Case Study

Financial Planning and Investment Management

The Value of Professional Financial Advice

The following is a hypothetical financial planning scenario presented for illustrative purposes only. It should not be construed as an investment recommendation or solicitation. Please consult an advisor to discuss your individual situation prior to making any investment decision. Past performance is not a guarantee of future results. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves potential loss of principal.

A Case Study on Real World Benefits of Sound Financial Planning and Investment Management Principles

There are times when taking on a task ourselves can save us money. However, there are times when it can cost us – both in lost time and errors due to lack of knowledge. Our time is inherently valuable and we each make decisions on how to best utilize our limited hours.

With time being so valuable, what is professional advice worth to you? It’s a challenging question when we feel like all of the answers are at our fingertips. However, it’s not always so easy. Some tasks, like managing taxes and finances, can be time-consuming efforts that need solid plans and discipline to yield positive results.

Financial Planning Fort Collins uses clear guidance from financial planning and investment management strategies to help clients achieve their financial goals. Many of these principles have been studied by Vanguard with their Advisor’s Alpha research1, demonstrating the efficacy of resourceful methods, and how a Certified Financial Planner™ professional practicing them can save their clients time and add value.

What could this mean for you and your portfolio? Let’s take Jessica’s situation as an example.

Divorce Financial Planning
Five years ago Jessica was a 42-year-old recently divorced Registered Nurse who was ready to start a new chapter in her life. She didn’t have any kids with her ex-husband, so their divorce was mostly dealing with the splitting of their assets.

She was awarded $210,000 in assets and a monthly alimony payment in her divorce settlement:

  • $40,000 cash settlement for her primary residence
  • $170,000 QDRO split from her ex-spouses 401(k), that was moved to an IRA in her name
  • $500 monthly alimony / support for five years

Recognizing that divorce typically leaves both spouses stepping down financially, Jessica expected to continue working for the next 20 to 25 years, but she wanted to use the settlement to position herself well for long-term financial success. At the time she was weighing the options on whether she would manage the settlement money herself or hire a financial planner to guide her.

Yourself or Financial Planner
Professional Guidance

Jessica decided to hire a Certified Financial Planner™ professional and invested the $210,000 lump-sum and $500 per month with the CFP® professional’s guidance.

Her financial planner helped her create an investment policy statement consistent with her goals, objectives, time horizon, and risk tolerance; then recommended a low-cost implementation and ongoing management of her portfolio that remained compatible with her plan.

Her financial planner also systematically rebalanced her portfolio to keep it in-line with her policy statement. In doing so her portfolio was positioned in the most tax-efficient manner possible, given the split between taxable and IRA balances.

Early on Jessica had received a tip from her favorite uncle about the next big stock that was poised for growth. After discussing the possible fit for that stock in her portfolio, her financial planner dissuaded her from taking a position. The following year the stock took massive losses after the company’s number one buyer vertically integrated its supply chain. Six-months later as the economy softened significantly the company went bankrupt.

Avoiding the stock was helpful but at that point the markets were in turmoil because of the weaker economy. Jessica was nervous and thought about selling and waiting things out. After consulting with her planner, she was reminded of the long-term nature of her portfolio. She was also reminded of the potential missed opportunity of selling and not having the right conviction to re-enter – missing the eventual recovery. She stayed the course and the markets recovered.

During this five-year period, Vanguard’s study1 estimates that Jessica’s financial planner could have added 1.6% annually to her return, net of the planner’s investment management fee (assuming the fee averaged 0.90%).

This would mean anywhere from $11,000 to $30,000 in net value-added from her Certified Financial Planner™ professional’s guidance, assuming her average annual return was between a 10% loss and 10% gain.

Good Financial Planner
Studying How Value Can Be Added

Vanguard’s Advisor’s Alpha1 studies seven specific areas where a CFP® professional can add value to their clients’ investment portfolio. The study then quantifies this added value, drawing on Vanguard’s depth of research into each area.

In Jessica’s case, the first five modules of Advisor’s Alpha1 applied:

I. Asset Allocation (+>0%)

The first step in aligning Jessica’s investment portfolio with her goals was the creation of her investment policy statement. A policy statement determines how she invests her money and the appropriate asset mix, referred to as an asset allocation. It can be a very time-consuming, detail-oriented task to do without the assistance of a financial planner, and because of this, many don’t put forth the effort.

Because each client’s financial goals and circumstances are unique, the value of creating a policy statement is significant, although challenging to quantify. Vanguard estimates2 that the creation of an Investment Policy Statement and the resulting asset allocation can add more than 0% of value annually, but does not provide a specific amount.

II. Cost-Effective Implementation (+0.40%)

More measurable value additions began with a cost-effective implementation of Jessica’s investment portfolio. The cost conscious financial planner helped her utilize low-cost investment positions that met the criteria of her policy statement.

This kept more money in her portfolio as less was passed through to a fund or money manager. Vanguard estimates3 that this can add 0.40% annually to a client’s return.

III. Rebalancing (+0.35%)

The initial creation and implementation of a properly conceived policy statement and investment portfolio involved extensive attention. However, there was also ongoing maintenance to consider.

Working alone, many find themselves with little free time, leaving the ongoing maintenance task on the back burner. This can ultimately increase the amount of risk assumed.

Others may be paying keen attention to their portfolio but fall victim to recency bias – assuming that their strongest performing investments will always be the strongest performers. This too can increase the amount of risk assumed.

Typically as the portfolio grows, a higher proportion of riskier investments grow in an un-rebalanced portfolio.

Vanguard’s Advisor’s Alpha showed4 that implementing appropriate rebalancing strategies helped maintain an allocation consistent with the policy statement. This serves to minimize risk rather than maximize return, resulting in a potential value-add of 0.35% annually.

IV. Behavioral Coaching (+1.50%)

Personal finance is intrinsically emotional as a person’s current and future financial stability is at stake. Because of this, it’s very easy to have knee-jerk reactions and abandon the course after a sharp pullback, or be tempted to chase the illusion of a hot investment when it may not actually fit within a prudent strategy.

Advisor’s Alpha found5 that self-directed investment portfolios could lose up to 2% in long-term return from emotional decision-making. On the contrary, guidance from an objective professional could add 1.5% in annual return.

V. Asset Location (+0.25%)

One significant complicating factor in successful investment decision-making is navigating the impact of taxes. Striking the right utilization balance between taxable and tax-advantaged accounts can be a daunting task. The cost of improper utilization is higher taxation.

Vanguard’s research notes6 that a 0% to 0.75% annual return value-add is possible with proper asset location, depending on the investor’s breakdown of assets between taxable and tax-advantaged accounts.

Between Jessica’s initial settlement proceeds and the $500 per month that she received over the five years, about one-third of her assets benefited from proper asset location strategies. This averages to a potential value-add of 0.25% annually.

Highlighted by Jessica’s case, sound financial planning principles combined with competent execution have been extensively studied and demonstrated to provide additional value to your investment portfolio. Utilizing a Certified Financial Planner™ professional saves you time, a priceless commodity on its own, but prudent strategies can also provide you with tangible, real world benefits.

The preceding is a hypothetical financial planning scenario presented for illustrative purposes only. It should not be construed as an investment recommendation or solicitation. Please consult an advisor to discuss your individual situation prior to making any investment decision. Past performance is not a guarantee of future results. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves potential loss of principal.

Citations.
1 – https://www.vanguard.com/pdf/ISGQVAA.pdf
2 – https://www.vanguard.com/pdf/ISGQVAA.pdf#page=10
3 – https://www.vanguard.com/pdf/ISGQVAA.pdf#page=12
4 – https://www.vanguard.com/pdf/ISGQVAA.pdf#page=13
5 – https://www.vanguard.com/pdf/ISGQVAA.pdf#page=16
6 – https://www.vanguard.com/pdf/ISGQVAA.pdf#page=18

Jason Speciner
Jason Speciner
jspeciner@gmail.com

Jason Speciner is a CERTIFIED FINANCIAL PLANNER™ professional and an Enrolled Agent. Since 2004 he has served clients of all ages and backgrounds with unique experience working with members of generations X and Y. You can check the background of this investment professional on FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure website.



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MINIMUM ACCOUNT SIZE
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Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
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MINIMUM ACCOUNT SIZE
There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds. Invest:FOCO is currently available for Individual, Joint, Traditional IRA, and Roth IRA registrations.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
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When investment management services are desired, there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities. inStream proactive financial planning is then included at no additional cost.
ANNUAL FEE
inStream proactive financial planning as a stand-alone service: $1,250/year or $125/month

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%
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Stay in the loop with our Monthly Economic Update. It's a great way to catch up on the things effecting your financial plan in an easy to read and relatable format.

We promise to only use your name and email address for sending our Monthly Economic Update. We will not sell, rent, lease, loan, or use your name or email address for any other purpose, internally or externally. You can easily unsubscribe at any time.
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Minimums do not apply to always-on, real-time financial planning as a stand-alone service.

For investment management services there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. Investment management fees are generally debited from the accounts to which they apply. Financial planning services are included for Strategy:FOCO investment management clients at no additional charge.
ANNUAL FEE
Always-on, real-time financial planning as a stand-alone service:  $125/month or $1,250/year

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
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