MW/AlphaMartrix Wealth Management(SM) - Fixing Broken Plans -
The Next Level....
Behind every investment portfolio is a Human Being......
Therin lies the purpose (the first Law of the Matrix - Unity of Purpose) - And the Role and Responsibility of MAIN Street in Our Model-
The Role of Financial Planning is often misunderstood by both clients and the profession itself,
nor is it limited to the retail or unsophisticated investor. The Story of the Harvard endowment fund provides an excellent example....
The First Step - Clearly Defined Roles and Responsibilities....
Traditionally, Financial planning and investment management are provided as two distinct and separate services. With financial planning, advisors help clients assess their financial situations and set goals. With Investment management, advisors help clients set an investment strategy and choose specific, suitable investment products for a client's portfolio. Of course the investment strategy must be responsive to the client's goals, and the goals can't be set in isolation from the investment strategy.
Without the right tools, advisors aren't able to effectively combine their financial planning and investment management services in an efficient way that reflects the personal situation of every client. The result is often a disjointed advice process that may increase risks for investors and may fail to help them reach their financial goals, such as a secure retirement or funding their childrens college education.
Often the effectiveness of investment advice isn't determined for years, perhaps for decades. Accordingly active methodologies cannot be compared on the basis of recommendations. Instead, one must look to the breath and depth of analysis behind the advice to decide which recommendation is more credible. How can an advisor illustrate to an investor depth of analysis? While there is no foolproof measuring stick, the advice that is more personalized - incorporates and is reflective of more household information - is often better. Consider these common limitations of the traditional investment advice model.
* Investment selection considered in isolation from other resources, such as real estate holdings, current income, social security, etc
* Investment risk determined from a risk tolerance questionaire, or from an age- determined time horizon, not from an analysis of the house hold financial picture.
* Performance defined as a return against a benchmark, independent of progress against goals.
Risk capacity driving investment recommendations:
The household balance sheet can be a far more personal driver of advice, more so than age, time horizon, or a psychological assessment of risk . We use a comparison of a client's financial resources versus goals and liabilities to determine a household's capacity to bear risk as the basis for investment risk.
Tax Managed at the household level
Tax driven asset location accross accounts will help your advice stand apart from the single account tax management approach so prevalent today in separately managed account or unified managed account structures. Clients have multiple accounts with different tax structures that need advice to be coordinated - ignoring all but one account may result in inefficient advice at best, inapppropiately risky advice at worst.