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The UnCommon Sense Guide to Managing Your Wealth Six Keys to Financial Wellness


UnCommon Direction

Letter from Mentor Wealth Management, LLC With uncertain markets and a volatile economy, investors are increasingly aware that achieving their goals may not be as simple as they once imagined. Many investors, like you, want to learn more about their options and how they may increase the likelihood that they will be able to attain their valued goals in the coming years. Our goal in writing The Uncommon Sense Guide to Managing Your Wealth is to help you, the investor, understand your options and make smart decisions about your choice of advisor, investments, and ultimately your financial future. So, what are investors looking for? Quite simply, astute investors want a relationship with a trusted advisor, comprehensive advice, reasonable fees, and peace of mind. Unfortunately, what investors want is UnCommon in the marketplace today. The Uncommon Sense Guide to Managing Your Wealth challenges the traditional investment approaches that are failing most investors today and offers UnCommon solutions in six key areas that can help maximize the likelihood of achieving all that is important to you. Six Keys to Financial Wellness: 1.

The UnCommon Advisory Firm

2.

An UnCommon Team of Experts

3.

UnCommon Advice

4.

An UnCommon Approach to Risk

5.

UnCommon Costs Matter

6.

An UnCommon Investment Philosophy

Mentor Wealth Management is pleased to present you with The Uncommon Sense Guide to Managing Your Wealth. We hope that it will provide a framework for an intelligent approach to see beyond the common options that exist today and lay the ground work necessary for you to build a successful strategy to achieve your most valued goals. Sincerely, The Mentor Wealth Management Team

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Mentor Wealth Management, LLC Š 2011 | www.mentorwm.com


Table of Contents Six Keys to Financial Wellness Key #1 - The UnCommon Advisory Firm

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Key #2 – An UnCommon Team of Experts

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Key #3 – UnCommon Advice

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Key #4 - An UnCommon Approach to Risk

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Key #5 - UnCommon Costs Matter

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Key #6 - An UnCommon Investment Philosophy

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Your Next Steps

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About Mentor Wealth Management, LLC

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Endnotes

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Mentor Wealth Management, LLC © 2011 | www.mentorwm.com


UnCommon Sense: “Work with a Registered Investment Advisor”

Key #1 - The UnCommon Advisory Firm When searching for a trusted advisor, a great starting point is to evaluate an advisor’s choice of employment. The most common employer is a brokerage firm. Advisors employed at a brokerage firm are known as “registered representatives.” There are more than 700,000 registered reps working for brokerage firms in the U.S and they are treated under the law as salespeople. Registered representatives operate under a 1934 law (the Securities Exchange Act) that loosely binds them to ensure only that the products they sell are "suitable" for their clients. But, like a real estate agent, once the sale is done and the commission is collected, their legal obligation ends. So while they may present themselves as advisors who will stick with you over the years, they are under no legal obligation to do so – and have no legal liability if they do not. Registered representatives are compensated by their firm based on the amount of product they sell. A key point here for the investor is that the objectivity of the advice is always in question due to the product driven compensation a registered representative receives. The UnCommon alternative to the product driven sales culture of a brokerage firm is a Registered Investment Adviser. Advisors employed by a Registered Invesment Adviser are known as Investment Advisory Representatives. There are approximately, 19,000 Registered Investment Advisers in the US and they are required by a 1940 law (the Investment Advisers Act) to act as “fiduciaries”, compelling them to put the interests of clients before their own. Investment Advisers are compensated directly by their clients based on an agreed upon fee schedule for advice and services. Fee-only investment advisors are often perceived to have greater alignment with the interests of their clients because they have no financial incentive to recommend one particular product over another. By removing the product sales focus, the investment adviser can provide advice and recommend investments to an investor with an objective view that is free of conflicts of interest.

Registered Representative

Investment Adviser

• Suitability • No Ongoing Duty of Care • Product Driven • Conflicts of Interest

• Fiduciary • Ongoing Duty of Care • Advice Driven • No Conflicts of Interest

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Mentor Wealth Management, LLC © 2011 | www.mentorwm.com


UnCommon Sense: “Work with a Well Orchestrated Team of Experts”

Key #2 – An UnCommon Team of Experts A major factor to consider in choosing the right advisor is the depth of knowledge, expertise, and experience an advisor offers clients. A comprehensive wealth plan or “Master Plan” requires not only that attention be given to such diverse issues as tax strategies, regulatory issues, investments and in-depth financial planning but also that these factors are addressed together in the context of the client’s goals. Most often, however, the advice offered to clients comes from the advisor acting as an investment generalist. This advisor will focus on one area, typically the “right” investments for your portfolio to “beat the market”, and may provide basic financial planning that leads to a portfolio solution. The reality is that the complexity of a comprehensive Master Plan and the demands of our constantly changing marketplace require more than a generalist to handle. No single advisor can be an expert in all areas of wealth management. In order to provide the level of service, perspective and depth of advice that most investors want and need, an individual advisor or investment generalist may not be the best path.

“Your wealth is too important to risk in the hands of a generalist.” UnCommon Sense supports the team of experts approach. Your team should be made up of experts including a Certified Financial Planner, Chartered Financial Analyst, Trust & Estate Attorney, CPA, and an Insurance Specialist. Importantly, one of these experts should also act as your Personal CFO, a trusted advocate whose role is to coordinate this team of experts and integrate their strategies with your Master Plan in mind. With a diverse group of specialists working together for you, with guidance from your Personal CFO, your entire financial picture is put into perspective and custom solutions can be tailored and implemented to help you reach your goals. Some investors may have a few of these team members already in place. Most likely these professionals are working at different firms and independently providing advice on their specific area of expertise. We view that type of fragmented approach like an orchestra without a conductor; all the musicians are skillfully playing their instruments but some are out of time and others are reading an entirely different sheet of music. The Personal CFO, or conductor, is essential to coordinate your team of experts and integrate their strategies with your specific sheet of music in mind, your goals and Master Plan.

Portfolio Specialist

Financial Planner

Trust & Estate Attorney Accountant

Personal CFO

Insurance Specialist

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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“UnCommon Advice - It’s a process, not a product.”

Key #3 - UnCommon Advice A buzzword in the financial industry today is “wealth management”. Many financial firms say they offer wealth management, but few can clearly provide an explanation as to what “wealth management” really is. In most cases, “wealth management” is simply a marketing phrase used to give the appearance that the advice will be more than just investment related. Unfortunately, the common approach is just that investment or product-driven “advice” from start to finish. Some advisors will ask about your goals and maybe even create a financial plan to help address your questions, but it all ends at the same place – the investments they recommend you buy and sell. The review meetings that follow all tend to have the same theme as well, review the portfolio and determine what investments did well and which did not. In the common approach, your portfolio is the focus and your financial plan is irrelevant.

Common Advice Process

UnCommon Advice Process

Current Portfolio Review

Your Goals & Master Plan

Recommend New Portfolio

Goals -Based Investing

Review New Portfolio's Performance

Review Master Plan Progress

UnCommon Sense has a very specific definition of wealth management: Wealth Management is the objective integration of advanced planning and investment counsel, orchestrated by a dedicated Personal CFO. It’s a process, not a product. True wealth management – an UnCommon approach – begins with a Master Plan tailored around client goals. The plan is further developed to integrate the many aspects of managing and investing your wealth: its protection, enhancement, and planning for potential transfer to future generations and charitable organizations. Your Master Plan becomes the focus of continuous and prudent management by your team of experts. All of the components come together for you as you plot your course, assess your progress and make changes as life’s uncertainties present themselves.

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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UnCommon Investing: Sense: “Understand “A prudent, Your strategic Risk and Avoid approach the Behavior that applies Gap™” to all mar

Key #4 – An UnCommon Approach to Risk An important part of an advisor’s and client’s investment philosophy deals with how risk is handled in a client’s plan and portfolio. Regardless of the approach you take to investing, risk is a constant factor. We recognize that without risk there is no reward. However, the amount of risk you take is a preference and needs to be framed within the context of your life to properly balance your desired reward level with the associated risk. Despite this fact, most individuals take investment risk without understanding if it is too little or too much for their situation, which can lead to devastating financial and emotional results. From 1990 through 2009, stocks returned an average of 8.20% annually. During this same time period, the average mutual fund investor experienced a return of only 2.3% annually. Carl Richards, a financial planner from Park City, Utah coined the phrase “Behavior Gap™” as an explanation of this large difference in returns. Basically, poor investor behavior driven by the emotions of fear and greed led investors to make poor choices in managing their wealth. This Behavior Gap™ is especially common when both advisors and investors focus primarily on chasing portfolio returns without any means of gauging the potential risks.

This is not a new phenomenon. As long as markets have been around, investors have fallen victim to being too aggressive or too risk averse. The UnCommon approach is to identify the minimum risk, or strategic risk, necessary to achieve your Master Plan’s goals and position your portfolio accordingly to capture the desired level of return through efficient, broadly diversified participation in capital markets instead of relying on forecasts and speculation. With this fresh goals-based perspective, investors are able to see wealth management in a new light and evaluate what risk/return means to them in a rational, structured way that helps them steer clear of unnecessary risk taking and the emotional mistakes of the past.

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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UnCommon Sense: “Costs Matter and Low Fees Add Value”

Key# 5 – UnCommon Costs Matter One area where investors are often under-informed is in understanding the full range of costs for the financial and investment advice they receive and implement. There are four areas that determine an investor’s true cost of investing; Advisory Fees, Portfolio Expense Ratio, Trading Costs, and Taxes. These four costs all must be paid before the investor sees any gains on an investment. 1. Advisory Fees: One of the primary costs is the fee charged by an advisor. Many advisors charge a fee based on the total assets they manage for you while others charge a flat fee for financial planning or a combination of asset based and flat fees for their services. Assuming a $250,000 account the standard advisory fee range is between 1.00% -1.50%1. 2. Portfolio Expense Ratio: Your advisor, as a part of the services provided to you, will usually recommend certain investments for your portfolio. Mutual funds and exchange traded funds you own will charge a fee called an expense ratio which is assessed annually against the account of each investor in the fund. This fee is used to pay for fixed operating costs which include items such as the salaries of the fund employees, marketing expenses, and administrative overhead. The average mutual fund expense ratio according to Morningstar is 1.32%2. 3. Trading Costs: In addition to the expense ratio charged by funds to help cover their fixed costs, there are additional charges to cover variable costs incurred by the funds. These variable expenses include items like the trading costs when the mutual fund purchases or sells securities held by the fund. Depending on the type of fund, these costs may be very substantial. These costs are not necessarily disclosed in the fund prospectus but may be obtained from the fund company in a report called a statement of additional information. The average mutual fund trading expense is 1.44%3. 4. Taxes: Taxes are a fact of life for all investors. However, the amount and timing of taxes one pays may be controlled and limited by using tax awareness in investment transactions. Being tax aware involves the selection of strategies employed to realize gains and losses as well as understanding and focusing on the investor’s personal goals. Tax awareness can have a significant positive impact on your wealth. Common Costs

UnCommon Costs

• Advisor 1.25% • Portfolio Expense Ratio 1.32% • Trading Costs 1.44% • Total Costs 4.01%

• Advisor 1.25% • Portfolio Expense Ratio 0.30% • Trading Costs 0.10% • Total Costs 1.65%

UnCommon Sense believes that costs matter and low fees add value. Cost benefits are realized primarily through the use of an UnCommon Investment philosophy. By focusing on capturing the market’s return as efficiently as possible, investment expenses, portfolio trading costs, and tax liabilities are significantly decreased. The benefit for the investor is simple, less is more.

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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UnCommon Sense: “Avoid Speculation, Invest with Purpose and Discipline”

Key #6 – An UnCommon Investing Philosophy The most common approach or philosophy to investing is Active Management. Active managers attempt to “beat the market” by picking individual stocks or timing when to be/not to be invested. Regardless of style, active strategies reduce diversification and increase risk in the portfolio with the hope that these bets can deliver added return. While exciting and appealing in theory, history shows that the majority of active managers fail to consistently add value to investors. Illustrating this point, Standard & Poor’s recently published a study that revealed two-thirds or more active equity fund managers and eighty percent or more active fixed income fund managers failed to beat their respective indexes for the five year period 20042009.4 With strong academic evidence pointing out the failures of Active management and 90% of assets in equity mutual funds managed actively, it is not surprising that investors are increasingly disillusioned with the industry as they fall short of their financial and life goals. For those investors looking for a highly personalized investment approach that empowers them to take control of their financial life and follow a more confident course toward achieving their goals, UnCommon Investment Management is the solution. UnCommon Investment Management is a prudent, strategic approach that applies to all markets, all conditions, and is designed to do one thing – help investors achieve their lifetime financial goals. UnCommon Investment Management allows capital markets to work for you by efficiently capturing their rewards through a structured, broadly diversified, cost effective process that avoids unnecessary risk. Unlike Active Management where your portfolio performance is measured against a random market benchmark, with UnCommon Investment Management, decisions are made within the context of your customized Master Plan and their impact is measured in relation to reaching your specific goals. In this way you invest with purpose and discipline instead of failing prey to the Behavior Gap™ underperformance so many investors endure.

Comparison of Philosophy Characteristics:

Active Management

UnCommon Management

• Assumes Markets Do Not Work • Based on Forecasting, Speculation • Opposite of Diversification • Adds Risk of Underperformance • Market Focused Advice • Higher Costs and Taxes

• Lets Markets Work for You • Structured, Nobel Prize Approach • Broadly Diversified • Avoids Unnecessary Risk • Goals-Based Advice • Cost and Tax Efficient

In our opinion, Active Management is contrary to the best interest of investors in many ways. Not only does this approach greatly increase the likelihood that the investments will, in fact, not “beat” the market over time, but it also fails to connect with what matters most to clients – achieving their goals. A holistic approach to teamwork, advice, risk, costs, and investments is designed to deliver an UnCommon fiduciary wealth management experience far superior to what is commonly practiced in the industry today.

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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Unfortunately, what investors want is UnCommon in the marketplace today.

Your Next Steps As we outlined in our opening letter, most investors want a relationship with a trusted advisor, comprehensive advice, reasonable fees, and peace of mind. Unfortunately, what investors want is UnCommon in the marketplace today. Take a good look at your current situation and ask yourself the following questions: • • • • • •

Are you currently working with an independent financial advisor? Are you working with a Team of Experts? Is your advisor more focused on your investments or your goals? Are you trying to “beat” the market? Ask yourself why and at what added risk to you? How much are you paying for the investments and advice you receive? Do you feel in control of your financial life?

If you are currently using the “common” traditional product and performance oriented approach to managing your wealth, you owe it to your family and yourself to seek out a better solution, an UnCommon Solution. At Mentor Wealth Management, our aim is to help our clients, and investors like you make smarter decisions that reduce the uncertainty and stress that many investors experience by providing the keys to live a more confident financial life. We recommend using the UnCommon Sense Guide to Managing Your Wealth and the six specific keys to financial wellness to help make sure that your investment approach—and overall wealth management Master Plan—are designed to effectively address your very specific financial needs in order to maximize the probability that you will achieve all your financial goals. We wish you the best as you begin your journey toward financial independence.

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Mentor Wealth Management, LLC © 2011 | www.mentorwm.com


An UnCommon Firm with UnCommon Solutions

About Mentor Wealth Management, LLC Mentor Wealth Management, LLC combines extensive financial industry experience with an objective and UnCommon approach to wealth management. We focus on advising a select group of individuals, families and institutions for whom we provide real value through our team of experts approach. Our passion is to guide clients through the process of identifying important goals and tailoring a Master Plan that increases the likelihood that they will reach their financial objectives. At Mentor we believe wealth management is the objective integration of advanced planning and investment counsel orchestrated by a dedicated Personal CFO. This process goes beyond managing investments to include growing and preserving wealth, planning for its orderly transfer to future generations, and providing for the charitable interests of our clients. We act as an advocate and guide our clients through each aspect of the process with the intent of helping them live their financial lives with confidence and maximizing the likelihood of achieving their vision.

Endnotes 1 FPA Research Center, Financial Planning Association, 2011 2 Based on all funds tracked by Morningstar, Inc. (September 30, 2008) 3 “Scale Effects in Mutual Fund Performance: The Role of Trading Costs” -a multi-University research study 4 Standard & Poor’s Indices Versus Active Funds Scorecard, August 20, 2009

Mentor Wealth Management, LLC © 2011 | www.mentorwm.com

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Mentor Wealth Management, LLC 7113 Three Chopt Road Suite 210 Richmond, Virginia 23226 info@mentorwm.com (804) 592-3660 Mentor Wealth Management, LLC Š 2011 | www.mentorwm.com

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The UnCommon Sense Guide to Managing Your Wealth  

Six Keys to Financial Wellness

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