Selecting A Financial Planner

Posted by   admin on    November 10, 2003

When you think of financial planning it may be helpful to think about your desire and feelings regarding wealth. From creating it, to accumulating it, to protecting and preserving it, to spending it and maybe passing it on for future generations, financial planning is about setting and reaching goals while balancing the lifestyle that is right for you. 

It is also about looking at how your finances are currently managed and determining what changes, if any, need to be made. With this as a foundation, is it any wonder that the new buzzword for financial planning is Wealth Management?

Over the coming months, we will be providing articles on various aspects of wealth management to assist your understanding of why planning for the present and for your future should be important to you. Of course, you may expect some self-promotion contained within; yet, we will be endeavoring to cover thought provoking topics.

This months letter will touch upon: Important considerations when selecting a financial planner to work with. Also, in light of the current mutual fund scandals, well briefly discuss why separately managed investment accounts have some attraction. Lastly, but expected to be a regular feature, we will update you on the performance of our investment program and provide a brief education about Sharpe Ratios. In subsequent letters, we will cover topics in areas such as retirement, long-term care, and wealth transfer issues. We will also be open to topical suggestions coming from you.

How are consumers selecting financial planners or wealth managers these days?

Money and finances are such emotionally charged issues, evidence suggests, that so many people are probably buying a brand name that implies trust. If you dont know much about financial matters, youll probably want to buy based upon trust. Right? There is also a group of people that that buy these services based on status  thats the emotion kicking in. The emotional side says, I want to tell other people about my planner or advisor,  and the belief is that they are more comfortable doing that if the name is one their friends would recognize and think is terrific. But do you really know if the name you believe to trust, or that has status, is the right specialist for your needs?

The biggest problem, claims Cornell law professor Jonathon Macey, is that there is confusion among the public. He contends that if you compare the financial planning profession with medicine and law  which he says, it frequently is  you find that theres no absolute universal definition of what a doctor or a lawyer is. Think of the difference in doctors who read x-rays, or do research, or are hands on clinicians. Yes, financial planning is extremely diverse in how its performed, but hes not sure it is any more diverse than other professions.

Adding to this confusion is the dizzying array of channels through which consumers can get financial planning. Accountants, bankers, brokers, insurance agents, investment advisors, and lawyers  to name a few are offering these services today. We now have a rapidly expanding pool of people who are practicing some type of financial planning and it is increasingly difficult for a typical consumer to evaluate where to turn.

Few people think twice about where to go if they need a will drafted or if they want to sell their house. But what who comes to mind when you think of obtaining financial advice? The answers, Macey suggests, are probably across a very wide board. In many cases, drafting a will is a heck of a lot easier than putting together a comprehensive financial plan for somebody. Yet the attorney drafting that will has gone through significant education and training to be able to provide that service.

Accountants, bankers, brokers, insurance agents, investment advisors, and lawyers all play a specialized role in executing a comprehensive financial plan. But unless they are educated, trained and experienced at coordinating the interrelationships of these specialties, you may run up against problems. The situation with financial planning, though, is that problems take much longer to manifest themselves  like 15 years from now when somebodys retiring.

Let me offer a recommendation. Look for someone who has earned the right to use the Certified Financial Planner  CFP  designation or who has trained with one. Then, you have better assurance that they have been trained to see the bigger picture.

The seasoned professionals at ELF Capital Management bring experience not generally available to the individual consumer and can capably meet your comprehensive financial planning and investment management needs.

Now, why are mutual funds losing business to managed account providers?

Managed accounts have been growing in popularity for some time. In fact, the Money Management Institute, in Washington, D.C., has reported, were seeing a lot of high-net-worth investors who no longer desire to be do-it-yourself investors opting for managed accounts. To figure out if our separately managed account investing makes sense for you, here are several important considerations. (Courtesy of Terri Cullen who writes for the New York Times.)

In the wake of the widening mutual funds scandal, separately managed accounts may be starting to look very attractive to some investors and financial advisors. With a separately managed account, a professional money manager manages a basket of investments just for you. Particularly compelling is the fact that, no one else can buy into your specific account. That means youre protected from the kind of improper trading activities in mutual funds that have made the headlines lately.

Managed accounts are similar to mutual funds, offering stocks, bonds or a mix of assets. The stocks, bonds or assets the manager selects for your account might be similar to the basket he or she manages for other portfolios, but they dont have to be. Thats a significant part of what makes these accounts separate.

You get some added perks too: More flexible than many mutual funds, managed accounts may let you tailor your investments to keep taxes to a minimum. Another advantage managed accounts hold over mutual funds is transparency  you tend to get much more frequent updates on your holdings and how your asset manager is maintaining your account. Most managed accounts also allow you to speak directly to your portfolio manager. Talk about personal service!

Did I mention that ELF Capital Management manages separate accounts?

ELF Capital Management investment performance update.

For the month ended October 31, 2003, our one-month performance is up 1.97% and our three-month return is up 4.96%.

For disclosure purposes, past performance is not necessarily indicative of future results and ELF Capital Management LLC (ELF), formerly Hoffman White & Kaelber Financial Services LLC, cannot guarantee the success of its services. There is a chance that investments managed by ELF may lose a substantial amount of their initial value.

ELF is an independent discretionary investment management firm established in February 2003. ELF manages a strategic allocation of primarily exchange-traded index funds (ETFs), and may invest in other carefully selected securities. ELF may also employ hedging techniques, through the use of short positions and options. ELF manages individual portfolio accounts for both individual and business clients.

The ELF ETF Strategy returns presented herein represents a composite of actual results from all client portfolios managed by ELF. Currently, it is the only composite presented by ELF and separate client account portfolio positions are substantially similar, except as may be modified for retirement plan accounts and accounts with net equity of $60,000 or less. There is no minimum account size for inclusion into ELFs ETF Strategy composite and accounts with net equity of $60,000 or less have a tendency to downwardly skew the combined results.

The performance data presented herein includes the reinvestment of dividends and capital gains; as well, ELFs ETF Strategy composite returns are presented after deducting actual management fees, transaction costs or other expenses, if any. ELF charges an annual investment management fee as follows: 1.25% on the first $250,000; 1.00% on the next $750,000; 0.95% on the next $4,000,000; and, 0.75% thereafter.

Money is good. It is important. Without money, daily survival  not to mention further development  is impossible At the same time, it is wrong to consider money a god or a substance endowed with some power of its own. To think that money is everything, and that just by having lots of it all our problems will be solved is a serious mistake. Dalai Lama


Copyright 2003 ELF Capital Management, LLC. All rights reserved.