FINANCIAL PLANNER METHODOLOGY The MeDirect Planning Tools are online investment planning solutions that provide wealth forecasting and investment advice. Our Planning Tools offer you two investment planning alternatives. The Pension Planner allows you to plan for your retirement. The Portfolio Builder allows you to plan how to invest your portfolio without a specific goal in mind. In each case, we evaluate personal and financial information provided by you. The Pension Planner estimates whether your current contributions, accumulated savings, future pension receipts and investment strategy are sufficient to meet your specified retirement goal. The Portfolio Builder estimates the value of your portfolio at a date defined by you. In each case, we recommend a suitable and appropriate investment strategy based on the personal and financial information you have provided and propose a diversified portfolio of mutual funds to enable you to execute that strategy. These tools are described in greater detail below. GENERAL APPROACH Our Planning Tools involve a straightforward three-step process: Step One Your information - The Planning Tools lead you through a series of questions about your personal and financial situation. The information required includes personal data, financial goals, risk preference, your partner s details (if you want to include this) and other information. It is very important that you provide us with as accurate and complete a set of information as possible in order to enable us to give you the best possible advice. Step Two Our Analysis We analyse the information you have provided in order to determine a recommended asset allocation and proposed portfolio and to determine the expected value of that portfolio at the date you have defined. In the case of the Pension Planner, we also determine whether that expected value is sufficient to achieve your financial goal. In addition, we analyse the portfolio outcome using a range of market scenarios. Step Three Our Recommendation We present a recommendation to you of a diversified portfolio of mutual funds that we believe to be appropriate for you and suitable given your personal and financial situation and risk preferences. We believe in building a diversified portfolio of straightforward mutual funds and will not recommend highly structured or complex investments. The recommendation may also include a cash component as appropriate for your situation. Execution of Your Plan At this point, you are able to purchase the recommended portfolio directly online or save the portfolio and track its progress going forward. Going forward, we will manage your portfolio for you for so long as you would like us to do so. Once executed, at any time you can terminate the management contract with us and take over sole control of your portfolio, at which time we will cease to advise you on the portfolio.
DETAILED APPROACH AND ASSUMPTIONS Step One - Your information The Planning Tools will collect your relevant personal and financial data (and, if applicable, your partner s data). This data will be treated as strictly confidential. If you prefer not to disclose some data we can still provide you with a plan, but our advise to you might not be as tailored to your personal situation and profile. This information includes, amongst other things: your financial knowledge and experience; your attitude to risk; information on any existing investments and savings accounts; any other cash inflows and outflows that you think we should take into account, including whether we should include a state or private pension in our projections; your age, gender, and salary; and your savings intentions and/or retirement plans. You should include as much information as possible about your personal circumstances and financial situation in order to enable us to recommend to you the investment portfolio most suitable to your needs and situation. In particular, as we can only analyse your current financial position on the basis of accounts that you ve told us about, it is important that you provide us with all relevant information about your existing investments and other sources of income. Step Two - Our Analysis Based on the personal and financial information you have given, we will recommend a proposed strategy and investment portfolio suitable for you. Each portfolio consists of mutual funds providing exposure principally to equities, bonds and/ or commodities, and has been designed to maximise the expected returns that can be achieved for a given level of risk. Using information on the historical performance of each asset class, we estimate the likely returns generated by the portfolio we recommend. This enables us to determine how your portfolio s value is likely to develop through time, taking into account any ongoing contributions into the portfolio as well as your desired living standard during your retirement. We also take into account uncertainty by producing projections applicable to weak, average and strong markets. It is important to note, however, that these are statistically-derived estimates of your portfolio s likely performance and not guaranteed returns. In particular, it is possible that severe adverse market moves could cause your portfolio to underperform even the performance we have projected in a weak market, even though our analysts and algorithms seek to diversify your portfolio in order to spread and reduce risks in line with your profile. More details about the methodology used to project your recommended portfolio s future behaviour, as well as the key assumptions made in the projections, are given below. Step Three - Our Recommendation The results of our analysis are presented to you in a report to help you understand the projected effects of our recommendations. This report is different according to the Planning Tool you are using: Pension Planner Report For investors using the Pension Planner, we provide an Outlook report showing how much wealth you are projected to have accumulated by the time you retire (based on your specified retirement age), and how your wealth is expected to develop during your retirement, assuming that you are spending the full amount of your targeted retirement income. The report also projects for how long your accumulated wealth will last in retirement and the amount remaining in your portfolio at your specified retirement end date. It also displays your projected wealth under a range of different market conditions. This will enable you to see how your financial position in retirement will change if markets perform better or worse than expected.
All financial information in the Pension Planner report is presented after tax and projected income and withdrawals are adjusted for inflation. Portfolio Builder Report For investors using the Portfolio Builder, we provide an Outlook report showing the amount you are projected to have accumulated in your designated investment account by the date you have specified, assuming you follow our recommended plan. It also shows how that amount grows each year between now and the date you specify. The Outlook shows the projections for a range of different market conditions. This will enable you to see how the value of your portfolio will change if markets perform better or worse than projected. Financial information in the Portfolio Builder reports is expressed after tax and is not adjusted for inflation. DETAILED ANALYTICAL METHODOLOGY To determine your risk capacity, our Planning Tools take into account both your financial circumstances and your attitude to taking risk. Your financial circumstances are expressed using what is known as the Human Capital methodology. This takes into account your financial capital (total assets, including financial assets such as savings account balances, stocks and bonds, as well as any non-financial assets you have asked us to take into account, such as the value of any equity in your home) and your human capital (future pension receipts and planned contributions to your account, described in more detail below). On the basis of these circumstances, we determine your risk profile. Human capital represents the discounted and mortality-adjusted value of projected future flows into the investment account. In the pension planner, these future flows are represented by the future receipts paid by your state pension, your private pension plan (if applicable) and your monthly contributions. In the case of the Portfolio Builder, human capital is based only on the planned future monthly contributions. We ask you questions about your job stability, which we use to determine the rate at which we discount your future flows. The further into the future you will receive cash flows, the lower the present value of those cash flows. Therefore, in general, human capital is low for young people, which means that younger investors should generally allocate their financial portfolio more heavily into higher-yielding but relatively riskier investments such as equities. As an investor ages, the human capital portion of his or her total wealth increases, which means that older investors should normally consider investing their financial portfolios more heavily into conservative investments such as fixed-income assets. As we can only analyse your financial capital from accounts and investments that you ve told us about, it is important that you provide us with all relevant information about your existing portfolio. Likewise, in order that we can analyse your human capital accurately, it is important that you provide us with complete and accurate information about your salary, any recurring income or expenses, your private pension details and the monthly amount you will be able to contribute to the plan. Your attitude to taking risk is reflected in your answers to a number of questions within the questionnaire and is summarised into an overall risk preference; this is then used to adjust the risk profile that was determined on the basis of your human and financial capital, to create a final recommendation. In projecting the likely performance of a recommended portfolio of investments, we run the portfolio through a large number of potential future market moves, derived statistically from historical asset class returns. In deriving these projections, we have taken into account both the historical performance of each asset class and the correlations between the performance of multiple asset classes. By using this approach of simulating future market moves over many years, we are able to fully take into account expected returns and market volatility.
Where we present a single set of results, or where we describe projections as representing average market conditions, this represents performance that, over the full period being analysed, will statistically be achieved or exceeded 60% of the time. Where we describe projections as representing weak market conditions, performance will be achieved or exceeded 90% of the time; projections described as representing strong market conditions will be achieved or exceeded 30% of the time. KEY ASSUMPTIONS Although our Planning Tools base their calculations on a wide range of available information, there are still a number of assumptions that need to be made, either about you and your financial situation, or about the future market, legal or taxation environment. The key assumptions are summarised here. Assumptions about you (and, if applicable, your partner): you are a Belgian taxpayer; your salary has increased and will continue to increase over time, at a rate that depends solely on your age and is derived from historical data; if you are asking us to include a state pension in our analysis, you have continuously made Social Security contributions since the age of 22 and will continue doing so until you turn 65 years old. We base our state pension calculation on your current salary, adjusting it for inflation; Recurring income, recurring expenses and lump sum or one-off income are received at the end of the planner year. A planner year starts on the day you start the planner and ends 12 months after. Assumptions about the future environment: inflation is 2% annually; applicable tax and social security laws and rates do not change (including both base and special social security contributions), although any thresholds are increased with inflation. Assumptions about pensions and targeted retirement income: your targeted income in retirement is expressed as an after-tax number; if you have asked us to include a state pension in our analysis, it contributes towards achieving the income you wish to receive throughout retirement; your partner s pension (if applicable) will also contribute to the income you wish to receive throughout retirement. In the case where your partner reaches the age of 65 before you, the state pension earned by your partner is assumed to be invested in the retirement portfolio untilyou reach the age of 65; your pension is based on 60% of your historical income (capped at the appropriate threshold) if you have not asked us to consider your partner or if your partner is receiving a salary, and based on 75% of your historical income if your partner is not receiving a salary; your targeted income in retirement starts to be needed on your retirement date and ceases to be needed when you have reached the retirement end age that you have specified, irrespective of the age of your partner; The amount you indicated you will receive from your private pension plan is adjusted for inflation up to the year you plan to start drawing on your private pension plan. In addition, we assume that your private pension receipts stop being adjusted for inflation after you start drawing on your pension, i.e. your private pension plan will pay a fixed annuity. Other assumptions: the asset class make-up of your recommended portfolio is constant throughout the projection; any dividends and interest received are taxed under the standard framework rather than under favourable tax regimes such as apply to, for example, Regulated Savings Accounts or certain bonds issued by the Kingdom of Belgium; cash inflows are net of tax; outflows are not treated as a deductible expense for income tax purposes; payout from your private pension are taxable at 10%; state pension is taxed at the standard rates of tax applicable to Belgian tax residents;
local tax rates are 7%, independent of the area in which you live; income deductions for tax purposes are calculated using the lump sum approach, rather than based on actual professional expenses; any capital gains realised are insufficient to qualify as professional income and hence to attract tax; no personal allowance tax credit is assumed; mutual fund returns are projected based on the historical performance of the underlying asset class, not on the fund manager; the projected return on non-financial assets (including property) is estimated by representing their value as being made up of a mix of equities and bonds, and projecting the returns on these asset classes in the usual way; projections are made from year to year, on the assumption that your portfolio does not change during the year; annual inflows and outflows are assumed to take place on the last day of the year. IMPORTANT DISCLOSURE The results of Planning Tools may vary with each use and over time. The Planning Tools cannot predict future investment performance. The price of investments can go up as well as down and past performance is not indicative of future performance.