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Our Wealth Management Philosophy
There are several cornerstones to our approach.
Fee-Only™— Our clients are our employers; Mallard receives no compensation (direct or indirect) from the brokerage, mutual fund, and other financial firms we recommend. We believe strongly that any commission form of compensation introduces a conflict of interest that can poison client relationships. We want you to be 100% certain that our recommendations are based purely on the investment merits, and not on some Caribbean promotion our ‘home office’ is offering.
Investment Policy Statement—IPS for short, this document is a description of the goal of the portfolio. It includes six sections: Return Requirements, Risk Tolerance, Liquidity Requirements, Time Horizon, Legal and Other Restrictions, and Unique Considerations. The IPS forces the advisor and clients to ‘un-assume’, to write down assumptions and compare them. This enables us to eliminate mis-communications. If a client assumes that they can earn 10% a year without any down years, we want to talk about it. The IPS should be written and accepted by advisor and client before any investment changes are recommended or executed.
Diversification—Moderation is an investment virtue. We recommend that a globally balanced approach be taken, within the limitations of the Investment Policy Statement, and that this approach be followed when it is easy and when it is hard. This means adding to stocks when they are falling (with no end in sight), and selling stocks when they seem to go nowhere but up.
No Cookie Cutters—Each client has their own Investment Policy Statement and their own portfolio. For those with assets in taxable accounts, we maintain the tax-cost basis for each holding, and we consider the tax impact of every move we recommend. ‘Model portfolios’ do not permit this level of attention to detail.
Detail Oriented—We do more than track the portfolio’s ending value, we track each penny. It isn’t helpful to simply know that the portfolio is worth $20,000 more on 12/31 than it was on 9/30. This is meaningful only if you also know that $5,000 of the growth was due to a new contribution, and the remaining $15,000 was due to investment return. We use top-of-the-line portfolio management software, and are linked to TD Ameritrade, the primary custodian for our clients’ accounts, so that every transaction is tracked, and accurately reported. We hand-enter all transactions that occur outside of TD Waterhouse accounts.
Feedback Loops—While I believe that “if it ain’t broke, don’t fix it”, with portfolio management I want to know when something is broken and when it is working. Only by tracking the details, by enabling apples:apples comparisons, can we see whether the little items (such as a single foreign stock fund) and the big items (such as whether the portfolio is generating the projected interest income) are working.
It’s All Relative—I believe that peer-group comparisons are the most powerful. I don’t mind so much when client accounts are falling 5% if the S&P 500 is falling 15%. What I want to know is what comprises the 5% client decline. This is called ‘performance attribution’. I want to know whether in that situation the client’s large US stocks fell more or less than the S&P 500, and whether their non-US stocks fell more or less than the average non-US stock mutual fund. I don’t fault an approach if it is keeping up with its peers, even if all of the peers are falling.
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