Meeting With RW Investment Strategies

The focus of my practice, RW Investment Strategies, is to offer financial advice and investment management services for individuals and families to get their investments on track. It turns out that, over the past few decades, the American people have been put in charge of their investments and their retirements without an owner's manual. Many are unsure of how to proceed and whether they are on the right track. They are at the mercy of fast-talking, high-priced financial service providers. They should, at the very least, explore the alternatives that are available to them.

I understand that for many people, as I previously said in a similar post, meeting with an investment advisor is on par with going to the dentist. Hopefully, I can change that perception (no disrespect intended towards dentists) by describing the process.

I get all kinds of requests. Some are just to look at the bond portion of assets. Some are to get a second opinion. Some are to look over 401k allocations. The following is a description of my approach..

The Initial Meeting

Typically, it is a matter of two meetings. At the first meeting, usually one hour,  I gather information and we get to know each other. I'm interested in the big picture. We fill out a questionnaire together. I'm interested in your goals and where you are on your path to retirement. Ages, types of assets owned, number of years to desired retirement, etc., are all very important. I am interested in whether you seek to finance college educations, your insurance situation, whether your job is secure, etc. I am interested in your saving and borrowing habits.

In the first meeting, in addition to the basic questionnaire, I ask potential clients to complete a simple risk-tolerance type of questionnaire. I ask questions about past investment experience. Many times, by understanding reactions to the 2008 debacle, I can get valuable insights into risk tolerance. Here's the deal: sometime over the next 10 years the stock market is going to drop more than 25%. This could be over a short period or prolonged. I need to try to understand how a client will act in choppy markets. I'm interested in whether s/he will want to capitulate and sell everything or stay the course and possibly look at a drop as a buying opportunity.

If you aren't sure if you are interested in my services, I usually cover my philosophy in the first 15 minutes. I'll listen to what you are looking for. This is low key, and there is absolutely no obligation. If there is no interest in the low-cost, low turnover, indexed approach or you are interviewing other advisors, then we'll shake hands.  I'll wish you luck, and we'll part ways, hopefully to meet up again in the near future.

Once we decide to proceed, we sign some agreements that specify my services, as required by state regulators. I next gather your most recent statements and the list of assets available for investing.

Next, I sit down with this information and order accounts starting with the taxable accounts, then the qualified accounts (401ks, 403bs, IRAs, government TSP, etc.), then the Roths. The next step is to assess your overall asset allocation. Simply, this is the percent in stocks versus percent in bonds. Is it appropriate, given everything I've learned about you up to this point?  I like to frame it in terms of the seven models offered by Schwab, ranging from most aggressive to least aggressive. Picking an appropriate model at the beginning is a vital first step in a successful investment program.

Next, I will see if it makes sense to reorder investments from a tax perspective. Some clients have interest-paying assets predominantly in their taxable accounts. A simple reordering of investments to exploit low-dividend/cap gains tax rates can save big bucks.

I next look at specific investments from the perspective of how they fit the model.

I explain that this is a long-term process, that, again, we are moving into choppy waters; the idea is to get comfortable with a plan and stick with it. For those contributing to their 401ks, etc., I explain that it is beneficial for markets to drop because then assets are cheaper.

Once I've drilled down to the asset level, I am looking for index funds with low-management fees rather than high turnover, actively managed funds with high expense ratios. I am interested in broad market participation in domestic markets as well as international markets. In the bond area, in today's markets, I am recommending shorter-term funds, some high-yield exposure as well as international bond funds. With rates so low, it is risky just to buy the broad bond market.

The Second Meeting

The second meeting goes over the recommendations in detail. I am looking to see whether you can carry out the investment plan. If I feel you can't, or don't want to, I'll offer to manage your investments at a rate of 0.4% of market value. As part of the meeting, we talk about monitoring the portfolio and rebalancing. I typically rebalance if a sector is 5% out of balance. We talk about the resources you have available at your broker/401k provider. For example, Schwab has portfolio analytics available to clients that makes the process very simple. In fact, they are currently testing a portfolio performance system that will soon be available.

RW Investment Strategies works with some clients who feel they may want to manage their own investments, in the future, using the low-cost, indexed fund approach. RW Investment Strategies gets the portfolio up and running, manages the assets for 6 months to a year, until the client is comfortable, and then hands the reins over. During the interim, RW Investment Strategies will sit with you at the computer to ensure you know how to do transactions on line, rebalance, etc. It is obvious that doing it yourself saves a big chunk of the nest egg over the years.

In the second meeting, I also make recommendations in other areas for your financial planning. For example, you may need umbrella insurance, a will, or tax work. As a fee-only registered investment advisor, I am compensated solely by my clients--I receive no referral fees from custodians or insurance companies I may recommend . If I receive referrals from someone I refer you to, I disclose it.

If you are several years away from retiring, it is very useful to begin thinking about where your retirement income will be coming from and how much you will need in retirement. If in retirement, it is critical to think through when to take Social Security and how you will manage your assets to ensure you don't run out of money.

I'll leave you with recommended readings and blogs to follow. From time-to-time, I'll check up on you.

Generally, it's a pretty pain-free process. Not at all like going to the dentist!