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Update Your Risk Profile with Your Investment Advisor
Investment professionals are responsible to help investors continually determine what level and kind of risk they are willing to take with their investments.
In order to determine a client’s risk appetite, investment professionals often ask a client to complete a risk profile questionnaire. It’s a standard financial planning form and each firm typically develops their own or uses someone else’s. These questionnaires are typically 7 to 10 questions that attempt to measure the investor’s thoughts on the risks in the marketplace and how it might affect them inside their portfolio.
Investment professionals are responsible to help investors continually determine what level and kind of risk they are willing to take with their investments.
In order to determine a client’s risk appetite, investment professionals often ask a client to complete a risk profile questionnaire. It’s a standard financial planning form and each firm typically develops their own or uses someone else’s. These questionnaires are typically 7 to 10 questions that attempt to measure the investor’s thoughts on the risks in the marketplace and how it might affect them inside their portfolio.
For example, a question might be something like, “If you lose 20% of the value of your portfolio, which of the following things might you do?
- Do nothing;
- Buy more;
- Move your money;
- Not sure what to do.”
When the client leaves the office, the investment professional has a baseline on which to ground the portfolio recommendations. They can choose investments that meet the client’s appetite for risk. However, it is important to update these questionnaires from time to time because the economy and risk factors continue to change.
In 2008, investors were nervous because the economy was experiencing real difficulty; risks were higher, appetite for risk taking actually dropped in our firm. So in 2008 - 2010 investors were answering risk questions differently than they are in 2014. We can't just file the risk questionnaires and put them away.
In our firm, we have instituted a new practice where every summer, after clients have fulfilled their tax obligations and have a good idea of where they stand financially, we ask them to reassess themselves in terms of their individual risk appetite. We tie this into their annual retirement/financial planning outlook.
We are looking into implementing a software application that will interact directly with the client. It will compare their current risk appetite to what they presently hold to see if they are aggressively investing in the market or not being aggressive enough.
We believe the risk should be reassessed at least annually; it is not good enough to take the risk questionnaire and then file it away. Investment professionals should ensure investment portfolios are continually monitored and not just perform a one-time task in order to get their compliance paperwork done.
As investors, clients who have not completed a risk appetite questionnaire for some time and who now feel differently about the markets should contact their investment professional. Clients should ask that their portfolio be reassessed to ensure their risk appetite is reflected in what they currently own.
Looking at one’s investment portfolio from a risk appetite perspective is a good thing to do and continually do over time. These are fast-moving times. We cannot be stale in our approach to the current economic environment.
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
Allowance for Children: More Than a Lesson on Paper
I thought I had a theory regarding allowance, until I had to put my theory into motion with my own child.
What I learned was that my husband had his own theory and shockingly, I had mine. This caused conflict as to how we wanted to present allowance to our nine-year-old son.
My philosophy is that allowance should not be paid for normal work and chores, but for work or activities done above the basic chores: make bed, pick up toys, put clothes and dishes in appropriate places. I’ve always explained to the family that we are 4 people, each participating members in our home, each with an equal responsibility to take care of it.
I thought I had a theory regarding allowance, until I had to put my theory into motion with my own child.
What I learned was that my husband had his own theory and shockingly, I had mine. This caused conflict as to how we wanted to present allowance to our nine-year-old son.
My philosophy is that allowance should not be paid for normal work and chores, but for work or activities done above the basic chores: make bed, pick up toys, put clothes and dishes in appropriate places. I’ve always explained to the family that we are 4 people, each participating members in our home, each with an equal responsibility to take care of it.
My husband’s philosophy is that allowance should be paid for basic chores, but he was very open-minded, understood my philosophy, and was willing to compromise. The next subject was which chores were eligible for allowance credit.
When I first said, “Wash the car once a week,” my husband disagreed. He felt it was too big of a job, and what if we were travelling one weekend? Should my son lose his ability to do his chore and earn his allowance? More conversations like this ensued. Finally our debates led me to a parenting specialist.
“My husband and I have agreed that we are not going to give an allowance for basic chores, but we are torn as to what to assign and for how much.” I also explained how we had determined that my son was to do 4 things per day, 7 days a week, to earn his allowance. The parenting specialist nearly fell off her chair laughing, saying, “I can’t even remember to do 4 things in a day. That’s too much for your son. Too much pressure.” She guided me to 4 things a week.
So my husband and I came up with a list of chores that I think are really creative, different and unique to our household that will allow our son to accomplish them even when we travel:
Write a good sentence in Italian.
Write a good sentence in Spanish.
Write a complicated math problem and solve it with Papa’.
Read a book to your brother and write the title in your journal.
Then we got to the subject of how much. My husband said, “Ten dollars,” and I said, “Five.” My husband also wanted $3 to go to charity. We are in complete disagreement. I go back to the parenting specialist, who pretty much fell off her chair again, saying, “What is it that we’re trying to teach? I think $10 a week is fine, but nothing to charity for now. Let’s pick the lesson we’re trying to impart on the child.”
Even as a money manager, I really have to think through the process and consider the family’s needs in determining the chores, the amount and delivering the message to my child. Everyone has different ideas, but even in your own financial planning, it’s important to walk through the options. Throw everything on the table; no idea is a bad idea.
What options are you leaving off the table in your own home?
Since then, ironically, my son has forgotten about requirements and the reward behind them. I am sure this subject will arise again. When it does, I will be ready. Until then, I still enjoy reading the books to Nicola and having them help me wash the cars.
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
In Divorce, Transparency Is Key for Both Parties to Succeed
These last few years, I’ve participated in many collaborative divorce cases as a financial neutral. As most know, when you are hired as a neutral on a case, your goal is to help both clients meet their needs in the divorce, so that the dissolution agreements are sustainable long after the final agreement has been signed.
When hired as a client advocate and not as part of a collaborative team, I am often told many things that are personal in nature and should not be divulged in order to protect the client’s privacy. Some of these things include: undisclosed accounts, gifts to oneself, an upcoming trip, new loves, etc.
These last few years, I’ve participated in many collaborative divorce cases as a financial neutral. As most know, when you are hired as a neutral on a case, your goal is to help both clients meet their needs in the divorce, so that the dissolution agreements are sustainable long after the final agreement has been signed.
When hired as a client advocate and not as part of a collaborative team, I am often told many things that are personal in nature, and should not be divulged in order to protect the client’s privacy. Some of these things include: undisclosed accounts, gifts to oneself, an upcoming trip, new loves, etc.
Collaborative really stretches us as professionals to make a paradigm shift in how we approach our work. The more collaborative work I do, the more I realize how challenging it really is. What one may not need to divulge in a case as an advocate has to be carefully considered in a collaborative case: How do we approach the information? How do we address a sensitive topic? How do we divulge the new facts?
Let’s look at an example. In a case I am working now, the client’s employer just merged with another company, forming a much larger publicly traded company. My client, as a result, was awarded numerous stock options. After meeting with the attorney, we decided that if the other spouse did not ask for it, we were not going to mention it. We are filing the proper and complete financial affidavit, but we are not going to bring it up in settlement negotiations. We are leaving the burden on the other spouse to see our disclosure and ask for the funds.
In a collaborative case, this news and additional bonus would have been divulged in the joint session. It would have been discussed by the financial neutral, the dollars around it and how it affects the Equitable Distribution or Property Division agreements. Invariably, it would be a defined agenda item. It is not only about what one person wants, but more about what is best for both moving forward. As a professional, this takes what we call a paradigm shift in the way we approach a case.
Collaborative changed me these last years.
As much as I would love to say I do 100% collaborative now, I still do not. My practice is growing every day to be more and more collaborative. However, I still do a lot of litigation and settlement support. I have cases now that are not collaborative, but my training in collaborative and mediation these last years has positively affected the way I do business. Cases in recent years, when things have been unknown, I have asked my client for permission to just call the other spouse. It has worked, and we have avoided costly court costs around discovery. We have been getting our information in a timely manner without going through the cost of multiple attorneys and paralegals. We are cutting out the middle man by being direct and open and communicative with the other professionals.
Divorce is a very traumatic experience for clients, and when they know they have someone that is trying really hard to do the right thing, everyone responds positively. After 8 years of collaborative, I see it seeping into every aspect of my work and personal life. I am still making paradigm shifts every day. I know that the collaborative work is hard, and the more I learn about it and the more experience I have with it, the more respect for it I have.
To learn more about collaborative divorce, please visit: https://www.collaborativepractice.com/
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
The Power of a P.O. Box
I lost my wallet over the holiday season. Maybe someone took it; I really do not know and it does not matter. Aside from the loss of something sentimental, I do not need to express the hassle around replacing everything in one’s wallet. For three days I tore apart the house, the neighbor’s house, the car, and traveled all around town asking merchants if they had seen it. I must have retraced my steps ten times and I was frantically checking my accounts every three hours; I was sick over it.
I lost my wallet over the holiday season. Maybe someone took it; I really do not know and it does not matter. Aside from the loss of something sentimental, I do not need to express the hassle around replacing everything in one’s wallet. For three days I tore apart the house, the neighbor’s house, the car, and traveled all around town asking merchants if they had seen it. I must have retraced my steps ten times and I was frantically checking my accounts every three hours; I was sick over it.
Here was the silver lining:
They had the card number, the three/four digit security codes, and my physical address (for a billing zip code). Theoretically, they had everything they needed to make purchases online. However, I have a P.O. Box that I use for all my billing purposes. It is located in a different zip code than my physical address, so they could not input an accurate address tied to the card. Ah ha! My license has my physical address on it, but after checking my accounts over and over again, I realized even if someone had my wallet, they could not use the cards to make a purchase.
We cannot be too careful these days with our identity. In the wealth management practice, I show clients how to protect themselves using shredders, checking credit reports 2x a year, the use of lock boxes or safes in the home to protect important documents, etc.
This past holiday season has taught me to include one more thing. For $35 dollars a year, you can have a P.O. box outside your physical address’ zip code or different than your license zip code to better protect yourself. If you pay your credit cards online, then you do not even have to go there, but every so often. Or BETTER yet create a paperless account and link credit cards to a cash management program for categorization and tax planning.
The P.O. Box helped us maintain the security of the family finances and that was a great holiday gift!
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
More on Investment Fees
Last week, I wrote about investment fees in my blog, Are My Dollar Bills Transparent? I was lucky to hear from a colleague of mine who shared his recently published piece on the same theme. Improve Your Future Investment Returns By Keeping a Lid on Your Expenses by Steve Thorpe of Pragmatic Portfolios, LLC, illustrates why it's so important to keep expenses low.
Registered Investment Advisors can help clients with this same philosophy discussed in both my and Steve's blogs. Below is a short excerpt of Steve's blog.
Improve Your Future Investment Returns By Keeping a Lid on Your Expenses By Steve Thorpe
Contrary To Popular Belief: Past Performance Truly Does NOT Predict Future Performance
Numerous studies have shown that investors have no reliable way to identify, in advance, which asset classes or active managers will outperform in the future. This phenomenon is persistent across time, market subsectors, and geographic regions. To a large extent, where outperformance exists it is due to random chance -- being in the right place at the right time -- as opposed to skill.
Click here to read Steve's blog in its entirety.
Steve Thorpe is the founder of Pragmatic Portfolios, LLC, a fee-only Registered Investment Adviser based in Durham, North Carolina, that focuses on developing sensible investment plans integrated across all of a client’s investment accounts. He also chairs the Research Triangle Park, NC area chapter of the Bogleheads® [11] investment interest group.
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
Are My Dollar Bills Transparent?
In a financial advisory relationship, it is important for investors to understand the multitude of fees they may be required to pay.
When you walk into your CPA’s or attorney’s office, you sign an engagement letter, and pay a fee for their services; there are not a lot of hidden costs. Their engagement letter outlines expenses including charges for photocopies and interest charged on late payments. With your financial advisor, that may not necessarily be the case.
If you ask your financial advisor, “What is your fee?” the common response is, “a percentage of your Assets Under Management (AUM).” A percentage of your AUM is the percentage of money your advisor manages. So, if your advisor manages $1 million dollars, you pay $10,000 a year; some advisors charge more and some charge less. I read recently that a typical fee was 1.5% of AUM (Investment News).
A prudent investor seeking transparency, understanding and knowledge will ask about other potential fees, such as:
- Management fees;
- Sub-manager fees (if someone has been retained to manage a sub-portion of your portfolio);
- Sales charges;
- Transaction costs;
- Custodian fees (fees charged for the safekeeping of your securities and other administrative services like collecting dividends and interest);
- Performance fees;
- Mortality and expense fees (in certain investments like commission-based annuities);
- Mutual fund expenses;
- Operational expenses; and
- Surrender fees (in some annuities).
As an investment manager, I may go to a potential third-party money manager and say, “I’m looking at this investment for my client. What are their fees?” and they’ll typically reply, “The fee is x%, but the client will only see your fee on the statement.” I’ll reply and say, “The client still pays the fee whether they see it or not. They should know what they are paying.”
My charge to you as an individual investor is to know what you are paying and why. Compose a list of questions for your financial advisor to learn exactly what fees are being charged, to whom they are being given and how they will impact you. Also ask your advisor to see all performance net of fees.
My charge to the financial industry is that all fees become transparent. Over a 20- to 25-year investment period, fees can add up and cost investors a lot of money. I understand we have to earn our living, and if we are prudent and fiduciaries to our clients, we will earn a great living. However, the fees need to get easier for our clients to understand. This is paramount in establishing trust with them.
As an investor, you can’t control what the markets are going to do, but you can control the information you have when you’re doing your own investing: minimizing your taxes, keeping fees low and staying ahead of inflation.
Our firm prides itself on giving you all the information so you can make informed decisions that best suit your needs.
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com
Announcing Strada Wealth Management, LLC
We are proud to announce that we are changing our company name from Failla Financial Management, LLC to Strada Wealth Management, LLC.
The name change is due to the significant change in our business structure. Strada Wealth Management is now a fee-only Registered Investment Advisory firm and as always, our business activities will continue to include comprehensive retirement and income planning for families just out of divorce.
As a fee-only registered investment advising firm, we are able to truly assure our clients that our advice is objective and independent. Compensation never comes in the form of commission or trails (money paid to the financial adviser for chosen investments), and as a result, we are our client’s fiduciary.
Our former e-mail addresses will continue to be operational for the foreseeable future. Our new email addresses are as follows: jfailla@stradamanagement.com and ssakala@stradamanagement.com. Our web domain is in transition - www.faillafinancial.com will change in the near future to www.stradamanagement.com. We will continue to update you on our progress and improvements; we strive to be better for you, our clients. Thank you for all these years of trust in the firm.
Warmly, Jennifer Failla
Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com