In June 2020, the SEC added a new requirement to annual compliance filings. Now, broker-dealers and investment advisers are required to deliver to retail investors a relationship summary of disclosures. These disclosures have been called ADV Part 3, Form CRS, and the Client Relationship Summary.

As part of the requirements, the SEC wrote passages which must be included verbatim in each relationship summary. In our Form CRS, these passages were printed in a light red color. Some of that required text are so-called conversation starter questions. The SEC requires that:

…you must use text features to make the conversation starters more noticeable and prominent in relation to other discussion text, for example, by: using larger or different font, a text box around the heading or questions; bolded, italicized or underlined text; or lines to offset the questions from the other sections.

Investment advisers that provide only automated investment advisory services or broker-dealers that provide services only online without a particular individual with whom a retail investor can discuss these conversation starters must include a section or page on their website that answers each of the questions and must provide in the relationship summary a means of facilitating access to that section or page. If you provide automated investment advisory or brokerage services but also make a financial professional available to discuss your services with a retail investor, a financial professional must be available to discuss these conversation starters with the retail investor.

Although our financial professionals would happily answer these questions if you want us to, we believe that there are more important questions to ask a financial advisor you are interviewing. So, we have elected to write up our answers to the SEC’s conversation starter questions in this article so everyone can read about them whenever they want.

Note that this article was written and published on the date listed above to answer the Conversation Starter questions of Form CRS. This article has not been updated since that publication date. For the latest information about our firm, you should always reference our latest SEC filings and brochures as we update those documents annually or more frequently as required by law.

If you are looking for better questions to ask, we have have written “Ten Questions to Ask a Financial Advisor“ as a useful and simple tool. The best answer to each of our recommended questions is “Yes.” Any other answer is a potential red flag. You can also find our answers to those questions on our Frequently Asked Questions page.

Given my financial situation, should I choose an investment advisory service? Why or why not?

Both working with a fee-only comprehensive financial planner or utilizing resources such as our articles to self-educate are good decisions. However, you likely should not utilize the services of a brokerage firm.

You are hiring a professional because you don’t know as much as that professional about the service. This makes you vulnerable to abuse. Commission-based agents and brokers get paid by the expensive funds they recommend and the plethora of other fees they charge. Their so-called portfolio construction may simply succumb to their inherent conflict of interest without bringing any value. Furthermore, when pressed, these brokerage firms admit that they don’t provide any investment advice and that the burden is on the client to advise themselves.

The investment world is composed of mostly these fee-and-commission-based salespeople. We often call them “The Dark Side” of financial services. There exist good professionals on the dark side, but the incentives to be bad are strong.

In this way, we believe that everyone deserves comprehensive wealth management from a fee-only investment advisor. Comprehensive financial planning is all about the ongoing process of recognizing and meeting life’s goals. It is an iterative process that requires highly personalized financial planning that takes the holistic approach of integrating each component one by one into your financial plan.

We have different service levels to provide access to our assistance at a variety of price points.

Also, we publicly publish our strategies as articles on our website and strive to provide the necessary resources for anyone to prepare their own investment plan.

To read more about the difference between fee-only advisors and commission-based brokers, you can explore our articles on the topic.

How will you choose investments to recommend to me?

We have no secret ingredient at Marotta Wealth Management. Instead, we openly and publicly publish our strategies as articles on our website. We strive to provide the necessary resources for anyone to prepare their own investment plan and meet their financial objectives. We actively encourage the do-it-yourself people of financial planning to subscribe to our newsletter and provide themselves with comprehensive wealth management.

We have designed our investment strategy following the same steps we advise in “The Complete Guide to Creating an Investment Plan.”

When it comes to choosing investments, we use three primary criteria to judge securities:

1. The investment should be diversified within its sector.
2. The expense ratio should be low.
3. Ideally, it should have low trading costs.

The most important selection criterion is a low expense ratio. Morningstar did a study to see what was a better indicator of a fund having better returns in the future: having a low expense ratio or having more Morningstar stars. They determined that having a low expense ratio was a better indicator than Morningstar stars.

For this reason, we typically only buy two types of investments low-cost exchange-traded funds (ETFs) and mutual funds.

There are several types of investments which we avoid. We do not generally recommend strategies that involve investments we believe would be classified as unusually risky. We also do not recommend annuities, whole life insurance, or other products that contain financial hooks. We do not advise frequent trading when it increases brokerage costs and taxes. We do not typically recommend purchasing options or futures because these investments are hedges or bets more than they are investments. We do not recommend investments that are not publicly priced and traded like hedge funds, private offerings, or nonpublic limited partnerships.

You can read more about this in “Q&A: Which Products Do You Buy and Which Do You Avoid?”

Some investment-only firms have a limited number of investment choices and do not personalize their approach based on what investments you already own or what your goals are. These investment-only firms presume that the burden is on you to decide if their approach fits your needs. At Marotta Wealth Managaement, we aim to personalize our services to fit your needs.

We offer Life Planning in tandem with Asset Allocation Design. We offer Retirement Planning alongside Intergenerational Planning. We aim to create a comprehensive, personalized, and integrated approach to wealth management.

What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?

David John Marotta founded Marotta Wealth Management (originally Marotta Asset Management) in 2000. It was a rebirth of Marotta Money Management, a 1980s California-based financial planning firm that was co-founded by his parents George and June Marotta and then sold in the late 1990s.

As a firm, Marotta Wealth Management’s philosophy, experience, and wisdom has decades of experience. Combining art and science, Marotta Wealth Management has become known for its careful and analytical approach to investment management, financial planning, and wealth management alike. Each component of comprehensive wealth management is analyzed in depth to design the practiced methodologies of our firm.

All of our employees are directly supervised by a CFP® professional and taught our systematic approach to comprehensive wealth management via our methodical workflows. As a result, even our least experienced employees are able to succeed and thrive with the collective wisdom of the firm.

We work to fulfill our fiduciary responsibility by dividing areas of expertise into specialties and allowing team members to expand their knowledge and competence as a specialist in that area. When a new task comes in which we haven’t done before, we challenge ourselves to become an expert in it. We are likely one of the few wealth management firms where “research and development” is legitimately part of someone’s job description.

We have support staff specialists who are experts in subjects such as Tax Planning, Roth Conversions, Retirement Planning, and more. We have traders who specialize in Portfolio Management, rebalancing accounts, managing capital gains, and ensuring sufficient cash for client withdrawals. Beyond that, we also have an investment committee who is responsible for developing and reviewing our Asset Allocation design methodology, selecting and defining our asset classes, selecting and defining our sectors, determining a target 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.

In addition to traders and specialists, we have advisors who specialize in being the primary point of contact for groups of clients. These advisors specialize in understanding the situation, values, and goals of the clients they serve. Then, they translate that understanding into which financial services we should offer and pull in the appropriate specialist to do the analysis.

The collaboration between advisors, specialists, and traders provides different perspectives on financial planning which enhance the service we offer to clients.

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

The CFP® certification is the recognized standard of excellence for competent and ethical personal financial planning. The Chartered Financial Analyst ® designation is the most respected and recognized investment management designation in the world.

Help me understand how these fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?

We have three service levels. Our current fee schedule for each can be found on the “Our Fees” page on our website. To calculate how much you would be charged at a given service level, take the percentage fee as a decimal (divide by 100) and multiply times the dollar amount you are bringing under management.

For example, $10,000 at a rate of 0.1% per quarter would be a fee of $10 per quarter from the math of $10,000 * (0.1/100) = $10 per quarter.

How might your conflicts of interest affect me, and how will you address them?

Marotta Wealth Management is a member of the National Association of Personal Financial Advisors (NAPFA), which means that we are held to the highest standard of fiduciary duty in the financial services industry.

NAPFA advisors sign an oath promising to put their clients’ best interests first, provide full disclosure to clients of any conflicts of interest, and never receive commissions. In addition to our listed registered NAPFA advisors, we require each of the Advisory Representatives of our firm to subscribe to NAPFA’s Code of Ethics, among the highest standards in the financial services industry.

As NAPFA members, we:

• Always act in a fiduciary role–committing to client-centered relationships.
• Are compensated directly by our clients, which eliminates many conflicts of interest.
• Never receive compensation for recommending specific products or services.
• Strive to comply with federal and state investment advisor regulations.
• Have advanced education in the field.
• Complete 60 hours of continuing education every two years.

We are fee-only financial planners.

Fee-only means that we have one fee that the client pays based on the amount of their investable assets. We are up front and straightforward with our bill. Each quarter in our quarterly reporting we include a clear, itemized receipt showing precisely what was deducted from each account and the total. This total represents all that we were paid.

Some of you may not know how rare fee-only advisors are in the financial industry.

Approximately 88% of financial services professionals’ compensation includes commissions. Regardless of if they provide an invoice of what they deduct in fees, every fee-and-commission adviser, broker-dealer, or salesperson has hidden fees they collect under the table. We call these professionals “The Dark Side” of financial services. You can be a good professional on the dark side, but the temptation to be bad is strong. Your very livelihood may depend on selling clients the product that produces the largest commission. Even if you intentionally strive to ignore the commissions, your entire work environment may be based on a sales mentality. Higher cost funds may be more prominently featured. Sales quotas may be expected. Employee contests may be built around pushing more product. Within such a work environment we believe that most commission-based advisers do not even realize how much harm their compensation method does to consumers. The adviser sees only the small commission they directly receive and are unaware of the greater commissions collected by the company through many different avenues.

A commission-based professional’s incentives may be directly in opposition to yours. To increase his wages, he may need to get you to purchase products which cost you more. This method of compensation, while legal in the United States, is flat-out illegal in many other countries.

In contrast, fee-only advisors such as our firm avoid this particular conflict of interest entirely.

We get no commissions, no kickbacks, and no payments other than the client’s fee. Our fee is up front and straightforward. Our fee is a percentage of assets under management, so it increases when your asset value increases and decreases when your asset value decreases. We believe this better aligns our incentives with yours. We have every incentive to strive to keep your fund and brokerage costs low in order to keep the returns you receive as high as possible.

We benefit from recommendations that increase the value of the assets that are under our management. In many cases, this interest of ours aligns with your financial goals. In the cases where there is a conflict of interest, it is our fiduciary duty to strive to act in your best interest regardless.

Incentives matter. If you are going to get a financial advisor, we recommend you select a competent fee-only advisor who you can trust to provide integrated personal financial planning.

As a financial professional, do you have any disciplinary history? For what type of conduct?

No, we have no disciplinary history.

Who is my primary contact person? Is he or she a representative of an investment adviser or a broker-dealer? Who can I talk to if I have concerns about how this person is treating me?

In addition to traders and specialists, we have advisors who specialize in being the primary point of contact for groups of clients. These advisors specialize in understanding the situation, values, and goals of the clients they serve. Then, they translate that understanding into which financial services we should offer and pull in the appropriate specialist to do the analysis.

The collaboration between advisors, specialists, and traders provides different perspectives on financial planning which enhance the service we offer to clients.

It would be difficult for any one advisor to be an expert in every area of comprehensive wealth management. For this reason, studies suggest that multi-advisor firms both do better as a firm and do better for their clients. They can perform the work better, faster, and smarter by each specializing and then collaborating with other team members.

At Marotta Wealth Management, we believe that a team collaborating on your behalf provides you with better service and a relationship advisor helps conduct that work into an integrated symphony of service.

As part of our “Comprehensive” and “Collaborative” service levels, each client gets their own relationship advisor who serves as the head conductor and primary point of contact for all of that client’s needs. With a relationship advisor, they are with you each step of the way. Your relationship advisor hosts your client meetings, responds to your email correspondence, and is a phone call away for your questions.

For our “Do-It-Yourself” service level, we have a team that regularly monitors emails to provide bonus services and basic assistance as needed.

We are not affiliated with a brokerage firm and have no broker-dealers associated with us.

Photo by Evan Dennis on Unsplash