Functional document: Using the Hold %/$ Feature

Transcription

1 Functional document: Using the Hold %/$ Feature NaviPlan Premium Level 1 R Level 2 R functions addressed in this document: What is the Hold %/$ feature? In which situations should Hold %/$ be used? How do I use Hold %/$ to stop a specific asset from being included in portfolio reallocation? How do I use Hold %/$ to stop a portion of an account from being included in portfolio reallocation? The basic premise of asset allocation is to determine your clients investor profile in order to ensure the appropriate asset mix is applied to their portfolios. For this reason the recommended and alternative scenarios in NaviPlan reallocate the goal s funding accounts (except stock options) to match the investor profile. For education, emergency fund, and major purchase goals, reallocation occurs as of the plan date. For clients who are not yet retired, the reallocation of retirement accounts occurs at the plan date and again at retirement, depending on account ownership. There are cases where it is not possible or recommended to reallocate a specific asset. In these cases, you can use the Hold %/$ field to stop these assets from being reallocated by NaviPlan. While the Hold %/$ feature is available in both Level 1 and Level 2 Plans, all examples in this document will focus on a Level 2 Plan only. What is the Hold %/$ feature? The Hold %/$ feature allows you to model restrictions on accounts, holdings, or annuity subaccounts so that NaviPlan will not reallocate the assets. You can choose to hold either a percentage of the asset or a dollar value. To hold a percentage, enter a value from 1 to 100 for Hold %/$; to hold a dollar amount, enter any value over 100 or enter the $ symbol before a value less than 100. Hold %/$ can be applied on two levels within NaviPlan: the account level and the holding level. At the account level, when individual holdings have not been specified for an account, Hold %/$ is available under Account Details, as seen below. When used, the hold applies to that specific account. Other sources on this topic: Asset Allocation and Levels 1

2 When an account does have holdings specified within it, Hold %/$ can be applied to each individual holding. You can see an example of this on page four of this document. It is important to note that when Hold %/$ has been applied to either an account or a holding, the value held will not be reallocated into the suggested asset mix. This may result in the clients asset mix being different from the asset mix suggested in NaviPlan. In what types of situations should Hold %/$ be used? There are many situations where it is not possible or recommended to reallocate an account or a holding. Some examples are as follows: A holding or account cannot be redeemed before its maturity date. A holding or account needs to be retained because of fees (for example, back-end load funds). The sale of a holding or account would trigger capital gains tax. A client would like to retain a holding (for example, an inheritance). How do I use Hold %/$ to stop a specific asset from being included in portfolio reallocation? Example 1: To understand the effects of a hold placed on a specific asset, we will look at a plan for David and Susan who will be retiring in approximately 20 years. Susan has her own non-qualified account, and there are three additional accounts funding their retirement goal, which are valued and allocated as follows: Did you know? Hold %/$ applies to the retirement accounts during the pre-retirement period only. At retirement, the portfolio will revert to the suggested asset mix specified for the retirement goal. However, if clients are already retired, Hold%/$ will apply. Enter Financial Data section Net Worth category Accounts page 2

3 After determining David and Susan s investor profile, which is Aggressive, NaviPlan will reallocate the asset mix of their accounts to this suggested asset mix in the Recommended Plan scenario. Asset Allocation Settings Portfolios tab (Plan Management section Asset Allocation Profile page Settings button) Upon reviewing the suggested asset mix (Plan Management section Asset Allocation Profile page Settings button Portfolios tab), you note the percentage for Intermediate Term Bonds is 5% (total bond holding). David and Susan have an international bond valued at $50,000 in their joint non-qualified account with a maturity date of January 1, 2020, which is 9.30% of their total portfolio. Because the bond cannot be redeemed before maturity, it is not available for reallocation. This needs to be reflected correctly in their portfolio. Returning to Account Details for the joint non-qualified account, enter 100% in the Hold %/$ field for the bond holding. NaviPlan will now consider this holding as unavailable for reallocation. Note the Stock Portfolio holding within this account has no hold. Did you know? If an asset is entered without asset class weightings, NaviPlan treats the asset as unclassified and reallocates the total value as per the Suggested Asset Mix. 3

4 Did you know? Hold %/$ can also be applied to the subaccounts of a variable annuity. It can be accessed on the Holdings tab under Annuity Details (Enter Financial Data section Net Worth Annuities Details button). Looking at the Asset Class Reallocation report (Reports menu Asset Allocation Asset Class Reallocation, Complete Analysis selected under Assign Settings), we can see the changes required to move David and Susan s retirement portfolio from the Current Asset Mix to the Suggested Asset Mix (Pre-Retirement). NaviPlan is holding the $50,000 (100%) International Bonds as requested, which is 9.3% of the overall Suggested Asset Mix and exceeds the 5% originally recommended in the Suggested Asset Mix. This has resulted in the percentages for each asset class needing to be recalculated. NaviPlan adjusts the remaining asset classes by reducing them on a prorated basis. That is, the entire Suggested Asset Mix for the pre-retirement period has been modified to reflect the hold placed on the bond holding. Asset Class Reallocation report (Reports menu Asset Allocation, Complete Analysis selected) It is important to note that the Suggested Asset Mix (Retirement) column does not reflect the hold because holds are removed in the retirement period for clients who are not yet retired. Did you know? For simplicity and ease of understanding, in the current and suggested asset mixes, NaviPlan rounds the percentages to one decimal place in reports. How do I use the Hold %/$ feature to stop a portion of an account from being included in portfolio reallocation? Example 2: Let s continue with the example of David and Susan above, except this time the joint non-qualified account does not have the holdings specified and the bond maturity date is not important. Rather, for tax planning purposes, they are going to retain one half of their account. The Market Value is $150,000 and the Hold %/$ is 50%. No account holdings are specified; however, Asset Class Weightings are 67% Emerging Markets Equity and 33% International Bonds. When a hold is specified at the account level, NaviPlan applies the hold to each account type (non-qualified, qualified, annuities, etc.). The following list explains how NaviPlan calculates the value in the suggested asset mix. In this case, the Asset Class Reallocation report that follows looks different from the previous example of it. 4

5 Qualified portion of total (multiplied by 64.81%) In our example, David and Susan have both qualified and non-qualified accounts funding their retirement goal, totaling $540,000. The qualified accounts total $350,000 or 64.81% of the total holdings. Non-qualified transition asset mix (subtract holds adjusted to 100%) NaviPlan subtracts the holds from the recommended asset mix to account for the fact that they will be added back in later. However, no asset class is adjusted below 0%. The resulting asset mix is then adjusted to equal 100%. In our example, the International Bonds class is adjusted to 0% when the holds are subtracted. Adjusted non-qualified asset mix (multiplied by 50%) We are holding 50% of the non-qualified funds, so NaviPlan then multiplies the Non-qualified transition asset mix column by 50%. Total adjusted non-qualified asset mix (held portion added) The hold percentages are then added back into the calculation: Emerging Markets is 53% of the entire non-qualified portfolio; International Bonds is 47% of the entire non-qualified portfolio. Non-qualified portion of total (multiplied by 35.19%) The next step is to calculate the percentages in the Suggested asset mix column for the non-qualified account portion by multiplying the Total adjusted non-qualified asset mix column by the percentages for the non-qualified account (35.19%). Actual suggested asset mix This represents the total of two columns: Qualified portion of total and Non-qualified portion of total. The percentages in this column match the Suggested Asset Mix (Pre-Retirement) column in the Asset Class Reallocation report. Asset Class Reallocation report (Reports menu Asset Allocation) Did you know? When the percentage of an asset class held is greater than the recommended percentage of the asset in the suggested asset mix, the resulting asset mix is labeled Client Requested Asset Mix in client reports. 5