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Uncommon Sense Guide to Managing Your Wealth


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Six Keys to Financial Wellness

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Uncommon Sense Guide to Managing Your Wealth

  1. 1. The UnCommon Sense Guide toManaging Your WealthSix Keys to Financial Wellness
  2. 2. UnCommon DirectionLetter from Mentor Wealth Management, LLCWith uncertain markets and a volatile economy, investors are increasingly aware that achieving their goalsmay not be as simple as they once imagined. Many investors, like you, want to learn more about theiroptions and how they may increase the likelihood that they will be able to attain their valued goals in thecoming years. Our goal in writing The Uncommon Sense Guide to Managing Your Wealth is to help you, theinvestor, understand your options and make smart decisions about your choice of advisor, investments, andultimately your financial future.So, what are investors looking for? Quite simply, astute investors want a relationship with a trusted advisor,comprehensive advice, reasonable fees, and peace of mind. Unfortunately, what investors want is UnCommon in the marketplace today.The Uncommon Sense Guide to Managing Your Wealth challenges the traditional investment approachesthat are failing most investors today and offers UnCommon solutions in six key areas that can helpmaximize the likelihood of achieving all that is important to you.Six Keys to Financial Wellness: 1. The UnCommon Advisory Firm 2. An UnCommon Team of Experts 3. UnCommon Advice 4. An UnCommon Approach to Risk 5. UnCommon Costs Matter 6. An UnCommon Investment PhilosophyMentor Wealth Management is pleased to present you with The Uncommon Sense Guide to Managing YourWealth. We hope that it will provide a framework for an intelligent approach to see beyond the commonoptions that exist today and lay the ground work necessary for you to build a successful strategy to achieveyour most valued goals.Sincerely,The Mentor Wealth Management Team 2 Mentor Wealth Management, LLC © 2011 |
  3. 3. Table of ContentsSix Keys to Financial WellnessKey #1 - The UnCommon Advisory Firm 4Key #2 – An UnCommon Team of Experts 5Key #3 – UnCommon Advice 6Key #4 - An UnCommon Approach to Risk 7Key #5 - UnCommon Costs Matter 8Key #6 - An UnCommon Investment Philosophy 9Your Next Steps 10About Mentor Wealth Management, LLC 11Endnotes 11 3 Mentor Wealth Management, LLC © 2011 |
  4. 4. UnCommon Sense: “Work with a Registered Investment Advisor”Key #1 - The UnCommon Advisory FirmWhen searching for a trusted advisor, a great starting point is to evaluate an advisor’s choice ofemployment. The most common employer is a brokerage firm. Advisors employed at a brokerage firmare known as “registered representatives.” There are more than 700,000 registered reps working forbrokerage firms in the U.S and they are treated under the law as salespeople.Registered representatives operate under a 1934 law (the Securities Exchange Act) that loosely binds themto ensure only that the products they sell are "suitable" for their clients. But, like a real estate agent, oncethe sale is done and the commission is collected, their legal obligation ends. So while they may presentthemselves as advisors who will stick with you over the years, they are under no legal obligation to do so –and have no legal liability if they do not.Registered representatives are compensated by their firm based on the amount of product they sell. A keypoint here for the investor is that the objectivity of the advice is always in question due to the productdriven compensation a registered representative receives.The UnCommon alternative to the product driven sales culture of a brokerage firm is a RegisteredInvestment Adviser. Advisors employed by a Registered Invesment Adviser are known as InvestmentAdvisory Representatives. There are approximately, 19,000 Registered Investment Advisers in the US andthey are required by a 1940 law (the Investment Advisers Act) to act as “fiduciaries”, compelling them toput the interests of clients before their own.Investment Advisers are compensated directly by their clients based on an agreed upon fee schedule foradvice and services. Fee-only investment advisors are often perceived to have greater alignment with theinterests of their clients because they have no financial incentive to recommend one particular product overanother. By removing the product sales focus, the investment adviser can provide advice and recommendinvestments to an investor with an objective view that is free of conflicts of interest. Registered Representative Investment Adviser • Suitability • Fiduciary • No Ongoing Duty of Care • Ongoing Duty of Care • Product Driven • Advice Driven • Conflicts of Interest • No Conflicts of Interest 4 Mentor Wealth Management, LLC © 2011 |
  5. 5. UnCommon Sense: “Work with a Well Orchestrated Team of Experts”Key #2 – An UnCommon Team of ExpertsA major factor to consider in choosing the right advisor is the depth of knowledge, expertise, andexperience an advisor offers clients. A comprehensive wealth plan or “Master Plan” requires not only thatattention be given to such diverse issues as tax strategies, regulatory issues, investments and in-depthfinancial planning but also that these factors are addressed together in the context of the client’s goals.Most often, however, the advice offered to clients comes from the advisor acting as an investmentgeneralist. This advisor will focus on one area, typically the “right” investments for your portfolio to “beatthe market”, and may provide basic financial planning that leads to a portfolio solution.The reality is that the complexity of a comprehensive Master Plan and the demands of our constantlychanging marketplace require more than a generalist to handle. No single advisor can be an expert in allareas of wealth management. In order to provide the level of service, perspective and depth of advicethat most investors want and need, an individual advisor or investment generalist may not be the best path. “Your wealth is too important to risk in the hands of a generalist.”UnCommon Sense supports the team of experts approach. Your team should be made up of expertsincluding a Certified Financial Planner, Chartered Financial Analyst, Trust & Estate Attorney, CPA, and anInsurance Specialist. Importantly, one of these experts should also act as your Personal CFO, a trustedadvocate whose role is to coordinate this team of experts and integrate their strategies with your MasterPlan in mind. With a diverse group of specialists working together for you, with guidance from yourPersonal CFO, your entire financial picture is put into perspective and custom solutions can betailored and implemented to help you reach your goals.Some investors may have a few of these team members already in place. Most likely these professionals areworking at different firms and independently providing advice on their specific area of expertise. We viewthat type of fragmented approach like an orchestra without a conductor; all the musicians are skillfullyplaying their instruments but some are out of time and others are reading an entirely different sheet ofmusic. The Personal CFO, or conductor, is essential to coordinate your team of experts and integrate theirstrategies with your specific sheet of music in mind, your goals and Master Plan. Trust & Estate Attorney Portfolio Accountant Specialist Financial Personal Insurance 5 Planner CFO Specialist Mentor Wealth Management, LLC © 2011 |
  6. 6. “UnCommon Advice - It’s a process, not a product.”Key #3 - UnCommon AdviceA buzzword in the financial industry today is “wealth management”. Many financial firms say they offerwealth management, but few can clearly provide an explanation as to what “wealth management” really is.In most cases, “wealth management” is simply a marketing phrase used to give the appearance thatthe advice will be more than just investment related. Unfortunately, the common approach is just that -investment or product-driven “advice” from start to finish. Some advisors will ask about your goals and maybe even create a financial plan to help address yourquestions, but it all ends at the same place – the investments they recommend you buy and sell. The reviewmeetings that follow all tend to have the same theme as well, review the portfolio and determine whatinvestments did well and which did not. In the common approach, your portfolio is the focus andyour financial plan is irrelevant. Common Advice UnCommon Advice Process Process Current Portfolio Your Goals & Master Review Plan Recommend New Goals -Based Investing Portfolio Review New Portfolios Review Master Plan Performance ProgressUnCommon Sense has a very specific definition of wealth management: Wealth Management is theobjective integration of advanced planning and investment counsel, orchestrated by a dedicated PersonalCFO. It’s a process, not a product.True wealth management – an UnCommon approach – begins with a Master Plan tailored around clientgoals. The plan is further developed to integrate the many aspects of managing and investing your wealth:its protection, enhancement, and planning for potential transfer to future generations and charitableorganizations.Your Master Plan becomes the focus of continuous and prudent management by your team of experts. Allof the components come together for you as you plot your course, assess your progress and make changes 6as life’s uncertainties present themselves. Mentor Wealth Management, LLC © 2011 |
  7. 7. UnCommon Investing: “A prudent, Sense: “Understand Your strategic Avoid the Behavior Gap™” mar Risk and approach that applies to allKey #4 – An UnCommon Approach to RiskAn important part of an advisor’s and client’s investment philosophy deals with how risk is handled in aclient’s plan and portfolio. Regardless of the approach you take to investing, risk is a constant factor. Werecognize that without risk there is no reward. However, the amount of risk you take is a preference andneeds to be framed within the context of your life to properly balance your desired reward level with theassociated risk. Despite this fact, most individuals take investment risk without understanding if it is toolittle or too much for their situation, which can lead to devastating financial and emotional results.From 1990 through 2009, stocks returned an average of 8.20% annually. During this same time period, theaverage mutual fund investor experienced a return of only 2.3% annually. Carl Richards, a financial plannerfrom Park City, Utah coined the phrase “Behavior Gap™” as an explanation of this large difference inreturns. Basically, poor investor behavior driven by the emotions of fear and greed led investors tomake poor choices in managing their wealth. This Behavior Gap™ is especially common when bothadvisors and investors focus primarily on chasing portfolio returns without any means of gauging thepotential risks.This is not a new phenomenon. As long as markets have been around, investors have fallen victim to beingtoo aggressive or too risk averse. The UnCommon approach is to identify the minimum risk, orstrategic risk, necessary to achieve your Master Plan’s goals and position your portfolio accordingly tocapture the desired level of return through efficient, broadly diversified participation in capital marketsinstead of relying on forecasts and speculation. With this fresh goals-based perspective, investors are able to 7see wealth management in a new light and evaluate what risk/return means to them in a rational,structured way that helps them steer clear of unnecessary risk taking and the emotional mistakes of thepast. Mentor Wealth Management, LLC © 2011 |
  8. 8. UnCommon Sense: “Costs Matter and Low Fees Add Value”Key# 5 – UnCommon Costs MatterOne area where investors are often under-informed is in understanding the full range of costs for thefinancial and investment advice they receive and implement. There are four areas that determine aninvestor’s true cost of investing; Advisory Fees, Portfolio Expense Ratio, Trading Costs, and Taxes.These four costs all must be paid before the investor sees any gains on an investment. 1. Advisory Fees: One of the primary costs is the fee charged by an advisor. Many advisors charge a fee based on the total assets they manage for you while others charge a flat fee for financial planning or a combination of asset based and flat fees for their services. Assuming a $250,000 account the standard advisory fee range is between 1.00% -1.50%1. 2. Portfolio Expense Ratio: Your advisor, as a part of the services provided to you, will usually recommend certain investments for your portfolio. Mutual funds and exchange traded funds you own will charge a fee called an expense ratio which is assessed annually against the account of each investor in the fund. This fee is used to pay for fixed operating costs which include items such as the salaries of the fund employees, marketing expenses, and administrative overhead. The average mutual fund expense ratio according to Morningstar is 1.32%2. 3. Trading Costs: In addition to the expense ratio charged by funds to help cover their fixed costs, there are additional charges to cover variable costs incurred by the funds. These variable expenses include items like the trading costs when the mutual fund purchases or sells securities held by the fund. Depending on the type of fund, these costs may be very substantial. These costs are not necessarily disclosed in the fund prospectus but may be obtained from the fund company in a report called a statement of additional information. The average mutual fund trading expense is 1.44%3. 4. Taxes: Taxes are a fact of life for all investors. However, the amount and timing of taxes one pays may be controlled and limited by using tax awareness in investment transactions. Being tax aware involves the selection of strategies employed to realize gains and losses as well as understanding and focusing on the investor’s personal goals. Tax awareness can have a significant positive impact on your wealth. Common Costs UnCommon Costs • Advisor 1.25% • Advisor 1.25% • Portfolio Expense Ratio 1.32% • Portfolio Expense Ratio 0.30% • Trading Costs 1.44% • Trading Costs 0.10% • Total Costs 4.01% • Total Costs 1.65%UnCommon Sense believes that costs matter and low fees add value. Cost benefits are realizedprimarily through the use of an UnCommon Investment philosophy. By focusing on capturing the market’s 8return as efficiently as possible, investment expenses, portfolio trading costs, and tax liabilities aresignificantly decreased. The benefit for the investor is simple, less is more. Mentor Wealth Management, LLC © 2011 |
  9. 9. UnCommon Sense: “Avoid Speculation, Invest with Purpose and Discipline”Key #6 – An UnCommon Investing PhilosophyThe most common approach or philosophy to investing is Active Management. Active managers attempt to“beat the market” by picking individual stocks or timing when to be/not to be invested. Regardless of style,active strategies reduce diversification and increase risk in the portfolio with the hope that these bets candeliver added return. While exciting and appealing in theory, history shows that the majority of activemanagers fail to consistently add value to investors. Illustrating this point, Standard & Poor’s recentlypublished a study that revealed two-thirds or more active equity fund managers and eighty percent or moreactive fixed income fund managers failed to beat their respective indexes for the five year period 2004-2009.4 With strong academic evidence pointing out the failures of Active management and 90% of assets inequity mutual funds managed actively, it is not surprising that investors are increasingly disillusioned withthe industry as they fall short of their financial and life goals.For those investors looking for a highly personalized investment approach that empowers them to takecontrol of their financial life and follow a more confident course toward achieving their goals, UnCommonInvestment Management is the solution. UnCommon Investment Management is a prudent, strategicapproach that applies to all markets, all conditions, and is designed to do one thing – helpinvestors achieve their lifetime financial goals. UnCommon Investment Management allows capitalmarkets to work for you by efficiently capturing their rewards through a structured, broadly diversified,cost effective process that avoids unnecessary risk. Unlike Active Management where your portfolioperformance is measured against a random market benchmark, with UnCommon Investment Management,decisions are made within the context of your customized Master Plan and their impact is measured inrelation to reaching your specific goals. In this way you invest with purpose and discipline instead offailing prey to the Behavior Gap™ underperformance so many investors endure.Comparison of Philosophy Characteristics: Active Management UnCommon Management • Assumes Markets Do Not Work • Lets Markets Work for You • Based on Forecasting, Speculation • Structured, Nobel Prize Approach • Opposite of Diversification • Broadly Diversified • Adds Risk of Underperformance • Avoids Unnecessary Risk • Market Focused Advice • Goals-Based Advice • Higher Costs and Taxes • Cost and Tax EfficientIn our opinion, Active Management is contrary to the best interest of investors in many ways. Not only doesthis approach greatly increase the likelihood that the investments will, in fact, not “beat” the market overtime, but it also fails to connect with what matters most to clients – achieving their goals. A holistic 9approach to teamwork, advice, risk, costs, and investments is designed to deliver an UnCommon fiduciarywealth management experience far superior to what is commonly practiced in the industry today. Mentor Wealth Management, LLC © 2011 |
  10. 10. Unfortunately, what investors want is UnCommon in the marketplace today.Your Next StepsAs we outlined in our opening letter, most investors want a relationship with a trusted advisor,comprehensive advice, reasonable fees, and peace of mind. Unfortunately, what investors want is UnCommon in the marketplace today.Take a good look at your current situation and ask yourself the following questions: • Are you currently working with an independent financial advisor? • Are you working with a Team of Experts? • Is your advisor more focused on your investments or your goals? • Are you trying to “beat” the market? Ask yourself why and at what added risk to you? • How much are you paying for the investments and advice you receive? • Do you feel in control of your financial life?If you are currently using the “common” traditional product and performance oriented approach tomanaging your wealth, you owe it to your family and yourself to seek out a better solution, an UnCommonSolution. At Mentor Wealth Management, our aim is to help our clients, and investors like you makesmarter decisions that reduce the uncertainty and stress that many investors experience by providing thekeys to live a more confident financial life.We recommend using the UnCommon Sense Guide to Managing Your Wealth and the six specific keys tofinancial wellness to help make sure that your investment approach—and overall wealth managementMaster Plan—are designed to effectively address your very specific financial needs in order to maximize theprobability that you will achieve all your financial goals.We wish you the best as you begin your journey toward financial independence. 10 Mentor Wealth Management, LLC © 2011 |
  11. 11. An UnCommon Firm with UnCommon SolutionsAbout Mentor Wealth Management, LLCMentor Wealth Management, LLC combines extensive financial industry experience with an objective andUnCommon approach to wealth management. We focus on advising a select group of individuals, familiesand institutions for whom we provide real value through our team of experts approach. Our passion is toguide clients through the process of identifying important goals and tailoring a Master Plan that increasesthe likelihood that they will reach their financial objectives.At Mentor we believe wealth management is the objective integration of advanced planning and investmentcounsel orchestrated by a dedicated Personal CFO. This process goes beyond managing investments toinclude growing and preserving wealth, planning for its orderly transfer to future generations, andproviding for the charitable interests of our clients. We act as an advocate and guide our clients througheach aspect of the process with the intent of helping them live their financial lives with confidence andmaximizing the likelihood of achieving their vision.Endnotes1 FPA Research Center, Financial Planning Association, 20112 Based on all funds tracked by Morningstar, Inc. (September 30, 2008)3 “Scale Effects in Mutual Fund Performance: The Role of Trading Costs” -a multi-University research study 114 Standard & Poor’s Indices Versus Active Funds Scorecard, August 20, 2009 Mentor Wealth Management, LLC © 2011 |
  12. 12. Mentor Wealth Management, LLC 7113 Three Chopt Road Suite 210 Richmond, Virginia 23226 12 (804) 592-3660 Mentor Wealth Management, LLC © 2011 |