Value Seeker
Meet Jeff and Laura
Jeff and Laura achieved financial independence years ago and are semi-retired. With over $5M in investments, they don’t worry about running out of money. However, they feel a sense of responsibility to be wise stewards of their money to maximize not only their own retirement, but to leave a legacy to their children and charity.
They have tried many investment vehicles and strategies over the years. Some were very successful, others less so. They have also had a number of financial advisors over their investing lifetime. Their experience and research have led them to understand the difficulty of “beating the market” using market timing or stock picking. In addition, having been taken advantage of by commissioned salesmen in the past, they understand the importance of hiring a fee-only fiduciary.
To that end, a few years ago they hired a fee-only financial advisor who recommended DFA funds – a mutual fund company that utilizes passive, market-based strategies. Instead of trying to beat the market like other advisors had promised, their goal with their new advisor was to simply capture the market return.
Though they feel confident their advisor is knowledgeable, they have been less than impressed with the performance of their accounts. But they have a hard time understanding what it is they are invested in – with dozens of different mutual funds in their portfolio. They wonder if they have been getting the returns they should be, or if something needs to be changed.
Another issue that has emerged is that while their advisor offered some initial financial planning advice, he has since focused mainly on the investment portfolio. In fact, recently Jeff has been slow to ask financial planning questions – to the point that he has begun to stockpile cash outside of the portfolio. He worries that if his advisor finds out, he will tell Jeff to transfer the money to his brokerage account so he can earn a higher fee. However, Jeff wonders if he would be better off paying off his mortgage or buying another rental property instead. Jeff wants an unbiased expert to turn to for these types of issues and doesn’t like the tension that has been building.
Lastly, even though their advisor is fee-only, Jeff and Laura wonder if paying $40,000 per year for someone to manage their portfolio in a passive, index fund strategy is a good use of their hard-earned money.
Our Approach
Jeff and Laura were surprised – frankly a bit skeptical – to find a financial advisor who offered similar services as their current advisor for a fraction of the cost. However, after explaining to them the typical advisor’s business model – where a handful of top clients subsidize the rest, despite receiving essentially the same service – they appreciated the transparency and simplicity of a flat fee where everyone pays their fair share for the expertise and services provided.
One of Jeff and Laura’s biggest concerns in transitioning a portfolio was the potential tax consequences of doing so. They were relieved to find out that at SwitchPoint, we don’t force clients into cookie-cutter portfolios. We were able to design a portfolio around many of their existing positions, allowing them to avoid realizing any capital gains.
In addition, they were amazed to see that we could simplify their portfolio dramatically while still maintaining the same diversification and asset allocation. They also gained clarity on their recent lackluster performance. Some of it was due to the high fees and overcomplication of their current portfolio – which we helped them remedy. However, some of the underperformance was attributable to the simple fact that certain asset classes, like international stocks, had been underperforming U.S. stocks. Now that their portfolio has been simplified, they can much more easily see what they own and have confidence in the rationale behind the overall strategy.
Lastly, Jeff was incredibly relieved to finally have someone who he could trust to give him unbiased financial advice. No more hiding cash on the sidelines or feeling awkward calling to ask for money to take the grandkids on a once-in-a-lifetime vacation. We revisited their financial plan to help them better understand their options and prioritize their goals.
In fact, after several discussions about their goals and tax situation, Jeff and Laura decided to increase their charitable giving substantially. They felt the opportunity to see their money hard at work now was more valuable than leaving it after they were gone. We helped them identify the most tax-efficient gifting methods – such as donating appreciated stock and qualified charitable distributions from their IRAs – in order to maximize their impact.
The Results
- Impartial financial planning advice
- Reduced fees by almost $30,000 per year
- Simplified investment portfolio
- Minimized capital gains through custom portfolio design and tax-loss harvesting
- Improved tax situation and sense of purpose through thoughtful charitable giving
Note: The above case study is hypothetical and does not involve an actual specific client of SwitchPoint. No portion of the content should be construed by a client or prospective client as a testimonial or guarantee that he/she will experience the same or certain level of results or satisfaction if SwitchPoint is engaged to provide investment advisory services.