Our approach to portfolio management centers solely on the client’s objectives and constraints. Three ongoing steps define our portfolio management process: Planning, Execution, and Review. In the planning phase we complete a situational profile which gathers information on client assets, liabilities, cash flow, return and risk objectives, taxes, time horizon, liquidity needs, legal and regulatory, and any other unique circumstances.
From the information in the situational profile we can assist clients in making projections regarding their financial goals, like retirement and educational funding, and we can conduct sophisticated “stress tests” like Monte Carlo simulation which factor in the variability of returns and provides ranges and probabilities of results.
Next, we draft an Investment Policy Statement (IPS) which defines the client return and risk objectives and constraints and lays the foundation for building the portfolio. In the IPS, we define the allocations and ranges to strategic asset classes that we believe are appropriate based on the client objectives. These allocations serve as the basis to which we rebalance the portfolio in the execution stage when capital market returns cause them to deviate above or below target ranges or when positions are “called away” by covered options positions.
After the client agrees on the IPS we then begin to build and manage the portfolio. Since we are not a broker-dealer firm we do not custody client assets. Instead, we use a third party broker/custodian to hold client assets and execute trades. Currently, the majority of the accounts we manage are held at TD Ameritrade Institutional. As an independent firm that is not a broker-dealer, clients have the added security that the people managing their money are not the same as those providing custody services.
We are often referred to as a “separate account manager” because we don’t pool our clients’ money together like a hedge fund or a mutual fund company. The client’s assets are held in a separate account—whether it is an IRA, individual, or trust account—and clients simply grant us a limited power of attorney enabling us to place trades in their account, submit our quarterly management fee billings to the custodian, and electronically disburse money to their accounts outside of the Custodian.
As a separate account manager it is convenient for us to use one broker-dealer as custodian for our clients’ assets. Through the broker we are able to block trade, place one order for execution of a particular security, average price it, and allocate it among multiple client accounts. We chose TD Ameritrade Institutional for its size and financially strong position, technology, cost, and trade execution services. However, we do evaluate other brokerage firms periodically and would not hesitate to use another broker if we felt it were advantageous to the client.
To assist in monitoring progress toward financial objectives we provide a quarterly reporting service. Clients are able to see the performance of their accounts and asset classes relative to other capital markets indexes and see portfolio changes from the previous quarter. At the end of each year, we also provide tax reports for all of our taxable accounts to assist in tax preparation.
We meet personally with most of our clients based on their individual needs. Some clients feel more comfortable with quarterly face-to-face meetings while others only require an annual meeting. Others are comfortable with only occasional phone conferences. We do strongly recommend, however, that we meet with clients when they experience changes in their financial situation that require changes in their overall investment policy. Examples that would require amendment of the IPS include a death in the family, inheritance, or loss of a job. These are life experiences that require us to re-enter the planning phase of our process.