We recently received the following questions from a prospective client. Here are our answers.

1. Are you a fiduciary?

We are Fee-Only Fiduciaries.

Fee-only means that we have one fee that the client pays based on the amount of their investable assets. We get no commissions, no kickbacks, and no payments other than the client’s fee. Our fee is up front and straightforward.

Fiduciary means we have a legal obligation to act in our client’s best interest. We take our fiduciary responsibility very seriously. It is at the core of our identity.

2. How do you get paid?

Our only compensation is from the clients we serve.

Our fees are based on the amount of investable assets we manage for our clients. Fees are deducted from client assets quarterly in advance, based on their value at the end of the previous quarter after all of the transactions have been settled. For the full fee schedule, see Our Fees page.

3. What are my all-in costs? (fees beyond paying you, the advisor)

As fee-only financial planners, we are only compensated by our clients directly in a straightforward fee. We do not receive any payments or commissions from fund or insurance companies.

Apart from the percentage of assets under our management that we charge for managed accounts, there may be fees associated with the third-party custodian that holds your assets and expense ratios associated with exchange-traded funds (ETFs) or mutual funds held in your accounts.

We neither set the rate of these fees nor do we receive any revenue from them.

Regarding custodian fees, we typically recommend using Charles Schwab as the custodian for our clients’ assets.

Currently, Charles Schwab has no minimum account balance or maintenance fees for investment accounts.

They also offer no transaction fees for online trades of U.S. equity stocks, U.S. exchange-listed ETFs, and a specific list of no-transaction-fee (NTF) mutual funds. Mutual funds not on the NTF list cost $25 per trade. We try to avoid trading mutual funds with a transaction fee whenever possible in order to keep custodian fees to a minimum.

Regarding fund expense ratios which are paid by the assets in that fund to the ETF or mutual fund company who manages the fund, our default recommended fund list for a 100% stock portfolio features an expense ratio of 0.1861%. For a 100% bond portfolio, the expense ratio of our default recommendations is estimated at 0.0679%.

4. What are your qualifications?

At Marotta Wealth Management, our investment philosophy is formed by our Investment Committee. Our Investment Committee is responsible for developing and reviewing our Asset Allocation design methodology, selecting and defining our asset classes, selecting and defining our sectors, determining the correct weight and dynamic tilt for each sector, selecting which specific securities are on our Buy List, and reviewing overall performance of client accounts on a quarterly basis to assess for any strategic changes.

We require each Investment Committee member to have, at a minimum, the CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Financial Analyst ® (CFA) designation, or other relevant high quality portfolio management credential.

You can read more about this in our article, “Q&A: What Are Your Qualifications?”

5. What is your investment philosophy?

Our investment philosophy is based on the principles of modern portfolio theory.

We believe the markets are relatively efficient over long periods of time and that asset allocation decisions (rather than market timing or stock picking) will determine most of your long-term return. As a result, we tend to recommend diversified portfolios composed of investments with low expense ratios.

Our asset classes are defined by looking at the correlation of returns. Investing in less correlated asset classes represents a greater opportunity for reducing volatility and boosting returns. We use six different asset classes: three for stability and three for appreciation. We divide the asset classes for stability into short money, U.S. bonds, and foreign bonds. We divide appreciation into U.S. stocks, foreign stocks, and resource stocks.

Beyond asset class, we identify sectors of each asset class which we want to emphasize. Our sector selections are used to overweight factors which have shown to boost returns historically.

Then, we advocate for periodic rebalancing, which means buying more of the markets that have gone down and selling some of the markets that have gone up. Rebalancing across uncorrelated asset classes presents the best possibility for a bonus. Sector divisions are strategically less important to keep in balance because their correlations are often higher than the correlation between asset classes. However, because of their relatively low correlation or other favorable attributes, you can still receive a rebalancing bonus from moving between them.

If you’re interested, you can read more about this in our articles “Q&A: How Does Your Investment Strategy Work?” and “Q&A: Which Products Do You Buy and Which Do You Avoid?”

6. What asset allocation will you use?

We craft individual portfolios tailored to our clients’ needs. During this process, we use a number of factors including the client’s goals, needs, and desires to determine the optimum asset allocation.

Because financial planning is all about supporting your financial goals, we design your asset allocation to ensure that your expected withdrawal rate is supported by your Stability (bond) allocation. Then, we let your risk tolerance pick between those suitable asset allocations. You can read more about this method of asset allocation design in our articles “How Risky Do You Want To Be?” and “Your Asset Allocation Should Be Priceless.”

7. What investment benchmarks do you use?

We typically use a blend of the MSCI All Country World Index (MSCI ACWI) and the One-Month Treasury Bills Index as our benchmark.

We use these because any decision to deviate from investing like these indexes is an investment choice. We deviate significantly from our benchmark and hope these investment choices beat this benchmark over long time periods.

8. Do you use an independent custodian? if so, who do you use?

We strongly recommend that clients do not allow their financial advisor to have custody of their assets in anything but the limited ability to make trades on your behalf, move money between your accounts, and take out a fee. Marotta Wealth Management does not maintain custody of the assets we manage. Instead, client assets are housed at a qualified custodian. We often recommend Charles Schwab as the qualified custodian.

If you have any other questions, feel free to contact us and ask.

Photo by Markus Spiske on Unsplash