Figure 15: Financial Needs Summary client report Assumed Asset Mix Asset Allocation for Education page Key points This page compares asset allocation in the Current Plan scenario with the Recommended Plan scenario using the assumed asset mix of Moderate Conservative. The Change column shows the changes needed in the clients current asset mix to achieve the suggested asset mix. 16

20 NaviPlan Premium Resources <major purchase goal> - Proposed page Figure 16: Financial Needs Summary client report <major purchase goal> - Proposed page Key point Any changes you make to the Current Plan scenario appear in bold text. This makes it easy for your clients to see the strategies you used. The Dixons have chosen to purchase the motor home one year earlier than originally planned. 17

21 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Exercises The exercises in this module were created using the Jim and Maria Dixon client file. Before starting the exercises, go to the Client Management section Client List category Clients page, and then open the Dixon, Jim & Maria client file. On the Plans page that opens, duplicate the plan named Base Plan, rename the duplicate with a meaningful name, and then use the duplicated plan to complete the following exercises. Answers and step-by-step instructions to the exercise questions are provided at the end of this learning guide. Once the Dixons education and major purchase information has been entered in the Set Goals section Education and Major Purchase categories, we can analyze them using the Recommended Plan - Alternative 1 scenario automatically created in NaviPlan. Exercise questions 1. Look at the Results section Analyze Goals category Scenarios page (before making any changes to the Recommended Plan - Alternative 1 scenario). There is already a difference in the goal coverage for Sophie s College goal between the Current Plan and the Recommended Plan - Alternative 1 scenarios. Why is the goal coverage different between the two scenarios for the same goal? 2. Within the Recommended Plan - Alternative 1 scenario, the What Are My Options? button allows you to explore planning strategies that achieve 100% goal coverage. Match each planning strategy to its description below. Cover % of Expenses Save Monthly Save a Lump Sum Continue Planning Does not make any changes to the scenario. Creates a one-time savings strategy that saves the suggested amount to a system-generated, non-qualified account. Changes the percentage of plan expenses included in the goal to the highest percentage the clients can afford. Creates a savings strategy that saves the suggested amount to a system-generated, non-qualified account on a monthly basis. 18

22 NaviPlan Premium Resources 3. Since the education expense begins in 2016, there is a short time horizon for investing and the Moderate investment objective might be a little too aggressive. Adjust the investment objective to something a little more conservative, and then note the effects on the goal coverage. 4. Solve Sophie s college goal within the Recommended Plan - Alternative 1 scenario by modifying any data and/or adding new planning strategies to achieve 100% goal coverage. Use any of the tools available including the slider bars and the fields on the tabs. Hint: Use the Reports menu in the Scenario Manager dialog box and the details available under Modify Financial Data to track changes to Net Worth and Cash Flow to confirm that the clients can afford your recommendations. 5. Another way to present recommendations to clients is to use the stand-alone reports and the Duplicate button, which allows you to compare two scenarios side by side. Generate the Savings for Education report (Reports menu Goals Savings Education Savings Report), duplicate the report, and then adjust the report settings to have the Current Plan and Recommended Plan - Alternative 1 scenarios displayed side by side. 6. Now that you can compare Jim and Maria s current situation with what it could be based on your recommendations, how would you use the Savings for Education report to sell your recommendations to your clients? 19

23 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios Conclusion Upon successful completion of this module, you are now able to Assess the clients current financial situation. Create recommendations in an alternative education and major purchase scenario. Present your recommendations to your clients. 20

24 NaviPlan Premium Resources Answers to exercise questions 1. The difference between the Current Plan scenario and the Recommended Plan - Alternative 1 scenario (before any changes have been made to the Recommended Plan - Alternative 1 scenario) is due to the reallocation of assets. The Recommended Plan - Alternative 1 scenario automatically reallocates the accounts linked to education goals to the suggested asset mix when the Asset Allocation module is included in the plan. 2. Within the Recommended Plan - Alternative 1 scenario, the What Are My Options? button allows you to explore planning strategies that achieve 100% goal coverage. Each planning strategy is matched to the following descriptions: Cover % of Expenses Save Monthly Save a Lump Sum Continue Planning Changes the percentage of plan expenses included in the goal to the highest percentage the clients can afford. Creates a savings strategy that saves the suggested amount to a system-generated, non-qualified account on a monthly basis. Creates a one-time savings strategy that saves the suggested amount to a system-generated, non-qualified account. Does not make any changes to the scenario. 3. To change the investment objective to a more conservative investment objective, you would a. Go to the Results section Analyze Goals category Scenarios page. b. Click Edit Recommended Plan. c. In the Scenario Manager dialog box, click Sophie s College link under Analyze Goals. d. On the Objectives tab, select the Investment Objective check box, and then select Moderate Conservative or Conservative from the list. e. Note that the Goal Coverage graph shows that goal coverage has gone down because lower return rates are now being applied to the accounts allocated to the education goal. 21

25 NaviPlan Premium Learning Guide: Analyze, compare, and present education and major purchase scenarios 4. To achieve 100% goal coverage for Sophie s college goal, you would a. Go to the Results section Analyze Goals category Scenarios page. b. Click Edit Recommended Plan. c. Click Sophie s College link under Analyze Goals in the Scenario Manager dialog box. d. Adjust the settings to increase goal coverage to 100%. 5. To present recommendations to clients using the stand-alone reports and the Duplicate button, you would a. Go to the Reports menu Goals Savings Retirement Savings Report. The report generates. b. Click Duplicate. c. Click Report Settings. d. Adjust the report settings to reflect the Current Plan and Recommended Plan - Alternative 1 scenarios. e. Click Apply Settings. 6. Now that you can compare Jim and Maria s current situation with what it could be based on your recommendations, you could point out the following information using the Savings for Education report: Differences in the capital. Growth and earnings are smaller than in the current plan but are offset by less risk due to a more conservative investment objective. Increase in monthly cash outflows due to increased savings. Shortfall in the Current Plan scenario vs. $0 balance (or smaller shortfall) in the Recommended Plan - Alternative 1 scenario. 22

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