Frequently Asked Questions
- What is your firm's investment approach?
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Our firm's investment approach is based on our belief that an effective investment strategy can only be designed as a component part of the financial planning process. This enables an investment strategy to be personalized and integrated with a client’s specific goals and objectives, while also considering income tax considerations and financial and emotional ability to handle risk.
Our investment approach combines more than eight decades of market data, Nobel Prize-winning academic research and the latest discoveries in behavioral finance. The main objective is reducing risk through diversification, which we call asset allocation. We consider risk to be another word for volatility, the likelihood of a given investment fluctuating in value from year to year. Diversification is intended to reduce volatility.
To achieve diversification that reduces risk, we recommend allocating assets among the major classes of stocks, bonds, and real estate (and to a limited degree, cash, commodities and other alternative investments). Stocks are further divided between U.S. and foreign, large and small companies, and growth and value styles. We do not "time the market". Rather, we follow the discipline of "staying the course" through both the ups and downs of the financial markets (studies show, even in a declining market, it is risky to engage in "timing", as an investor who has stepped out of the market is likely to miss the opportunity to reenter in time to participate in the rebound). In addition, we exercise care to minimize income taxes and investments' expenses so that more of what is earned is retained in the account.
For clients who engage us to construct and manage their portfolios, we utilize the institutional caliber of mutual funds offered by Dimensional Fund Advisors (DFA). We prefer DFA funds for their low internal expenses, low turnover (resulting in tax efficiency and further reducing cost) and other advantages over retail mutual funds and ETF's. However, in situations when our preferred mutual funds are not available such as in employer-sponsored retirement plans, we will make recommendations from the specific choices that are available. Furthermore, we are able to fully customize clients' portfolios as merited by other considerations, such as when clients are holding low cost basis securities that should be sold gradually so as to minimize capital gains tax.
- Why can't I save money and manage my portfolio myself?
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Tier One Service
Yes, you may choose to manage your portfolio yourself after using our "Tier One" Service, in which clients receive a comprehensive financial plan that includes our suggested portfolio composition by asset class (this does not include specific investment recommendations, and clients may implement it in their discretion). Unlike most other fee-only financial advisors, we at Wine Country Wealth Management, LLC, do not require clients to maintain a minimum level of assets under our management in order to become our clients.
For clients who elect to manage their own portfolios yet keep up to date after receiving our initial financial plan and portfolio recommendations, we offer an annual "Portfolio Tuneup" service for an annual fixed fee, as agreed in advance. This consists of our advising clients at an annual update meeting (in person or by telephone) on rebalancing their portfolio's composition as concerns asset classes to reflect changes in the market and/or their individual circumstances. Depending on the scope of client needs, it may also encompass an update of all the other components of the initial financial plan, such as insurance, tax planning and estate planning.
Tier Two Service
Many clients find it advantageous to delegate the ongoing management of their portfolios to us using our "Tier Two" service. We find we can do so most cost effectively for portfolios of at least $500,000 of investable assets. Here are some reasons why clients choose our Tier Two Service:
- Time - saving - we are dedicated full time to our clients' financial well being. Very few clients can devote the necessary time and attention that a professional advisor can, even if they have the requisite experience and training. After all, there are more than 7,000 mutual funds in today's marketplace, not to mention individual stocks, bonds, ETF's, etc., from which to choose.
- Disciplined & objective - we can be more objective about clients' finances than clients could be themselves because our emotions do not get in the way! And this enables us to follow a more disciplined approach. As noted financial services industry consultant Bob Veres has observed, there have been numerous studies, by the Dalbar organization and others, that show that investors experienced much lower returns than the markets or the mutual fund industry were delivering - because of their trading habits. For example, Veres cites one credible study that estimated that more than 70% of all day traders lost all their money in the late 1990s - which was the BIGGEST bull market period in the history of the American stock market to that date - a time when the markets were delivering more than 20% appreciation per year!
- Better selection of investment vehicles than at "retail". As professional advisors we have access to "wholesale" as opposed to only "retail" investment offerings. We construct our Tier Two clients' portfolios based on the institutional caliber of mutual funds offered by Dimensional Fund Advisors (DFA). A well-regarded California-based investment advisory firm, Private Ocean, published its conclusion that this "institutional product premium" could add up to 1.81% to a client portfolio's annual return for a given type of asset (as reported in its First Quarter 2008 client newsletter, with regard to the DFA mutual funds).
- How do I select a financial advisor? What are the various credentials?
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NAPFA
NAPFA Questionnaire Selecting Advisor.pdf
The National Association of Personal Financial Advisors (NAPFA) is a professional organization whose mission is to inform the public of the benefits of working with a fee only financial advisor held to the highest ethical standard of a "fiduciary" (as opposed to a stockbroker, who is held to the lower standard of "suitability" when selling financial products). NAPFA members are "fee only", meaning they are not permitted to accept commissions for product sales or payments of any kind from third parties, so as to avoid conflicts of interest that would interfere with objectivity. To qualify for membership, an advisor must submit a comprehensive written financial plan for peer review and agree to abide by a strict code of ethics. Also, NAPFA members must earn 60 continuing education hours every two years.
NAPFA has prepared a questionnaire to assist the public with interviewing a potential financial advisor. For your convenience, we have completed the questionnaire and it is available for download here.
Also, you can go to www.napfa.org to download a blank questionnaire and obtain more suggestions about hiring a qualified financial advisor. Wine Country Wealth Management's founder, Alice King, is a NAPFA-Registered Advisor, which you can verify by going to www.napfa.org.
Certified Financial Planner™ (CFP ®)
Advisor Credentials Table by Univ of Illinois.pdf
Also, the University of Illinois has prepared a chart that explains the meaning of various credentials such as CFP ® (the short version of the title "Certified Financial Planner™"), including the requirements for attaining the credential, whether ongoing continuing education is required and how to check the status of the advisor's credential. For your convenience, we have the chart available for download here. Please note that for certain credentials administered by a state government agency such as the Registered Investment Adviser license, this chart will reference Illinois (whereas our firm is under the jurisdiction of The State of California).
Our founder, Alice King, also holds the CFP® credential (you can verify it by going to www.cfp.net). In addition, our firm is licensed as a Registered Investment Adviser (RIA) by the State of California. This is the legally-required license for offering investment advice that is NOT tied to commissioned sales of investment products (commissioned investment sales require a stock broker license, also referred to as a "registered representative", and also entails being an employee of a "broker-dealer" firm such as Ameriprise, Raymond James or Edward Jones). To check our State-issued RIA license, go to our Legal Notice page (or click to it here) which will direct you to the appropriate government website.
- How can I avoid being duped by the likes of Bernie Madoff?
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(No offense intended!)
For your protection, clients' funds that we manage under our Tier Two service are held by an independent custodian (typically, Charles Schwab) and clients are afforded direct access to their account information in four ways:
- Online through their Client Web Portal on our Clients' Entrance web page available 24/7;
- Online access directly to the custodian's website available 24/7;
- By paper and/or email, receiving periodic account statements the custodian provides clients directly; and
- Online and by email or paper statements provided by our professional portfolio administrators.
Sadly, this was not the case with Bernie Madoff's firm - he was able to issue fraudulent statements through the custodian which was an affiliated entity that he controlled.
We have no ability to draw upon client funds held by the custodian, other than to deduct our advisory fees as per our written client agreement. The custodian is informed of that agreement, and its terms are on file with the California Dept. of Corporations and disclosed to the public on the "Form ADV" available online with the regulatory authorities (as described on our Legal page of this website). We are not affiliated with the custodian.
Furthermore, to the extent a client chooses our single log-in account aggregation service, clients enter their own passwords for those various accounts into the aggregation software system (provided by an independent vendor with top-notch security), limiting our access to"read only".