Solutions for Professional Advisors€¦ · Financial Advisors enjoy the benefits of operating virtual in -house “mutual funds” without any asset class or short sale limitations

Solutions for Professional AdvisorsIntroduction to Model Portfolios

DisclosuresOptions involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by calling (203) 618-5800.

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. For a copy, call (203) 618-5800.

Security futures involve a high degree of risk and are not suitable for all investors. The amount you may lose may be greaterthan your initial investment. Before trading security futures, please read the Security Futures Risk Disclosure Statement. For a copy, call (203) 618-5800.

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

The Order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Interactive Brokers LLC is a member of NYSE FINRA SIPC

Interactive Brokers LLC is registered with HKSFC and is a participant of the Sydney Futures Exchange (SFE)

2

http://www.optionsclearing.com/publications/risks/riskchap1.jsp�

https://www.interactivebrokers.com/Universal/servlet/Registration.formSampleView?file=registration_1/cftc_risk_disclosure.html�

http://www.aosbroker.com/forms/ssf_futures_risk.pdf�

http://www.nyse.com/�

http://www.finra.org/�

http://www.sipc.org/�

Introduction to Model Portfolios

Our latest innovation for Financial Advisors

Model Portfolio technology is an efficient, time-saving tool that facilitates a more organized approach to investing client assets

Simplifies the tasks of financial advisors managing several accounts

Addresses the challenge of employing a variety of investment allocations across customer accounts

Enables an advisor to create “groupings” of financial instruments (Model Portfolios) based on an investment strategy

Similar to mutual funds, Model Portfolios can be created around a specific macro strategy or asset class

Advisor can establish target % allocations and rebalance as desired

3

Bottom line: Advisors are able to spend less time making individual trades and more time focusing on client service

4

Model PortfoliosOverview

What are Model Portfolios?

An advisor-defined group of financial instruments

A Model Portfolio can invest in any asset type: stocks, options, futures, forex, bonds, funds

The advisor can establish the target percentage allocations or keep them dynamic

The advisor can invest a percentage of clients’ funds into a Model Portfolio then simply trade the Model’s assets.

The trades are automatically allocated among the invested clients’ accounts

5


Example:

An advisor has 200 client accounts

The advisor has created a Tech Model, in which some clients are invested

The Tech Model consists of 10 stocks, including AAPL

The advisor wishes to liquidate half of the AAPL holdings and invest the proceeds in ORCL

This requires only two trades in the Tech Model portfolio

The trade is automatically and seamlessly allocated to each client account’s “Tech sub-account”

SmartMoney Financial Advisors, LLC

SmartMoney Model Portfolios

SmartMoneyGrowth Portfolio

$3.4M Total Capital Invested by 12 clients

SmartMoneyValue Portfolio

$1.2M Total Capital Invested by 8 clients

Models: Balance

SmartMoney Growth 450,000$ SmartMoney Value 200,000$

Independent Holdings:DIS 50,000$ NYT 10,000$

Cash Balance 20,000$

Total Account Value 730,000$

Client Accout U123456Account Statement


SmartMoney client account

6

SmartMoney Financial Advisors, LLC

Example of all client accounts’ holdings:


7

TotalTech Oil/Gas Growth Value Models Independent Cash Portfolio

Client 1 0% 30% 50% 0% 80% 10% 10% 100%Client 2 30% 30% 0% 0% 60% 10% 30% 100%Client 3 10% 10% 10% 10% 40% 50% 10% 100%

………

Client 200 15% 15% 0% 40% 70% 10% 20% 100%

Models Total Holdings

Models: Balance






Advantages of Model Portfolios

Financial Advisors enjoy the benefits of operating virtual in-house “mutual funds” without any asset class or short sale limitations

Can offer each client the ability to invest any amount of capital into a Model Portfolio to suit his/her investment strategy, risk appetite, etc.

Invest into, withdraw from, and even reallocate among Models effortlessly

8


Invest $10,000

Models: Balance







Comparison to Mutual Funds

From an asset management perspective, a Financial Advisor can trade a Model Portfolio’s holdings as easily as a fund manager trades the holdings of a fund

Unlike a Mutual Fund, Model Portfolios operate completely within the architecture of standard FA “managed accounts”

All securities of a Model Portfolio reside in the investing clients’ sub-accounts

No special “fund entity” required

No restrictions on asset class or short sale (1)

Client investments and withdrawals can be made any time of the day (2)

No upfront or back-end load fees, annual expense ratios or capital gain distributions associated with Model Portfolios.

(1) Other than client’s standard trading permissions(2) Subject to liquidity of individual investments within the Model

9

The steps to working with Model Portfolios are straightforward:

1. Advisor creates the ModelBased on a desired investment strategy, industry focus, etc.

2. Invests client funds into the ModelAdvisor can seamlessly move a client’s funds into/out of a Model

3. Trades the Model’s holdingsAdvisor can trade all assets classes

4. Rebalances a client’s Model holdingsReallocate capital invested in Models quickly & easily


10

11

Model PortfoliosInterface Illustrations

Working with Model Portfolios in TWS

1. Interface Overview: Portfolio window

2. Creating a Model Portfolio

3. Investing in a Model

4. Trading a Model’s Holdings

5. Reallocating a Client’s Model Holdings

6. Rebalancing a Model

7. Divesting from or deleting a Model

On the Portfolio window, the Financial Advisor has an overview of all Models and Independent Positions invested across all client accounts

Interface IllustrationPortfolio Window

12Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Use the Display Selector drop down menu to navigate between Models, Groups and Accounts


13

In the Portfolio window, the Advisor can select a Model to view:1. the details of a Model’s holdings across all accounts, or2. the accounts invested in that Model


2) Select “accounts” to view the accounts invested in a Model

1) Select “positions” to view the details of a

Model’s holdings

14

By selecting an account, the Advisor can view the Model and Individual Position holdings within that client’s account


Note: Clicking on the “+” next to each Model expands to display the details of the Model’s holdings

15

The Advisor has the option of viewing an account’s positions: grouped by model or ungrouped

16





4. Trading a Model’s holdings




To create a new Model, begin by selecting “Model Setup” from the Display Selector

Creating a Model Portfolio

17

The “Model Setup” window provides an overview of the total capital invested in the Models created by the Advisor across all client accounts

From here the Advisor can create and delete Models


18

Click “Create Model” to begin


Enter the name and code of the

new Model

19Note: Model code cannot be changed once created


The new Model has been created and is ready to

accept investments

20


21

Once the new Model is created, the advisor has the option to establish Target % Allocations. These are used:

When client funds are invested into the Model for the first time, it will purchase assets according to these allocations

To rebalance the model

Select the newly created

model

Click “Set Target

Allocations”

The Rebalance window opens1. Add lines with desired assets2. Enter a target % for each asset3. Click Save Target % (once saved, the Target % column will turn purple)

1.

2.

3.

Creating a Model PortfolioEstablish % Targets

Note: The Current % column is blank since this is a new Model. If the model already had existing positions, the current allocations would be displayed under the Current % column. The advisor has the option of saving these as the Target % by clicking Set Target %. 22

23









Investing in a Model Portfolio

After creating a new Model, there are three ways to initially fund the model:

1. Invest cash into the Model from one or more accounts and then start trading the Model (Example A)

2. Save targets in the Rebalance window and then invest from one or more accounts (Example B)

3. Transfer assets into the Model using the “Transfer Cash and Positions to Model” button in the Model Setup page (Example C)

For existing Models that already have positions:

Example D: The client funds will purchase assets according to the allocation of assets the model already holds

24


Example A: No % targets

1.Select the client account under the display selector2.Right click on the Model and select “Invest in [Model name]”

1

2

25


Example A (cont.)

3. Enter the amount to invest and click “submit”

3

26


Example A(cont):

Notice the amount has been transferred from the cash balance under “Independent” to cash in the newly created Model

The Retail Model now has funds available in order to trade assets

27

If the advisor already established % targets, then after entering the investment amount, the system automatically generates orders to purchase assets in proportion to the saved % targets


Example B: Saved % targets

28

Example C: Transfer Cash & Positions to a Model

The advisor can transfer clients’ independent positions to an unfunded model

1. Navigate to the Model Setup Page2. Select the unfunded model3. Click Transfer Cash and Positions to Model

29

Example C (cont.): Transfer Cash & Positions to a Model

4. Select the accounts

5. Select the independent positions to transfer

30

Example C (cont.): Transfer Cash & Positions to a Model

6. Select one of three options for handling independent cash

7. Click Finish

31

When transferring client funds in a Model with existing assets, the system automatically invests the new capital using the Model’s current investment allocations

For example, the FINANCIALS Model has the following investment allocation:

BAC 27% C 10% GS 6% JPM 20% WFC 32% Cash 5%

32

Example D: Investing in an existing Model


If a client invests $50,000 into the FINANCIALS Model…

…orders will automatically be created to match this allocation

33

Example D (cont.): Investing in an existing Model


34










Trading a Model’s Holdings

The advisor can populate any trading window with ticker lines of investments they wish to add to the Model

In this example, the advisor will purchase stocks for the Precious Metals model:

Right click on each ticker line and select “BUY” (or click the ask price) to create a BUY order

35


Under the Allocation column, select the Model under the drop down menu where the shares will reside

Orders will be displayed ready to transmit

36


The PRECIOUS METALS Model now displays the newly purchased securities

These securities reside in the accounts of the clients that are invested in the PRECIOUS METALS Model

37

This view shows which accounts are invested in the PRECIOUS METALS Model

Change the drop-down

box to “Accounts”

38










Reallocating a Client’s Model Holdings

When the Financial Advisor initially funds a client’s capital into Model Portfolios, he/she can specify the client’s desired allocation between Models and independent positions.

However, these percentages have fluctuated over time with markets movements.

39

100%

50%15%5%%10%5%

For example, the Advisor has established these initial allocations for this client15%

50%


Navigate to the client’s account

Right click on the Models header.

The Advisor is presented with available actions.

Left click on Reallocate

40

The Reallocate feature provides the Financial Advisor with the ability to quickly redistribute invested funds among Models, allocating by percentage or by dollar value.


The TWS defaults to the current allocation.

After modifying these percentages and clicking Submit, orders are instantly created in the Investment Orders panel that are necessary to achieve the desired allocations among Models.

41

The Advisor can modify these percentages as

desired.

42










Rebalancing a Model

The advisor can rebalance the investments within a Model as frequently as desired.The Rebalance tool can be opened several ways:

1. From the main menu under Trading Tools2. By clicking the Rebalance button on the Portfolio tab3. By clicking Set Target Allocations from the Model Setup Page

1.

2.

43

Rebalancing a Model

Select the Model to be rebalanced

Enter Target % or use saved ones (purple)

Click to Create Rebalance Orders

Orders are created to achieve new allocation %

This opens the Rebalance Model window

44

Rebalancing a Model

The advisor can periodically check for unbalanced Models

Select Check for Unbalanced Models in the Model Set up page

This will open the following window which shows the Models that need to be rebalanced:

Selecting Rebalance for either Model will open the Rebalance Model window

45

46










47

Divesting from a Model

In order to divest a client’s capital from a Model, simply right click on the Modeland select Divest from [Model name]

In this example, the Advisor wants to divest a portion from this client’s investment in the TECH Model


The Advisor is prompted to enter the value to divest. In this example, the client will divest $50,000 from the SmartMoney Tech Model with 2 options:

1. Divested positions will be liquidated – this generates sell orders (next page)

2. Divested positions should be left open – this moves the divested positions from the Model to the client’s independent holdings

48

1.

2.


If the advisor chooses to liquidate positions, this automatically creates orders to sell assets in the Model equal to the value being divested, and in the proportion they are held in the Model

49

Matches the relative values

held in the TECH Model

Deleting a Model

The steps to delete a Model are simple and straightforward: Navigate to Model Setup in the display selector

Select the Model to be deleted

Click Delete Selected Model

NOTE: Deleting a funded Model will shift all Model holdings into theIndependent positions of the clients that are invested in the deleted Model

50

Additional functionalities

51

Additional Functionalities

Invest client funds in multiple Models at once:1. Select the client account under the display selector

2. Right click on the Models header and select Invest in Models

1

2

52

3. The advisor is prompted to enter the value to be invested into the available Models

Additional Functionalities

Withdraw Cash from a Model:The advisor can withdraw cash from a Model in two ways:

53

2. In the Model Setup window, select Model and click on “Withdraw Cash from Model”

1. Right click on the Model and select “Withdraw Cash from [Model Name]”

In Summary….

Model Portfolio technology was developed based on feedback from our experienced financial advisor customers.

This advanced tool saves advisors valuable time by allowing them to focus more on servicing their clients and less on executing trades

54

Documents

Solutions for Professional Advisors€¦ · Financial Advisors enjoy the benefits of operating virtual in -house “mutual funds” without any asset class or short sale limitations