This functionality can be useful in many scenarios. An obvious one is a client who expects to sell the house to cover living expenses in retirement. The advisor can illustrate what might happen if the house does not realize the expected selling price. This feature also allows you to illustrate to a client who does not plan to sell the residence in retirement how the residence might be used as a funding method of last resort in a "what-if" scenario or scenarios.
Yet another new feature in this section is the ability to model a sale of a business such as an installment sale that takes place over a number of years. If you designate the business as a special asset you can include low, expected and high values for each year, allowing the advisor to model multiple scenarios. I found it surprising that the installment sale feature was not included as an option under the residence, since families use this technique.
Moving back to my quick plan, you can also enter any insurance policies. Next, you enter the total of liabilities under four categories: personal real estate, vehicles, business and other personal debt. Upon the completion of the resources section, a personal balance sheet is generated. The summary page gives a quick overview of the clients' financial health. The details section serves as a quick data entry check.
If the subject of the plan is a client, and that firm has the proper integrations in place, much of the necessary data will already be pre-populated in the system, further reducing plan preparation time. Another time-saving option: MGP: G3 offers a new online data gathering mode. This allows advisors to provide clients with a user name and password. They can then go online and provide the personal information, financial goals, resources and risk assessment.
MGP: G3 significantly revises PIEtech's approach to risk. The new risk assessment tool asks each partner to assess their own loss tolerance on a scale of 1-100. The justification for this approach is that PIEtech's research indicates that most clients and prospects are good at assessing their loss tolerance. To help users more accurately gauge their tolerance, the application displays an asset allocation, peer group comparison and bear market scenario associated with the score. In my quick plan case, the husband scored himself a 65. This implied a portfolio of 61% equities, 35% bonds and 4% cash. It also indicated that his loss tolerance was higher than the average for men in the 50-64 age group, the average score being a 54, with a standard deviation of 11. The application further calculated that someone with a 65 score, and the associated portfolio, was likely to incur a $234,000, or 26%, loss in a bear market. After the client received this additional information, he confirmed his comfort with his risk score.
Next, the spouse, who was not party to the husband's evaluation, performed her own. The wife scored an even 50. If both spouses were sitting in front of me, I would have a brief discussion with both spouses, with a visual description of each one's selection-related information. Since in my example they were not in attendance, I decided for demonstration purposes to assume they'd be comfortable with a household loss tolerance of 57, which would limit the theoretical loss to 22% or $198,000.
Those who prefer the old risk questionnaire can still use it, but only for informational purposes, not for risk scoring. Advisors who use the optional FinaMetrica system integration through MGP can substitute that score for the MGP one since FinaMetrica also scores on a scale of 1-100.
Upon completion, we move to the current allocation page. Since we are using the quick method, there is no analysis of the current portfolio-a small price to pay for the increased speed of plan preparation.
The proposed asset allocation based upon the household risk score is then displayed, as is a "target band." The latter is a visual representation of multiple portfolios between a client's current portfolio and the one indicated by their risk score that can increase their expected return. Each displays an asset allocation, expected annual return, expected worst one-year return and a standard deviation. Any allocation within the target band can be recommended.
The MGP: G3 improved SuperSolve II feature is then used to determine the probability that the clients' resources will support their retirement needs. The default confidence level is 80% probability using a Monte Carlo simulation, but the target can be altered and an average return calculation method can be substituted if desired.