What exactly is the managed account arrangement?
First, we discuss goals, strategy, risk tolerance, and overall financial planning considerations.
Then, based on these parameters, we select an investment strategy that suits clients’ needs.
Clients open brokerage accounts for us to manage based on these parameters (individual, joint, IRA, trust, etc). Upon request, we provide full-service assistance to our clients in opening brokerage accounts and transferring assets.
Once accounts are open and funded, we place trades in the accounts and monitor investment portfolios on an ongoing basis.
Custodian? Discretion? Fiduciary? What do these words mean?
A custodian is a big firm that holds, safeguards, and keeps track of the value your assets, such as a bank or brokerage firm. Our custodian for all managed accounts is Interactive Brokers, LLC. IB is a financially stable, publicly traded company and one of the major brokerage firms in the securities industry. Read more on why we have chosen to use IB versus any other brokerage firm here.
Discretion is the permission to place trades in client accounts based on an overall strategy without obtaining prior approval for each individual trade. As an advisory firm, we have discretion over investments in client accounts but we are not the custodian. IB, our custodian, safeguards client assets.
We, the advisor, are authorized to place trades in clients’ IB accounts.
A fiduciary is someone who puts clients’ best interests first. People who sell insurance, annuities, mutual funds, hedge funds, and all manner of gimmicky financial products are compensated for their sales regardless of whether you win or lose. Someone who has a bag of goods to sell you is a salesperson, not a fiduciary. We are paid to gather, protect, and grow assets—nothing more, nothing less.
What is the difference between passive management and active management and which is right for me?
We offer both passive management and active management strategies. There is a time and place for both.
Our passive management strategies are designed for long-term investors who want maximum simplicity in their investments and the lowest possible fee. With our guidance, clients tailor how aggressive they want to be, ranging from 100% stock market, 0% fixed income to 100% bonds, 0% stocks—and anywhere in between. Our passive management offering is a highly intelligent, cost-effective way to do traditional wealth management with an advisor. We can’t control the crazy market swings, but we can engineer portfolios intelligently to deliver a better, more cost-effective version of what the large, brand-name, fancy advisor firms are offering—just without the pretense and the Park Avenue office.
Our active management strategies are designed for investors who are looking for smoother, more consistent returns year in and year out, in spite of the often wild gyrations of financial markets. Aiming for a respectable return while minimizing how much the portfolio value swings around is known in financial jargon as “risk-adjusted returns.” Leaning on Sam Benen’s experience as a trader and portfolio manager in the hedge fund industry, we charge a higher fee and use more complex trading techniques to try to meet this objective.
You can create an income stream for ongoing life expenses
We can set you up with a portfolio of income-generating securities and a schedule of automatic withdrawals from your account.
If you buy an annuity contract from an insurance company, the salesperson earns an exorbitant commission and you lock in a low rate of interest. With a managed account of fixed income securities, you don’t pay huge fees, you keep your principal, and can still get an income deposited to your checking account automatically every month.
True financial independence is having enough savings so that you can invest in income-generating securities and simply live off the interest without touching the principal.
A cash replacement option
As an intelligent alternative to a low-yielding savings account, we can do cash replacement accounts for liquid savings and “rainy day funds.”
We invest in treasury securities and investment grade bonds maturing within 24 months. Essentially, this is a passively managed account, with the fixed income allocation dialed all the way up to 100%, and the risk profile dialed all the way down to the minimum.
If there are specific, known cash needs in advance (e.g. a down payment on a house next year, a tax bill due in April), we can buy bonds with specific maturities that match those dates.
Utilize the margin facility
Your brokerage account can serve as a line of credit that you can access at any time for any reason.
With a margin account, you can withdraw money from your account without having to sell securities first. The value of the securities in the account acts as collateral for a secured loan that the broker can issue without a pre-approval process.
Take advantage of industry-low margin rates from our custodian, Interactive Brokers. There are no loan origination fees and interest is only charged for as long as the loan remains outstanding. Use it for as long or a short a period as you want and pay it back at any time.
What if I want financial advice but not a managed account?
We can be a helpful resource to you for a wide range of financial decisions. In a pure consulting arrangement, with no assets directly under our management, you schedule time to chat with us and analyze your financial situation and we bill by the hour for our time.
Examples of how this works:
We schedule a phone call. Clients download Teamviewer, a free screen sharing software (we pay the cost of a business license on our end). When our phone call starts, clients grant us permission to access their computer screen remotely. They can log into their accounts and we look at all the investment portfolios they have. We can speak periodically to discuss rebalancing, investing new money, where to take money from for an upcoming cash need, etc.
Clients ask us by email for periodic securities recommendations that match a certain profile they are looking for. A client might ask, “I am looking for a good way to park cash for a year and earn more than I can in the bank, can you recommend a bond with a near-term maturity?” Or, “I am looking for a preferred security that pays around 6% from a reputable issuer, what’s your favorite one right now?” We respond in a timely fashion with a few well-researched suggestions.
Clients send over brokerage statements or other financial documents for our review. They want our opinion on something specific or an overall assessment of how they are doing. We review what they send and give a thoughtful, unbiased opinion and help them create a system for tracking what they have.