How to prioritize goals and expenses

Our latest release of AdviserGo includes a major redesign of how goals and expenses are prioritized in client plans. The various types of goals and expenses have been decoupled from their prioritization, giving advisers and their clients complete flexibility to prioritize and importantly, to reprioritize goals at any time, without the need to delete and reenter any information. 

 

Previously, you were required to choose from a considerably long list of options when entering expenses. 

 

Some categories of expenses, such as Basics, Leisure, and Luxury, related to their priority, with Basics being the highest priority. The Milestone expense type, on the other hand, related to its timing, with a milestone being a one-off expense or goal. Other special types of types of expenses, such as Education (university costs) or Legacy (gifting and charitable giving), related to special rules or features. All in all, this list was a lot to parse when entering expenses. 

 

Another factor was that person building the plan might not yet know whether their client considers an expense or goal a high or low priority and the only way to change the priority of an expense was to delete and reenter it as a Basic, Leisure, or Luxury expense.  Moreover, expenses of a type that did not relate to priority – Milestones, Education, and Legacy – were automatically assigned a low or high priority by the software and users had no option to set their prioritization. 

 

Pictured below is the Expenses menu from our previous release. 

 

 

With expense refactoring, there is now much less to parse visually and conceptually when entering expenses. Menu options have been simplified and narrowed down to four options: 

 

• Recurring “Multi Year” expenses. Expenses recur starting and ending with a pair of events selected on the Timing tab. 

 

Note – Expenses (and goals) can also be scheduled as recurring lump sum expenditures using the special Expense Frequency setting on the Timing tab – e.g., car purchases can be scheduled to recur ever five years from now until retirement. 

 

•  One-off “Single Year” expenses. 

 

•  The special Legacy expense type remains as an option for scheduling future gifts and charitable giving. 

 

•  The University expense type remains available to create, automatically, university start and graduation events for the expense owner. In some jurisdictions, such as Canada and the US, University expenses are also designed to take qualified withdrawals from special education savings accounts such as RESPs in Canada and 529 and Coverdale plans in the United States. 

 

 

The types of expenditure (multiyear, single year, education, and legacy) are indicated on the Dashboard. 

 

 

Once you select the appropriate expense type, you will find for all types a new prioritization slider. This slider will allow for expenses and goals to be reviewed and reprioritized at any time, at any point in the planning process, unlike today, where priority is determined based on the type of expense you are entering and cannot later be changed. 

 

 

This slider can be used at any time for any type of expense or goal to review and possibly change its priority. 

 

The priority slider has calibration points beneath each priority level, allowing you to set an expense or goal by broader level, as a basic (high), leisure (medium), or luxury (low) level goal overall. 

 

Within these three broad priority levels, you also have the option to further specify whether a basic expense, for example, is a high, medium, or low-level essential expenditure. The software will then follow prioritization as it fulfills future annual expenditure. 

 

Note, Custom Priority Levels – The prioritization slider has been designed with customization in mind. The names of expense priorities could be customized for enterprises, aligning them with the terminology you use when discussing goals with your clients.

 

 

Goal types, which have always been more succinct than expenses, remain unchanged. Retirement, Pre-Retirement, and Milestone goal types all have an eye to their default timing, whereas Education goals is a special goal type intended, at least in part, to take qualified withdrawals from special education savings accounts such as RESPs in Canada and 529 and Coverdale plans in the United States. 

 

• “Pre-Retirement” goals are assumed, at least initially on the Timing tab, to be a recurring expenditure from the plan’s Start until the first Retirement event. The selection of this pair of events is merely suggested timing for your convenience. Alternative start and end events can be selected on the Timing tab. 

 

• “Retirement” goals are assumed, at least initially on the Timing tab, to be a recurring expenditure from the first Retirement event until the last Mortality event. The selection of this pair of events is merely suggested timing for your convenience. Alternative start and end events can be selected on the Timing tab. 

 

Note – Goals (and expenses) can also be scheduled as recurring lump sum expenditures using the special Expense Frequency setting on the Timing tab – e.g., car purchases can be scheduled to recur ever five years from now until retirement. 

 

• A “Milestone” is a one-off, single year expenditure and as such, retires the selection of a single event. One could (hopefully) assume a child’s wedding would be a Milestone goal. 

 

• The Education goal creates, automatically, university start and graduation events for the goal’s owner. In some jurisdictions, such as Canada and the US, Education goals (and University expenses) are also designed to take qualified withdrawals from special education savings accounts such as RESPs in Canada and 529 and Coverdale plans in the United States. 

 

 

Like expenses, once you select the appropriate type of goal, you will find for all goal types a new prioritization slider. This slider will allow for goals and expenses to be reviewed and reprioritized at any time, at any point in the planning process.  

 

 

This slider can be used at any time for any type of goal or expense to review and possibly change its priority. 

 

The priority slider has calibration points beneath each priority level, allowing you to set an goal or expenses by broader level, as a basic (high), leisure (medium), or luxury (low) level goal overall. 

 

Within these three broad priority levels, you also have the option to further specify whether a basic expense, for example, is a high, medium, or low-level essential expenditure. The software will then follow prioritization as it fulfills future annual expenditure. 

 

Note, Custom Priority Levels – The prioritization slider has been designed with customization in mind. The names of goal priorities could be customized for enterprises, aligning them with the terminology you use when discussing goals with your clients.

 

 

Goals and expenses are fulfilled based on their priority. As may be the case at some point in a long-term cash flow projection, numerous planned goals and expenses may be in competition for finite resources. If the income and assets available at a given point in time are insufficient to completely fulfill one’s planned expenses and goals, the cashflow problem will be noted with a red shortfall in the Cash Flow chart. 

 

As the software determines which goals and expenses will be fulfilled, it will work through Basics first, starting now with the highest priority basics, before moving through the lower-level basics. The software will then attempt to fulfill the three levels of Leisure expenditures, in order, before moving down through the three levels of Luxury expenditures. 

 

Some expenses, such as taxes and debt payments, are generated automatically by the software. The priorities of these expenses are still assigned automatically by the software and cannot be edited. Auto-generated expenses are worked into expense fulfilment in the following order: 

 

1. Taxes and other government withholdings, 

2. Secured debt (debts linked to properties), 

3. Unsecured debt, 

4. Insurance premiums, 

5. Basic expenses and goals (those assigned priority 1-4 by you the user), 

6. Future asset purchases, 

7. Leisure expenses and goals (those assigned priority 1-3 the user), 

8. Luxury expenses and goals (those assigned priority 1-3 the user). 

 

 

The Cash Flow chart includes a blue Basic Needs line. Below this line are essentials, being taxes and other government withholdings as well as auto-generated expenses for debt payments and insurance premiums. If the Cash Flow chart shows only a black total Need Line, then all the expenses and goals in the plan are high priority basics or you have deselected the Basic Need line from being shown. 

 

Moving a goal or expense under Basics on the priority slider will also move that expense under the blue Basic Need line. 

 

 

 

 

In your existing client cases built prior to this release, expenses and goals that were entered as Basic, Leisure, or Luxury will remain in these categories, only now you can use the prioritization slider to change them at any time. Other special types of goals and expenses were previously assigned a priority automatically, by the software. Now you can change the priority of these expenses too. Here is a guide to what priorities these special expenses and goals will be assigned initially. 

 

Milestone Goal = Luxury

Education Goal = Basic

Milestone Expense = Luxury

University Expense = Basic

Legacy Expense = Luxury

 

Expenses generated automatically by the software, such as taxes and government withholdings, debt payments, and premiums on insurance policies are all treated as basics. Future property purchases, on the other hand, are considered lower-level Luxury expenses to ensure an shortfall appears above the Basic Need line. The priority of these auto-generated expenses cannot be edited. 

 

The order in which auto-generated expenses are fulfilled is taxes and other government withholdings, secured debt (debts linked to properties), unsecured debt, insurance premiums, basic expenses, and goals (those assigned priority 1-4) and then future asset purchases. 

 

Taxes and other government withholdings = Basic (level 1)

Secured debt (debts linked to properties) = Basic (level 1)

Unsecured debt = Basic (level 1)

Insurance premiums = Basic (level 1)

Future asset purchases = Leisure (level 5) 

 

 

New Insight – Goal Priority Analysis