The Caravel 3p Process
Charting Your Financial Course
At Caravel we support planning based advisors and the disciplined and structured investment processes they use to ensure clients achieve their goals. CMPAS helps you automate that process with an accessible structure called the Caravel 3 Ps. The three key steps—Planning, Portfolio Construction, and Progress Monitoring—are integrated seamlessly into the CMPAS software, allowing for an automated process that lets advisors work smarter and do even more for their clients.
In the planning step, the financial advisor and client work together to identify and prioritize goals, defining dreams as specific dollars and dates. This NEED-WANT-DREAM framework may sound familiar, but our system differentiates itself by building in varied levels of independent protection for each of these goals. The likelihood of achieving higher priority goals is not impacted by fulfilling lower priority goals.
For example, if our software confirms that the client can buy their DREAM exotic sports car, purchasing that car will not impact the odds of achieving future higher priority goals like a secure retirement. CMPAS achieves this level of protection by placing each goal into its own portfolio module based on the goal’s horizon timeframe. Our competitors lump all goals into one module that does not allow for differentiation or individualized protection.
For example, if our software confirms that the client can buy their DREAM exotic sports car, purchasing that car will not impact the odds of achieving future higher priority goals like a secure retirement. CMPAS achieves this level of protection by placing each goal into its own portfolio module based on the goal’s horizon timeframe. Our competitors lump all goals into one module that does not allow for differentiation or individualized protection.
Once goals are defined and prioritized, our software calculates a unique portfolio strategy customized for each client’s life plan. Before Caravel, managing customized portfolios across a large number of clients would present an overwhelming challenge. But through the “mass customization” process, clients get the benefit of customized investment plans while advisors get the portfolio management advantages of a small number of portfolio models/modules (typically 5 or 6). Essentially, our product adds automation and rigorous risk management to the risk bucketing approach many advisors now employ.
Our software creates customized solutions from a small set of portfolio modules by first quantifying the time horizon and risk characteristics (NEED, WANT, or DREAM) for each goal in the plan. These mathematical characteristics are matched against a predefined set of modular building block portfolios with offsetting risks.
Shorter term goals are aligned with shorter time horizon modules. These modules tend to have large allocations to cash and/or bonds. Longer term goals are funded through longer term modules, with higher equity weightings and therefore higher potential return. Our asset/liability management process provides mathematically rigorous planning solutions, but client needs are not driven exclusively by math. We recognize that evaluating and incorporating risk tolerance is a very individual and emotional component of setting an appropriate portfolio strategy.
Caravel provides risk profiling tools to help advisors understand the elements of risk management that cannot be quantified by a computer model. This allows advisors to dynamically adjust proposed portfolio risk, allowing clients to see and understand the impact of more conservative or more aggressive strategies on overall plan results. Clients can then determine the portfolio risk level that strikes the right balance between their long term goals and their short term peace of mind.
Our software creates customized solutions from a small set of portfolio modules by first quantifying the time horizon and risk characteristics (NEED, WANT, or DREAM) for each goal in the plan. These mathematical characteristics are matched against a predefined set of modular building block portfolios with offsetting risks.
Shorter term goals are aligned with shorter time horizon modules. These modules tend to have large allocations to cash and/or bonds. Longer term goals are funded through longer term modules, with higher equity weightings and therefore higher potential return. Our asset/liability management process provides mathematically rigorous planning solutions, but client needs are not driven exclusively by math. We recognize that evaluating and incorporating risk tolerance is a very individual and emotional component of setting an appropriate portfolio strategy.
Caravel provides risk profiling tools to help advisors understand the elements of risk management that cannot be quantified by a computer model. This allows advisors to dynamically adjust proposed portfolio risk, allowing clients to see and understand the impact of more conservative or more aggressive strategies on overall plan results. Clients can then determine the portfolio risk level that strikes the right balance between their long term goals and their short term peace of mind.
Watching the markets daily can be stressful to both advisors and their clients. Caravel provides reassurance through volatile markets with our third step—Progress Monitoring. This online mapping tool graphically illustrates progress and provides an accurate picture of how the odds of achieving each goal change as markets fluctuate. Since NEEDS and WANTS are designed to be protected against severe market environments, clients can see how market moves tend to have very little impact on these critical goals. DREAMS—the goals clients have determined are less vital to their life plan—are often the only portion of the plan affected by market volatility. Should market returns exceed the conservative assumptions used in calculating the life plan, an opportunity may arise to “lock in” a goal and de-risk a plan. Locking in a goal consists of moving portfolio assets out of riskier, higher returning assets and into low risk, low return short maturity bonds and cash.
