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© Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004-2008 All rights reserved P r o v i d i n g W E A L T H C A R E W E A L T H C A.

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Presentation on theme: "© Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004-2008 All rights reserved P r o v i d i n g W E A L T H C A R E W E A L T H C A."— Presentation transcript:

1 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E W E A L T H C A R E Monitoring and Ongoing Advice Presented by: David B. Loeper, CIMA ®, CIMC ®

2 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 2 Your Value Proposition With Wealthcare: “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle and avoiding any unnecessary investment risks.”

3 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 3 Your Service Commitment With Wealthcare: “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle and avoiding any unnecessary investment risks.” OBSERVE THAT IT IS THE SAME!

4 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 4 Does a performance report help you deliver this? “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle and avoiding any unnecessary investment risks.” HOW???

5 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 5 Sample Performance Report: Last QuarterYTDSince Inception Current Value$5,050,000$5,050,000$5,050,000 Starting Value:$5,000,000$4,800,000$2,000,000 Net Contributions/(withdrawals)$0$0$1,500,000 $ Gain/(Loss)$50,000$250,000$1,550,000 Total Return in %1.00%5.21%44.29% Custom Benchmark %4.88%49.52% Trailing Annualized Returns:Your PortfolioCustom Benchmark 1 Difference 1 Year31.65%29.92%+1.73% 3 Years1.07%1.17%-0.10% 5 Years3.20%2.99%+0.21% Inception (6.5 years)5.80%6.38%-0.58% 1 Custom Benchmark Allocation:

6 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 6 Sample Performance Report: Last QuarterYTDSince Inception Current Value$5,050,000$5,050,000$5,050,000 Starting Value:$5,000,000$4,800,000$2,000,000 Net Contributions/(withdrawals)$0$0$1,500,000 $ Gain/(Loss)$50,000$250,000$1,550,000 Total Return in %1.00%5.21%44.29% Custom Benchmark %4.88%49.52% Trailing Annualized Returns:Your PortfolioCustom Benchmark 1 Difference 1 Year31.65%29.92%+1.73% 3 Years1.07%1.17%-0.10% 5 Years3.20%2.99%+0.21% Inception (6.5 years)5.80%6.38%-0.58% 1 Custom Benchmark Allocation: Your Conversation… “Last quarter we were a little behind your benchmark due to the overweighting in value stocks that occurred due to their strong performance in the prior quarter. Despite that, we are still ahead of your benchmark YTD, for the last year and also the trailing 5 years and only slightly behind your benchmark for the last 3 years and since inception.”

7 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 7 Sample Performance Report: Last QuarterYTDSince Inception Current Value$5,050,000$5,050,000$5,050,000 Starting Value:$5,000,000$4,800,000$2,000,000 Net Contributions/(withdrawals)$0$0$1,500,000 $ Gain/(Loss)$50,000$250,000$1,550,000 Total Return in %1.00%5.21%44.29% Custom Benchmark %4.88%49.52% Trailing Annualized Returns:Your PortfolioCustom Benchmark 1 Difference 1 Year31.65%29.92%+1.73% 3 Years1.07%1.17%-0.10% 5 Years3.20%2.99%+0.21% Inception (6.5 years)5.80%6.38%-0.58% 1 Custom Benchmark Allocation: Is there ANYTHING on THIS report that even REMOTELY relates to: “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle and avoiding any unnecessary investment risks.”

8 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 8 Most clients, when I first meet with them and ask about their financial goals say something like: “What is really important to me, is to have a portfolio that over at least a 5-10 year time horizon produces a greater mean return with less standard deviation than a passive index blend comprised of 37% large cap core, 18% small cap core, 4.5% to both large and mid cap value & growth, 18% small cap core, 2% small cap value & growth, 13% foreign and 10% intermediate bonds.” THEN WHY IS THAT WHAT YOU ARE MEASURING? True or False?

9 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 9 Connecting to clients… This? - Target allocation to 37% Large, 19% Small, X% Value, Y% Growth? - Efficient portfolio for standard deviation tolerance? - Efficient portfolio for 95 th % -tile downside risk tolerance? - Specific return along with 10 or more years of patience? - AND, assuming YOUR benchmark is somehow tied to their goals, the client was clairvoyant so they never change their goals or priorities and everything in their life AND the markets go according to plan?

10 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 10 Connecting to clients… This? - Target allocation to 37% Large, 19% Small, X% Value, Y% Growth? - Efficient portfolio for standard deviation tolerance? - Efficient portfolio for 95 th % -tile downside risk tolerance? - Specific return along with 10 or more years of patience? - AND, assuming YOUR benchmark is somehow tied to their goals, the client was clairvoyant so they never change their goals or priorities and everything in their life AND the markets go according to plan? Or this? - Comfortable Retirement - Educate Jr. - Travel - Buy a beach house - Golf (reduce savings) - AND, contemplating their life and the markets may not go perfectly according to plan and their goals and priorities will change over their life Making the Most of “Their Life”

11 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 11 Clients are not paying you for the REPORT!!! They are paying for your ADVICE. Providing Advice with Wealthcare… » It’s easy » Focus on progress and the impact of markets on goals » Answers with ‘therefore’ » Identify when changes are necessary due to markets » Make adjustments when goals and/or priorities change » REPROFILE CONSTANTLY – If markets behave well then… Or if markets behave poorly…

12 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 12 The One Page Close Arvin & Alice Valued: Jamaica Trips Education For Arvin Jr. Current Lifestyle Retirement Lifestyle Avoiding Investment Risk

13 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 13 Benchmark the client’s life not the market! » Introduce Monitoring Not Future Values Dashboard For Decisions » Risk Of Material Goal Changes = Minor & Manageable » Risk of markets misbehaving= ALMOST CERTAIN!!!

14 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 14 Portfolio Value > $2,400,000, Comfort Level will be >90% = Sacrifice Portfolio Value <$1,750,000, Comfort Level will be <75% = Uncertain Preventing random market returns risking your relationships!

15 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 15 Ongoing service still making the most of their life What was important? Comfortable Retirement, Educate Jr., Travel, Reduce Savings (for Golf) So what do we talk about in our review? THIS STUFF!! Comfortable Retirement Reduce Savings (for Golf) Educate Jr. Travel

16 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 16 Are Any Decisions Currently Needed? >>Where they currently stand based on the markets & their goals AS LAST DEFINED >>What to watch out for… Potential future decisions based on market results and THEIR choices

17 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 17 Are These The Right Goals? >>Does this still make the most of your only life? >>If we have strong markets, what would be the next priority to add? >>If we have weak markets, what would be the most acceptable adjustment? >>Are your ideal and acceptable goals still your ideal, and acceptable goals?

18 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 18 Are we still “spending” the lowest priorities? >>Still retire later and compromise estate to reduce risk? >>Still retire later and compromise estate to keep savings low for golf? >>Still reduce estate to retire a bit earlier? >>Still take more risk, retire later and compromise estate to spend more & travel?

19 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 19 Arvin & Alice Life Change #1: EDUCATION Advisor: “You valued sending Arvin Jr. to the local university. Is that something you continue to feel strongly about?” Client: “Actually, Junior has performed better than expected in his school work. We found out last week that he has received a full academic scholarship. Thus, the costs for education will be much less than we anticipated. How might this affect our other goals?”

20 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 20 Initial Report

21 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 21 New Report If we remove the education expenses… Now at 83% Comfort NOT A MATERIAL IMPACT

22 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 22 Arvin & Alice Life Change #2: NO BONUS NEXT YEAR Advisor: “When we last met, you felt comfortable with your current level of savings. Has anything changed since our last meeting that would cause you to save more OR less next year?” Client: “Well… I will not receive my annual bonus next year due to my company’s restructuring. We are concerned about our ability to make our annual trip to the Caribbean. We would prefer to continue our trips to Jamaica, but that would result in less savings next year. How would this impact our comfort level?”

23 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 23 Initial Report

24 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 24 New Report If we remove next year’s savings… Now at 80% Comfort NOT A MATERIAL IMPACT

25 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 25 Jay & Peggy Retirement Life Choice: Home in Florida Advisor: “When we last met, you felt comfortable with $30,000 a year for travel, is that going to be enough? You recently went to Italy, I bet that was a great trip, did you make it to the Coliseum?” Client: “Well… You know what, I stopped in Florida on the way back to visit an old friend. He is having a great time down there, lives on a golf course and just bought this fabulous boat. I had so much fun we actually called a realtor and I looked at a few properties. Could I purchase a home in Florida?”

26 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 26 Initial Report Confidence at 87%

27 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 27 New Report Paying for the home, furnishings, and a country club membership they estimated around $650,000 They also wanted to factor in annual expenses of around $25,000 Confidence was at 61%

28 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 28 To give the client rational confidence of being able to buy the home, what will the cost be in terms of lifestyle??? What does it mean to client? Florida Home = $20,000 reduction of retirement spending $15,000 reduction of travel budget Giving the client choices in terms of what they understand and value

29 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 29 New Report Client did not want to reduce their retirement spending and cut their travel in half, but wanted to be in Florida in the winter to golf and spend time with their friend. Because purchasing the home presented excess uncertainty we recommended renting for the next five years. We told them to update us with how they feel about Florida and we will continue to evaluate the purchase.

30 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 30 What if we had this process in January 1998? 1999 $2,244,509

31 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 31 What if we had this process in January 1998? 2000 $2,243, $2,244,509

32 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 32 What if we had this process in January 1998? 2000 $2,243, $2,210, $2,244,509

33 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 33 What if we had this process in January 1998? 2000 $2,243, $2,210, $2,034, $2,244,509 NOW WHAT?

34 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 34 We go back to our original recommendation to understand the client’s ideal goals and acceptable compromises among them.

35 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 35 Arvin had said he loved his job and would be willing to work until age 68. I do a analysis showing that a one year delay in retirement will put them back in the Comfort Zone. Spend the low priorities Retirement Age, 1 year later, but 1 year earlier than acceptable What was important? Comfortable Retirement, stays the same Reduce Savings, stays the same Educate Jr., stays the same Travel, stays the same

36 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 36 What if we had this process in January 1998? 2000 $2,243, $2,210, $2,034, $2,488, $2,244,509

37 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 37 Obvious “Major” Life Changes Requiring New Advice New Goals… New Priorities… *New Events allow for new advice! And all new advice facilitates the same value as before. >>Major Change in Bonus Or Income either up or down >>Inheritance >>Change in Health Client, Spouse, Children or Parents >>Catastrophe - Personal >>New Child – Education Change >>Divorce >>Early Retirement Opportunity

38 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 38 Less Obvious Life Changes Requiring New Advice New Goals… New Priorities… *New Events allow for new advice! And all new advice facilitates the same value as before. >>Finds a “Cause” Political, Religious, or Personal…i.e. write a book >>One Time Special… Kid can study in France for year, Unexpected Wedding >>Military Service >>Lawsuit Either for or against >> Isolated change in value Home, company stock, etc. >> Itching for a Porsche >> New or Expanded Hobby – Photography, Scuba, Golf, Pilot License, Skiing, Boating, Gambling, etc… >> New Business/Career Opportunity >> New 401k Option >> Refinance Home or New Home >> Antique Pool Table

39 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 39 “But, I’ve been doing quarterly reviews with clients for 15 years and they HARDLY EVER talk about that kind of stuff!” REALLY? Honestly??? No Kidding? I can’t imagine why… Do you think that is because “that stuff” is not really all that important to them? Or, do you think it may have something to do with the performance review agenda, YOU SET…? And the content of all the reports you go over? LOOK AT YOUR PERFORMANCE/PORTFOLIO REPORTS – WHERE IS THERE ANYTHING THAT WOULD FACILITATE A DISCUSSION OF GOALS AND PRIORITIES!!!

40 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 40 Maybe my experience is weird and the clients of advisors that I’ve been doing this with are strange… Client of advisor – August ’03 – Designed and accepted recommendations Sept – ’03: Decided to sell 1999 Porsche Carrera for a new Maserati – New Advice Nov – ’03: Unplanned two week trip to Italy – New Advice Dec – ’03: Portfolio up 20%+, worried about market correction – New Advice Jan – ’04: Wants to join Country Club and buy second home – New Advice What do you think is more likely? This client is very atypical, because most clients make up their minds and stick exactly according to plan, or… This client is fairly typical and the advice we are giving is atypical?

41 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 41 Just as Wealthcare clients have a lifetime of choices… You can: Define benchmarks your client doesn’t connect to… Talk about things that cannot be changed… Risk your relationship on what the markets may randomly produce… Bully your clients to “hang in there” and “stick with it long term” Be a Reporter… Which DO YOU CHOOSE? Make the most of the one life your client has Advise them of the choices they have to improve their life And control excess uncertainty Respond to their changing goals and priorities with new advice Be an Advisor… You have the choice as to how you service clients…

42 © Copyright Financeware, Inc., d/b/a Wealthcare Capital Management All rights reserved P r o v i d i n g W E A L T H C A R E PAGE 42 Questions?


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