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What does
Fee-Only™ mean?
Is Fee-Only™ the
same as Fee-Based?
What is the
significance of being a National Association of Personal Financial
Advisors (NAPFA) member?
What is the NAPFA
fiduciary oath and what does it mean for clients?
What are the principles
that Beach Financial Advisory Service adheres to?
What is
BFAS's financial planning philosophy?
What is
BFAS's
investment philosophy?
What are the
primary benefits of working with Beach Financial Advisory Service?
Can I be a
BFAS client if I
don't live in Virginia?
How do we get started?
What does Fee-Only™ mean?
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The term Fee-Only™ refers to the method of
compensation. Fee-Only™ planners are compensated solely by fees
paid directly by their clients and do not accept commissions or
compensation from any other source.
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Fee-Only™ planners believe there is a
significant conflict of interest if an advisor stands to gain
financially from the purchase of any product he or she recommends to
the client. To avoid this conflict, Fee-Only™ planners only accept
compensation that comes directly from the client, not from any
other source.
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Is Fee-Only™ the same as Fee-Based?
No, Fee-Based advisors charge for the planning work and then recommend
products (insurance and investments) on which they receive commissions
or some other form of compensation from the product provider. Fee-Only™
advisors do not accept any compensation that doesn't come directly
from the client.
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What is the significance of being a
National Association of Personal Financial Advisors (NAPFA) member?
NAPFA members are held to a higher standard than members of other
financial organizations in terms of:
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Membership requirements
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Continuing education
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Loyalty and care for their clients
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What is the NAPFA fiduciary oath and
what does it mean for clients?
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The NAPFA fiduciary oath states: The
advisor shall exercise his/her best efforts to act in good faith and
in the best interests of the client. The advisor shall provide written
disclosure to the client prior to the engagement of the advisor, and
thereafter throughout the term of the engagement, of any conflicts of
interest which will or reasonably may compromise the impartiality or
independence of the advisor. The advisor, or any party in which the
advisor has a financial interest, does not receive any compensation or
other remuneration that is contingent on any client's purchase or sale
of a financial product. The advisor does not receive a referral fee or
other compensation from another party based on the referral of a
client or the client's business.
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The oath is another indication of BFAS's
commitment to serving the client's best interests.
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What are the principles that
Beach
Financial Advisory Service adheres to?
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To always place the client's interests
first.
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To be honest and forthright in all
dealings with clients.
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To educate clients so they can make
informed financial decisions.
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To utilize the best available technology
for developing and monitoring clients' financial plans.
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To continue professional education to stay
abreast of new methods and products that may better serve clients.
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To adhere to the Certified Financial
Planner Board of Standards' Code of Ethics and Professional
Responsibility and the National Association of Personal Financial
Advisors (NAPFA) Code of Ethics and Fiduciary Oath.
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What is
BFAS's financial planning
philosophy?
Beach Financial Advisory
Service is first and foremost a financial
planning practice. I am solely concerned with assisting my clients
in meeting their life goals through proper management of their financial
resources. My success is not measured by performance statistics but
rather by my client’s success in achieving their goals.
My practice begins and
ends with the needs of the client. It is client-driven. Solutions can
be developed only after appropriate data (both quantitative and
qualitative) have been gathered and evaluated. Related issues should be
identified and clients should be directed to other appropriate
professionals for their resolution. Implementation, continuous
monitoring, and, as necessary, modification, is an integral part of the
process.
Goal Setting:
I believe that my clients must set their goals. It is my responsibility
to educate them in the process and to assist them to define, quantify,
and prioritize their goals. It is also my responsibility to assist them
to recognize that there may be “hidden goals” (e.g. risk management
issues) that may take priority over investment issues.
Rule of Thumb Planning:
I believe that “rule of thumb” planning is an incompetent and
unprofessional way for an asset manager to plan for a client’s financial
independence. Examples of rule of thumb planning include simplifying
assumptions for retirement (long term) projections, life cycle
investing, and packaged asset allocation models.
Cash Flow:
I believe that clients need total return, not dividends or interest.
The traditional concept of an “income” portfolio is archaic and places
unnecessary and inappropriate restrictions on portfolio design. Plans
structured to match dividends and interest with cash flow, in the long
run, are likely to fail to meet clients’ inflation-adjusted cash flow
needs.
Long Term
Projection:
I believe that conservative assumptions are a dangerous myth. A
conservative assumption (e.g., ignoring social security) will result in
a need for a higher return, greater volatility portfolio. Long term
projection return requirements should be based on real rate of return
estimates. Time horizons (i.e., mortality) should be based on the
client’s unique family health history, not standard mortality tables.
Plans should not be based upon a client’s unrealistic expectations; if
necessary, I will refuse the engagement.
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What is
BFAS's investment philosophy?
Risk and Return Measures:
I believe in the use of appropriate measures of risk and return. The
primary measure of risk should be standard deviation. Total return
should be the basic criterion for the measurement of return. The
primary measure of risk-adjusted return is the Sharp ratio. I do not
use Alpha and Beta as measures. Duration, not maturity, is the
appropriate measure of a bond’s exposure to interest rate risk (within
narrow rate changes).
Efficient Market Hypothesis:
This hypothesis holds that security prices fully reflect all available
information. The strong form of EMH holds that active managers can not
add value due to market efficiency. The weak form of EMH holds that
some portions of the market may have inefficiencies where active
managers can add value. I believe in the weak form of the efficient
market hypothesis. I reject the use of classic technical analysis and
market timing.
Growth versus Value:
I believe in the conclusions of the Fama/French research that, over
time, value portfolios will provide superior returns. However, I
also believe that eliminating growth allocations will result in interim
divergence from the broad markets which my clients may find
unacceptable. Therefore, while I always use value allocations, I may or
may not use growth allocations depending upon the client’s goals and
risk tolerance.
Active versus Passive:
I believe that the choice between active and passive management is not
either/or. I use both. Passive management offers lower transaction
costs and minimal asset class drift, frequently a more tax-efficient
portfolio, and there is significant academic research suggesting
long-term superiority in investment performance. Active management
offers the opportunity for superior returns, controlled volatility, and
bragging rights. I believe in explaining these issues with the client
and letting the client make the passive or active decision.
Asset Allocation:
I believe that the portfolio policy is the primary determinant of
long-term portfolio performance. Implementation of concentrated
portfolios either in economic sectors or with specific managers, is
risky and inappropriate for asset management clients. Multi-asset class
and multi-manager portfolios are more appropriate. The major asset
classes are cash equivalents, fixed income and equity. I consider
taxable and tax-free domestic and foreign bonds all to be important
fixed-income classes. I generally use short maturities (1 to 3 years)
or intermediate maturities (3 to 10 years). I do not consider long-term
or low-quality fixed income asset classes. Equity allocations are
divided between domestic and foreign. I also use REITs (Real Estate
Investment Trusts) occasionally as I believe they represent real estate
investments. Domestic stock allocations are divided between large and
small cap and sometimes mid cap. I may further divide domestic assets
between growth and value styles although I prefer the value style. I
believe that international equity allocations, including commitments to
emerging markets, belong in all portfolios. I may introduce natural
resources through limited partnerships in some larger portfolios where I
can limit participation to a small allocation of the portfolio.
Because I believe in the
overriding importance of the strategic allocation, I reject managers who
do not have clearly defined, asset class/style philosophies or who
diverge from their stated policies. Because I do not believe in market
timing, I reject sector managers.
I believe in maintaining a
strategic allocation and only infrequently revise that allocation.
Although I believe in rebalancing to the strategic allocation, the
influence of taxes and transaction costs leads me to conclude that
contingent rebalancing within fairly wide bands is the most appropriate
solution for taxable accounts. I use narrower bands for tax deferred
accounts. I will adjust the strategic allocation tactically (tactical
asset allocation) depending upon where we are in the economic cycle.
Optimization:
I believe that mathematical optimization is the appropriate method for
designing a strategic asset allocation model. However, I believe that
an optimizer is simply a tool to be used by a knowledgeable asset
manager. The primary controls over the optimizer are the development of
logical input data (expected returns should not simply be historical
projections), an awareness of the optimizer’s sensitivities to the input
and other appropriate constraints. The final recommendations should not
be based on the optimizers’ unconstrained optimal solutions but rather
on solutions based upon my constraints based upon experience and your
risk tolerance as well as realistic expected returns.
Time Diversification:
I believe that the concept of time diversification is appropriate in its
conclusion that the relative risk of increasing equity exposure
decreases as the time horizon of the goal increases. As a related
issue, I do not believe that any investment should be made for a goal
with less than a five-year time horizon. Funds required in less than
five years should be placed in money markets or fixed-income securities
(e.g., CDs, Treasuries) with maturity dates equal to or less than the
goal’s time horizons.
Implementation
Policy:
I believe that an investment policy should be written and should be
customized to the needs of the client. It should describe the client’s
goals and discuss his or her risk tolerance. The policy should describe
the strategic model and any special constraints.
Managers:
I believe that professional money managers will provide results far
superior to a client’s or asset manager’s direct security selection and
management. With rare exception, separate account management (including
wrap accounts) is inefficient and expensive. The universe of public and
institutional funds offers the best alternative for the superior
management of multiple-asset-class portfolios.
I believe that managers
should be selected and evaluated based on their philosophies, processes,
and people. Once selected, a manager should be allowed periods of poor
performance if he remains consistent to his philosophy and process. He
should be replaced immediately if he strays significantly from his
stated philosophy or process.
Evaluation of managers
should entail a detailed review of all available pertinent information
including both fundamental and qualitative analysis. However, the
ultimate decision to hire or fire should be based upon the fundamental
data. Performance measurement should be against appropriate benchmarks,
not broad market indexes.
Ongoing
Management: I believe there should be a
regular review (semiannually) of a client’s situation to determine if he
or she is continuing to move in the direction of achieving his or her
goals. This includes revisions in strategic allocations as a result of
revised assumptions or changing client circumstances or goals. I should
continue to educate my clients, always remaining sensitive to the
volatility of each one’s expectations. My responsibility is to assure
that my client stays the course and does so with a minimum of emotional
pain. The focus should always be the client and the achievement of his
or her goals, not the performance of the portfolio.
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What are the primary benefits of
working with Beach Financial Advisory Service?
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Enhanced goal
definition/tracking/achievement
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Improved cash flow & records management
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Reduced exposure to avoidable risks
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Lower investment costs
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Plan discipline & synchronicity
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Peace of mind
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Can I be a
BFAS client if I don't live
in Virginia?
Certainly. As a result of today's
modern communications means, BFAS services clients from the east cost
to the west coast. Just be sure to identify your state of residence
when inquiring about BFAS's services.
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How do we get started?
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Call 757.428.6634 or email
(ron@beachfas.com) to set up an initial
complimentary consultation.
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You may also want to go to the Forms page
and download the following documents to provide you additional
information:
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Beach Financial Advisory Service
Brochure
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Initial Meeting Questionnaire
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Money Profiles
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