|
What are your financial goals?
What is important to you and why? How will your life be different if you accomplish those goals? Have you ever written your goals down?
Back to top
What is your Time Frame?
When is your money needed? For education in a few years? For retirement? Do you have different time frames for different pockets of money? Your investment time horizon for retirement is not just until a projected retirement date, but for your entire life expectancy. This is considered to be a long term horizon.
Tax deferred retirement money is subject to IRS withdrawal penalties for each participant until age 59 1/2, so for most this is long term money (10 year horizon or more). Exceptions are loans to participants, or withdrawals due to separation from service or hardship. Our policy is to invest the entire portfolio for the long term, to shift sufficient assets to cash equivalents when we know of an upcoming withdrawal.
Back to top
What are your investment objectives?
Do you need current income? How much? Long-term growth?
Back to top
What are we trying to accomplish?
Are you interested in a steady return and minimizing risk? Is maximum growth more your style? Is that right for you? Let’s talk about that.
Back to top
What are the specific goals?
For return, would 4-6% over the rate of inflation, over time, satisfy you? Are you more concerned about tracking a certain benchmark, such as the S&P 500 or a combination of S&P 500, bonds and perhaps a small cap index? Let’s get specific.
Back to top
Who is important in your life?
Do you have financial obligations we should consider? How have you set up your wills and trusts? How is your property titled and why? Have you considered the options available to you in naming IRA beneficiaries to maximize efficient tax planning? Do you have a trusted lawyer, accountant or other set of advisors?
Back to top
Usual Questions asked of us.
Who is your ideal client?
We are the best fit with what we call “informed delegators”. By this we mean clients who understand the elegant simplicity of our low-cost, tax-efficient index fund approach. They understand that markets overall are very efficient and that trying to identify superior investment styles or managers in advance is a low probability activity.
Our best clients are successful, demanding, fair, consistent, patient and realistic. They expect good service and are appreciative when they receive it. They want us to be successful and feel good about paying fees when they feel they get value in return. They refer friends, colleagues and family members to us when they feel there is a good fit.
We have clients from several different backgrounds and professions. One of the most telling facts about our client base is that we count several securities professionals as clients.
Back to top
What do you charge?
For our wealth management service which includes financial planning and investment management, we charge a percentage of the portfolio, billed quarterly in arrears. Here are the charges:
|
On Amounts From |
Up to Amounts Not Exceeding |
% Annual Fee |
| 0 |
$1,000,000 |
1.00 |
|
$1,000,001 |
$2,000,000 |
0.75% |
|
$2,000,001 |
$5,000,000 |
0.50% |
|
$5,000,001 |
$10,000,000 |
0.40% |
|
Above $10,000,0001 |
|
By arrangement |
Clients occassionally ask us to complete financial planning projects that do not fall within the usual and customary planning included within our wealth management fees. In those cases, we estimate the hours to complete the project in advance and charge an hourly rate.
Back to top
What about risk? Can I lose money?
We expect that we will occasionally show losses over shorter periods of time. We are investing for the long term. Declines in value over shorter periods of time such as one month, one quarter (three months) or even one year are to be expected. We consider short term declines as unpleasant noise that must be endured as a part of successful long term investing. Unfortunately, some of the biggest declines will occur over very short periods of time, even one day. We do not think we can consistently or successfully sidestep random steep declines by market timing and so we do not try.
We have done extensive research to control risk. We can demonstrate historical risk and returns of several model portfolios constructed of index funds. We do our best to help our clients understand the trade offs between volatility and return. Of course, upside volatility is acceptable to most people, whereas downward volatility is not, but unfortunately you do not get one without the other.
Back to top
What is the strategy?
We use primarily no load index mutual funds to maintain a balance among various investment categories (Asset Classes). In each asset class, we attempt to diversify by size (large company and small company) as well as what we refer to as the value risk (high book to market). The amounts invested in each category will vary based upon the risk capacity of each client. The broad categories are:
|
Asset Category |
Type of Investment Used |
|
Cash |
Money Markets, Cash Balances, Fixed Annuities |
|
Bonds |
High qualify, short to intermeditate Corporate and Govt Bonds, US and International. These positions are generally currency hedged. |
|
US Large Cap |
US Large Cap Value and Large Cap Blend index mutual funds. |
|
US Small Cap |
Asset class index funds own small company stocks and small company value stocks. |
| International Developed Markets |
Asset class index funds give us exposure to Large Company, Value (high book to market) stocks, small company and small company value stocks |
| Emerging Markets |
Here again we exploit the risk and return of market exposure, high book to market and smaller company stocks. This is highest risk and highest expected return category with low correlations to US Stocks. |
| Alternative Investments |
Most common is Real Estate Securities, a good diversifier from US Stocks. We also use non correlated funds that invest in hedge fund strategies. |
Back to top
How do we implement the strategy?
Marin Financial Advisors (MFA) buys and sells no load mutual funds at its discretion in your account. In addition, we use closed end mutual funds and Exchange Traded Funds (ETFs). MFA is paid a fee that is a percentage of the account, billed quarterly directly to the account.
Back to top
Can I hold individual stocks in my account with you?
Yes. There are reasons for having individual stocks in an account, especially if there is a low tax cost basis. To manage the risk of concentrated holdings in individual stocks, we prefer to maintain stop loss limit orders. That way we impose a sell discipline if a stock declines but still profit if the stock rises in value.
Back to top
How often are the accounts re-balanced?
Accounts are reviewed at least quarterly. Additionally, your account may be balanced at any time during the quarter if there are significant contributions or withdrawals or if there have been significant stock market price changes that have altered our asset allocation significantly. The tolerance for re-balancing is when a portion of the portfolio is 20% over or under its stated objective. As an example, if we plan to have 30% in Large US Stocks, then 20% of that allocation would be 6%. When Large US Stocks exceed 36% (30 + 6), it is time to begin to re-balance by reducing exposure to that category.
Back to top
How often do you switch investments?
We design most portfolios for long term investing. Most buying and selling is done to maintain our asset allocation models. We do not expect to make changes each quarter.
With asset class funds, there is no manager to "fire" for poor performance. We will always get the market return of whatever asset classes we are invested in. So we don't move wholesale into or out of index funds. Instead we sell a bit of an asset class when prices have risen and put the proceeds into an asset class whose prices have fallen. This insures we have a disciplined plan in place to always buy low, sell high, in small increments. In taxable accounts we are mindful of incurring as few short term capital gains as possible so we often rebalance taxable accounts less frequently.
Back to top
Active vs. Passive (Index) Funds.
We use primarily low cost asset class index funds and Exchange Traded Funds (ETFs). Studies consistently show that actively managed funds, in aggregate, do not beat market indexes to which they should be compared. Some actively managed funds will of course always look superior in hindsight, winners often do not repeat and past performance does not help us predict future performance. So few active managers end up outperforming the market over ten year time periods (about 3%), that it is actually very risky to try to identify them in advance and try to make a "bet" on them.
Back to top
What Indexes are we using for comparison?
-
For US Stocks, the S&P 500 Index -
For Small US Stocks, the Russell 2000 -
For Foreign Stocks, the MSCI EAFE (Morgan Stanley Europe, Australia, Far East); -
For Emerging Markets, the MSCI Emerging Markets Index -
For Bonds/Income/Balanced, the Shearson Lehman Corporate/Government Bond Index (10 yr.); -
For Cash, the 3 month US Treasury return;
Back to top
What about taxes?
In tax-deferred accounts, taxes are not an issue. In taxable accounts, our number one objective is to make a profit. As a secondary objective, we try to be smart about what type of fund goes into which account to minimize current taxation. We do have some tax-managed alternatives for some of our asset class funds. Tax managed funds do their best to not distribute short-term capital gains, which are taxed at ordinary income rates.
Mutual funds have somewhat unpredictable taxable events, such as year end capital gain distributions. Taxes are the responsibility of the client.
Back to top
Do you sell insurance or any other products?
Our financial and investment advice is provided on a fee basis. We do not receive investment commissions or transaction fees. The one exception to this is insurance planning. David Shore is a licensed California insurance agent. He has an arrangement with a brokerage firm to get term life insurance issued quickly and inexpensively for his clients, for which he receives a portion of the sales commission. This is a very small part of our overall business and is offered mainly as a convenience and a courtesy to clients in need of personal term life insurance.
Clients are encouraged to purchase their insurance through whatever channel suits them. We will work with clients’ insurance agents as needed.
Back to top
How will we measure our results?
You will receive a monthly statement for each account from the custodian where the funds are held. All individual brokerage accounts use Charles Schwab and Co. as custodian.
Additionally, during the month following the end of the calendar quarter, you will receive a review from MFA that reports your investment results both in dollar terms and in percentage gains or losses. Typical reporting periods will be for the past three months, twelve months and since inception.
Back to top
What about risk. How do we measure that?
The computation of Standard Deviation requires more time. After thirty-six months, we can measure the volatility of your portfolio.
More important is your continued comfort level. As you see monthly and quarterly reports, it is important that you communicate with MFA. We can always make adjustments in the portfolio.
Back to top
How should we look at the overall picture?
It is important to see the collection of assets as a whole. By combining different types of investments, we expect to achieve a more optimal chance of improving returns and/or reducing risk. We are valuing (and measuring) the overall performance of all of your managed investments. It is more important how the overall combination performs that any smaller collection of the parts.
Back to top
|