Cracking the code of financial success
With the cost of living sky-rocketing and incomes lagging, it’s no wonder why people are anxious about their financial futures.
No one teaches you this stuff in high school. But there will soon be an app for that, thanks in part to recent York University research funded by Mitacs.
“Most Canadians don’t have a tool to optimize their investments and only the wealthiest Canadians have access to professional financial advice. But everyone needs a solid plan for retirement,” says Dr. Michael Chen, Professor of Mathematics at York University.
Currently, no tool can blend your investment options together with a long-term trajectory, explains Raphi Zaionz, President of Glencairn Financial, and a 25-year veteran of the finance world.
To remedy this, Mitacs-funded researchers Jingyi Liu, Kosal Chhin, and Ruimeng Yang — supervised by York professors Dr. Micheal Chen and Dr. Hongmei Zhu — have created MyGoals with the Glencairn team. Together, they connected user goals like retirement and education, and optimized those factors in relation to one another.
Typically, financial account values are maximized separately, and no single goal is prioritized. Sophisticated, single-goal analysis is difficult enough, but when you connect those goals with multiple variables, that difficulty is compounded.
“We have the math and knowledge to build out this software,” says Dr. Chen. “An extra $100 per month could make a significant difference to someone’s quality of life.”
Setting priorities up for success
The most difficult aspect of personal financial success is retirement. “Less than 40 percent of Canadians have any sort of work-based pension plan,” Raphi says. What’s more, “most Canadians have no idea how programs like the Canadian Pension Plan (CPP) and Old Age Security (OAS) work and what their future entitlements will be.”
To solve this, MyGoals is programmed to prioritize user accounts based on personal goals. You can override the choices the program makes to make immediate gains, but the team has made sure the software knows best for long-term maximization.
There are many financial product suites out there, but what MyGoals does is help you prioritize goals and optimize finances today for gains tomorrow, says Raphi.
MyGoals counts a different kind of bean
The retirement options — CPP, OAS, RRSPs, TFSA, non-registered savings, etc. — are a “gigantic ball of fuzz,” says Raphi. “We’ve built a model that answers all of these questions.”
Each student wrote the program calculators separately but worked as a team on the retirement optimization. Jingyi worked on the Registered Education Savings Plan calculator, Ruimeng tackled the Registered Retirement Savings and Tax-Free Savings Account calculator, while Kosal wrote the CPP and OAS calculators.
Together, they proved that it’s possible to optimize between silos. That alone was a big win. Now they are building the software around that patentable, mathematical proof.
“This is not for only wealthy people,” says Raphi. “It’s for the masses — the 99 percent of people who aren’t getting the help they need. I like to think of it as an engine of hope. Optimal financial planning for regular people.”
It works hard for your money
Retirement is the most difficult goal. Then comes education, debt, insurance, and lump-sum payments, like a vacation — if you’re so lucky.
The software outlines how to reach these goals over time, then gives you a plan to implement. You can change it, but it’s difficult to argue numbers with mathematicians.
The MyGoals software can be laid over other platforms and built into apps, even those of big banks. The app will be offered via Amazon Web Services so others can efficiently tap into the software.
After adding additional functionality this winter, the team will then tackle operational revenue. That could include B2B and B2C offerings, monetized curriculums for teaching optimization mathematics, as well as e-books.
Their focus, however, remains on ease of use.
According to Raphi, this math is more complex than any derivative he’s designed working in finance. “We’re building a Ferrari engine that has to drive with the ease of a Honda,” he explains. “We don’t want them to run it into a telephone pole.”
The future looks lucrative
Next, the team will optimize long-term planning over two decades or more, taking into consideration uncertain, dynamic factors over time. “That way, the program will become more robust and adaptive to future changes,” says Dr. Chen. “The solutions have to be flexible to changing scenarios."
MyGoal’s minimal viable product will be complete by late Fall 2019, and by Spring 2020, the software package should be ready for sale. “I will personally use it,” says Dr. Chen. “All you have to do is input your numbers, like doing your taxes online. You can try different options and get different results."
Bringing in the A team
Dr. Chen was impressed with the diligence of the Glencairn team while getting students up to speed on finance. “These are international students, two from China and one from Cambodia. They required a lot of contextual information to reflect Canadian culture in the software. In other parts of the world, money comes from the family. Here, finances are more individualistic.”
Dr. Chen, who has worked with Mitacs before, believes Mitacs was the most important piece in the project puzzle: “Before Mitacs, I couldn’t work on industry projects, which are very important for applied math and optimization research. We’ve even published papers based on Mitacs-funded research before.”
Raphi too is elated with the team Dr. Chen assembled. “We won the lottery,” he says. “The math is extremely complicated, and the team really cracked the code…. I’m in awe of these kids.”
The most challenging aspect of their research was optimizing old age security, explains Jingyi Liu, lead grad student on the MyGoals research project, and the first of three hired on by Glencairn.
The team was able to optimize the software to find an additional 1.1 percent in annual retirement income per year, which is a significant difference for someone on a fixed income. “Sometimes it is higher than 1.1 percent, and sometimes lower, depending on the what the client inputs,” Jingyi explains. The team believes they are the first optimizing researchers to combine allocation, accumulation, and de-cumulation to create a full optimization.
“The retirement crisis has become a major world problem,” says Jingyi. “Without Mitacs, I wouldn’t have had the opportunity to help.”
Come November, all three students will be hired on by Glencairn. “We’re keeping the band together,” says Raphi. “The Mitacs internships will be completed at the end of October and we’ve got employment letters dated November 1st for all of them.”
But it’s not only the money the students are interested in, says Raphi.
“They want to make the world a better place.”
Mitacs thanks the Government of Canada for their support of the Elevate research fellowship in this story. Across Canada, the Elevate program also receives support from the Government of British Columbia, the Government of Manitoba, the Government of New Brunswick, the Government of Newfoundland and Labrador, the Government of Nova Scotia, the Government of Ontario, the Government of Prince Edward Island, the Government of Quebec, and the Government of Saskatchewan.
Do you have a business challenge that could benefit from a research solution? If so, contact Mitacs today to discuss partnership opportunities: BD@mitacs.ca