Planning and portfolio asset management

Sacha Millstone
Senior Vice President, Investments

Greg Evans
Vice President, Investments

Rita Johnson
Financial Advisor

We provide a comprehensive review of your entire financial picture, which may include:
- Investment objectives
- Risk tolerance levels
- Insurance
- Cash flow analysis (income and expenses)
- Asset allocation
- Portfolio review
- Retirement goals
- Distribution planning
- College funding needs
- Estate planning

Learn more about our financial planning process and portfolio management services, and how we use Raymond James research in constructing portfolios.

Why do we start with financial planning?
1. The plan we help you create and implement for education expenses, retirement, estate matters and family protection is designed to give you a sense of security about your financial future that may never be achieved from a sole focus on investments.

2. The money you can save through proper planning can make even outstanding investment returns look small in comparison. Good financial planning is rarely a “do-it-yourself” proposition. Every individual’s circumstances are unique. Laws governing retirement plans and estate issues are complex and constantly changing. Professional advice helps you avoid costly mistakes and take advantage of potential opportunities you may not be aware of.

3. Our plans are clear and direct. You will not receive a heavy volume of text and charts. You will receive a two- to five-page description of what to do and why.

How does the planning process work?
1. We gather data from an initial interview and your statements showing current savings and investments. We make this easy for you – there are no long forms to fill out. We collect and organize the raw data for you.

2. We develop planning recommendations. With each recommendation we will clearly outline the potential benefits and associated estimated savings they can potentially provide you.

3. You make choices and decide which recommendations to adopt. When appropriate, we can work with your attorney and accountant in this process. If insurance is part of the plan, we are brokers and have access to a wide variety of carriers. We can help you decide which policy structure best suits your needs. Finally, we set up retirement and investment accounts designed to help you accomplish your goals.

4. At the end of the implementation stage, we will summarize the steps you have taken and the associated financial benefits. Planning is a life-long process. We will monitor your plan over time and help you update it when appropriate.

How do you pay for our financial consulting services?
Our hourly planning fee is $200. We will track hours spent on your plan and calculate its overall cost. This cost can be offset by fees or commissions if you choose to implement the plan through us.

Insurance work is done on a commission basis. Investment management is provided on a fee basis. Annual fees are based on a percentage of assets under management. Our minimum account size is $250,000.

We will be happy to engage in an initial introductory meeting with you at no obligation and no charge.

Our investment strategy
We believe in a strategy that uses a contrarian approach to investing in common stocks and bonds. This system is based on a simple investment tenet first laid out by Ben Graham in 1934 and embraced by Warren Buffet: buy good companies at reasonable prices in an attempt to minimize risk.

Our goal is to protect an investor’s principal from downside risk as much as possible while seeking an above market rate of return on the investment portfolio.

In attempting to be consistently successful, an investor must learn to go against prevailing attitudes and buy good companies when business is difficult, the consensus opinion is negative and the share price is low. Stocks must be sold when business is good and the consensus opinion is so positive as to create an overvalued stock price. The crowd mentality that most investors work from makes them feel comfortable emotionally, but generally works against them financially.

Of course, as with all investment strategies, our strategy involves risk. It is not possible to eliminate risk completely and there is no assurance that the stated goals will be achieved. Markets will fluctuate and you may incur a profit or loss.

How do we define a quality company?
A quality company has very strong economic characteristics, including a strong competitive position, substantial market share, good revenue and sales growth, a strong balance sheet, and honest management that has a five-to-10-year time horizon. We will invest in these situations when they can be purchased at what we consider to be a reasonable price.

Is diversification among asset classes important?
We feel it is better in general to be an owner by buying stocks, than a lender by buying bonds, because historically stocks have provided a substantially higher rate of return over the long term. Therefore, we are committed to having a high percentage of portfolio assets in stocks. For those investors who need income or who have a lower risk tolerance level, we will invest in bonds when we feel value is present.

We believe suitable clients should have up to 20% of their assets in foreign stocks. Much of the growth in the world over the next decade is projected to occur outside of the United States. In addition, although past performance is no guarantee of future results, statistics show that by diversifying outside the United States, investors can often decrease fluctuations in the value of their investments (sources: Ibbotson Associates and American Funds Group).

We may recommend mutual funds or money managers for certain asset classes where our research capabilities are limited, such as foreign stocks, small-caps and technology stocks. Please note that international involves special risks, including currency fluctuations, possible political and economic instability, and different accounting standards. Investing in small-cap stocks also generally involves greater risks, and therefore, may not be appropriate for every investor. Further, the companies engaged in the technology industry are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance does not assure future results or that objectives will be met.

Our clients should understand that investing involves risk and one may realize a profit or a loss. If one is seeking a guaranteed return, one should not be in the stock and bond markets.

Should you expect your portfolio to outperform the S&P 500 index?
A diversified portfolio (i.e., one that owns cash, bonds, U.S. stocks, foreign stocks) by its very nature should not be expected to outperform one particular index, such as the S&P 500, an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The returns from a diversified portfolio will underperform the top-performing index in any given year, and is likely to outperform the worst-performing index in any given year, although there are no guarantees. The purpose of diversification is to manage overall portfolio risk and smooth out returns over time.

Within a portfolio, the bond component should be compared to a bond index, the international component should be compared to the international index (the EAFE index – an unmanaged index generally considered representative of the international stock market), the small-cap component should be compared to the small-cap index (the Russell 2000 – an unmanaged index designed to be a comprehensive representation of the U.S. small-cap equities market), the large-cap component should be compared to the S&P 500 index and so on.

For clients who want easy-to-read, ongoing reporting of these various indexes, we suggest using our Passport Investment Account. Passport provides quarterly reporting showing your portfolio’s asset allocation and performance of the relevant indexes.

An important note on performance
For portfolios we manage, the level of cash held in the account is a function of our ability to find companies that fit our criteria. Our goal is for you to be fully invested. However, when the U.S. stock market is high and value is scarce, cash levels will be higher than when the U.S. stock market is low and more value is present.

This is especially relevant for new accounts. It may take us some time to get a new portfolio fully invested, possibly impacting returns during the first year.

What about investment ideas generated by the client?
If you are interested in investing in a company that we do not follow, we will place the trade for you on a discounted basis. If asked, we will comment on the financial structure and the historical valuation levels of the company, but not on the fundamentals or the future prospects. We cannot follow the stock on an ongoing basis and the responsibility for a sell decision will rest with you. Upon your request, we can provide you with information on the security that may be available from sources such as Valueline and Standard & Poor’s.

Quite often, the solution to a client’s problem will involve the use of various investments or other products. To the extent that those products are purchased through a Raymond James representative, additional compensation in the form of commissions will be earned. While this form of compensation may be considered a conflict of interest, the philosophy and procedure of Raymond James & Associates assures that the client’s interests are given top priority during the course of any employment engagement.

Raymond James will inform all clients in advance of any forms of additional compensation, and will emphasize to all clients that they are under no obligation to purchase investments or other products through Raymond James & Associates or any of its affiliates. However, it should be pointed out that it is often advantageous to clients to have available to them the wide range of investments offered by the firm.

All clients are encouraged to read all of the following Disclosure Statement and Financial Planning Agreement, and to ask questions concerning any matter that may be raised.