FAQ

1. How does a registered investment advisory firm such as yours differ from a brokerage firm?

Advisory firms and brokerage firms operate under different federal and state regulations with different service models and compensation structures.

Representatives of advisory firms typically receive compensation only from their clients and directly from their clients for the investment advice and investment management they provide them. Representatives of brokerage firms typically receive commissions from the firms that employ them for selling investment products to the firms' customers.

Representatives of advisory firms ("investment advisors") are legally viewed as common law fiduciaries to their clients. As such they are legally obligated to make full and fair disclosure of material conflicts of interest, seek best execution, and adhere to their duties of care and loyalty to clients. Representatives of brokerage firms ("brokers") are not bound by this same common law fiduciary standard and are instead governed by Regulation Best Interest. Although Regulation Best Interest has closed the standard of care gap between investment advisors and brokers, one long-standing problem remains: brokers are inherently salespeople who are incentivized to sell products that generate the highest commissions.

2. How are you compensated, and do you have a minimum account size?

Clients pay an advisory fee based on assets under management. This fee is my only compensation. The annual fee schedule is as follows:

First $1,000,000 .8%

Next $1,000,000 .65%

Next $3,000,000 .5%

Above $5,000,000 .35%

These fees are paid quarterly in arrears. They are sometimes tax deductible. If you are paying these fees directly from an IRA, you are not taxed on the withdrawal. My usual minimum is $1,000,000 of assets per family relationship.

3. Do you take custody of my assets?

No. At the time of establishing a relationship with my firm, you will personally open an investment account (or accounts) at one of several institutional brokerage firms which custody assets for the clients of registered investment advisers. All deposits are made directly to your accounts.

To facilitate managing your accounts, I will ask you to give me limited authority to act on them, an arrangement overseen by the relevant institutional brokerage firm, Charles Schwab, for example. If a client chooses to end his relationship with me, his accounts remain under his control while my limited authority to act on them is rescinded.

4. How do you arrive at an appropriate investment strategy for me and my family?

In the course of our first conversations, we will learn a lot about each other. One of the first things I will do is provide a brief overview of my approach to investing. If this kind of investing makes sense and appeals to you and if we think we might like to work together, then we will have a detailed conversation about your particular circumstances and needs. To spur and guide this conversation, I may ask you to complete an investment planning questionnaire.

My clients are typically concerned in the first place with taking care of themselves when they are no longer working. This is true whether they are in, near, or some years from retirement: they want to know how much they can reasonably expect to spend from year to year given their resources as well as the least risky way to be able to spend what they wish. We will address these questions during our conversations, and you can expect your investment strategy to reflect what I learn from you.

5. What is passive management and why do you recommend it?

Passive management is based on the simple observation that markets work. Capital markets are the mechanisms for pricing securities, quickly incorporating new information as it comes to light. As such, capital markets are the best determinants of a security's value. Grasping that there is no better measure of a security's value than its ever-changing market price and that the future is unpredictable, the basic strategy of passive management – owning the market as a whole so as to gain market returns – is a very sensible strategy. This basic strategy is my beginning point in developing investment strategies for my clients.

The alternative to passive management is active management. Active management means buying and selling securities in light of predictions about the future – future stock prices, future broad market prices, future interest rates, future economic growth, and so on. The goal of active management is to beat the market consistently and predictably. My view of the evidence is that active management consistently and predictably fails in its goal. And so I recommend passive management.

6. What is your relationship with Dimensional and why do you recommend its portfolios?

Dimensional has authorized my firm to use its mutual funds in my clients' portfolios. There is a relatively small number of registered investment advisory firms – roughly a thousand across the country – which are so authorized. I receive no compensation from Dimensional and Dimensional none from me. I recommend Dimensional portfolios to my clients because I consider them to be superior investment vehicles for structuring the kinds of investment strategies I recommend. Note: Dimensional also offers a range of ETFs (exchange-traded funds) available directly to the public.

7. Do you provide services other than investment management?

I work closely as needed with my clients' attorneys and accountants to coordinate their estate and tax planning with their investment planning. As for services typically outside the competence of attorneys, accountants, and investment managers, I have working relationships with service providers who share my fee-only approach and my view that clients are best served by independent specialists. With the help of these service providers, I can assist my clients with corporate trust services, foundation administration, and the acquisition of life insurance.

8. How do your services compare with those of a bank trust department?

Bank trust departments combine trustee services and investment management, sometimes to the detriment of trust beneficiaries. Trust beneficiaries may be dissatisfied with either their trust officers or their investment managers. With an individual bank performing both functions, trust beneficiaries have little recourse. Clients of mine who need or desire corporate trust services do not have this difficulty. There are a number of independent trust companies which have evolved to serve the trust needs of clients of investment advisory firms. Flexibility is built into the arrangements among client, investment advisor, and trust company. Typically, trust beneficiaries will have the authority, readily exercised, to replace a corporate trustee or an investment advisor or both if the need should arise.

None of compensation, service structures, or legal standards of care should be viewed as the sole determining factor when evaluating a financial or investment professional. Not all services will be necessary or appropriate for all clients, and the potential value and benefit of the adviser's services will vary based upon a variety of factors, such as the client's investment and financial circumstances and overall objectives. The effectiveness and potential success of the adviser's services can depend on a variety of factors, including but not limited to the manner and timing of implementation, the client's tax bracket and financial circumstances, coordination with the client and the client's other engaged professionals, market conditions, and other factors. Advisory fees are negotiable, and a client's agreed upon fee will be set forth in their advisory services agreement with the firm. There can be no assurance that passive management investment strategies will meet or outperform alternative strategies, including active management strategies. If you are a current client, please remember that it remains your responsibility to notify the firm promptly, in writing, if there is ever a change to your financial situation or investment objectives. Past performance does not guarantee future results. All investing comes with risk, including risk of loss.