Investment Philosophy
- Rely on strategic asset allocation and rebalancing.
- Match the market; don't try to beat it.
- Minimize taxes.
- Keep fees low.
Rely on Strategic Asset Allocation and Rebalancing
Approximately 90% of the variation in investment portfolio performance is determined by asset allocation as opposed to stock-picking. Asset allocation is a mathematical approach to diversification among various asset classes, such as stocks, bonds, real estate and cash. By estimating the expected risk and return of various asset classes and monitoring how those asset classes are correlated to one another under different market conditions, Clientfirst constructs portfolios customized to each client's particular needs, goals and risk tolerance. The result is a portfolio with a higher probability of achieving the desired goals with a lower level of expected portfolio risk.
Strategic asset allocation and rebalancing reduce risk and volatility, and that increases the chances of investors staying the course - the key to successful investing.
Individualized Fixed Income Portfolios
Clientfirst's extensive experience and expertise in individual bond selection provides added value as it constructs and manages portfolios of highly rated, tax-free bonds issued in the client's state of residence in order to avoid both federal and state taxation of coupon income. This approach eliminates the fees and uncertainty associated with bond funds or separate accounts. Customized bond portfolios also provide clients with yet another benefit - stated final maturities, the scheduled return of principal at certain points in time. This is something a bond fund simply cannot do.
Match the market; don't try to beat it
Clientfirst's approach to managing equities focuses on attempting to match, rather than beat, the market's returns. Certain exchange-traded funds offer low tracking error and tax efficiency.
Although it is relatively easy for investors to match the market's returns, it is well established that over 80% of mutual fund managers fail to beat the market. And the longer the time frame of the comparison, the higher this percentage becomes. In other words, money managers' performance results tend to worsen over time.
Any attempt to beat the market is known as "active management." Management fees and comissions are so burdensome that underperformance is likely. And this does not even take into account transaction costs, administrative fees or taxes. Collectively, these expenses are considerable, given the amount of buying and selling ("turnover") experienced by most funds or other investment vehicles subscribing to the active management style. Active managers may also accept greater risk than is presented by the market as a whole in an effort to compensate for their fees and operating costs.
Naturally, there will always be managers who beat the market - but will you know which ones those will be next year or the year after? Or to what extent they may outperform the market? If you as an investor try to beat the market, will you own enough of the strong performers to compensate for the inevitable underperformers you will also own?
Investors often ask, "What about paying an adviser to select the managers that they believe will outperform the market?" The answer is, advisers don't know who will outperform the market at any given time. Even the money managers themselves don't know, and they are required to provide a disclaimer to that effect.
Paying a competent financial adviser to recommend asset allocation and rebalancing or financial planning makes sense. Paying one to act as a tout does not.
Minimize taxes
Clientfirst has extensive expertise in constructing and managing portfolios of individual high-quality, tax-free bonds issued in the client's home state. Typically, all of the coupon income from these bond portfolios is free of both federal and state taxes. Portfolios of individual bonds, with stated final maturities, ensure the return of principal - something bond funds cannot do. And bond fund expenses are avoided as well.
Clientfirst Wealth Management Fee Schedule
The following fee schedule includes financial planning, investment management, and on-going advice. Fees are a zero-sum game. Each dollar you pay in fees directly reduces your return, now and in the future. The highest fee for comprehensive wealth management on the Clientfirst fee schedule is 0.75% and this fee falls rapidly as the amount of assets in the account rises. The Clientfirst fee schedule below is "flat" as opposed to being "tiered". For example, an account with a one million dollar balance would pay 0.60% on the entire balance, or approximately $6,000 per year ($1,500 per quarter). Fees are assessed quarterly in arrears.
Keep Fees Low
| Client Account Balance | Annual Fee (as a % of total account balance) |
| Under $500,000 | Requires Approval |
| $500,000 to $1,000,000 | 0.75% |
| $1,000,001 to $2,000,000 | 0.60% |
| $2,000,001 to $3,000,000 | 0.55% |
| $3,000,001 to $5,000,000 | 0.45% |
| $5,000,001 to $7,000,000 | 0.35% |
| Over $7,000,000 | Negotiable |
Excessive fees undermine the performance of an investment portfolio. For some examples, go to the Clientfirst Expense Calculator. This calculator lets you isolate the financial adviser's or broker's fees.
Consider the following example assuming a 10% annualized rate of return.
This example does not take into account taxes:
| Annual Advisor Fees | Account Balances | |||
| Investment | Fees | 5 Years | 10 Years | 20 Years |
| $100,000 | 0.50% | $157,423 | $247,822 | $614,161 |
| $100,000 | 1.00% | $153,862 | $236,736 | $560,441 |
| $100,000 | 1.50% | $150,365 | $226,098 | $511,204 |
Obviously, the person paying the lowest fees wins and does so by a wide margin.
Complimentary Portflio Analysis
Many mutual funds and annuities charge ongoing asset-based comissions or marketing and distribution fees, known as 12b-1 fees. 12b-1 fees cost investors over $10 billion each year. These fees are difficult to detect and many investors do not realize that they are being charged because they are collected directly from shareholder assets. Marketing and distribution fees frequently amount to one percent of your entire investment's value each year. Clientfirst clearly identifies and suggests ways to eliminate the 12b-1 fees in your portfolio as part of its complimentary consultation for accounts of $500,000 or more.
