Patent Application Titled “Interactive Methods And Systems For Control Of Investment Data Including Demographic Returns” Published Online (USPTO 20220374989): Patent Application

2022 DEC 14 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- According to news reporting originating from Washington, D.C., by NewsRx journalists, a patent application by the inventor Shimpi, Prakash (Florham Park, NJ, US), filed on July 29, 2022, was made available online on November 24, 2022.

No assignee for this patent application has been made.

Reporters obtained the following quote from the background information supplied by the inventors: “Financial services companies, such as asset managers, banks and insurance companies offer investors several investment choices. These investment choices provide the opportunity for investors to earn investment market returns, while also exposing them to investment market risks. Market return is the total return on an investment over a given time period from capital markets sources, e.g., dividends, interest, and capital gains. Market risk is the risk of losses in investment positions arising from movements in market prices.

“Asset managers provide funds in which investors can make deposits to earn market returns, less asset management fees, and investors bear all the market risk of their investments. Similarly, banks provide deposit instruments (e.g., certificates of deposit) and investment funds, both of which provide market returns to investors while exposing them to market risk. For this description, it will be convenient to refer to these investment vehicles as “investment funds,” and the term “asset manager” will refer to providers of investment funds including banks and some insurers but the system is not limited to only these terms.

“Insurance companies may offer immediate and deferred annuities with a variety of living benefits and death benefits, for which they may charge benefit fees, as well as asset management fees. An annuity product usually requires a deposit or a premium, which then may be invested by the insurer. Insurers provide guarantees such as minimum fund performance or minimum level of living benefits or death benefits, so that the investor may be partially shielded from market risk while earning some of the market return on investment. In the following description, these types of funds may be referred to as “insured funds” and the term “insurer” to describe any type of providers of insured funds. Some insurance companies may also offer investment funds similar to the asset managers described above.

“Many investors rely on advice from third parties financial advisors, for example Registered Investment Advisors in the US. These investment advisors may assist an investor construct their portfolio of investment and insurance funds, either directly or through their employer or other organization. In some instances, these advisors also perform certain duties that may appear to be either management of investment funds or insurance funds, even if they do not actually manage those funds. For the purposes of this description, any financial advisor that actually offers investment funds or insured funds to an investor as described herein would be considered to be an asset manager or insurance company.

“Although investment funds and insured funds enable investors to save for the future, there are some important differences between them. For example, investment funds usually do not make any guarantees of investment performance, while insured funds often do, either explicitly (by stating the guarantees) or implicitly (via the premium pricing formula). Also, investment funds usually only charge fees for their services, while insured funds may charge both fees for services and premiums for the insured benefits. Besides suitability criteria, asset managers usually do not underwrite investors for factors such as age, gender and health when accepting deposits in investment funds, while insurers usually do so before accepting deposits in insured funds. As a consequence, bona fide investors can usually invest in an investment fund at any time, but they may be turned down from investing in an insured fund if they do not meet the insurer’s underwriting criteria. Investment funds do not usually consider the demographic experience of their investors, while insured funds usually do. Insurers may explicitly use the concept of pooling the “risk of individuals” so that the collective demographic experience of mortality, morbidity, lapse and other behavioral characteristics is considered when calculating the premium and benefits to be provided to policyholders (i.e. investors in insured funds). An insurer usually manages all the premiums it receives through a single general account where investment performance and demographic experience are shared by all policyholders across all insured products, and several separate accounts, where investment performance and demographic experience are shared only by those policyholders who invest in the same separate account, but is not limited to only this example. Investment funds usually do not have to consider the “intergenerational equity” of their investors since every investor may buy and sell their holdings at any time, and different generations of investors can participate in an investment fund, irrespective of the investment performance or demographic experience of other investors. Insurers may perform actuarial calculations to ensure that premiums and benefits are broadly equitable on an intergenerational basis to ensure fair treatment of policyholders in an insured fund who start their participation at different times and can leave the insured fund at any time in the future. By nature of its construction, an insurance fund is usually expected to be equitable across the pool of insured policyholders, but it can be more or less economic than alternative investment vehicles for any particular individual. For example, an investor who purchases an annuity “wins” by getting a greater payout of benefits if he or she lives longer than expected, and priced for, by the insurer. In this case, the additional annuity payments are paid for by the insurer, by indirectly using, for example, portions of payments made by other investors in the insured funds, insurance products, and the insurer’s shareholders. Insurance companies can offer some insurance products that are not part of an insurance fund. On the other hand, that same investor would “lose” if he or she died before their expected lifespan since they would not receive as many annuity payments, and would essentially have overpaid premiums relative to benefits received. In this case, their relative overpayment can be used in part to pay the insurer’s shareholders and also in part to fund the benefits of policyholders with greater longevity. Since asset managers usually do not make any performance guarantees or provide any insurance-type benefits, they may not have any insurance-type liabilities that require reserves to be held against those promises. Insurers usually do have to hold reserves against the promises they make, and consequently have to hold capital against the risk that the assets and reserves fall short of requirement in adverse scenarios.

“Both insurers and asset managers may enable investors to build wealth over time that becomes a source of income for the future. Although there are many reasons for an investor to save, a major motivation is to save for retirement. In the US and globally, improvements in health and safety have resulted in an increase in longevity, thereby increasing the number of years that an individual spends in retirement. Simply put, individuals are concerned about outliving their savings. This has resulted in a global demand for investment vehicles that grow savings and generate cash flow during retirement years.

“Asset managers have responded to this demand by providing a variety of investment vehicles that allow investors to seek returns in various sectors and slices of domestic and global capital markets. Irrespective of the vehicle and the particular investment focus, the basic underlying structure remains the same, i.e., investors take on market risk to earn market returns. Since there is no guarantee of investment returns or income generation, the only way for an asset manager to help an investor build wealth is to provide superior market returns relative to the risk undertaken. As investors age, they tend to shift their investment focus from riskier asset classes to relatively safer asset classes. Asset managers provide investment funds that make that shift automatically (e.g., using target date funds) or at an investor’s discretion. If cash needs in retirement exceed the income generated by investments, an investor has the ability to sell part of his or her holdings to generate more cash. One downside of such an approach is that once the holdings are fully sold off, there is no further income from that investment.

“Insurers have responded to this demand for retirement cash flow by selling several types of annuities to investors or policyholders. A life-contingent annuity transfers the risk of outliving one’s assets to an insurance company. There are a variety of annuities available to investors, but most fall into one of two broad categories-deferred annuities and immediate annuities. A deferred annuity is usually purchased before an investor retires by making a deposit in an insured fund. The period between the purchase date and the annuitization date may be referred to as the “accumulation phase” during which invested assets grow with market return and/or any guaranteed return. At the end of the accumulation phase, the “payout phase” begins and the investor receives regular income or an annuity that is based on the accumulated wealth, reinforced by the guarantees that were included in the deferred annuity policy. An immediate annuity usually does not have an “accumulation phase,” so the investor may make a deposit in an insured fund to purchase an income stream starting immediately (typically one month after purchase).”

There is additional background information. Please visit full patent to read further.”

In addition to obtaining background information on this patent application, NewsRx editors also obtained the inventor’s summary information for this patent application: “In accordance with principles of one embodiment of the present invention, systems, methods, and computer readable medium are provided that implement an investment fund having a demographic return feature.

“One aspect of the invention disclosed and claimed herein comprises a computer-implemented method, system, apparatus and non-transitory media to create and implement an investment fund that provides investors (participants) both market returns and demographic returns on their investment. One embodiment of the invention establishes the mechanics of the operation, and implementation by the computer system, of the investment fund for both the participants in the fund and the asset managers who offer the fund to investors.

“One embodiment of the invention is referred to as a Participating Retirement Investment Account (PRIA). The PRIA is a new type of investment fund that enables individual investors to save for retirement. It is a novel implementation of the concept of risk pooling based on the demographic behavior and experience of individual participants who invest in a PRIA fund. A PRIA fund may be offered by an asset manager to investors either through their retirement savings plans (known as qualified and non-qualified plans in the US) or individually (i.e., not as part of any retirement savings plan). PRIA is an investment fund and not an insurance fund. Embodiments can also include an investment fund that includes some characteristics of an insurance fund but without departing from pertinent characteristics of an investment fund consistent with some or all of the objects and necessary operation of embodiments of the present invention. An investment fund that incorporates some features of an insurance fund but remains substantially an investment fund, would still be considered an investment fund. Features such as requiring underwriting for entry into the fund, or requiring that the fund participant fall in the same classification (e.g., participants in the same fund must be in the same insurance age bracket or demographic), or provision of a minimum guaranteed return on investment would be characteristics that would cause an investment fund to effectively be an insurance fund. In general, when combined with features of insurance products such that PRIA would be regulated as an insurance product, PRIA may also be offered via an insurance fund such as an insurance company Separate Account or General Account, in the US. PRIA and embodiments of the present invention can enable investors to participate in both market returns (without guarantees) and demographic returns.

“An asset manager (including one that may be part of an insurance company) may set up and offer an open-ended PRIA fund to investors. Any individual can join a PRIA fund and make deposits and withdrawals at any time, and there is no requirement for insurance-type underwriting based on age, gender or similar factor. Participants or investors may deposit money into a PRIA fund, and through it, into a choice of sub-funds (such as mutual funds) where their money is invested. (In an alternative embodiment, the choice of sub-funds may be limited to a single sub-fund, in which case the mechanics of the PRIA fund and the sub-funds may be collapsed into a single investment fund.)

“A participant may earn a return from two sources. The first source may be a market return, which is the change in their investment due to market dynamics, e.g., dividends, interest, and capital gains and losses. The second source may be the demographic return (DR), which is the change in their investment due to the change in the demographics of their fellow investors-this is the pooling of demographic risk.

“Participants can sell their investments in each of the sub-funds that they own at any time with usually two consequences. First, if the sale is based on a pre-arranged schedule (typically after many years when the participant is in retirement and needs money to cover living expenses), the participant receives a higher return reflecting a combination of the market return and the DR. Second, if the sale is made voluntarily or upon an individual’s death, the participant or beneficiary (in the case of death) receives a lower-than-market return according to a schedule defined by the asset manager.

“The difference between the higher return and the lower return may be contributed to a DR sub-fund. For simplicity, the DR sub-fund is described as a single, separate investment fund, although other alternatives are also available, as described below. All PRIA participants may be credited with a proportional share of the DR sub-fund based, for example, on the amount of their total investment in the PRIA fund, or some other crediting formula. The DR sub-fund may be managed by the asset manager, and the investment strategy and performance will be described in a manner similar to other sub-funds offered to investors.

“There are other investment products that offer different returns based on investor actions. For example, a bank’s Certificate of Deposit pays interest to investors if they remain invested for the full term. If an investor withdraws early, they do not receive the interest-and the bank retains that interest. PRIA’s differentiated returns between participants who make scheduled and unscheduled withdrawals follows in the same spirit as the bank CD’s differentiated interest payments. PRIA’s innovation, at least one respect thereof, is that the source of the DR return is the demographic actions of individual participants, and the DR return is shared by the remaining participants.”

The claims supplied by the inventors are:

“1. A computer implemented system comprising: an electronically demographic return fund that is created, managed and exists only within a new type of open-ended investment program, and its processes and system to implement the transfer of wealth between unrelated individual participants using a new method and system that eventually provides participants with an income stream; a fund design system that enables an asset manager to design, customize and simulate features of the system that includes the investment program, and within it, one or more pre-existing investment funds and one or more demographic return funds; an asset manager application system to administer the operation of the investment management system as an overlay within the asset manager’s firewall; a participant applications portal to enable users to simulate, test and customize the options they select to manage their wealth; wherein: the electronically managed demographic return fund is created automatically at inception of the system and operates automatically by electronic signals that implement the design selections by the asset manager so that: a demographic return account is created automatically for each participant on the date they join and in which ownership units are automatically allocated and withdrawn (used) based on the electronic signals that track a participant’s entry and exit events over time; wealth is automatically transferred from the pre-existing investment funds into the demographic return fund only when a participant exits the system through death or other full or partial exit (withdrawal), and that wealth amount is immediately expressed as ownership units in the demographic return fund; a participant receives automatic allocations of ownership units due to the transfer of wealth from other participants, and never makes a deposit of funds into their own demographic return account; a participant is not allowed to discretionarily buy additional ownership units or discretionarily sell ownership units in their demographic return account; a participant is not entitled to all the assets represented by the ownership units allocated to their demographic return account, and is only entitled, at each date of the automatic sale of ownership units, to that portion relating to the units that are automatically sold on their behalf from time to time; a participant receives automatic payments of income when some ownership units are sold according to a pre-determined payout schedule; assets in the demographic return fund are managed by a designated asset manager on behalf of all participants, and not by the individual participants themselves; the fund design system is configured to be used by a user to: design, customize and simulate the operation of an investment program that includes pre-existing investment funds and a demographic return fund; the fund design system is configured to include: a menu from which a user can select several demographic return fund features to customize and test, and ultimately develop a version to be offered to participants; a menu to select pre-existing investment funds available in the open market to simulate where investors my make discretionary deposits and withdrawals of their wealth (savings) into asset classes within such pre-existing investment funds, loading data regarding characteristics of available asset classes such as historical performance and drivers for future performance of those selected pre-existing investment funds; a first input interface to receive the number of time periods that the simulation should run; a second input interface to receive probability distributions and other statistical, accounting, and operational measures for simulation parameters; a third input interface to specify one or more economic conditions in simulated future scenarios and time horizons; and, in response to the settings and inputs, the fund design system is configured to run simulations of the demographic return fund customized per the programmed settings and user inputs and then display the simulation output to the user wherein the fund design system is configured to: perform simulations at an individual participant level, a cohort level and a population level, including operations using mortality and withdrawal statistics similar but not limited to actuarial tables, and generate a level of persistency of participants in the demographic return fund; allow a user to create the demographic return fund for implementation and operation using the settings and inputs developed in the fund design system; an automated fund-termination component that is configured to determine, as an ongoing process: whether a certain minimum amount of investment remains in the investment program, a certain minimum number of participants remain in the investment program, or a certain minimum level of diversity in participant classification is maintained, and in response, close the investment program when the data reflect that the investment program does not meet such operating criteria; wherein the asset manager application system is configured to: register the participants in the investment program; receive and store personal information about the participants; create individual accounts for participants in the investment program, the pre-existing investment funds and separately in the demographic return fund, wherein accounts are available to be created in the same investment program-for participants that are in multiple classifications; a fund module overlay system implemented behind a firewall of the asset manager application system and configured to be an overlay added to the asset manager application system: that manages many pre-existing investment funds for the asset manager application system and wherein the fund module overlay system comprises: one or more computers and connected electronic storage that stores computer-executable instructions and data that is used by the computer-executable instructions, wherein the one or more computers, the computer-executable instructions, and data, together, configure the computer system to provide an interactive application that processes a structure for the operation of the investment program, the pre-existing investment funds and the demographic return fund in combination, wherein the structure governs the operation of the demographic return fund providing the demographic returns, comprising an increase in ownership unit value and updating the number of ownership units allocated to each participant, due to the survival of participants in the investment program; whereby the computer is configured to: receive and store principal data identifying one or more investment contribution deposits made by each participant into their choice of pre-existing investment funds; determine investment fund ownership from the investment contribution deposited by each participant into their choice of pre-existing investment funds; determine-when an individual participant in the investment program dies and in response, automatically deduct a portion of the total amount (wealth) in the corresponding dead participant’s pre-existing investment funds and deposit the deducted portion into the demographic return fund; create new ownership units in the demographic return fund when a portion of a dead participant’s wealth is deposited into the demographic return fund, and then allocate the created ownership units to each surviving participant in the investment program; determine the allocation of demographic return fund ownership units for each participant whenever such units are created, or otherwise made available, based on a pre-determined allocation method, for instance in proportion to the value of their total wealth across all their pre-existing investment funds; implement a client life status interface through which a participant’s death is reported to the system and the system automatically closes individual accounts in the investment program upon notification of each participant’s death; implement an automated trigger over a repeated time interval that achieves concurrency between actual activity in the pre-existing investment funds and the demographic return fund: wherein the trigger automatically tracks and records participant actions including participant deaths, and in response to the trigger, the computer system automatically applies an operation to the demographic return fund using information from the tracked activity at the end of the time interval comprising: automatically changing the demographic return fund ownership units to remove the dead participant’s ownership of demographic return fund units from the demographic return fund while retaining the value of the removed dead participant’s demographic return fund ownership units in the demographic return fund and reallocating the returned units to remaining participants, and wherein the participants actions further include (i) withdrawals from the pre-existing investment funds due to death, (ii) voluntary withdrawals from the pre-existing investment funds, and (iii) voluntary deposits into the pre-existing investment funds, and a participant applications portal configured to be outside of the firewall that is configured to produce an interactive interface for participants to interact with the asset manager application system and the overlay system.”

For more information, see this patent application: Shimpi, Prakash. Interactive Methods And Systems For Control Of Investment Data Including Demographic Returns. U.S. Patent Application Number 20220374989, filed July 29, 2022 and posted November 24, 2022. Patent URL (for desktop use only): https://ppubs.uspto.gov/pubwebapp/external.html?q=(20220374989)&db=US-PGPUB&type=ids

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