Kirtland Financial Management, Inc.

A Plethora of Opportunities

We want to take this opportunity to better acquaint you with the full range of wealth management services we have available at KFM beyond the investment management function and encourage you to take advantage of each.

Modern Portfolio Management - Discover the benefits of professional asset management.
Retirement Planning - Charting a course for your retirement destination.
Estate Planning - Financial Independence takes planning.
Philanthropic Planning - Helping design your charitable legacy.
Risk Management - Preparing for the unexpected.

Our Approach to Portfolio Management

We use Modern Portfolio Management tools to perform investment analysis, portfolio design, and performance evaluation. These tools allow us to evaluate and measure quantitatively the relationship between risk and investment return. As a result, we are able to examine and design portfolios on risk-reward parameters and on the quantification of portfolio objectives.

Our Approach to Asset Allocation

Asset allocation is the process of selecting a mix of asset classes and determining the efficient allocation of capital to those assets by matching rates of return to a measurable tolerance for risk. It is no longer a one-dimensional process of selecting the right stock, bond or property to place in a portfolio.

Modern portfolio theory is based upon four basic premises.

Investors are inherently risk-averse. Investors are not willing to accept risk except where the level of returns generated will fairly compensate for that risk. It is probably reasonable to assume that investors are more concerned with risk than they are with rewards. The problem in the past has been the measure of risk and its relation to return.
Markets are basically efficient. With the advance of information technology and more sophisticated investors, the markets are likely to become even more efficient.
Attention should be shifted away from individual securities selection to consideration of portfolios as a whole based on risk-reward parameters and on the identification of portfolio objectives. In a study conducted by three leading financial analysts, it was determined that, on average, 93.7% of the variability in the risk and returns of a portfolio could be explained by the portfolio's asset allocation. These studies have supported the concept that asset allocation is the main determinant of portfolio performance, with market timing and security selection playing minor roles.
For any level of risk that one is willing to accept, there is a rate of return that should be achieved. Quantitative methods are now used for measuring risk and diversification, making it possible to create efficient and theoretically optimal portfolios. The number of assets in the portfolio is less important than the relationship of those assets. Therefore, having many assets in a portfolio will not reduce the risk in the portfolio as much as having negatively correlated assets.

We use a form of asset allocation called Tactical Asset Allocation. This approach attempts to improve portfolio performance by making small "mid-course" adjustments to the agreed upon long-term strategy based upon changes in market environment. Along those lines, we recognize that developing successful investment strategies depends on our ability to use sophisticated analytical techniques. To provide the services that our clients require today, we utilize systems which include all of the computer models and programs required to develop and manage your portfolio in a sophisticated asset allocation program.

Please be aware that diversification and asset allocation strategies do not assure a profit and do not protect against loss in declining markets.

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Planning and Managing Retirement

Providing for retirement is the single most important long-term financial goal most of us will ever face. Because we are living longer, retirement can last 20-30 years. Due to the overwhelming complexity of retirement planning, the majority of people will turn to financial professionals as they approach retirement. With growing anxiety over the availability of Social Security and diminishing corporate-sponsored pension plan benefits, there is a pressing need to take charge and adequately prepare for your retirement.

Retirement income management services at KFM include planning, implementing and monitoring a retirement strategy that is reflective of your risk tolerance, values, and views of retirement.

To Enjoy Your Retirement, You Must Plan for It

For many individuals, everyday financial demands such as mortgage payments, tuition bills, or the expense of caring for an elderly parent can often overshadow good intentions of investing for retirement. In order to execute a successful retirement plan we must take into account ALL aspects of your life and incorporate those into our retirement plan.

Our Retirement Plans Begin with You

At KFM, the process of developing a sound retirement plan begins with three basic steps:

Planning: gathering financial information, establishing spending and legacy goals, developing projections to determine the probability of sustaining income throughout retirement at desired levels.
Implementing the plan by establishing a withdrawal strategy which fits your retirement lifestyle and needs.
Monitoring to assess progress versus the plan. We provide clients with quarterly performance reports as well as annual reviews in order to assess the sustainability of the income plan. Plans which are not monitored can result in gaps between financial resources and spending.

In order to ensure optimal retirement management, we use computer models to forecast the future. Of course, no matter how good a model is, it cannot predict the future with 100% accuracy. There are too many unknown variables. One way to deal with unknown variables is to run plans using "what if scenarios". What-if scenarios are usually based on range estimates, and calculate as many scenarios as a planner can imagine, such as: What is the worst case? What if inflation is best case but expenses are worst case? What if inflation is average, expenses are average, but returns for the next year are flat? This form of analysis is extremely time consuming, and results in large amounts of data. But still doesn't give the probability of achieving different outcomes. With each retirement plan generated we use a method called Monte Carlo Simulation. Monte Carlo simulation is a method of simulating real-world situations involving elements of uncertainty. Values for uncertain variables are generated over and over to simulate the range of real-world possibilities. The results of the simulations produce the probability of achieving different outcomes. Based upon the results from the Monte Carlo simulation we then analyze how well a client's portfolio is positioned to weather the ups and downs of the market based upon a more realistic view of actual market results and how that impacts the probability of the plan's success.

The ability to generate and implement a successful retirement strategy is much easier when done using analytical tools mixed with personal knowledge of you and your unique situation.

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Financial Independence Takes Planning

Estate planning is designed to help us know that the wealth we have worked so hard to accumulate over the years is preserved for our heirs. Whether it's providing income for a spouse, educating children or grandchildren, or leaving money to a favorite charity, we all want to know that the proceeds from our estates will be used to fulfill our wishes.

Yet, without planning, huge portions of estates are often sacrificed to taxes. How often do we read about situations in which sizable estates are reduced by millions because of estate taxes? It's sad, but it happens frequently. Under current law - until 2009 - estate taxes can devour a substantial percentage of an estate. The law requires that these taxes be paid in cash, usually within nine months after death. If most of the estate's holdings are in real estate or other illiquid investments, heirs may have trouble raising cash to pay the estate taxes.

As Certified Financial Planners, our job is to help you identify potential estate planning issues and to work hand in hand with other professionals who will help create your estate plan. Some of these issues include identifying the need for: Gifting, Wills, Living Trusts, Irrevocable Life Insurance Trusts, Charitable Trusts, Qualified Personal Residence Trusts, Qualified Terminable Interest Property Trusts, AB Trusts, Medical Powers of Attorney, and more.

What is a trust? A trust is a legal agreement between two parties: the person who creates the trust and the person, institution or independent trust company responsible for administering the trust, known as the trustee. The trustee manages the assets placed in the trust for the benefit of a third person, the beneficiary.

How can trusts reduce your estate? Assets irrevocably placed in a trust are removed from your estate. One example of a specific type of irrevocable trust is a life insurance trust. This allows the trustee to purchase a life insurance policy on the life of the person who owns the estate. Usually, the trust is the beneficiary of the policy. After all debts of the estate are paid, the trustee distributes the proceeds of the life insurance policy to the beneficiaries of the trust, according to the instructions in the trust. The most important benefit of a life insurance trust is that it is not included in your net estate because you do not own it directly. By transferring ownership of the policy to a trust, your estate taxes can be dramatically reduced.*

How do trusts help ensure that your wishes are carried out? Everyone has different dreams about how the proceeds from their estate should be used. The best way to ensure that your wishes are carried out is by providing specific instructions in a trust. No one can change these instructions and the trustee must follow them to the letter. Whether it's providing income to a surviving spouse, funding education for children or grandchildren, or contributing to a favorite charity, the trustee complies with the instructions in the trust.

Timing is Everything ... Plan Now

*Please be aware that changes in estate and tax law can occur at any time and could have a substantial impact upon each person's situation. Consult the advise of a qualified professional regarding tax or legal matters.

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Helping Design your Charitable Legacy

KFM offers a variety of giving solutions designed to accomplish your charitable goals and objectives. Our goal is to enable our clients to give in tax-smart ways and make a difference with their giving. Some of the vehicles we offer to our clients are through the Raymond James Charitable Endowment Fund. These include: donor advised funds, pooled income funds, charitable gift annuities, and charity advised accounts.

Here are just a few of the potential benefits of using one or more of these vehicles in order to give to your favorite charities:

Immediate tax deduction
No capital gains tax Gifts have the potential to grow
The pleasure of a private foundation without the hassle

Donor-Advised Funds allow you as the donor to create a low cost, flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Because the Fund is housed in a public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors do not incur the cost of establishing and administering a private foundation, including staffing and legal fees.

Pooled income funds are another type of charitable giving program that combines the tax advantages of charitable giving with the benefits of a lifetime income stream for up to two beneficiaries, which can include the donors. As the donor, you may choose the "Charitable Remainder Beneficiaries" to receive grants from the Gift Fund after the death of the last beneficiary, while you or the beneficiary of your choice receives the income from the fund over your lifetime. The grants can be designated for a special purpose at each organization. The recommended charities can be changed at any time during your lifetime. The income stream generated is variable based on the performance of the underlying investments in the Pooled Income Fund.

Donor-advised and pooled income funds are only two of many strategies available for tax-efficient charitable giving. Our job is to help find the approach which creates the legacy you desire.

*Please be aware that there are different costs and fees associated with these giving strategies. Please consult the advice of a qualified professional for the most suitable alternative for your individual situation.

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Preparing for the Unexpected

Because insurance protects us from the unexpected, it plays a crucial role in financial planning. At KFM, we offer services to help you mitigate risks that could be financially catastrophic. Some of the risk management tools at our disposal include life insurance, long term care insurance, and annuities.

Life Insurance

Life Insurance can be a valuable tool in financial planning, from the most obvious use of providing financial security for family members, to less obvious uses for estate planning and charitable giving. We are able to offer comparisons of life insurance products from a wide variety of insurance companies and products. We also have the ability to offer in depth analysis of existing life insurance policies in order to help identity any gaps in coverage that might exist or explore ways to reduce costs.

Long Term Care Insurance

As life expectancies lengthen and costs of medical care rise, it is important for clients to consider what would happen to the assets they have worked so hard to accumulate over the years should they need long-term care due to a prolonged illness or disability. We work with clients to help identify the long term care strategy that best complements their current retirement and estate plans.

Annuities

Since so few employers today offer defined benefit pension plans, we are finding that annuities, as part of a diversified portfolio, can potentially play a role in providing a cushion of a dependable stream of income. In addition to helping determine when an annuity is a fit for clients, we also have the ability to evaluate the fees, riders, and performance of clients' current contracts and help identify additional features which might be used to add value.