A professor of finance at York University has developed a new tool to help people who are saving for retirement through multiple vehicles ensure that when looking at their portfolios in total these are well-diversified.
The tool, Wealthscope, was developed by Pauline Shum Nolan, who is also a member of the university pension fund’s investment committee. She says the inspiration for the tool came from her time on the committee, where she noticed the amount of information available on specific funds, but not at the total portfolio level.
In 2014 and 2015, for instance, when the committee wanted to know how much of the fund’s assets would be affected by the price of oil dipping, it couldn’t get any answers, she says. And this would be even more difficult to access on the retail side. This was one of her inspiration stories to want to be the link between financial data and what investors want to know, she adds.
Investors using the tool can load up their various accounts, such as defined contribution pension plans, registered retirement savings accounts, tax-free savings accounts, trading accounts and so forth, and then run an analysis on these accounts to receive a score on the total portfolio, which will include a breakdown showing its diversity.
In the tool’s beta testing stage, one user had 11 balanced funds and didn’t know their overall asset allocation. “They just see, ‘OK, I have 11 balanced funds. So in the end, am I 60/40? Or am I 80/20?’ You get lost in that.”
Shum Nolan says the eventual goal for the tool is to bring insurers on board since many have private funds on their DC platforms that Wealthscope wouldn’t be able to access. And this may help users assess their other assets, she adds, and choose the right investment options from the platform.
The tool’s portfolio management and accumulation sections are now live, with the part that helps with retirement planning coming soon. “We’re investing because we’re saving to invest for our retirement,”says Shum Nolan. “But then all of the planning tools are separate from your investments.”
She notes that’s where the technology comes in, to help link the savings to various scenarios in financial planning.
On the decumulation side, the tool will access all of a user’s taxable accounts, including DC or defined benefit pension plans. This allows it to tell users how to draw these savings down in a way that minimize taxes, says Shum Nolan. “And then you can connect that to your actual portfolio because the money that you haven’t drawn down yet is still being invested.”
Wealthscope can also tell people what they can expect in the median situation, as well as good and bad scenarios.
Users can also play around with how changes to their asset allocation or other assumptions would impact different scenarios.
While Shum Nolan acknowledges the tool will be most useful to DC plan members on the accumulation side, she notes it will be useful to both DC and DB members on the drawdown planning side. “Whether you have a DC or a DB, decumulation applies to everybody.”