We are often asked about how BWFA has become one of the most successful Fee-Only financial planning firms in the Mid-Atlantic. What’s our advantage, our secret?
Our “secret” isn’t really a secret: Our clients make us a better firm. Because we put clients’ needs first, we have to understand what those needs are. That understanding drives our performance as investment managers and financial planners.
Building Investment Portfolios
Our clients differ by their current income, the size of their portfolios, their tolerance for risk, the taxable and tax-deferred structure of their portfolios, and their need for retirement income. So it seems obvious that their portfolios should be different, too. Yes, it’s harder to build these unique portfolios than to provide a one-size-fits-all approach, but in the long run it is more rewarding for both BWFA and our clients.
All of our portfolios are:
- Diversified by asset class, industry, and company. We invest no more than 2%-4% in any one company.
- Invested in individual securities. This offers transparency to the client: You know exactly what is in your portfolio. Also, investing in individual securities eliminates an added layer of fees that many other advisors incur by investing in mutual funds. Finally, taxes can be managed by selecting which shares to sell at a particular time, which can’t be done if the shares are held by a mutual fund.
- Allocated to asset classes based on the risk tolerance of individual clients. BWFA uses eight basic portfolios that are delineated by the amount of risk in each.
Creating Retirement Paychecks
While clients’ portfolios are unique, they typically share some goals. For retired clients, we adjust portfolios to try to obtain approximately 60% of the client’s income needs through dividends or interest. We then use a systematic process to raise the necessary cash to fund “retirement paychecks.”
This approach not only gives clients a secure income stream, but it also helps us to improve portfolio performance. Specifically, BWFA creates Reserve Accounts that are invested in a short-term bond fund to provide interest while maintaining excellent liquidity. The Reserve Account is replenished every six months. By using this replenishment process, BWFA does not need to sell securities under stress during short-term down markets, and it can select the most appropriate securities to sell when the time is right.
Integrating Wealth Management Services
Many clients utilize BWFA’s comprehensive financial planning, tax, and estate planning services. They are, indirectly, making us better investment managers because they are providing their individual investment managers with substantial amounts of information that can be used in the management of their portfolios.
For example, a tax return can tell the investment manager if a client would benefit from having a greater proportion of investments in tax-exempt securities than in taxable corporate bonds. Or, the manager would know whether to blend a retiree’s withdrawals from both taxable and tax-deferred accounts, in order to keep a client within a certain tax bracket. For other clients, knowing the full financial picture—college expenses, vacation and rental properties, estate planning issues, etc.—will yield valuable information that will help determine investment choices.
The point is that BWFA’s investment managers are devoted to putting the pieces together. Looking at all of the issues that affect our clients’ wealth is the BWFA advantage.