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To assist
you in your decision in hiring a personal financial advisor and to determine
whether the
HWM
is
right for you, we have listed typical questions asked by potential clients.
Table of Contents: Click on an item to see
the question and answer
- DO YOU BELIEVE IN MARKET TIMING
- HOW DO I BECOME A FULL
COACH CLIENT
- HOW DO I PAY YOUR FEE
- HOW DO YOU PROVIDE VALUE
- HOW DO YOU
STAY ON TOP OF YOUR CLIENTS' ACCOUNTS
- I THOUGHT ESTATE PLANNING
WAS ONLY
- ONCE YOU HAVE A SUITABLE
ALLOCATION,
- RATE OF RETURN
- RESEARCH ON INVESTMENTS
- WHAT ABOUT PORTFOLIO
PERFORMANCE
- WHAT ARE THE DRAWBACKS
- WHAT IS PERFORMANCE
- WHAT IS THE MOST IMPORTANT
- WHAT TYPE OF INVESTMENTS
- WHERE ARE THE ACCOUNTS HELD
- WHO DO I CALL
IF I NEED INFORMATION ON MY ACCOUNT
- WHY ARE
RETAINER FEES CHARGED AS A PER CENT OF ASSETS
- WHY IS IT NECESSARY
TO SPEND SO MUCH TIME
- WOULD YOUR STRATEGY CHANGE
Q
WHY IS IT NECESSARY TO SPEND SO MUCH TIME ON IDENTIFYING GOALS & RISK?
A
Identification of goals, objectives, risk tolerances and beliefs about
the outlook for the economy and your future are the better your chances are for reaching
yourguideposts
to achieving your dreams. The more
clearly and truthfully these can be enunciated, the goals.
Q
HOW DO YOU PROVIDE VALUE IN TAX PLANNING & REVIEW?
A
In spite of
cries for tax reform, income taxation laws are becoming increasingly complex.
The complexity and the quantity of constant change makes it difficult for a
non-tax practitioner to keep track of the changes even to comply.
Of course, if you don’t comply correctly, you will get unpleasant notices
from the taxing agency. However,
the complexity and the gray areas of the laws can often create opportunities for
tax deferral, saving and even legal avoidance when a tax expert has sufficient
time to develop a strategy.
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Q
I THOUGHT ESTATE PLANNING WAS ONLY DONE BY ATTORNEYS. WHAT’S YOUR ROLE?
A
Some of
the most important and time-consuming aspects of the estate planning process
involve goals delineation, asset evaluation, personal affairs organization, and
estate tax projections. Determining
what, when and to whom you want to transfer wealth are the some of the most
critical aspects of this process.
Along with helping you in these activities, we suggest strategies that may
accomplish your wishes.
After this level of organization has been achieved, it is time to consult with a
qualified estate attorney to obtain their opinion, to make final choices about
the most appropriate legal structure and entities and to have necessary
documents prepared.
Q +WHAT
IS PERFORMANCE?
A Some
financial specialists and professionals tend to grade themselves by how one of
your financial rooms performs over a short time period.
For example, a tax planner/ preparer may be pleased if he can get you in
the lowest tax bracket. A budget
expert may not feel satisfied until you’re spending less and have no debt,
including on your house. Many asset and financial advisers publicize their spin
on return rates of portfolios that they oversee.
Such advisers tend to think that
the only goal is “optimizing your portfolio to achieve the best current
results”.
Each of these singular achievements fails from a lack of holistic
perspective and an emphasis on short-term results.
At HWM, we utilize a
comprehensive
approach that does not over-emphasize one financial area.
Generally, the broadest quantitative measure of financial success is
personal net worth.
Though there are specific goals, they are not (individually) do-or-die
objectives. The PFC goal
is to obtain the best quality of long-range financial well-being. In the final
analysis, the true performance test is how you, the client, feel about the
progression and condition of your total financial picture.
This principle applies even when we manage only investments; the
attention is on staying true to the defined investment policy.
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Q
WHAT IS YOUR
GENERAL INVESTMENT PHILOSOPHY?
A
The first
concern is protecting principal from unnecessary investment risk and long term
inflation.
Our philosophy is guided by the fundamental belief that investing should
be done in view of the total financial picture, the client's goals and time
parameters.
We employ
the principles of Modern Portfolio
Theory (MPT) in both constructing investment portfolios and implementing them.
This Nobel Price winning approach,
derived from historical, statistical
investment research, is illustrated in
mathematical algorithms and qualitative imperatives.
MPT was first enunciated in
the 1950s and continues to be tested and refined.
The MPT investment approach
emphasizes asset-class diversification and allocations plus statistical
performance evaluations over long-time horizons to obtain optimal returns for a given
individual’s risk level.
Recent quantitative studies have demonstrated that
asset
allocation
is a key determinant to long-term returns.
We believe that actively managed investment vehicles may be used when
evidence suggests that they can offer either risk reduction or superior
performance above and beyond the expectations for the specific asset class.
Additionally, tactical asset allocation can yield superior results.
Q
WHAT
IS THE MOST IMPORTANT ELEMENT OF PORTFOLIO CONSTRUCTION?
A
The design
effort is the most important --- as important as selecting top funds or
individual securities.
Like building a house, we would rather have a well-designed home using
mediocre subcontractors than vice versa. If the wrong balance between fixed
(stable value)
and growth
(variable value)
investments is chosen within a given time frame and volatility tolerance, the
portfolio will have a high probability of not delivering adequate results. For
instance, if an investor is 80% in
fixed income and
only 20% in stocks, there is
no way the 20% in stocks is going to overcome the ravages of inflation on the
fixed income portion.
Each client will agree on a specific investment policy which will be the
governing force over how his or her portfolio is put together.
Therefore, we spend considerable time with clients in order to develop a sense
of their cash flow and total return requirements as well as their ability to
weather the normal risks of investing.
The client is given the opportunity to complete detailed investment
questionnaires to help clarify
their
investment experiences
and expectations so we may jointly concur on a suitable portfolio
allocation.
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Q
ONCE YOU HAVE A SUITABLE
ALLOCATION, WHAT'S THE NEXT STEP?
A The next
step is selection of investment vehicles that are representative of selected
asset classes. We believe that market timing, at best, provides marginal returns
while exposing the investor to large risks.
If it were possible to time markets and to select
the correct specific vehicle, there would be no reason to diversify
investments.
Quantitative MPT studies have demonstrated that different asset classes
tend to have performances which are non-correlated.
If one is averse to volatility on the downside, then breadth of
diversification is the only alternative.
We believe in global diversification in a balanced manner.
Q
WHAT ABOUT PORTFOLIO
PERFORMANCE?
A Performance
is driven by the portfolio balance. We remind clients where their portfolio
balance is and why. If they come to us with the expectation that we are going to
beat the market on a pure performance basis, they should look elsewhere.
We offer a better relationship between the return they want and the risk they
are trying to mitigate.
Q
WHAT ARE THE
DRAWBACKS
OF THIS APPROACH?
A
We will have
protected the
portfolio against some risks that never occurred; thus when markets rise,
we will under-perform in relation to portfolios that did not hedge against those
risks. On the other hand, when securities markets are declining, we post better
returns because of our asset allocation hedging as well as our multi-mutual fund
portfolio approach. We will never win the jackpot because we will never place
all of a portfolio on the "red dot"
--- we diversify away that possibility.
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Q
DO YOU BELIEVE IN MARKET TIMING
OR ARE YOU A PASSIVE INVESTMENT MANAGER?
A A "normal"
portfolio mix will have set target weights for each asset class.
If someone is always re-balancing back to the target, that's passive. Passive
doesn't mean buy and hold; passive requires re-balancing because markets cause
portfolios to stray from targets. Those asset classes with strong performance become overweighted relative to their target.
If someone actively chooses to depart from the strategic mix, based on a
sense of the market being overvalued or undervalued, interest rates rising or
falling, etc., they're market timing. We choose to judiciously blend passive
management with tactical asset reallocation strategies. Therefore, we may
underweight or overweight a particular category such as small domestic or
international stocks yet stay within the client's asset allocation guidelines as
dictated by
their Investment Policy Statement.
Q
WOULD YOUR STRATEGY CHANGE IN
THE EVENT OF A SIGNIFICANT MARKET DECLINE?
A Our
strategy is predicated on the historical correlation disparity between assets’
financial and geographic attributes. By building well
diversified portfolios, we seek to diminish some of the downside risk and to
provide potential positive earnings opportunities when downturns occur in
certain financial markets.
A long-term investment time horizon has historically produced positive
results in spite of periodic declines. The greater danger to long term
returns is being out of the market when it rises rather then being in the market
when it declines.
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Q
WHAT TYPE OF INVESTMENTS DO YOU
ADVISE ON?
A We advise
on mutual and exhange-traded funds, stocks traded on the major exchanges,
taxable and tax-free bonds, annuities, and certificates of deposit.
These investment vehicles represent a wide variety of asset classes, including
hedging strategies, currency, floating rate bonds, commodities, real estate,
etc.
Q
HOW DO YOU GATHER YOUR RESEARCH ON
INVESTMENTS?
A
Consistent with our investment philosophy, the primary research focuses on asset
classes. On a primary level this
dictates staying current with developments in global economic developments and
trends as well as with quantitative / Modern Portfolio Theory.
Significant findings and principles are then judiciously applied to construction
of individual portfolios.
Regarding selection of specific investment vehicles, attention is given to
mutual and/or exchange-traded funds for the broad bond and equity classes, since
they may be constructed to mimic or enhance specific asset classes.
The refined body of principles mentioned in the previous paragraph are
then applied in “screens” of mutual funds to obtain those which have the most
suitable, stable and highest performers.
Current performance data is obtained through a professional software
database from Morningstar. Funds that make it through the screening process are
further scrutinized for management objectives and style consistency through
reading of a large number of fund
prospectuses, financial analyst reports, professional journals, investment trade
publications and live and telephonic conference meetings.
In making final fund selections a proprietary quantitative scoring system
is employed. Selected asset class
surrogates are re-evaluated quarterly.
Finally our professional evaluations and choices are empirically tested in
dialogues with other fee-only investment advisers across the country.
Selection of individual securities and alternative investments are arrived at
using fundamental analysis, combined with tactical industry and market technical
considerations.
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Q
WHAT IS THE MOST
IMPORTANT VALUE YOU ADD WHEN YOU MANAGE CLIENTS' FUNDS?
A It is the
financial and life planning side of the service that offers the highest value to
the client.
Helping them realize their long term goals by staying committed to their
Blueprint
is infinitely more valuable than
any one investment recommendation.
"Helping
them realize their long term goals by staying committed to their
Blueprint is infinitely more valuable than
any one investment recommendation."
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Further value is added by helping clients avoid doing something to derail their
overall asset allocation strategy for the long term and keeping their portfolio
positions in the most suitable investments given their goals, age, and time
constraints. That's especially important in rough markets when clients are
tempted to bail out. It may also be true in strong bull markets, when clients want
to become overly aggressive.
Q
HOW DO YOUR CLIENTS KNOW WHAT THEIR RATE OF
RETURN IS?
A Clients
of both the
Full & Investment Coach
services receive quarterly performance reports.
Whereas the
Full Coach report covers all financial issues specific to a
client, the Investment
Coach reporting is on their supervised portfolio.
Actual portfolio returns are related to the governing long-term Blueprint objectives and the performance benchmarks agreed to in the individual
Investment Policy Statement.
Q
HOW DO YOU
STAY ON TOP OF YOUR CLIENTS' ACCOUNTS?
A
We use computer
technology and a dedicated tracking program for account
management. This
system allows us to access current accounts for specific security positions and
to receive daily updates on account values. Accounts under direct supervision
are reviewed at least monthly for compliance with portfolio policy.
Additionally, T.D. Ameritrade Institutional's adviser representatives notify us
directly when there are significant or unusual events with accounts.
Q
WHERE ARE THE ACCOUNTS HELD?
A Accounts
are
generally held
at our custodian, T.D.
Ameritrade Institutional, Inc., which issues
monthly
statements and provides custodial
services. TDA is
among the best discount brokers, providing a broader range of services and
transaction-free mutual funds than other firms.
They provide
these services through an institutional department and, consequently, we
are able to purchase our security positions through institutional traders.
As a result, we have access to mutual funds available only to registered
investment advisors as well as Ameritrade retail funds.
Individual bond and alternative investment transactions may be handled through
specialty brokerage firms.
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Q
WHY ARE
RETAINER FEES CHARGED AS A PER CENT OF ASSETS ?
A The
objective is to provide a non-hourly adviser compensation method that (a)
follows the notion that generally the more assets under
management/ supervision/ advisement, the more effort involved and (b) has an
adviser (not asset returns)
performance factor built in, i.e., if well managed, the assets under advisement
at the end of the year, will achieve or exceed the plan objectives.
Unlike the hourly fee arrangement, this method
enables you to know at the beginning of
a year, what the annual management/ advisement fee will be.
Additionally this frees both you and us from being obsessed with
“watching the clock.” You
will contact us more and vice-versa
Though it may not be a perfect solution,
it does have merit, logic and wide application among planners and advisers.
Q
HOW DO I PAY YOUR FEE?
A
Our retainer fee, calculated on the assets under supervision at the beginning of
the year, is billed and payable at the beginning of the each quarter and is
withdrawn out of each client's primary taxable account.
This service is convenient and when accounts are IRAs or other retirement
programs, the fees are paid with pre-tax dollars.
Upon request, a client may pay us directly.
Q
DOES TDAmeritrade ASSESS FEES?
A All
accounts are held at Ameritrade without charge, including IRA accounts.
Waterhouse does assess discounted (from retail) transaction fees on stocks,
bonds and T-Bills. It offers
the largest selection of mutual funds of any discount brokerage, including the
largest number of funds without transaction
fees. We receive
no money from TDA as a result of their service fees.
Q
WHO DO I CALL IF I NEED INFORMATION ON MY ACCOUNT?
A If you have
any questions, you may call our office during normal business hours.
If
we are not immediately available, we attempt to call every client back
within 24 hours. In case of an urgent need, you may contact Ameritrade directly
at 888-613-2401.
Q
HOW LIQUID WOULD MY ACCOUNT BE?
A
Accounts are always liquid but are subject to
market value fluctuations.
Upon request, we can place sell orders for all or portions of a
portfolio. Typically if sell
orders given to us by 8 a.m. for mutual funds and 1 p.m. for other securities,
you can generally have funds available through your Waterhouse cash
account within two business days.
Of course, cash positions can be withdrawn at any time.
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Q
WILL YOU WORK WITH MY ACCOUNTANT, INSURANCE AGENT OR ATTORNEY?
A
Yes.
As your Personal Financial Coach, we believe it is essential that your
advisors work together, not at cross-purposes.
We encourage contact that will facilitate this.
Q
WHAT IF I AM LOCATED OUT OF
YOUR IMMEDIATE AREA?
A We
have clients
throughout California
as well
as other states.
We can service these accounts efficiently and effectively through our
advisory relationship
with Waterhouse. Client meetings
can take place by tele-conferencing or in person.
Q
HOW DO I BECOME A FULL
COACH CLIENT?
A Comlete and return (preferably by email or fax) the Propspect
Information form. We will evaluate this and call you to discuss the
possibilities of a face-to-face meeting. If we jointly agree on going
forward,
you will be asked to review and sign an engagement agreement for the selected
services.
At the end of the planning process, an account or accounts, as appropriate, will
be established with TDAmeritrade and funded through direct deposit of cash or
transfer of securities from other brokerage accounts and/or retirement programs.
We then start the implementation process which may be accomplished over a
period of months or immediately depending on the state of the financial
markets and the economy.
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Copyright © 1999-08
last modified:
January 21, 2008
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