Recommended approach for modelling a case in Pathfinder

This page has a recommended approach for modelling a case in Pathfinder. This approach helps you take best advantage of Pathfinder's optimisation processes, so it can carry the weight of the number crunching for you. To learn more about how Pathfinder works, see How Optimisation works.


Step 1: Enter the data (and cover the minimum data requirements)

Pathfinder's comprehensive modelling takes into account tax, legislation and government benefits, so it needs the right data so it can accurately estimate these values or you. For more details see:

Step 2: Run a 'surplus cash' scenario (Optional, but recommended)

Running a 'surplus cash' scenario is useful for many reasons:

  • It is an easy and quick way to see the cash flows and double check your input data and identify any obvious cash shortfalls
  • It gives you a baseline against which you can compare other strategies
  • You can send the strategy paper to your clients to review as an intermediate step in your planning process

It can also help you make some calculations:

  • It gives you an idea of how much excess cash is available to spend on new expenses or investments
  • You can estimate annual living expenses if you only know how much the clients save each year
  • You can estimate maximum living expenses, if you have a shortfall and would like to reducing spending to avoid the shortfall

For detailed instructions, see How to run a 'surplus cash' scenario.

Step 3: Use the  (robot) button to run a scenario to find the upper limits of your case

To calculate a feasible, high quality strategy as quickly as possible, the best approach is to let Pathfinder calculate the upper limits of the case by initially using the   (robot), button as much as possible, and then making adjustments with subsequent solves.  This approach is beneficial because Pathfinder's robot button:

  • Makes the best use of its powerful optimiser. For more details, see How Optimisation works.
  • Will create a strategy that meets all the expenses and goals you entered (unless there are insufficient funds to do so).
  • Often creates the strategy you had in mind, even if you didn't specifically enter it.
  • May remind you of strategies you didn't initially consider. e.g. making spouse super contributions.
  • Will present you with feasible values, so if you want to make adjustments, you already have ballpark figures, so you don't need to calculate them from scratch.
  • Gives the optimiser more freedom to work out the strategy, so you are less likely to produce a result with constraint violations (i.e. conflicting instructions that cannot all be met) or cash shortfalls. It won't take actions that will result in an avoidable shortfall.
  • Will allow Pathfinder to calculate where to put surplus funds to maximise the net wealth at the end of the analysis.
  • Will save you time because it can work out a strategy from scratch more quickly than if you worked out the strategy outside Pathfinder and then tried to input precise figures.
  • Keeps within all government rules and legislation.

Once you have created a strategy with the upper limits, you can then add more constraints, that is, set specific goals, so the strategy is suitable for your clients' preferences and risk profile.

Steps to calculate the upper limits of a case

StepDetails
If you ran a 'surplus cash' scenario, then copy the scenario and work in the copy.

For more, see How to make another scenario for comparison

Go through the  Cash flows & Goals step (top menu) , and choose the 

 (robot) button as much as possible.

At the  Cash flows & Goals step (top menu) , go through each sub-step and:

  1. Include all cash flows, new items, recommended products and goals.
  2. Set options that are required to reduce risk or for which there is a strong preference. e.g. keeping a cash reserve, rolling over to a new super fund.
  3. Let Pathfinder calculate every thing else, by choosing the    (robot) button, where available. Even if you have a value in mind (e.g. initial deposits to an investment, super contributions) start with the   (robot) button,  since Pathfinder may surprise you (and if you don't like it, can copy the scenario and adjust it, and compare the impact of the adjustment).

For more details, see Entering Data in Pathfinder.

Solve the 'upper limit' scenario and review the results

To solve, see How to solve a scenario to get results

To review this scenario's results, it's easiest to go through the Strategy summary sub-step (under the Results step on the top menu)  and make a note of:

  1. Numbers that are higher than expected. e.g. if your clients are younger, you may want to make lower super contributions
  2. Numbers that are lower than expected. e.g. Deposits to a new investment may be lower than expected, because funds are going to super instead
  3. Things that happen earlier or later than expected. e.g. a loan only makes minimum repayments instead of being paid off earlier
  4. Anything else that is not consistent with your clients goals or risk profile
  5. You may also wish to go to the Compare step, and see how this scenario stacks up against the against the 'surplus cash' baseline scenario.

For more information about reviewing results, see How to read the websolve results

Step 4: Adjust your scenario to make it suitable as a recommendation (if required)

StepDetails
Copy your 'upper limit' scenario, and make adjustments in the copy. This lets you see the impact of your adjustments at the 'Compare' step.For more, see How to make another scenario for comparison.

Go through the  Cash flows & Goals step (top menu) , and make adjustments to 'Robot' options.

Once again, at the  Cash flows & Goals step (top menu) , go through each sub-step and make adjustments based on what you noted when reviewing the results of the 'upper limit' scenario. Note that:

  • Change the 'Robot' option to a more specific option will not increase the projected net wealth compared to the original scenario.  However, you will need to compare the scenarios to see the size of the difference.
  • If you've chosen 'Robot' for two items, and you want to direct funds away from one item to the other, then try just adjusting the option on one item, and leaving the other as robot.


 Examples of adjustments. Click here to expand...

Some examples of situations and adjustments you could make:

  • If too much money is being put in super and you'd like to see more directed to the home loan you can either:
    • Set more specific options for paying off the home loan. e.g. set a specific repayment date, or extra repayments; or
    • Set a maximum for super contributions. Once Pathfinder has contributed up to your specified maximum, it will look for somewhere else to put surplus funds. Depending on your case's assumptions, it may direct it to the home loan or it may direct it to another investment (check the results and review)
  • If you have recommended a new shares/managed fund, and the deposit is not a round number, you may wish to round down the deposit to a round number, so it's easier to explain. e.g. if the deposit amount is $10,123, you may wish to make it $10,000.
  • If an individual is starting their pension in the distant future, and they are rolling funds back and forth between the pension and accumulation phase, you may want to prevent rollbacks, so the chart looks nicer. For more see How to prevent rollbacks from pension phase to accumulation phase in a superannuation fund
Solve and review your adjusted scenario

To solve, see How to solve a scenario to get results.

To review your results, see How to read the websolve results.

(optional) Step 5: Make alternative scenarios for comparison (e.g. different goals or assumptions)

Once you're happy with your first recommended scenario, you can copy it and make more adjustments to explore different goals and strategies.

For more, including examples of alternative scenarios, see How to make another scenario for comparison.

Step 6: Present results to your client

Once you have reviewed your results, you may wish to download some results for your client meetings so they can review the strategies, ask questions and make an informed decision:

  1. Download a 'Strategy comparison' document that includes the 'Surplus cash' scenario, plus any scenarios your clients are interested in (you don't need to include the 'upper limit' scenario, unless you thought it was a feasible strategy). This document can show the benefits of your advice, and help clients clearly see the payoffs of different strategies.
  2. Download a 'Strategy overview' and/or 'Strategy paper' for any recommended scenarios once your clients have decided which strategies are most interesting.  Your client can then look at them in more detail.

For more, see How to download results into a document (Strategy Paper, SOA (Statement of Advice) Foundation document, Strategy Comparison).