Composed Financial: A Better Fee-Only Advisor
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Composed Financial shows the benefits of fee-only advisers, and why they can benefit everyone - not just people blessed with a high net worth. With fees at less than half the industry average, Composed Financial is widening access to credentialed, high quality investment management and financial planning.
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Composed Financial: A Better Fee-Only Advisor
- 1. Client Experience DemoClient Introduction
- 2. The Fee-Only Advisor Advantages: 1) Tailored, personal service 2) Credentials 3) Less conflicts of interest 4) No pushy sales tactics Disadvantages: 1) Higher fees 2) Restrictions – high investment minimums 3) Discretionary only – must move money to preferred custodian
- 3. The Composed Financial Difference Composed Financial Other Fee-Only Advisors Personalization Credentials Less Conflicts of Interest Not Sales Driven High Fees Investment Minimums Requirement to move money
- 4. Competitive Fee Structure Our all-in fee is less than HALF of the industry average.
- 5. Assets Under Composed Industry Management Avg Fee1 Avg Fee2 <$0.10M 1.5% 1.7% $0.10M- $0.25M 0.9% 1.6% $0.25M- $0.50M 0.7% 1.5% $0.50M- $1.00M 0.5% 1.3% $1.00M- $2.00M N/A 1.2% $2.00M- $3.00M N/A 1.1% $3.00M- $4.00M 0.3% 1.0% $4.00M- $5.00M N/A 0.9% > $5.00M N/A 0.6% Weighted Avg 0.5% 1.3% Competitive Fee Structure 1 - Calculated as of December 2014 to include fixed, discretionary, and non-discretionary fees. 2 - From 2011 PriceMetrix report titled 'Fee and Managed Asset Pricing’ (www.pricemetrix.com)
- 6. Clear Fee Structure • Fee-only, not fee-based • No 3rd party rebate agreements, commissions, or hidden fees • Successful plan highly influenced by ability to control fees • Focus on the two things guaranteed to hit your portfolio: fees and taxes Financial Planning – Annual Fee of $500 Monies Managed Assets Under Management Percent of Assets Under Management Discretionary Any amount 1.0% Non-discretionary $0.0M- $1.0M 0.8% Non-discretionary $1.0M- $2.0M 0.6% Non-discretionary > $2.0M 0.4%
- 7. Blueleaf simplifies tracking all your savings and long-term financial goals while making everything you own transparent, understandable, and controllable. • Account aggregation • Weekly email summary • Client portal • Integrated with inStream Simple, Personal Financial Tracking = Real time monitoring of your plans = We organize your financials for you = A simple update to start your week = See all your accounts in one place
- 9. Weekly Email
- 10. Domestic stock fund High Foreign stock fund Low Investment grade bond fund High High yield bond fund High Jane's 401k Domestic stock fund Low Foreign stock fund High Investment grade bond fund High High yield bond fund High John's 401k Multiple options Low Jane's IRA The Power of Aggregation 401ks are inherently limited in their investments. It pays to look at all the accounts available for retirement in aggregate.
- 11. Domestic stock fund Low Foreign stock fund High Investment grade bond fund High High yield bond fund High John's 401k Domestic stock fund High Foreign stock fund Low Investment grade bond fund High High yield bond fund High Jane's 401k Investment grade bond ETF Low High yield bond ETF Low Jane's IRA The Power of Aggregation By looking at all your accounts together, we can choose the best and lowest cost investments from each account.
- 12. Domestic stock fund Low Foreign stock fund Low Investment grade bond ETF Low High yield bond ETF Low Combined 401ks, IRA The result is an overall portfolio with all lower cost options. Actively managed funds have been proven to underperform versus their respective benchmarks, so it pays to choose the lowest cost options that closely follow the benchmarks. Each of our clients has experienced a decrease in their overall portfolio expense ratio after implementing our recommendations. The Power of Aggregation
- 13. Hidden Fee Issue – Mutual Funds Composed Competitor Stated fee 0.60% 0.00% Actual invoice Expense ratio 0.40% 1.50% Less obvious Total fees 1.00% 1.50% Composed Competitor Pre-expense return 7.40% 7.40% Expense ratio -0.40% -1.50% Less obvious Post-expense return 7.00% 5.90% Stated fee -0.60% 0.00% Actual invoice Post-fee return 6.40% 5.90%
- 14. Impact of High Fees If you had invested $20k invested in the S&P 500 each year for the past 25 years, Total Invested Total Costs Ending Balance 1.0% Costs $500,000 $108,303 $1,137,558 1.5% Costs $500,000 $154,579 $1,050,281 Difference -$46,276 $87,277 less in fees more in earnings an extra 0.5% in fees would have erased $87,277 in earnings
- 15. Client Portal / Document Management
- 16. Integrated With Financial plans updated with new account balances from Blueleaf Real time tracking Anytime your plans falls outside of a 70-90% likelihood, an automatic review is triggered
- 18. Quarterly Performance Tracking We will not only track versus industry benchmarks, but ALSO VERSUS YOUR PRIOR INVESTMENTS.
- 19. Other Assistance Your go-to for any financial matters: • Life insurance planning and cost analysis • Gap and cost analysis of other insurance • Education planning / 529 accounts / custodial accounts • Wills, living wills, power of attorney for finances • Estate planning • Real estate advice
Editor's Notes
- This video explains how Composed Financial is focused on transparency – specifically in regards to our fees.
- As you can see from this chart, we offer all the advantages of other fee-only advisors, but limit the disavantages. Our transparency video focusing on fees shows how much lower our fees are than the industry average. And we have no investment minumums. We feel everyone has the need for sound financial planning and investment management, and offer our services to accounts of all sizes.
- These fees in the Composed column represent the actual fees charges to our clients as of December 2014. This average fee includes all fees- discretionary, non-discretionary, and the flat fee for financial planning. As you can see in the chart, our average all-in fee is less than half of the industry average. We hope this video has relayed the importance we place on transparency. No smoke and mirrors. No more questions as to how much your advisor is compensated. At Composed Financial, we work for you.
- These fees in the Composed column represent the actual fees charges to our clients as of December 2014. This average fee includes all fees- discretionary, non-discretionary, and the flat fee for financial planning. As you can see in the chart, our average all-in fee is less than half of the industry average. We hope this video has relayed the importance we place on transparency. No smoke and mirrors. No more questions as to how much your advisor is compensated. At Composed Financial, we work for you.
- Presented here is our transparent fee structure. Again we are fee-only, not fee-based. We Don’t believe in hidden fees, because we Do believe that a successful plan is highly influenced in the ability to control fees. We are focused on lowering costs through ETFs and an aggregate view of your accounts. Many sophisticated investment managers adhere to this philosophy. In fact, Ray Dalio – manager of the world’s largest hedge funds agrees. His hedge fund’s largest 2 holdings, making up over 62% of total portfolio are ETFs. We charge an annual fee of $500 for financial planning. We charge 1.0% on any discretionary assets under management. These are ones for which we are able to implement the trades directly because you have moved money to our custodian. We charge 0.4% to 0.8% on non-discretionary assets based on the value of your portfolio. We feel these are very competitive rates, and let us show you why.
- Now let’s discuss the fantastic tool we have at our disposal – Blueleaf. Blueleaf provides Account aggregation so you can see all your accounts in one, secure place. You will achieve your goals faster by seeing how all your accounts work together. A weekly email reports balances and saves time for accounts you may not regularly review. A Client portal simplifies communication between you and us. All your signed agreements, disclosures, performance reports, and financial plans at your disposal in a secure place. Blueleaf is fully Integrated with inStream - the overnight updating from Blueleaf automatically flows over to inStream, making your financial plan dynamic and always up-to-date.
- Here is an example of the Blueleaf client portal. As you can see once you link your accounts to our system, you will be able to see everything in one simple place. We will group the accounts for you into retirement, education, or other groups. You can see current holdings in any of your accounts, and quickly access performance information for all or individual accounts. There is a documents link on the left side bar. Here you will find our communications – financial plans, investment recommendations, performance trackers, etc. If you wish to see a more detailed video from Blueleaf’s founder explaining all the great features Blueleaf has to offer, please visit composedfinancial.com or blueleaf.com.
- This is the weekly email showing a quick synopsis of your accounts. This snapshot is limited to fit on the slide, but the full email will contain individual account information in addition to the aggregate summary seen here.
- Now let’s take a look at how we focus on lowering your overall expense across all of your accounts to get to the lowest cost to you as possible. Let’s assume John and Jane, a married couple have 3 accounts – John’s 401k, Jane’s 401k, and Jane’s IRA. If you chose a managed advisor option within John’s 401k, that advisor could only look at John’s 401k in isolation. However, Blueleaf allows Composed Financial to look at all accounts in aggregate, not in isolation. We will recommend investing in the low expense options across all 3 accounts – the domestic stock fund in John’s 401k, the foreign stock fund in Jane’s 401k, and we will use Jane’s IRA to fill in the needed gaps by investing in low cost ETFs. The result is an aggregate portfolio with all lower cost options without sacrificing performance.
- Now let’s take a look at how we focus on lowering your overall expense across all of your accounts to get to the lowest cost to you as possible. Let’s assume John and Jane, a married couple have 3 accounts – John’s 401k, Jane’s 401k, and Jane’s IRA. If you chose a managed advisor option within John’s 401k, that advisor could only look at John’s 401k in isolation. However, Blueleaf allows Composed Financial to look at all accounts in aggregate, not in isolation. We will recommend investing in the low expense options across all 3 accounts – the domestic stock fund in John’s 401k, the foreign stock fund in Jane’s 401k, and we will use Jane’s IRA to fill in the needed gaps by investing in low cost ETFs. The result is an aggregate portfolio with all lower cost options without sacrificing performance.
- Now let’s take a look at how we focus on lowering your overall expense across all of your accounts to get to the lowest cost to you as possible. Let’s assume John and Jane, a married couple have 3 accounts – John’s 401k, Jane’s 401k, and Jane’s IRA. If you chose a managed advisor option within John’s 401k, that advisor could only look at John’s 401k in isolation. However, Blueleaf allows Composed Financial to look at all accounts in aggregate, not in isolation. We will recommend investing in the low expense options across all 3 accounts – the domestic stock fund in John’s 401k, the foreign stock fund in Jane’s 401k, and we will use Jane’s IRA to fill in the needed gaps by investing in low cost ETFs. The result is an aggregate portfolio with all lower cost options without sacrificing performance.
- As previously mentioned, many times advisors will recommend you purchase a mutual fund that has an unnecessarily high expense ratio. Looking at the competitor column on the right, let’s say the salesman recommends you purchase a fund which has an expense ratio of 1.5%, because he is getting compensated for putting you into the fund. You won’t see the actual amount he is compensated, but instead will see a return that is greatly diminished. This type of fee structure is setup specifically because it is less blunt than sending you an actual invoice. Seen in the table below, assuming a return of 7.4%, that 1.5% expense ratio reduced your return to 5.9%. That is 20% of your return! Just because your fee is buried in the return calculation does not mean you should ignore it. Now lets take a look at the Composed Financial column. Let’s say you fall into our discretionary fee category of 0.6%. Through the use of ETFs, lower expense mutual funds, and by taking an aggregate view of your accounts, let’s say we reduce the expense ratio to 0.4%. This means a total fee of 1.0%, 0.5% less than our competitor. That mean’s your pre expense return of 7.4% is only reduced to 6.4% after all the fees. Now 0.5% may not sound like a big difference to you, but let’s try to change that perception with our next slide.
- Assuming you invested $20k per year into the S&P 500 each year since 1989, you would have invested a total of $500k over those 25 years. If you paid 1.0% of total costs, you would have paid $108k in fees, and end with a balance of $1.14M. If you paid only 0.5% more, you would have paid $155k in fees, and had an ending balance of only $1.05M. That is a big difference. That small 0.5% difference means a $46k difference in fees, and because of compounding, a $87k difference in earnings.
- There is the document management screen discussed earlier where we keep your financial plans, investment recommendations, performance tracking, and other important files.
- Next let’s dive into how Blueleaf is integrated with our financial planning platform - Instream Goal-based planning - we will assign accounts from Blueleaf towards specific goals to create a plan, and then begin tracking towards that plan Multiple plans are encouraged - we will separately track retirement, education, and other goals Monte Carlo simulation is used to calculate your plan – the application runs 1,000 different possible outcomes to determine the likelihood of achieving your goals inStream is fully integrated with Blueleaf - the simulation is rerun each day to incorporate changes to account balances We will personally monitor your plans - if any plan falls outside a reasonable likelihood (typically below 70% or above 90%), a review will be performed and you will be contacted to discuss and amend the plan as needed There are also separate wealth management calculators which help answer your everyday questions, such as “Should I buy or lease? Should I refinance? Can I estimate my social security benefit? Should I convert my IRA into a Roth?”
- Here is the summary page of your financial plan. This plan has an 86% likelihood of achieving its goal. Anytime a plan falls outside of 70-90% likelihood, a thorough review is triggered and you will be contacted with our plan of action.
- Here is a snapshot of the return section of our quarterly performance review for our investment recommendations. This shows performance versus the benchmark, but we also provide performance versus your investments prior to joining us. There are also pages addressing risk, not seen here. Most people focus solely on return, but here we put a high value incorporating the right amount of risk for you. Each person is unique and each person has a unique attitude towards investing. A return earning 25% in a year sounds great of course, but what if earning that meant you had to go through a year where you lost a 20% of your money? It might not sound as great.
- Here is a snapshot of the return section of our quarterly performance review for our investment recommendations. This shows performance versus the benchmark, but we also provide performance versus your investments prior to joining us. There are also pages addressing risk, not seen here. Most people focus solely on return, but here we put a high value incorporating the right amount of risk for you. Each person is unique and each person has a unique attitude towards investing. A return earning 25% in a year sounds great of course, but what if earning that meant you had to go through a year where you lost a 20% of your money? It might not sound as great.