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<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" xmlns:georss="http://www.georss.org/georss" xmlns:geo="http://www.w3.org/2003/01/geo/wgs84_pos#" > <channel> <title>Wedmont Private Capital</title> <atom:link href="https://wedmont.com/feed/" rel="self" type="application/rss+xml" /> <link>https://wedmont.com/</link> <description>Flat Fee Private Wealth Management & Financial Planning</description> <lastBuildDate>Fri, 15 Dec 2023 20:08:53 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <image> <url>https://wedmont.com/wp-content/uploads/2019/12/cropped-Wedmont-Mountain1-3-32x32.jpg</url> <title>Wedmont Private Capital</title> <link>https://wedmont.com/</link> <width>32</width> <height>32</height></image> <site xmlns="com-wordpress:feed-additions:1">169909396</site> <item> <title>Direct Indexing: The Potential for Market Out-Performance Through Tax Alpha</title> <link>https://wedmont.com/direct-indexing-the-potential-for-market-out-performance-through-tax-alpha/</link> <dc:creator><![CDATA[wedmont]]></dc:creator> <pubDate>Fri, 22 Jan 2021 22:07:12 +0000</pubDate> <category><![CDATA[Sem categoria]]></category> <guid isPermaLink="false">https://wedmont.com/?p=3386</guid> <description><![CDATA[<p>Beating the market and the tax man There are a number of different ways to measure the return of an investment, though not all of them are equally useful for investors. The gross rate of return indicates the total rate of return of a portfolio before fees and expenses. It is used to measure the […]</p><p>The post <a href="https://wedmont.com/direct-indexing-the-potential-for-market-out-performance-through-tax-alpha/">Direct Indexing: The Potential for Market Out-Performance Through Tax Alpha</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></description> <content:encoded><![CDATA[<h2 class="wp-block-heading"><strong>Beating the market and the tax man</strong></h2> <p>There are a number of different ways to measure the return of an investment, though not all of them are equally useful for investors. The <strong>gross rate of return</strong> indicates the total rate of return of a portfolio before fees and expenses. It is used to measure the effectiveness of a particular investment strategy. However, investors should care more about the <strong>net rate of return</strong>, or the rate of return of an investment strategy after fees, commissions, and expenses. This is what an investor actually earns on their portfolio, and it is often significantly lower than the gross rate of return. However, even the net rate of return is missing an important component that impacts the true return of an investor’s portfolio. It is the net rate of return <strong><em>after taxes </em></strong>that should be foremost on the mind of investors, as taxes can take a significant chunk out of any portfolio’s return. This is particularly true of high-earning investors who face the highest income and investment tax brackets.</p> <figure class="wp-block-pullquote"><blockquote><p>“It is the net after tax returns that should be on any taxable investor’s mind”</p></blockquote></figure> <p>Many investors are often surprised by the amount of taxable income their portfolios generate on an annual basis. In many cases, these portfolios were created by well-intentioned advisors who either don’t make tax mitigation a priority, or who don’t understand how to create tax-efficient investment portfolios.</p> <p>We implement what we believe is one of the most effective, tax-efficient investment strategies available to high net worth investors. Our approach improves upon one of the most successful investing methodologies in practice today, indexing or “passive” investing, and adds a tax-minimization strategy that frequently results in our clients paying significantly less in taxes every year.</p> <p>But before we review this approach, let us consider why indexing has been so successful.</p> <h2 class="wp-block-heading"><strong>Why indexing has an advantage over active management</strong></h2> <p>Stock indexes are ways to gauge the overall performance of the market (or, a specific subset of the market). The S&P 500, for example, tracks the performance of the 500 largest publicly-traded companies in the United States. Similarly, the Russell 2000 tracks the performance of 2000 of the smallest publicly-traded companies in the United States. Indexes have been used as benchmarks for the performance of the stock market since the 1950s, but as an investment strategy, indexing is a much more recent phenomenon.</p> <p>Historically, the way most investors accessed the stock market was by hiring an “active” portfolio manager, typically a mutual fund or separate account manager. The goal of the portfolio manager was to beat their index or benchmark, also known as generating <strong><em>alpha</em></strong>. For example, you might invest in a mutual fund run by a portfolio manager who would attempt to beat the S&P 500 by overweighting stocks of companies they believed would do better than the S&P 500, and underweighting stocks of companies they believed would do worse than the S&P 500.</p> <p>But there are several major problems with this approach:</p> <ul><li>Research demonstrates that stock markets are remarkably efficient, meaning that any information that could affect a stock’s price is immediately incorporated into that price. Therefore, it is nearly impossible for an active portfolio manager to have an “edge,” or know something about a stock that the rest of the market doesn’t already know.</li></ul> <ul><li>Active managers are expensive. Knowing that the markets are highly efficient, active managers employ armies of highly educated and highly compensated researchers and analysts to search for any edge they can find. In 2019, the average active mutual fund charged investors .76%.</li></ul> <ul><li>As these managers trade in and out of stocks in an effort to position the portfolio in a way they hope will lead to outperformance of their benchmark, they incur trading costs and taxes that are passed on to the underlying investors in the mutual fund. These expenses can significantly diminish an investor’s return. In fact, academic research points to active management incurring additional tax costs of 1% – 2% annually.</li></ul> <p>The result is that in order for an active manager to truly outperform, not only must they beat the performance of the benchmark, they must do so to such an extent that makes up for the fees and taxes they incurred along the way. Studies have proven this is nearly impossible to do over any meaningful period of time. Over a 20 year period, anywhere from 75% to 85% of active managers underperform their benchmark, before accounting for taxes.<a href="#_ftn1">[1]</a> When judged appropriately, most active managers end up generating significant <strong><em>negative</em> </strong>alpha – put differently, they are remarkably adept at underperforming their benchmark, year after year.</p> <h2 class="wp-block-heading"><strong>If you can’t beat them, join them</strong></h2> <p>Indexing was a major leap in the right direction. Recognizing that it is almost impossible to beat the market over time, index funds try only to match the benchmark’s performance. There are a number of reasons why this strategy has been so successful:</p> <ul><li>Because they are not trying to gain any edge over the rest of the market. All they need to do is invest in the stocks that make up the index. For example, an S&P 500 index manager owns the 500 stocks in the S&P 500, at precisely the same weights as the index. This is an incredibly simple strategy to implement.</li></ul> <ul><li>Because index funds are not trying to gain an edge over other market participants, they do not need armies of portfolio managers, researchers, or analysts. This leads to a dramatic decrease in costs which makes index funds very inexpensive. On average, index funds cost a fraction of their actively managed counterparts.<a href="#_ftn2"><sup>[2]</sup></a></li></ul> <ul><li>Because the stocks that constitute the index change infrequently, index fund managers generate far less taxable gains that have to be passed on to the underlying investors of the fund.</li></ul> <p>All of these benefits have led to investors voting with their feet (and money). Index funds took in over $461,000,000,000, while active funds lost $337,000,000,000 <strong><em>in 2019 alone</em></strong>.<a href="#_ftn3"><sup>[3]</sup></a> Indexing has constituted a major improvement in the way most people invest. Investors have saved billions of dollars in fees that would otherwise be in the pockets of overpriced fund managers.</p> <figure class="wp-block-pullquote"><blockquote><p>“Index funds have taken in over $461,000,000,000 while active funds have lost $337,000,000,000 in 2019 alone.”</p></blockquote></figure> <h2 class="wp-block-heading"><strong>But indexing still isn’t perfect</strong></h2> <p>For all the good that indexing has done, there is still room for improvement.</p> <p>Consider for a moment what an investor is buying when she buys a share of an index fund. We will use the S&P 500 index as an example. The S&P 500 index fund manager has used the pooled resources of the underlying investors to buy the 500 stocks in the S&P 500. These stocks are then bundled and wrapped into shares of the fund. Each fund share is then sold to an investor, who rather than owning the underlying stocks, owns a share of the pooled fund.<img fetchpriority="high" decoding="async" width="506" height="209" src=""></p> <p>This is all well and good, but there is a structural limitation to pooled investment vehicles; namely, that losses accrued by the fund cannot be passed on to underlying owners of the fund. To illustrate this phenomenon, let us again review the S&P 500.</p> <div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" width="1024" height="465" src="https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-1024x465.png" alt="Constituent performance of the S&P 500 index" class="wp-image-3391" srcset="https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-1024x465.png 1024w, https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-300x136.png 300w, https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-768x349.png 768w, https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-1200x545.png 1200w, https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance-600x273.png 600w, https://wedmont.com/wp-content/uploads/2021/01/SP500-Constituent-Performance.png 1417w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure></div> <p>Over the course of an <em>average</em> year, a majority of the stocks that comprise the S&P 500 will increase in value, but a significant minority will decrease in value. The chart<a href="#_ftn4"><sup>[4]</sup></a> above demonstrates that, even in years where the index is up, a significant number of stocks within the index will decrease in value. In a perfect world, the fund manager would sell the stocks that have decreased in value. These <strong><em>capital losses </em></strong>could be passed on to the underlying investors, who could in turn use these losses to offset <strong><em>capital gains</em></strong>, or if losses were in excess of gains, could be used to offset the investor’s total income.<a href="#_ftn5"><sup>[5]</sup></a> This could result in a substantially lower tax liability for the underlying investor. However, because the index fund is structurally unable to pass losses to the underlying investors in the fund, these valuable losses are wasted.</p> <h2 class="wp-block-heading"><strong>How Wedmont’s clients could outperform the index on an after-tax basis</strong></h2> <p>Wedmont’s clients are those who could benefit the most from this capital loss harvesting strategy – earners in the highest tax brackets who are particularly sensitive to taxes. Because of this, we employ an approach that combines the benefits of passive investing with tax-loss harvesting – <strong><em>direct indexing</em></strong>. And because of our unique fee structure, we offer this capability to our clients at <strong><em>no incremental cost</em></strong>. No AUM fees. No commissions. No performance fees.</p> <p>When we direct index your portfolio, we purchase the index’s underlying stocks, and regularly harvest losses in your portfolio. We are performing a similar function to the index fund manager, but because our clients own the underlying securities directly, we can take advantage of the normal fluctuations in the stock market to generate significant tax savings for our clients. In fact, under most market conditions our portfolios should outperform the benchmark on an after-tax basis. While these portfolios will generally have more tracking error than an index fund, we also expect the long-term gross returns to closely resemble the returns of the index, particularly if you make frequent cash contributions to your portfolio. Below is an example of how direct indexed portfolios could provide superior results over other investment strategies.</p> <h4 class="has-text-align-center wp-block-heading">The Wedmont difference: Potential benefit for $3,000,000 portfolio*</h4> <div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" width="1024" height="409" src="https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-1024x409.png" alt="Potential Impact of Direct Indexing with Tax Loss Harvesting" class="wp-image-3392" srcset="https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-1024x409.png 1024w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-300x120.png 300w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-768x306.png 768w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-1536x613.png 1536w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-1200x479.png 1200w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart-600x239.png 600w, https://wedmont.com/wp-content/uploads/2021/01/Comparison-Chart.png 1604w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure></div> <p style="font-size:10px"><em>*Important notes and sources to the above graphic:</em><br><br><em>1. S&P 500 average annual return over 30 years as of 12/27/19, per Standard & Poor’s<br>2. Investment Company Institute, see: <a href="https://www.icifactbook.org/deployedfiles/FactBook/Site%20Properties/pdf/2019/2019_factbook.pdf" rel="nofollow">https://www.icifactbook.org/deployedfiles/FactBook/Site%20Properties/pdf/2019/2019_factbook.pdf</a><br>3. Multiple academic studies have shown tax drag of actively managed funds to be between 1% and 2%<br>4. Average AUM advisor fee of a $3M portfolio, see: <a href="https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/#Percentage-AUM" rel="nofollow">https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/#Percentage-AUM</a><br>5. Other direct indexing providers have shown average “Tax Alpha” of .97% over extended time periods, see: “AIA Quantifying the Value of a Tax Overlay”<br>6. Benefit from tax-loss harvesting is only realized when there are other gains to offset or to offset up to $3,000 in income, if no gains are available losses may be carried forward for up to seven years</em></p> <p></p> <h2 class="wp-block-heading"><strong>Direct indexing has wide applicability</strong></h2> <p>Direct indexing is appropriate for a number of investor situations, including:</p> <ul><li>Implementing equity allocations from cash positions</li><li>Transitioning an existing portfolio of individual securities, Separately Managed Accounts (SMAs), or actively managed equity funds</li><li>Unwinding concentrated positions of company stock</li></ul> <p>While not appropriate for all situations, direct indexing is an underutilized approach that could result in significant investment and tax benefits for many wealthy investors. </p> <hr class="wp-block-separator"/> <p style="font-size:10px"><a href="#_ftnref1">[1]</a> Source: Dimensional Fund Advisors 2019 Mutual Fund Landscape</p> <p style="font-size:10px"><a href="#_ftnref2"><sup>[2]</sup></a> Per the Investment Company Institute, passive equity funds cost 0.08% on average, as opposed to their actively managed counterparts at 0.76% <a href="https://www.icifactbook.org/deployedfiles/FactBook/Site%20Properties/pdf/2019/2019_factbook.pdf">https://www.icifactbook.org/deployedfiles/FactBook/Site%20Properties/pdf/2019/2019_factbook.pdf</a></p> <p style="font-size:10px"><a href="#_ftnref3"><sup>[3]</sup></a> Morningstar Direct Asset Flows</p> <p style="font-size:10px"><a href="#_ftnref4"><sup>[4]</sup></a> Source: Standard and Poor’s</p> <p style="font-size:10px"><a href="#_ftnref5"><sup>[5]</sup></a> Up to $3,000</p> <p style="font-size:10px"><strong>Important Disclaimers:</strong></p> <p style="font-size:10px">Wedmont Private Capital (WPC) does not represent in any manner that the tax consequences described as part of its tax-loss harvesting service will be achieved or that WPC’s tax-loss harvesting service, or any of its products and/or services, will result in any particular tax consequence. The tax consequences of the tax-loss harvesting service and other strategies that WPC may pursue are complex and uncertain and may be challenged by the IRS. The information with regard to this service was not prepared to be used, and it cannot be used, by any investor to avoid penalties or interest.</p> <p style="font-size:10px">Clients should confer with their personal tax advisors regarding the tax consequences of investing with WPC and engaging in the direct indexing service, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the Client’s personal tax returns. WPC assumes no responsibility for the tax consequences to any Client of any transaction.</p> <p style="font-size:10px">The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes. These performance discrepancies create tracking error between Client performance and performance of the target benchmark. Clients should expect the performance of their account to differ from the performance of the target benchmark, regardless of whether WPC has engaged in tax loss harvesting in the account.</p> <p style="font-size:10px">The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any, for a period of seven years. WPC only monitors for tax-loss harvesting for accounts within WPC. The client is responsible for monitoring their and their spouse’s accounts outside of WPC to ensure that transactions in the same security or a substantially similar security do not create a “wash sale.” A wash sale is the sale at a loss and purchase of the same security or substantially similar security within 30 days of each other. If a wash sale transaction occurs, the IRS may disallow or defer the loss for current tax reporting purposes. More specifically, the wash sale period for any sale at a loss consists of 61 calendar days: the day of the sale, the 30 days before the sale, and the 30 days after the sale. The wash sale rule postpones losses on a sale, if replacement shares are bought around the same time. WPC may lack visibility to certain wash sales, should they occur as a result of external or unlinked accounts, and therefore WPC may not be able to provide notice of such wash sale in advance of the Client’s receipt of the IRS Form 1099. The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the Client will depend on the Client’s entire tax and investment profile, including purchases and dispositions in a Client’s (or Client’s spouse’s) accounts outside of WPC and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short- term or long-term). WPC will monitor only a Client’s (or Client’s spouse’s) accounts at WPC to determine if there are unrealized losses for purposes of determining whether to harvest such losses. Transactions outside of such accounts may affect whether a loss is successfully harvested and, if so, whether that loss is usable by the Client in the most efficient manner.</p> <p style="font-size:10px">This document may contain references to copyrights, indexes, and trademarks that may not be registered in all jurisdictions. Third party registrations are the property of their respective owners and are not affiliated with WPC. Such third party owners do not sponsor, endorse, or participate in the provision of any WPC services.</p><p>The post <a href="https://wedmont.com/direct-indexing-the-potential-for-market-out-performance-through-tax-alpha/">Direct Indexing: The Potential for Market Out-Performance Through Tax Alpha</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></content:encoded> <post-id xmlns="com-wordpress:feed-additions:1">3386</post-id> </item> <item> <title>The Truth About Financial Advisor Fees</title> <link>https://wedmont.com/the-truth-about-financial-advisor-fees/</link> <dc:creator><![CDATA[wedmont]]></dc:creator> <pubDate>Wed, 13 Jan 2021 23:04:28 +0000</pubDate> <category><![CDATA[Sem categoria]]></category> <guid isPermaLink="false">https://wedmont.com/?p=3354</guid> <description><![CDATA[<p>Why AUM Fees Are Destroying Your Wealth. Research strongly suggests that good financial planning services can carry significant benefits for high net worth investors. The question for the wealthy investor should be this – what is the appropriate wealth management fee and structure that is fair, reasonable, and ensures you are receiving quality advice? A lot […]</p><p>The post <a href="https://wedmont.com/the-truth-about-financial-advisor-fees/">The Truth About Financial Advisor Fees</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></description> <content:encoded><![CDATA[<h3 class="wp-block-heading">Why AUM Fees Are Destroying Your Wealth.</h3> <p>Research strongly suggests that good financial planning services can carry significant benefits for high net worth investors. The question for the wealthy investor should be this – what is the appropriate wealth management fee and structure that is fair, reasonable, and ensures you are receiving quality advice?</p> <p>A lot of work goes into building, refining, and executing a good financial plan. A good financial planner is marked by years of schooling and specialized training. Good planners typically have an MBA, JD, and/or a CFP. They have an in-depth understanding of a myriad of wealth planning topics, such as investment management, trust and estate planning, intergenerational wealth transfer, social security strategies, tax minimization techniques, and a host of others topics. They should serve as fiduciaries in all circumstances and for all types of accounts, and they should be current on political and regulatory policies that could impact you as a client.</p> <p>Which is to say that it is a premium service for which you might expect to pay a premium fee. Unfortunately, in some instances the fees charged by a financial advisor or financial planner may actually be causing more harm than good. This is because almost all advisors charge their clients an assets under management fee, in which they subtract a significant portion of the client’s investment portfolio every year. These fees may seem small at first – typically presented as a percentage or “basis points” – but when viewed on a dollar basis the numbers for high net worth investors can be shocking.</p> <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="301" src="https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-1024x301.png" alt="" class="wp-image-3640" srcset="https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-1024x301.png 1024w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-300x88.png 300w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-768x226.png 768w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-1536x451.png 1536w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-1200x353.png 1200w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees-600x176.png 600w, https://wedmont.com/wp-content/uploads/2023/12/Industry-Average-AUM-Fees.png 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"><em>Source: <a href="https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/#Percentage-AUM" rel="nofollow">https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/#Percentage-AUM</a> </em><br></figcaption></figure></div> <p>This fee structure causes fees to grow exponentially as your wealth increases. For example, assume you have $3,000,000 invested with a traditional Wall Street financial advisor and you pay an advisory fee of .88% (the industry average for a $3,000,000 portfolio). That is $26,400 per year out of your pocket (or, more likely, your investment portfolio).</p> <p>Fast forward a few years. The markets have cooperated and now your portfolio has grown to $4,000,000. Suddenly your .88% advisory fee is taking $35,200 out of your pocket each year. This continues over and over and over again.</p> <p>We believe this is absurd. And over an extended time period these fees have an incredibly deleterious effect on your wealth and the size of your investment portfolio. The graphic below shows how significant AUM fees can grow over time.</p> <h5 class="wp-block-heading has-text-align-center">Annual AUM Fees for a $3,000,000 Portfolio Growing at 6.5% Annually for 30 Years</h5> <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="683" src="https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1-1024x683.png" alt="Annual AUM Fees for a $3,000,000 Portfolio Growing at 6.5% Annually for 30 Years" class="wp-image-3359" srcset="https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1-1024x683.png 1024w, https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1-300x200.png 300w, https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1-768x512.png 768w, https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1-600x400.png 600w, https://wedmont.com/wp-content/uploads/2021/01/Annual-AUM-Fees-1.png 1135w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"><em>*Chart shows the annual AUM fees on a $3,000,000 portfolio with an annualized return of 6.5% over a 30 year period. Assumes no contributions or distributions. AUM fees are industry average, ranging from .88% to .69%. Data available upon request.</em></figcaption></figure></div> <p></p> <p></p> <h3 class="wp-block-heading">How Should You Pay for Financial Planning and Investment Management Services?</h3> <p>Stop buying your advisor a new BMW every year!</p> <p>A refresher: “Assets Under Management” (AUM) fees are the typical fee structure within the financial services industry. Under this model, investors pay a percentage of their portfolio to their advisor on an annual basis. At first glance this may seem reasonable. But here’s the unvarnished truth, gleaned by years of experience: AUM fees have no relationship to the amount of work your advisor is doing, or the value your advisor is providing. </p> <figure class="wp-block-pullquote"><blockquote><p><strong>AUM fees have no relationship to the amount of work your advisor is doing, or the value your advisor is providing. </strong></p></blockquote></figure> <p>In reality, these AUM wealth management fees look a lot like a wealth tax – you pay more simply because you have more. There are very few industries that can lay claim to the dubious distinction of having a similar business model to the IRS.</p> <p>For many high net worth investors, their largest discretionary expense is the fee they pay their financial advisor. Under the traditional AUM fee model, for most high net worth investors, this expense will grow every year, for the rest of their lives, with no corresponding increase to the quality of the financial advice they receive. </p> <p>Despite claims to the contrary, the amount of time, effort, and resources that a competent advisor must bring to bear on a client is nearly identical whether a client has a $1,000,000 or $5,000,000 portfolio. It is not an exaggeration to claim that – from the advisor’s standpoint – the only difference between these two clients is the number on their account statements. Consider the following:</p> <ul><li><strong>FINANCIAL PLANNING: </strong>Both of these clients require financial plans of similar complexity. They both have specific financial goals they wish to accomplish, specific cash flows they expect to realize, and a discrete amount of investable assets with which to work with. </li> <li><strong>INVESTMENT MANAGEMENT: </strong>There is no discernable difference between them when it comes to investment management. Both portfolios should be rebalanced appropriately in order to remain true to their target allocation and benchmark. This allocation should have been derived via the financial planning process, and not via a more arbitrary method such as the “your age in fixed income” portfolio construction technique. </li> <li><strong>SERVICE AND ATTENTION: </strong>Both clients deserve excellent service from a dedicated advisor, regular check-ins, ongoing financial planning support, and access to the principals of the advisory firm. </li> <li><strong>FIDUCIARY: </strong>Both clients deserve an advisor who serves as a fiduciary in all circumstances, and for all account types. Their advisors should be required to act in the clients’ best interest under a legal standard that has real teeth. </li></ul> <p></p> <h3 class="wp-block-heading">Inherent Conflicts of Interest</h3> <p>Another issue with the AUM fee structure is it introduces an incentive for advisors (even fiduciary advisors) to provide advice and counsel that is not in the best interest of the client. There are inherent conflicts of interest embedded in the AUM fee structure and pricing model employed by most in the wealth management industry. Consider the following hypothetical situation:</p> <p>A 63 year-old client of a Registered Investment Advisor (RIA) expects to live to age 86, but is unsure about when to file for social security. The client is currently paying a 1% (100 basis points) AUM fee on a $1,750,000 investment portfolio (equivalent to $17,500 per year). After crunching the numbers and analyzing the myriad of ways this individual could claim social security, the client’s investment advisor determines the optimal strategy is for the client to wait to claim social security benefits until age 70. This would result in a significantly higher social security benefit, as every year the client defers social security the annual benefit increases by nearly 8%. </p> <p>However, the client has no other sources of income and would have to live off of the investment portfolio in the ensuing years until reaching age 70. Notice the dilemma for the financial planning or investment advisory firm – if the client begins drawing on the investment portfolio to pay for living expenses, the client will generate less revenue for the firm. The client would be better off deferring social security until age 70, but the financial planner or investment manager would be better off if the client began taking social security at age 63. This way, the client can avoid drawing from the investment portfolio upon which the AUM fee is being assessed.</p> <p>We are not suggesting this is common. Most financial planners, particularly ones who have earned the prestigious CFP designation, are good, honest, upstanding professionals who do what’s right by clients in every situation, even when it would lead to less revenue for themselves. However, as we’ve seen in the recent past, not everyone in the financial advisory industry has clients’ best interests at heart. Why present another misaligned incentive that encourages advisors to act against their clients’ best interests? AUM advisory fees do not solve this problem. Flat fees do.</p> <p></p> <h3 class="wp-block-heading">An Alternative to AUM Advisory Fees</h3> <p>We believe there is a better way. Wedmont charges a flat annual fee of $12,500 regardless of the size of your investment portfolio. The different between our approach and AUM fees can literally be millions of dollars.</p> <h5 class="wp-block-heading has-text-align-center">Growth of $5,000,000<br>Wedmont vs Traditional AUM Advisor</h5> <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="477" src="https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-1024x477.png" alt="" class="wp-image-3637" srcset="https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-1024x477.png 1024w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-300x140.png 300w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-768x358.png 768w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-1536x716.png 1536w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-1200x559.png 1200w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1-600x280.png 600w, https://wedmont.com/wp-content/uploads/2023/12/Effect-of-Fees-on-5M-1.png 1541w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"><em>*Chart shows the impact of fees on a $5,000,000 portfolio with an annualized return of 6.5% over a 30 year period. Assumes no contributions or distributions. AUM fees are industry average, ranging from .84% to .65%. Wedmont’s fee is inflated at 3% annually. Data available upon request.</em><br></figcaption></figure></div> <p>As Einstein allegedly said, “compound interest is the 8th wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” The compounding effects of AUM fees are terrific for your financial advisor and terrible for you.</p> <p>If you are currently working with a financial advisor, take the time to calculate the amount of fees you are paying this year. These fees are often hard to find and your advisor may avoid answering the question directly. The best method is to locate the section of your account statements that lists the debits and credits in your account over a specific period of time. If you have an especially hard time finding your fees it should raise a red flag. </p> <p>There is nothing wrong with paying for a valuable service – we all do it every day. But AUM fees are capricious and arbitrary. You and your wealth deserve better.</p> <p></p> <h3 class="wp-block-heading">FAQs</h3> <p><strong>How is Wedmont so much cheaper than other firms?</strong></p> <p>The fact is that traditional Wall Street firms are inefficient. They pay inflated salaries to advisors who are primarily salespeople and utilize technology platforms that are expensive to maintain. Many are tied to the trappings of “old-school” brokerage houses (expensive office spaces, company cars, art collections, and expense accounts). All of these expenses are eventually passed on to clients. </p> <p>Wedmont allocates resources where it matters – employing the most qualified advisors in the industry, licensing best-in-class investment and financial planning technology, and focusing on the Wedmont client experience. </p> <p><strong>How does the flat fee work? </strong></p> <p>Our fee is paid quarterly in arrears. One fee covers an entire household (both spouses and minor children), and there are no limits on the number of accounts or the size of the portfolio. In rare cases we reserve the right to charge different entities (for example, a family foundation) a separate fee.</p><p>The post <a href="https://wedmont.com/the-truth-about-financial-advisor-fees/">The Truth About Financial Advisor Fees</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></content:encoded> <post-id xmlns="com-wordpress:feed-additions:1">3354</post-id> </item> <item> <title>Don’t Miss Out On Last Minute Financial Strategies in 2020</title> <link>https://wedmont.com/dont-miss-out-on-last-minute-financial-strategies-in-2020/</link> <dc:creator><![CDATA[wedmont]]></dc:creator> <pubDate>Fri, 11 Dec 2020 15:50:19 +0000</pubDate> <category><![CDATA[Sem categoria]]></category> <guid isPermaLink="false">https://wedmont.com/?p=3149</guid> <description><![CDATA[<p>Brandon Lovingier, Paraplanner Financial Wellness Ideas for Your Year-End Checklist Did you take full advantage of 2020?  We know that this year has certainly taken more from us than usual.  It has been a year full of ups and downs, but it has also yielded new opportunities.  Volatile markets from the pandemic have rebounded. The […]</p><p>The post <a href="https://wedmont.com/dont-miss-out-on-last-minute-financial-strategies-in-2020/">Don’t Miss Out On Last Minute Financial Strategies in 2020</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></description> <content:encoded><![CDATA[<p><em>Brandon Lovingier, Paraplanner</em></p> <p><strong><u>Financial Wellness Ideas for Your Year-End Checklist</u></strong></p> <p>Did you take full advantage of 2020? We know that this year has certainly taken more from us than usual. It has been a year full of ups and downs, but it has also yielded new opportunities. Volatile markets from the pandemic have rebounded. The mass exodus from the office to the house has led many of us to realign our work/life balance. Landmark legislation in the CARES Act has created new opportunities for tax savings as well. Before we close the year, I find myself asking the question, “Did I get everything I could from 2020?” Here are some things to think about before these windows of opportunity close at year’s end. I hope this helps you turn the page to a very bright and prosperous 2021!</p> <p><strong><u>Making Additional Contributions to Tax-Advantaged Accounts</u></strong></p> <p>The end of the calendar year is almost here. You might consider final contributions to your retirement accounts, college savings accounts, or charitable giving. Optimizing the use of tax advantaged accounts such as IRAs/401ks is a powerful planning tool. Making additional contributions up to your allowable limit can be difficult. This could be due to an uneven income stream or an interruption, like a global pandemic. Start by calculating how much you can contribute for the rest of the year. Then you can make that final contribution to ensure you didn’t miss an opportunity for maximum tax deferral. It feels good to know that you’re not paying Uncle Sam more than absolutely necessary. For some this may be a good time to open an additional account such as a spousal IRA or 529 for children, grandchildren, or other family members. You have until April 15<sup>th</sup> of 2021 to make contributions to your IRA. However, making those contributions in the same year is generally best. It keeps your records more organized and provides more time for your investments to grow.</p> <p><strong><u>Do Roth Conversions Make Sense This Year?</u></strong></p> <p>Since we’re talking about contributions, optimizing the location of your assets is important too – particularly when it comes to IRAs. Does a Roth conversion make sense this year? Maybe. Roth conversions make sense in many situations, though they are particularly valuable in years where your income is low like your early years of retirement. This is a favorite strategy for getting around required minimum distributions and making tax planning more predictable in retirement. Also, having your money in a Roth IRA could have significant benefits for your heirs. If you’re converting to a Roth IRA, it’s important to pay the income tax obligation from outside the IRA account, as this allows you to keep as much money in the IRA as possible.</p> <p><strong><u>Charitable Contributions and The CARES Act</u></strong></p> <p>If charitable giving is one of your financial goals, then you can use those contributions to lower your income tax bill. If you don’t have much income this year, you can create some via a Roth conversion! Although tax savings might not be the driving force behind your charitable contributions, there’s no reason you should miss out on tax benefits either. This is even more true in 2020. The CARES Act temporarily suspended the limit on deductions for charitable <strong><em>cash </em></strong>contributions to qualified charities. In 2020, taxpayers can make a cash contribution to charity and deduct up to 100% of their adjusted gross income (AGI). This means that, dollar for dollar, you can offset as much income as you want with a corresponding charitable contribution. This AGI limitation is set to revert to 60% of AGI on January 1st, 2021. However, there’s still time to take advantage of this benefit. To qualify for this enhanced deduction, you must donate cash directly to a qualified charitable organization, not to a Donor Advised Fund or Foundation. Normally, donating appreciated securities to charities is best. However, 2020 presents a unique opportunity to take advantage of enhanced deductions for cash donations.</p> <p><strong><u>Roth Conversion and Donating to Charity Example</u></strong></p> <p> If you are charitably inclined and have the means, you could “frontload” charitable contributions into 2020 (by making several years of contributions at once), and subsequently convert this amount of Traditional IRA into a Roth IRA. The income that you would recognize as a result of the conversion could be completely offset by your charitable donation, since The CARES Act allows a charitable deduction up to 100% of AGI. This potentially reduces your tax liability for the Roth conversion to <em>zero</em>, and allows you to lower or eliminate your RMDs all together. Note: December 31<sup>st</sup> of 2020 is the last day to qualify for a 100% deduction. Afterward, deductions for charitable contributions will be limited to 60% of AGI. So if you were to make a $100,000 charitable donation now, you could offset the taxes from a $100,000 conversion. On January 2, 2021, a similar donation would only offset $60,000 of the conversion, so you would owe taxes on $40,000 of “conversion” income.</p> <p><strong><u>Tax Loss Harvesting Can Reduce Your Tax Burden</u></strong></p> <p>Taking advantage of tax loss harvesting is especially helpful in reducing the amount of taxes you’re obligated to pay. Direct Indexing and tax loss-harvesting are smart strategies to keep your investment portfolios as tax efficient as possible. If you own any securities that have decreased in value from when you purchased them, consider selling them to capture a capital loss. You can use the losses to offset capital gains income elsewhere in your portfolio. However, if you decide to harvest losses, make sure you don’t repurchase the same securities for at least 31 days, as the loss would be disallowed if you bought the same security back within this window (known as a “wash sale”).</p> <p><strong><u>Is Your Financial Life Optimized for Your Goals?</u></strong></p> <p>With so much change and uncertainty this year, there has been a lot to think about. If your goals and plans have changed, now is a great time to think through your current and future goals. This is a constant and iterative process to make sure you don’t veer too far off course. Doing an annual review, money day meeting, dream session, or something similar every year can be really helpful. For me, it’s one of my favorite times of the year. For our “Money Day” I recalculate our net worth and look at goals from the previous year to see how we did. Then my wife and I set new goals and priorities. We go back through our spending plan (budget) and add or take away things as we see fit. We also plan and talk through larger upcoming purchases. This gives us a good understanding of how we’re doing financially. Most importantly, it’s time for my wife and I to make sure we’re still on the same page. Over the years many great things have come from these meetings such as starting my wife’s Roth IRA and my son’s 529 account to save for college.</p> <p><strong><u>The Year Isn’t Over, But Act Fast!</u></strong> </p> <p>I hope this has been helpful or at least sparked some curiosity. If there are challenges you haven’t conquered yet this year, don’t give up! There’s still some time left on the clock. If there’s anything you need help with or want more information on, make sure to contact your financial planner and tax professional for help. I hope you have a wonderful holiday season and a great 2021!</p> <hr class="wp-block-separator"/> <p></p><p>The post <a href="https://wedmont.com/dont-miss-out-on-last-minute-financial-strategies-in-2020/">Don’t Miss Out On Last Minute Financial Strategies in 2020</a> appeared first on <a href="https://wedmont.com">Wedmont Private Capital</a>.</p>]]></content:encoded> <post-id xmlns="com-wordpress:feed-additions:1">3149</post-id> </item> </channel></rss> If you would like to create a banner that links to this page (i.e. this validation result), do the following:
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