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Who
holds my securities / investments?
What
should I expect?
Why
primarily use Mutual Funds and ETF’s instead
of individual stocks, like some
firms do?
I
already have a portfolio. Will you sell my current investments?
What is fee-only?
I already have a
broker, why should I select a fee-only
advisor?
Why should I care
about the "alphabets" after an advisor's
name?
After my investments
have been selected, why keep on paying a
fee?
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Who holds my
securities / investments?
All assets are held by a third
party, not by us. We partner with
TDAmeritrade to use as your
custodian. Your accounts will be
held directly in your name. Superior
customer service is enhanced through
our direct computer links with
TDAmeritrade. In this way, we
monitor your account, check balances
and efficiently make changes to your
portfolio when warranted. You will
have full access to your investments
and will receive trade confirmations
and quarterly statements directly
from TDAmeritrade to ensure complete
peace of mind that you have control
of AND access to your money.
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What should I expect?
Helping you achieve your
financial goals is our most
important job. Once your needs are
understood and documented, we will
manage every aspect of the portfolio
implementation. We will guide you in
moving accounts from your existing
custodian, create a portfolio
tailored to your needs, and
implement the portfolio. You will
receive trade confirmations of all
trades that were executed, and we
will send you a holdings summary
once all aspects of your portfolio
have been implemented. Your
portfolio will then reflect various
disciplines and global markets,
adjusted for your personal
situation, investment objectives,
and risk tolerances.
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Why primarily use
Mutual Funds and ETF’s instead of individual
stocks, like some firms do?
We use mutual and exchange traded
funds, rather than individual
securities, as the primary
investment vehicle to manage our
clients' portfolios for sever-al
reasons. First, diversification
offered by mutual funds as compared
to individual securities is
difficult to duplicate. Even with a
large number of individual holdings,
it would be difficult to get a well
diversified portfolio in all key
market segments, such as large, mid,
and small cap stocks, foreign
stocks, and other alternative
investments such as real estate and
commodities.
Second, even if you could build a
portfolio with enough individual
holdings to get reasonable
diversification across all of those
asset classes, it is unlikely that
one manager could be an expert in
all of them. Most managers
specialize in one area, such as
small to mid cap growth. They may
follow 100 + stocks, and invest in
30—80+. Many times , institutional
managers (those managing mutual
funds and ETF’s), use a team
approach, where each team member is
assigned an industry to follow. But
with mutual funds and ETF’s, we can
tap top investment experts worldwide
that specialize in those areas.
Plus, with some of our passive
funds, the cost of ownership and
liquidity is far superior than
owning individual stocks.
Third, using funds allows us to
adjust your portfolio quickly and
efficiently when market events or
your personal circumstances require
action. And since we leave the
specific security selection to
others, we spend more time
monitoring your account and making
sure it is properly positioned to
meet your investment objectives with
a minimum amount of risk.
We will use individual securities
in certain circumstances. By using
funds, we can then purchase a few
individual stocks to supplement your
income portion of your portfolio.
Also, depending on the size of your
portfolio , we will develop a
structured portfolio of individual
bonds, which provides greater
control over principal while
reducing the impact of interest rate
fluctuations.
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I already
have a portfolio. Will you sell
my current investments?
Yes, probably, over time. We
will first determine the tax
implications of doing so. If you
have unrealized losses, it is
likely we’ll sell your current
investments. If you have
unrealized gains, we’ll weigh
the tax implications of sales
against the advantages of
rebalancing, your overall
objectives, and your risk
parameters. For example, if you
hold a large, single position,
we will work on reducing the
risk of holding such a large
position over time. We will also
look at your different asset
classes. If you hold all large
cap stocks, we, again, will
reduce the position to both
reduce the risk and increase the
potential of higher returns.
Beyond tax implications, new
clients may own mutual funds
that have backend loads; we
refrain from selling such funds
until backend load periods
elapse. We only sell existing
investments after thorough
analysis of the advantages and
disadvantages of doing so. We
generally won’t liquidate
individual bond holdings unless
it is advantageous to do so.
Rather, we will hold them to
maturity.
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What
is fee-only?
The fee-only advisor has been
becoming more popular within the
past few years. Although they
have been around for quite some
time, it hasn’t been until
recently where they have gotten
much more traction. The fee-only
investment advisor has been
around for decades for the
institutional investor and trust
clients. Many larger banks
always offered investment
management services to high net
worth individuals, usually
associated with their trust
department. I worked with Bank
of America’s investment
management department, where we
split our resources between
institutional clients (pensions,
mutual funds, and foundations)
as well as high net worth
clients (those who had various
trust accounts as well as other
type of accounts).
The concept of fee-only is
straight forward — there are no
products sold to investors.
There are no contests pushing
brokers to sell $1,000,000 worth
of limited partnerships (as I
experienced as a broker myself
in the 80’s). There is no
pressure to sell the latest
product that marketing has developed.
All fees are disclosed before
the relationship begins, and all
potential conflicts of interest
are disclosed as well. These
investment advisors are not
affiliated with a broker/dealer.
There are some independent
brokers who are also fee-only.
They generally have two
segregated firms, one
specifically for brokerage
accounts, charging commission,
and a segregated firm
specifically for fee-only. Large
Wall Street firms also offer
some fee-only services, but are
generally more expensive and
much more limited in the
securities they offer. Many fee-only advisors are
strictly financial planners,
charging a flat fee for specific
planning needs, such as college
education advice, or retirement
planning. They then may also
offer asset allocation services.
Other fee-only advisors focus
more on investment management,
and use financial planning as a
holistic approach to investing.
This is the approach we take.
Almost all fee-only advisors
have earned the CFP® designation
or are a CPA-PFS (Personal
Financial Specialist). A few
advisors have earned the CFA
designation.
Fee-only advisors are
considered Registered Investment
Advisors and are regulated by
either the SEC or within the
state where they do business.
All fee-only firms must file an
ADV form, which discloses, among
other items, investment style,
services provided, potential
conflicts of interest, and fees.
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I already have a
broker, why should I select a fee-only
advisor?
Fee-only advisors are paid for
their expertise. Brokers, like those
in Wall Street or from and
insurance company, are usually paid
for selling financial products. With
a fee-only advisor you avoid the
conflict of interest inherent in
someone selling products that
primarily benefits themselves more
than it benefits you.
With many brokers, it’s a one and
done deal. You may get a "no-load"
fund. But that typically has a
backend load AND high 12(b)1 fees.
These fees may be, and usually are,
higher than fee-only advisors!
Fee-only advisors have your best
interest at hand.
When hiring a fee-only advisor,
especially one that has either a CFP® designation or is a CFA
charterholder, you get complete,
unbiased advice that takes into
account your needs, not what product
will make us the most money today.
You usually get better educated,
better informed, and unbiased
opinions than you would dealing with
a Wall Street focused broker. For
more information about fee-only
advisors, see what others are saying
at:
http://moneyover55.about.com/od/findingqualifiedadvisors/tp/bestfinancialadvisor.htm
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Why should I care about the "alphabets"
after an advisor's name?
This is one of the most important
aspects in selecting an investment
advisor. There are many designations
after advisors’ names. The three
most common in the financial
planning and investment management
business are the Chartered Financial
Analyst (CFA), Certified Financial
Planner (CFP®), and the Certified
Public Accountant / Personal
Financial Specialist (CPA/PFS). All
three designations show that the
holder demonstrates a higher level
of investment management
achievement and skill — certainly
something investors want and need.
Without at least one of these
designations being achieved by your
financial advisor, you may be
dealing with someone who simply
isn’t educated and lacks the
credentials necessary to manage your
finances. For more information,
please click on the following link.
http://www.investopedia.com/articles/01/101001.asp#axzz1bGIuMszB
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After my investments have been selected,
why keep on paying a fee?
Investment management is not a
stagnant process. Although it is our
intent to have very low security
turnover, there are many variables
that will cause us to make changes.
Research has suggested that 10% of
your return can come from
rebalancing your portfolio.
We make changes to our
proprietary models as interest rates
rise. When we see a longer term rise
and plateau, our
strategy for generating income will
change from holding less debt to
once again holding certain bond
types. We may hold more TIPS than corporates, or may want to exploit
municipal bonds in taxable accounts.
We will also favor different
industries and sectors during
different economic times. Although
these changes don’t occur
over-night, they do need constant
review and diligent research. Other
factors include the need to
rebalance back to the proper asset
allocation, and ensure the
investments that we pick are
performing to our satisfaction. We
do invest for The Long Run, and continually
manage your portfolio to maximize
your return while minimizing
risk.
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