A new perception has taken hold: “A Fiduciary, Fee-Only, Financial Advisor” is better.
Times have changed – and so have financial advisors. Today, people don’t want financial advice from a salesman. Instead, they want a relationship with a financial advisor who is candid, trustworthy, unbiased and provides personalized investor education for each client.
That search often leads them to a fee-only Registered Investment Advisor. Listed below are six key points we feel make us unique from most other firms out there.
We Are a Fiduciary Firm
We have fiduciary duty. The SEC describes a fiduciary like this. “A fiduciary must act for the benefit of the person to whom he owes fiduciary duties, to the exclusion of any contrary interest.” The client’s best interest comes first and it is the only interest that matters.
We Are Not With A Broker-dealer
Broker-dealers are not bound by fiduciary duty, instead must meet a much lower standard… suitability. The suitability standard allows brokers to pursue their own interests without disclosing those interests. Compared to fiduciary duty, suitability is a lower bar. Advisors associated with a broker-dealer are typically selling commission-based products. We do not sell products for commissions, we are fee-only.
We Are an Independent, Registered Investment Advisor firm
As a fee-only adviser we earn no commissions. We derive income from annual management fees. The management fees are usually a percentage of the assets a client has invested. With this compensation arrangement, you know that we are just as interested in your account growing as you are.
Our Compensation — We Are Fee-Only
Advisors associated with a broker-dealer are typically selling commission-based products that can reap large commissions. Their income is not dependent on the performance of what they sold you. They must sell you products again and again in order to get paid.
As a fee-only adviser we earn no commissions. We derive income from annual management fees, calculated and debited quarterly from your account. This fee appears directly on your statement and in some cases is tax deductible. With this compensation arrangement, you know that we are just as interested in your account growing as you are. By hiring us, we can provide investors with investments whose total costs are less than the investments they might choose on their own, through a bank, or even other commission-based advisors.
We follow the Uniform Prudent Investor Act (UPIA). UPIA is a legal document that was published by the American Law Institute in 1992, that outlines what it means to be a prudent fiduciary. The UPIA provides for a duty to diversify investments which can be done by utilizing a concept called Modern Portfolio Theory.
In 1990, Harry Markowitz, Ph.D., won a Nobel Prize for his concept called Modern Portfolio Theory. Modern Portfolio Theory is a scientific way to build a portfolio that can identify and measure the amount of volatility for any given level of expected return. So what does that fancy language mean?
Instead of talking about risk in a general way, you can measure the volatility in a portfolio (with a scientific number) and actually determine how relatively volatile the portfolio is.
You can also look at historic rates of return for every capital market and gain some insight into how various capital markets perform historically. (You can get an actual measurement of expected risk versus expected return!)
UPIA states that the fiduciary’s role is to manage risk and expected return by developing and monitoring the trust portfolios. Modern Portfolio Theory is the idea that you should diversify, measure risk, and account for all costs. Not only are these your primary responsibilities as a fiduciary, but the great news is that there is an academic and scientific method, if applied appropriately, that can give you very good solutions and prudent reasons for making an investment decision.
GIPS Audited Returns
Make sure the returns of the money manager you use are audited by a third-party firm like Global Investment Performance Standards (GIPS). Many portfolio managers, financial advisors, stockbrokers, and financial planners claim consistent, superior performance, but do not provide independently-validated evidence of that performance from a firm like GIPS. Ask for a GIPS audit report. If they can’t provide a GIPS audit, then be leery! For more information about GIPS, visit their website at gipsstandards.org.
Our Investment Management
Our investment approach is based on more than eighty years of market data as well as concepts based on Nobel Prize winning financial, economic & academic theory, from the likes of Harvard, Stanford, University of Chicago and Wharton.
Our objective is to increase investment returns without increasing risk, or to reduce risk without sacrificing returns. We use worldwide capital market diversification. The portfolios utilize international high book-to-market stocks, emerging countries’ stocks, international small stocks, and global fixed-income securities. Choosing capital markets based on low correlation to each other so that they are less likely to move in tandem. This strategy provides better diversification as asset classes move in opposite cycles with the objective that losses in one asset class may be offset with simultaneous gains in other capital markets. Client portfolios are rebalanced on a quarterly basis so that the target allocations are consistently maintained. There are no commissions, so there are no incentives to trade. The portfolios have low costs, low turnover, and low redemption’s relative to consumer (active) mutual funds.
Our Investor Coaching Series
Ongoing participation in group coaching events will help to keep your investing perspective sharp and focused on issues that are important to your long-term goals. The Investor Coaching Series is designed to help you confront common investing challenges and put short-term events into perspective. By making these events a priority for yourself and viewing them as exercise for your financial fitness, you will be better prepared to face tough challenges when they arise.
To receive a free information packet please click here.