Often times we are asked “Why should I work with you?” or “What am I paying for?” We think these are great questions and should be answered before anyone begins a conversation with us. Thus, we have compiled the below list to help you understand the value that Shorepine Wealth Management brings to our relationship.
Each of these items by themselves can certainly be outsourced. You can even do some of them yourself if you have the time and wherewithal. For example, it is not very hard to rebalance a portfolio to some pre-determined target. All it takes is selling what is up and buying what is down and making sure your weights are in line with your targets.
The overriding value we provide is that by working with us you can have peace of mind knowing we are doing these things for you. Constantly, consistently and in a way that ensures your financial well being comes first. Mistakes and missed opportunities can cost a lot in the long run.
OK. Here’s our non-exhaustive list:
1. Your financial plan.
This is the first step in our never-ending feedback loop that comprises your current situation, where you are going and how you will get there. We use powerful and interactive software to gain a full understanding of your current assets, the potential to grow those assets and how those figures relate to your goals. We do this exercise every year or as your situation changes. This is essential in understanding how we are to go about investing your wealth. Your propensity to take on risk will come out of this process. Not only your ability to take on risk (the true amount of risk you should be taking when taking into account your current assets, your income and your goals) but your behavioral risk profile (how much risk you think you can handle). This second type of risk assessment is very important as most people think they are risk takers until they are faced with the possibility of losing 50% of their assets. When faced with that, their risk profile changes very quickly and leads to bad decision-making. Which brings us to the second point.
2. Emotional Control.
A very large part of what we do as advisors is act as a filter between yourself and your portfolio. Numerous studies have been done over the years to try to determine how the average investor managing their own wealth has fared. The results of these studies span from severely poor (about 3 – 4% less than market average annual returns during markets that averaged 7-8% returns) to just plain poor (about 2% less than the market). Either way, the results of these studies have consistently shown that those with wealth that manage it themselves have made bad decisions. Most likely these decisions have been around extreme events in the market. At the bottom of market cycles the average investors tend to sell their stocks when they decide they have just had enough pain. At the top of a market they borrow money to buy more because they think the rally will last forever (Fear of Missing Out). They should be doing the exact opposite. An advisor with a plan helps ensure these mistakes are minimized or eliminated from your long term investing strategy. (Here is where is gets very interesting. Almost every single person believes that it is everyone else that behaves the wrong way and they would never do it. Yet the data just does not tell us that is the case. We have seen brilliant investors and experts in behavioral finance make this very same mistake.)
3. Taxes and Costs.
As a practitioner with almost two decades of investing experience we have seen it all. The business of investing is rife with schemes and mechanisms to separate you from your hard earned money.
The annuity that guarantees you a lifetime of income? It’s going to cost you 7%, 8% or more. If the market is only returning 7% over longer time periods you are paying dearly for that “insurance”. In fact, in this case you are not even keeping ahead of inflation. The same money in a well-managed portfolio could likely achieve your goals (income for your lifetime) AND leave money for your heirs.
The hedge fund your neighbor keeps mentioning that is touting 24% average annual returns? Are you aware that after the hedge fund manager is paid it drops to 12%? Then factor in the means by which those returns were produced (often it is a lot of costly tax-ineffective trading) and you, the investor, get to walk away with 8%. That’s a lot of risk and volatility to get market-like returns. Seems like the winner here is the hedge fund manager.
Our true value here is helping you avoid these costly mistakes, no matter how “sexy” they may sound. There may be a good annuity we can employ in your portfolio just like there may be a good hedge fund. Can you tell the difference between the good ones and the bad ones? Are you willing and able to do the research to find out?
Regarding taxes. What is more important? The returns you make or the returns you keep? We would argue wholeheartedly for the latter. It does not matter if your portfolio is up 15% if the IRS takes half of that away. Short term trading strategies that take little to no concern over taxes can do just that. A reasonable tax strategy that incorporates asset location (putting higher taxed assets into qualified accounts like IRA’s while leaving lower taxed assets in non-tax deferred accounts) just makes sense. Also incorporating a good tax loss harvesting strategy throughout the year can help minimize the tax bite. Do you have the tools and time to do this? Are you willing and capable to do it consistently over time?
4. Portfolio Management.
As a prior institutional level portfolio manager we believe we have the skills to manage a portion of your stock portfolio ourselves. This removes the need to pay someone else to manage a portion of your wealth (see #3 above). This savings along with our ability to use low-cost ETF’s and funds allows us to combine assets in the most efficient way. We have 100 commission free ETF’s at our disposal. That saves you from trading costs. It may not seem like a lot in one month, quarter or year but over time these savings can add up. A $500,000 portfolio compounded monthly over 20 years growing at 7% will equal approximately $2,020,000. Add just 10 basis points (0.10%) to that 7% and your money has grown an almost additional $40,000. That might be your mortgage payment for a full year in retirement. Or 4 great trips.
The ability to use these strategies is not the value here though. Honestly, anyone can combine a few ETF’s or funds into a reasonable portfolio and forget about it. You’ll probably survive. However, are you going to constantly monitor it? Are you going to rebalance the asset class allocations when one asset class does well? Do you have the tools to do that? All of our client portfolios are monitored daily through our rebalancing software. If your small cap ETF grows to 12% of your portfolio and you are supposed to own 10% we are immediately notified and prompted to act. In this case, we would likely trim the position and move the money to something you own that has lagged (see # 2 above). Studies suggest this undertaking of actively rebalancing your portfolio on a consistent and constantly monitored basis can add up to almost 1% to your long-term returns. Under our prior scenario moving from 7% to 7.8% means an almost additional $350,000. Are you leaving this money on the table? Isn’t that worth paying an advisor?
5. Our Network & Your Total Wealth Solution.
Do you have an estate plan? Do you have a CPA? Does your current advisor talk with these people? Do they all integrate their areas of expertise to maximize the benefit to you? Do you have a wealth team that acts and plans in your best interests? We not only will meet with these advisors, WE WANT TO. If we are not integrating your total wealth picture into how we do our job we are only doing half our job. If you need help finding these people we can help at no cost to you.
How does a total wealth solution work? Let’s look at an example. Say you own income producing real estate. Does your current advisor think it is reasonable to also own Real Estate Investments (REIT’s) in your portfolio? Why increase your exposure to something you are already heavily invested in. Are they managing your total wealth or just the part they are getting paid on? What is better? We would suggest the management of your wealth should be a total, integrative affair. Not piecemeal. That is just our view.
6. Your Advocate.
As your advisor it is our job to be your chief advocate when it comes to all things investing. This begins with our constant (but hopefully not too annoying!) communications with you. Our relentless aim is to educate you about the markets to the point where you are comfortable with our common goals and the ways we are looking to achieve it. We become a team when you join Shorepine Wealth Management. Want to better understand Mortgage Backed securities? We can explain it to you or point you in the right direction if you want to research it yourself. Heard about a great stock or fund to invest in? How about your cousin’s start-up? We can make sure it is doing what it is supposed to do. We often can’t uncover outright fraud but if something seems amiss wouldn’t you want to know before you send in your money?
While this list is not exhaustive we hope it gives you a better sense of why people trust their money with us. We take the role of Financial Advocate with the utmost of responsibility and duty of care. We want your wealth to grow in the best way for you. Whether that is conservatively or aggressively, we will be there to help you do the right things along the way. That is our promise to you.
In a world where everything is prescribed a value and quantified to the nth degree how can you value the above items? It is hard to do and going to be different for everyone. However, we feel the opportunity cost (missing out on additional returns or causing lasting damage to your portfolio because you are not consistently doing the things above) far outweighs the “cost” of working with a professional.
Don’t wait until the next market correction (or worse!) to talk to an advisor. By then it will be too late.
Investment Products are Not FDIC Insured. No Bank Guarantee. May Lose Value. Investing involves risk. All written content on this website is for information purposes only. Opinions expressed herein are solely those of Shorepine Wealth Management, unless otherwise specifically cited. This is neither a solicitation of offers to buy securities nor an offer to sell securities. Past performance is no guarantee of future results. Material shown here is believed to be from reliable sources however, no representations are made by our firm as to another parties’ accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Shorepine Wealth Management, LLC is a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.
