Transcript Personal Wealthcare

WEALTHCARE
Monitoring and Ongoing Advice
Presented by:
David B. Loeper, CIMA®, CIMC®
Providing WEALTHCARE
©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004-2008 All rights reserved
Your Value Proposition With Wealthcare:
“I make the most of the one life you have by
confidently achieving the goals you personally value,
without undue sacrifice to your lifestyle
and avoiding any unnecessary investment risks.”
Providing WEALTHCARE
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Your Service Commitment With Wealthcare:
“I make the most of the one life you have by
confidently achieving the goals you personally value,
without undue sacrifice to your lifestyle
and avoiding any unnecessary investment risks.”
OBSERVE THAT IT IS THE SAME!
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Does a performance report help you deliver this?
“I make the most of the one life you have by
confidently achieving the goals you personally value,
without undue sacrifice to your lifestyle
and avoiding any unnecessary investment risks.”
HOW???
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Sample Performance Report:
Current Value
Starting Value:
Net Contributions/(withdrawals)
$ Gain/(Loss)
Total Return in %
Custom Benchmark1
Last Quarter
$5,050,000
$5,000,000
$0
$50,000
1.00%
1.25%
YTD
$5,050,000
$4,800,000
$0
$250,000
5.21%
4.88%
Since Inception
$5,050,000
$2,000,000
$1,500,000
$1,550,000
44.29%
49.52%
Trailing Annualized Returns:
1 Year
3 Years
5 Years
Inception (6.5 years)
Your Portfolio
31.65%
1.07%
3.20%
5.80%
Custom Benchmark1
29.92%
1.17%
2.99%
6.38%
Difference
+1.73%
-0.10%
+0.21%
-0.58%
1Custom
Current
Benchmark
Benchmark Allocation:
Current
Benchmark
Difference
Large Cap Core
39.44%
37.00%
2.44%
Mid Cap Core
0.00%
0.00%
0.00%
Small Cap Core
19.19%
18.00%
1.19%
Large Cap Value
4.80%
4.50%
0.30%
Mid Cap Value
4.80%
4.50%
0.30%
Small Cap Value
2.13%
2.00%
0.13%
Large Cap Grow th
3.92%
4.50%
-0.58%
Mid Cap Grow th
3.92%
4.50%
-0.58%
Small Cap Grow th
1.74%
2.00%
-0.26%
Large Foreign
11.34%
13.00%
-1.66%
Long Term Fixed
0.00%
0.00%
0.00%
Inter. Term Fixed
8.72%
10.00%
-1.28%
Short Term Fixed
0.00%
0.00%
0.00%
Cash & Equiv.
0.00%
0.00%
0.00%
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YourReport:
Conversation…
Sample Performance
“Last quarter we were a little Last
behind
due to the
overweighting
in
Quarteryour benchmark
YTD
Since
Inception
Current
Value that occurred due
$5,050,000
$5,050,000
value
stocks
to their strong
performance in$5,050,000
the prior quarter.
Starting Value:
$5,000,000
$4,800,000
Despite
that, we are still ahead
of your benchmark
YTD, for the$2,000,000
last year and also
Net Contributions/(withdrawals)
$0
$0
$1,500,000
the$ trailing
5 years and only $50,000
slightly behind your
benchmark for
the last 3 years
Gain/(Loss)
$250,000
$1,550,000
and since inception.”
Total Return in %
1.00%
5.21%
44.29%
Custom Benchmark1
1.25%
4.88%
49.52%
Trailing Annualized Returns:
1 Year
3 Years
5 Years
Inception (6.5 years)
Your Portfolio
31.65%
1.07%
3.20%
5.80%
Custom Benchmark1
29.92%
1.17%
2.99%
6.38%
Difference
+1.73%
-0.10%
+0.21%
-0.58%
1Custom
Large Cap Core
Mid Cap Core
Small Cap Core
Large Cap Value
Mid Cap Value
Small Cap Value
Large Cap Grow th
Current
Benchmark
Benchmark Allocation:
Current
39.44%
0.00%
19.19%
4.80%
4.80%
2.13%
3.92%
Benchmark
37.00%
0.00%
18.00%
4.50%
4.50%
2.00%
4.50%
Difference
2.44%
0.00%
1.19%
0.30%
0.30%
0.13%
-0.58%
Providing WEALTHCARE
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Is there ANYTHING
on THISReport:
report that even REMOTELY relates to:
Sample
Performance
Quarter
Since Inception
“I make theLast
most
of the oneYTDlife you have by
Current Value
$5,050,000
$5,050,000
$5,050,000
confidently
achieving
the
goals
you
personally
value,
without undue
Starting Value:
$5,000,000
$4,800,000
$2,000,000
Net Contributions/(withdrawals)
$0
$0
$1,500,000
sacrifice
to your lifestyle
$ Gain/(Loss)
$50,000
$250,000
$1,550,000
and
avoiding
any
unnecessary
investment
risks.”
Total Return in %
1.00%
5.21%
44.29%
Custom Benchmark1
1.25%
4.88%
49.52%
Trailing Annualized Returns:
1 Year
3 Years
5 Years
Inception (6.5 years)
Your Portfolio
31.65%
1.07%
3.20%
5.80%
Custom Benchmark1
29.92%
1.17%
2.99%
6.38%
Difference
+1.73%
-0.10%
+0.21%
-0.58%
1Custom
Large Cap Core
Mid Cap Core
Small Cap Core
Large Cap Value
Mid Cap Value
Small Cap Value
Large Cap Grow th
Current
Benchmark
Benchmark Allocation:
Current
39.44%
0.00%
19.19%
4.80%
4.80%
2.13%
3.92%
Benchmark
37.00%
0.00%
18.00%
4.50%
4.50%
2.00%
4.50%
Difference
2.44%
0.00%
1.19%
0.30%
0.30%
0.13%
-0.58%
Providing WEALTHCARE
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True or False?
Most clients, when I first meet with them and ask about their
financial goals say something like:
“What is really important to me, is to have a portfolio that over at
least a 5-10 year time horizon produces a greater mean return with
less standard deviation than a passive index blend comprised of
37% large cap core, 18% small cap core, 4.5% to both large and
mid cap value & growth, 18% small cap core, 2% small cap value &
growth, 13% foreign and 10% intermediate bonds.”
THEN WHY IS THAT
WHAT YOU ARE MEASURING?
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Connecting to clients…
This?
- Target allocation to 37% Large, 19%
Small, X% Value, Y% Growth?
- Efficient portfolio for standard deviation
tolerance?
- Efficient portfolio for 95th %-tile downside
risk tolerance?
- Specific return along with 10 or more
years of patience?
- AND, assuming YOUR benchmark is
somehow tied to their goals, the client
was clairvoyant so they never change
their goals or priorities and everything in
their life AND the markets go according to
plan?
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Connecting to clients…
This?
Or this?
- Target allocation to 37% Large, 19% Small,
X% Value, Y% Growth?
- Efficient portfolio for standard deviation
tolerance?
- Efficient portfolio for 95th %-tile downside risk
tolerance?
- Specific return along with 10 or more years of
patience?
- Comfortable Retirement
- Educate Jr.
- Travel
- Buy a beach house
- Golf (reduce savings)
- AND, assuming YOUR benchmark is
somehow tied to their goals, the client was
clairvoyant so they never change their goals or
priorities and everything in their life AND the
markets go according to plan?
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- AND, contemplating their life and the
markets may not go perfectly
according to plan and their goals and
priorities will change over their life
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Clients are not paying you for the REPORT!!!
They are paying for your ADVICE.
Providing Advice with Wealthcare…
» It’s easy
» Focus on progress and the impact of markets on goals
» Answers with ‘therefore’
» Identify when changes are necessary due to markets
» Make adjustments when goals and/or priorities change
»REPROFILE CONSTANTLY – If markets behave well then…
Or if markets behave poorly…
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The One Page Close
Arvin & Alice Valued:
Jamaica Trips
Education For Arvin Jr.
Current Lifestyle
Retirement Lifestyle
Avoiding Investment Risk
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Benchmark the client’s life
not
the market!
» Introduce Monitoring
Not Future Values
Dashboard For Decisions
» Risk Of Material Goal Changes =
Minor & Manageable
» Risk of markets misbehaving=
ALMOST CERTAIN!!!
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Portfolio Value > $2,400,000, Comfort Level will be >90% = Sacrifice
Portfolio Value <$1,750,000, Comfort Level will be <75% = Uncertain
Preventing random market returns risking your relationships!
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Ongoing service still
making the most of
their life
What was important?
Comfortable Retirement, Educate Jr.,
Travel, Reduce Savings (for Golf)
So what do we talk about in our review?
THIS STUFF!!
Comfortable Retirement
Reduce Savings (for Golf)
Educate Jr.
Travel
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Are Any Decisions
Currently Needed?
>> Where they currently
stand based on the
markets & their goals
AS LAST DEFINED
>> What to watch out for…
Potential future
decisions based on
market results and
THEIR choices
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Are These The Right
Goals?
>> Does this still make the most
of your only life?
>> If we have strong markets,
what would be the next
priority to add?
>> If we have weak markets,
what would be the most
acceptable adjustment?
>> Are your ideal and
acceptable goals still
your ideal, and
acceptable goals?
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Are we still “spending”
the lowest priorities?
>> Still retire later and
compromise estate to reduce
risk?
>> Still retire later and
compromise estate to keep
savings low for golf?
>> Still reduce estate to retire a
bit earlier?
>> Still take more risk, retire later
and compromise estate to
spend more & travel?
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Arvin & Alice Life Change #1: EDUCATION
Advisor: “You valued sending Arvin Jr. to the local university. Is that
something you continue to feel strongly about?”
Client: “Actually, Junior has performed better than expected in his school
work. We found out last week that he has received a full academic
scholarship. Thus, the costs for education will be much less than we
anticipated. How might this affect our other goals?”
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Initial Report
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New Report
If we remove the education
expenses…
Now at 83% Comfort
NOT A MATERIAL IMPACT
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Arvin & Alice Life Change #2: NO BONUS NEXT YEAR
Advisor: “When we last met, you felt comfortable with your current level of
savings. Has anything changed since our last meeting that would cause you to
save more OR less next year?”
Client: “Well… I will not receive my annual bonus next year due to my
company’s restructuring. We are concerned about our ability to make our
annual trip to the Caribbean. We would prefer to continue our trips to Jamaica,
but that would result in less savings next year. How would this impact our
comfort level?”
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Initial Report
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New Report
If we remove next year’s savings…
Now at 80% Comfort
NOT A MATERIAL IMPACT
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Jay & Peggy Retirement Life Choice: Home in Florida
Advisor: “When we last met, you felt comfortable with $30,000 a year for
travel, is that going to be enough? You recently went to Italy, I bet that was a
great trip, did you make it to the Coliseum?”
Client: “Well… You know what, I stopped in Florida on the way back to visit
an old friend. He is having a great time down there, lives on a golf course and
just bought this fabulous boat. I had so much fun we actually called a realtor
and I looked at a few properties. Could I purchase a home in Florida?”
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Initial Report
Confidence at 87%
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New Report
Paying for the home,
furnishings, and a country
club membership they
estimated around $650,000
They also wanted to factor
in annual expenses of
around $25,000
Confidence was at 61%
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To give the client rational confidence of
being able to buy the home, what will the
cost be in terms of lifestyle???
What does it mean to client?
Florida Home =
$20,000 reduction of retirement spending
$15,000 reduction of travel budget
Giving the client choices in terms of what
they understand and value
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New Report
Client did not want to reduce
their retirement spending and
cut their travel in half, but
wanted to be in Florida in the
winter to golf and spend time
with their friend.
Because purchasing the
home presented excess
uncertainty we recommended
renting for the next five years.
We told them to update us
with how they feel about
Florida and we will continue
to evaluate the purchase.
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What if we had this process in January 1998?
1999
$2,244,509
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What if we had this process in January 1998?
1999
$2,244,509
2000
$2,243,383
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What if we had this process in January 1998?
1999
$2,244,509
2000
$2,243,383
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2001
$2,210,393
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What if we had this process in January 1998?
1999
$2,244,509
2000
$2,243,383
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2001
$2,210,393
2002
$2,034,459
NOW
WHAT?
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We go back to our original
recommendation to
understand the client’s ideal
goals and acceptable
compromises among them.
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Arvin had said he loved his job
and would be willing to work
until age 68. I do a analysis
showing that a one year delay in
retirement will put them back in
the Comfort Zone.
Spend the low priorities
Retirement Age, 1 year later, but 1 year earlier
than acceptable
What was important?
Comfortable Retirement, stays the same
Reduce Savings, stays the same
Educate Jr., stays the same
Travel, stays the same
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What if we had this process in January 1998?
1999
$2,244,509
2000
$2,243,383
Providing WEALTHCARE
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2001
$2,210,393
2002
$2,034,459
2003
$2,488,630
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Obvious “Major” Life Changes Requiring New Advice
>> Catastrophe - Personal
>> New Child – Education Change
>> Major Change in Bonus
Or Income either up or down
>> Inheritance
>> Divorce
>> Early Retirement Opportunity
>> Change in Health
Client, Spouse, Children or
Parents
New Goals… New Priorities…
*New Events allow for new advice! And all new advice facilitates the same
value as before.
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Less Obvious Life Changes Requiring New Advice
>> Itching for a Porsche
>> Finds a “Cause”
>> New or Expanded Hobby –
Political, Religious, or
Personal…i.e. write a book
Photography, Scuba, Golf, Pilot License,
Skiing, Boating, Gambling, etc…
>> One Time Special…
>> New Business/Career Opportunity
Kid can study in France for year,
Unexpected Wedding
>> New 401k Option
>> Military Service
>> Refinance Home or New Home
>> Lawsuit
>> Antique Pool Table
Either for or against
>> Isolated change in value
Home, company stock, etc.
New Goals… New Priorities…
*New Events allow for new advice! And all new advice facilitates the same
value as before.
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“But, I’ve been doing quarterly reviews with clients for 15 years and they
HARDLY EVER talk about that kind of stuff!”
REALLY? Honestly??? No Kidding?
I can’t imagine why…
Do you think that is because “that stuff” is not really all that important to them?
Or, do you think it may have something to do with the performance review agenda,
YOU SET…?
And the content of all the reports you go over?
LOOK AT YOUR PERFORMANCE/PORTFOLIO REPORTS – WHERE IS THERE
ANYTHING THAT WOULD FACILITATE A DISCUSSION OF GOALS AND
PRIORITIES!!!
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Maybe my experience is weird and the clients of advisors
that I’ve been doing this with are strange…
Client of advisor – August ’03 – Designed and accepted recommendations
Sept – ’03: Decided to sell 1999 Porsche Carrera for a new Maserati – New Advice
Nov – ’03: Unplanned two week trip to Italy – New Advice
Dec – ’03: Portfolio up 20%+, worried about market correction – New Advice
Jan – ’04: Wants to join Country Club and buy second home – New Advice
What do you think is more likely?
This client is very atypical, because most clients make up their minds and stick
exactly according to plan, or…
This client is fairly typical and the advice we are giving is atypical?
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Just as Wealthcare clients have a lifetime of choices…
You have the choice as to how you service clients…
You can:
Define benchmarks your client doesn’t connect to…
Talk about things that cannot be changed…
Risk your relationship on what the markets may randomly produce…
Bully your clients to “hang in there” and “stick with it long term”
Be a Reporter…
Which DO YOU CHOOSE?
Make the most of the one life your client has
Advise them of the choices they have to improve their life
And control excess uncertainty
Respond to their changing goals and priorities with new advice
Be an Advisor…
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Questions?
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