INVESTMENT MANAGEMEMT PROCESS

Transcription

1 1 INVESTMENT MANAGEMEMT PROCESS

2 Herbert Financial Group (HFG), LLC is an independent broker dealer and registered investment advisor with over 30 years of experience and specializes in wealth accumulation and investment management. 2 Management Philosophy We utilize a disciplined, rules based investment methodology within our portfolio management and risk mitigation We utilize a Core and Satellite approach within our risk based model allocations We apply relative strength and sector rotation strategies which enables us to identify momentum in an attempt to create alpha We utilize an in-house investment committee to screen the best in class ETF s (Exchange Traded Funds) from a cost, risk and performance perspective

3 What is a Risk Tolerance Questionnaire (RTQ)? 3 A tool to help identity your investment attitudes, values, experiences and your tolerance for financial risk We utilize FinaMetrica s 25 question risk profiling system The results will dictate the amount of risk you are comfortable taking to achieve your financial goals To potentially achieve higher returns, you must expose yourself to higher amounts of risk

4 Why is a RTQ Important? 4 It allows the advisor and client to embark on a mutual understanding regarding the amount of risk you are comfortable taking It allows the advisor to exercise discretion and invest and adjust your portfolio within your stated risk tolerance This allows the advisor to proactively trade as the markets dictate within the scope of your stated risk tolerance score This questionnaire is crucial from an investment standpoint and also your entire financial plan

5 Can You Update Your RTQ? 5 Yes, an annual review and update of your RTQ is required You many change at anytime

6 How Is Your RTQ Scored? Your answers are scored by way of an objective statistical comparison against the answers given by a sample of the adult population to produce a detailed risk profile report. Points Investment Objective Risk Tolerance Equity Debt/Alts Income Low 20-40% 60-80% Income / Moderate Low/Moderate 30-50% 50-70% Moderate Moderate 50-70% 30-50% Moderate Growth Moderate/Aggressive 60-80% 20-40% 72+ Growth Aggressive 70-90% 10-30% Income Income/ Moderate Moderate Moderate Growth Growth

7 What is a Exchange Traded Fund (ETF)? 7 It is unique investment tool that combines some of the features of mutual funds with some of the features of individual stocks. Like a mutual fund, an ETF gives investors access to a group of securities through a single transaction. Like a stock, these ETF shares are traded on exchanges at market-determined prices. Growth of the Exchange Traded Fund industry over the past 20+ Years Mutual Fund Broad exposure Managed Portfolio Transactions made through a broker Forward Priced Internal expenses from trading costs Tracking Error ETFs Stock Liquidity Transparency Fully invested Trading flexibility Can be bought/sold through a broker No Load Fees Stop Orders Limit Orders

8 ETFs vs. Mutual Funds What are the Differences? Characteristic ETFs Mutual Funds History: Modern ETF created in Modern Open-Ended Fund created in Exposure: Over 1,650 ETFs globally Over 76,200 mutual funds globally. Tax Efficiency: Capital gains may be deferred until the point of sale of a fund. Capital Gains also generated by manager selling to generate funds to cover investor redemptions. 8 Transparency: Holdings are typically listed on a daily basis. Holdings are generally disclosed on a quarterly basis. Liquidity: Investors are able to buy/sell at market prices while exchanges are open. Fees: No Load Fees Expense Ratio Average = 0.5%* Tracking Error: the failure to provide matching returns as an underlying index o Unlike open-ended mutual funds, ETF managers are able to invest all of a fund s assets. o Along with the typically lower expense ratio, ETFs can more closely mirror the underlying index. Mutual fund shares are priced at the close of each trading day determining the transaction for daily purchases / sales. Types of Mutual Funds: o No Load o Front Load: Typically as high as 5.75% o Deferred Sales Charge: 1.0%*** Expense Ratio* o Actively Managed(Bond/Eq/Alt s) Avg. = 0.65% / 0.89% / 1.35% o Index Mutual Funds (Bonds / Equity) Avg. = 0.11% / 0.12% Trading Costs: realized as fund managers make internal trades o Portfolio Turnover: rate holdings are being replaced *Invesco: An Introduction to ETFs **Bloomberg: An Investor s Guide to Fees 10/08/2014 ***FINRA: Investor s Alert- Understanding Mutual Fund Classes

9 Core ETF Partners 9

10 Choosing the Best Vehicle a Car, a Bus or a Limo? 10 Achieving your investment goals is similar to embarking on a cross-country trip. Reaching your destination requires careful planning, time and most importantly the right vehicle to get you there. Would you rather take a car, a bus or a limo? Source: Curian Capital

11 Drive Yourself in a Car (Do Your Own Investing) 11 Your first option is to invest on your own. Similar to driving yourself in a car, you are responsible for all aspects of your trip and the vehicle taking you there. Cost of the vehicle Mapping out the best route and ensuring you have enough gas Proper maintenance on the car Monitoring speed (time frame), safety (risk) and progress (performance) What happens if you get a flat tire, take a wrong road, come across a detour or get tired? Driving yourself gives you the most flexibility and control, but it also involves a high level of responsibility. When it comes to your long-term investments, you may not be comfortable embarking on this journey alone. Source: Curian Capital

12 Take a Bus (Invest in a Mutual Fund Only Portfolio) 12 Another option is to invest only in mutual funds, similar to riding a bus to your destination. By taking this method, you are outsourcing many of the costs, time and duties associated with the journey. You and a group are merging your resources to hire a professional driver (fund manager) Riding in a large vehicle that fits a lot of passengers (mutual fund) Traveling relatively hassle free (professional management) The bus driver is responsible for transporting you to your destination. If the driver runs into any detours or engine trouble, the driver must react appropriately to the situation. In addition, this vehicle choice lacks personalization and customization. The actions of other passengers may affect the quality of your experience. Source: Curian Capital

13 Ride in a Limousine (Managed Accounts with an Advisor) 13 A managed account can be compared to riding in a limo. By combining various investment products and asset classes, you can achieve customization and diversification that you won t find if you invest only in mutual funds. You are hiring a professional driver (money manager) Unlike the busy bus, your experience is personalized and customized to fit your needs You can tell the driver (advisor) when to slow-down (rebalance), pull over (tax harvesting) or take a different route (include or exclude securities) The limo driver picks you up from your home and takes you on an individual journey. You have a bevy of options such as the wet bar, watching TV or a movie, turning on reading lamps and stretching out with ample legroom. Source: Curian Capital

14 The Added Value of a Financial Advisor 14 HFG financial advisors don t merely pick investments they thoroughly analyze your personal situation, determine your risk tolerance and assess the market environment as they develop your investment plan utilizing a holistic wealth management approach to help you achieve your financial goals.

15 What Value Does an Advisor Really Add? We help you to identify your financial goals so they are measurable and achievable 2. We determine your Financial Time Horizons for each of your goals In order to tailor your portfolio to your goals, we need to define your time horizon. A portfolio invested to finance retirement in 10 years would include a different set of allocations than a portfolio intended to finance an imminent retirement. 3. We assess your Risk Tolerance Don t lose sleep over the market s volatility. We can help you understand your feelings to the risks of investing by utilizing a risk tolerance questionnaire. This allows us to create a plan that ensures your portfolio matches the amount of risk you are comfortable taking. 4. We create a carefully planned and diversified Investment Strategy and Asset Allocation Strategy specifically designed to help to address your family s needs

16 What Value Does an Advisor Really Add? We develop a Holistic & Comprehensive Financial Plan We look beyond your investments to incorporate a holistic wealth management approach that includes: Working closely as a team member with your or our affiliated CPA and attorney Tax managed retirement savings and spending advice Life Insurance Estate planning to ensure your heirs are taken care of 6. We offer continued and consistent Guidance, Advice & Monitoring of Your Financial Plan and Assets We help stop you from making emotionally driven financial decisions We will meet with you regularly to review your plan and investments to ensure you reach your goals and adjust your portfolio based upon the following: Market Changes Employment & Income Changes Tax law changes Health, Disability, Death 7. We pride ourselves on providing exceptional Personal Service from a Dedicated Team in order to form a meaningful and long-term relationship with you We are always available to personally assist you with financial questions and concerns