|
1. Why is Legend Financial Advisors, Inc. (Legend) fee-only? We want our clients to be assured that our recommendations are always made in their best interest. We believe that if we accept commissions, our clients could view us as having a bias. Furthermore, we are one of the few firms in the country to offer fixed fees when all of our services are packaged together including financial planning and investment management. Under a fixed fee arrangement (Please see question #21 for a more detailed explanation.), any type of potential conflict of interest is eliminated entirely. Alternatively, for those clients who desire to utilize only our investment management services, they will be charged a fee based on a percentage of assets.
Back to top
2. How long has Legend been in business? Legend was incorporated in July, 1993 and began business operations in January, 1994.
Back to top
3. What types of investment strategies does Legend offer? We offer several types of investment strategies. New strategies are being added as client needs develop. For further information, please contact Louis P. Stanasolovich at (412) 635-9210. Back to top
4. What are Legends fees for these investment strategies? The fees are dependent upon the amount of assets that are allocated to each strategy, as well as the amount of assets that the client is asking Legend to manage. Generally, depending upon the fee schedule, fees range from 25 basis points (twenty-five one hundredths of one percent) for large amounts of monies, up to one percent. If a client is also interested in financial planning as well as other services we offer, or desires several different investment management strategies, we can charge for everything under one combined fixed fee. The initial fee would be established for a two-year period (Please see Question #21 for a more detailed explanation). However, to get a better idea of what the actual cost will be, it is best to discuss the fee structure in a meeting with one of the firm’s Advisors.
Back to top
5. How does Legend select mutual funds and/or outside (private) portfolio managers? We look for portfolio managers with consistent, long-term, excellent track records in a particular investment style. Typically, we like managers who are owners of a management company and who are not marketing machines. Specifically, we like to look for portfolio managers who are not interested in having hundreds of millions or billions of assets annually being placed under their management. Portfolio managers, especially mutual fund managers, that are well marketed attract too many assets. Large dollar amounts under management result in mediocre investment performance over time. For example, many well known mutual fund names such as American Funds, Fidelity, Janus, Putnam, and Vanguard funds are large, bloated with assets, and invest predominantly in large stocks. Consistently, most of their actively-managed funds underperform or at best, perform similar to the S&P 500, especially over longer periods of time. It is very difficult for most portfolio managers to handle large amounts of assets. This is especially true of small stock strategies. We also believe that we are investing with the portfolio manager. In other words, we are selecting managers, not the actual mutual fund or management company. Therefore, if one of our recommended managers leaves a fund or management company, it is not unusual for us to follow that manager. Legend stands out from its competitors when it comes to the selection of portfolio managers. We routinely conduct extensive interviews with a number of portfolio managers. We usually interview between 50 and 75 portfolio managers per year. Furthermore, this interview process is a major criteria of our selection process. We are always looking for new portfolio managers. As part of our due diligence process we send out a questionnaire, which contains approximately 120 questions to be completed by the portfolio manager. We have had a number of portfolio managers tell us that the questionnaire is the most extensive that they have ever been asked to complete. We then do a follow-up interview, preferably face-to-face at their location where we interview the entire investment team. We believe this process helps screen out problems prior to placing our clients’ money with them. Approximately, only one out of two hundred and fifty (250) managers is added to our Recommended List.
Back to top
6. How does Legend select stocks for its clients portfolios? Legend uses quantitative fundamental analysis to construct individual equity portfolios. We screen for companies whose price-to-earnings or price-to-cash flow represents a discount to their expected earnings growth rate. In addition, Legend examines the trends in positive earnings per share for companies, the magnitude of recent financial changes in the current fiscal year, the next fiscal year’s consensus earnings estimates, debt as a percentage of equity, and the company’s net margin. Also, we evaluate the extent to which all brokerage analysts are revising earnings per share estimates in the same direction and whether or not the company has had positive or negative earnings surprises. Our portfolio construction limits the number of securities in one industry to 15% and each security is equally-weighted within the portfolio. Our belief, that these factors result in positive returns more often, is supported by historical academic research.
Back to top
7. Does Legend utilize separate account managers? Legend has formed relationships with some of the premier investment management firms in the world. However, our assets managed by separate account managers represent a small percentage of all of our assets managed. These relationships were formed so that we can offer a service tailored to each specific client’s need. We select our separate account managers to manage individual equity or fixed income portfolios in a tax-efficient manner to meet the specific goals of each client.
Back to top
8. Can clients keep their assets where they are and make the changes themselves? No. Typically, clients do not facilitate changes to the portfolio quickly enough nor can we monitor the changes. Furthermore, it is impossible for us to report on a client portfolio without direct downloads from each custodian. Instead, we currently house virtually all of our securities accounts at TD Ameritrade.
Back to top
9. Who is TD Ameritrade? Legend® uses TD Ameritrade Institutional Services division to custody client assets. TD Ameritrade is the second largest discount broker in the United States and the third largest in the world.
Back to top
10. What are the costs to trade at TD Ameritrade? All domestic stocks and closed-end mutual funds under 2,500 shares are traded at a flat $15.00 ticket charge. However, if a client collectively has assets of $500,000 or more at TD Ameritrade, these ticket charges are reduced to $9.99. TD Ameritrade has over 13,000 mutual funds available on its mutual fund network, and in excess of 3,500 in its No-Transaction Fee (NTF) program. In many of our mutual fund portfolios, several of the funds we use do not have any trading fees. For mutual funds where trading fees are applicable, fund purchases and sales are charged at a flat $24.00 ticket charge. Occasionally, we have negotiated on an exclusive basis, to buy institutional shares of a mutual fund, (lower expense ratios and very high minimums such as $250,000 to $5,000,000, that we normally can obtain for as little as $1,000.00) as well as have our clients invest in mutual funds that are closed to the general public. This opportunity is available only through Legend because of Legend’s willingness to work with funds that had a short history, but whose managers are long on experience and success.
Back to top
11. How often are accounts traded? Typically, for accounts that are managed utilizing mutual funds, we have one major rebalancing a year, usually in January or at the end of December (mostly because dividend and capital gain payouts occur in December). During the rest of the year, we may change the portfolios because of market circumstances, the addition or subtraction of a mutual fund, and/or large monetary withdrawals or contributions. For example, if there are large declines in certain funds and even in various share lots, we may sell part or all of a fund to take a tax loss and invest the proceeds in a similar fund. This helps us better tax-manage a client portfolio. We may also adjust to a changing investment environment; however, over time the asset allocation tends to take care of this problem itself. In addition, periodically, we will add a new fund to a portfolio if we believe it will benefit the client. The other major reason we would make changes is because a portfolio manager leaves a fund. This is rare because the large majority of our portfolio managers are owner/managers of the management company that manages the fund, and therefore, are less likely to leave their own funds. With regard to stock accounts, there are changes throughout the year. These changes are predicated upon company specific news, such as earnings reports, general market conditions, and industry trends, to name a few.
Back to top
12. How often will Legend review an investment portfolio? Generally, we review each portfolio on a continuing basis. If circumstances warrant, such as market irregularities or a specific client need surfaces, we will review portfolios immediately.
Back to top
13. Why are investment portfolios reviewed so often? Simply, our portfolio management process is designed to do just that. For example, we are always watching for news on our mutual funds and/or stocks and ones we would like to invest in. If there are major economic (interest rate changes) or political changes (wars), we will review a client’s portfolio. When we provide a performance report, we are also looking at the portfolios.
Back to top
14. How often will Legend meet with its investment management clients after the initial investments are implemented? During the first year for an investment management client, we will probably want to meet with a new client one or two times at a minimum to explain as well as review their first one or two investment management performance reports. After that we will generally give each client the option to meet with us a minimum of every time that an investment management report is available to them. If they choose not to have a meeting, we will mail them the report and ask that they schedule a conference call with us.
Back to top
15. How often are clients updated on their portfolios? We provide quarterly performance reports, which specifically state the beginning balance, contributions and withdrawals, the different sources of return, the ending balance, and the percentage and dollar return net of fees during that timeframe. We also compare these returns to various indexes, depending upon the type of investment strategy. Each client will also receive from TD Ameritrade a monthly statement, which will list his/her securities and the associated current values as of month-end. Furthermore, as securities trades are executed, each client will receive a confirmation statement with full details of each buy or sell. Each client may also view all of his/her accounts through the client area of Legend’s secure website. The client area provides information regarding investment positions, stock and mutual fund quotes, and account balances to name a few.
Back to top
16. Does Legend consult its clients when making trades? Our practice is to consult the client regarding the portfolio’s construction prior to any initial investments being made. We will discuss our different investment strategies and what our client can expect from those strategies. Once a strategy is decided upon it will be stated in the client’s investment management contract. How we plan to invest from a strategic standpoint will be discussed as we report to each client throughout the year. However, we will not discuss each and every trade with each client. All of our accounts are discretionary. Any client may, of course, call us to discuss any moves we are anticipating or have made. Also, in the case of mutual fund portfolios, if we deem it necessary to rebalance all client portfolios or harvest tax losses, it is our practice to mail a letter prior to us executing any securities trades, stating what we will be doing and when. This provides every client the opportunity to call regarding the specifics of his/her situation. In reality very few clients take advantage of this. Typically this occurs at least annually, usually in the November to January timeframe.
Back to top
17. What does discretion mean? Discretion means having the ability to trade in a client’s account without the client’s permission. This does not mean that Legend has custody. Custody means that we would have possession of the client’s funds. TD Ameritrade maintains custody. Discretion simply means that we are able to make trades on a client’s behalf.
Back to top
18. Does a client have to stay with Legends service for any length of time? Obviously, we would like every client to stay with our service forever. However, there is no obligation to do that. We disclose in our contracts that clients are allowed to terminate our services at any time. Many advisors will make a client wait until the end of the month, quarter, or even the end of the calendar year. However, with our service, a client can terminate his/her contract at the end of any day. Of course, we will require payment of any fees owed through the date of termination. The only exceptions to the client’s ability to terminate our services at any time, has to do with illiquid types of investments like Hedge Funds, Private Equity and Venture Capital investments or Mutual Funds that have restrictions. In these cases, there is very little liquidity, if any.
Back to top
19. With regard to tax reporting, what is provided at year-end to assist the client with income tax preparation? We mail to every client, generally not later than mid-February, information with regard to all securities trades that have been made, provided the information has been submitted to us. This is contingent on the client, providing us with the cost basis information, of securities that were transferred such as a fund and/or stock that Legend did not purchase for them. Generally, our information is so detailed that we have seen many accountants tell us they use our tax reports as support documents and send them in along with the client’s tax returns to the IRS. With regard to any distributions from mutual funds, TD Ameritrade provides this information via a comprehensive form 1099 at year-end. This is generally provided to the clients on January 31st of each year.
Back to top
20. How often will Legend meet with a client for financial planning services? For financial planning during the first year, we generally meet with a new client eight to twelve times. The reason that we have so many meetings is because during the first year, there is a great deal of work that needs to be completed, and discussion that needs to go back and forth about various issues. In order to provide our clients with the best possible advice, we must have an excellent grasp of the client’s financial situation. In year two, we generally meet a minimum of once or twice a year. Beyond that, wherever possible, we try to discuss specific changes over the phone versus a meeting so that we can respond to the client’s needs more quickly. We will also provide personal financial planning updates on the client’s financial situation each year. These updates will include a balance sheet, tax projections, cash flow analysis, insurance evaluations, and reviews of anything else that needs to be addressed. A good example of this would be if a client were near retirement or in retirement. We would want to create a retirement projection a minimum of once every other year, to ensure that the client is on track for a comfortable retirement. Also, if a client is in retirement and over the age of 70 ½, we will discuss with him/her any minimum distributions from IRAs or retirement plans that need to be withdrawn on an annual basis.
Back to top
21. How does Legend charge for its financial planning services? Again, we are fee-only. We do not receive any commissions whatsoever. We charge for financial planning under a combined fixed fee, which includes fees for investment management. The fee will be fixed for a two-year period and will be billed quarterly, in advance. Our minimum fee for this service is $10,000.00 annually. Our fees range from the minimum up to $100,000.00. However, for most clients the typical fee will range from $10,000.00 to $60,000.00. The fee quoted is based upon the client's financial net worth, the complexity of the client’s situation, the types of portfolios to be managed, monies that we oversee but do not directly manage, the degree of organization of the client information, and how thorough and responsive the client is to our requests. Our fee is for 365 days of service.
Back to top
22. Will Legend provide a fee estimate and a written proposal letter for its Financial Planning and Investment Management services? Yes. After meeting with one or more of our Advisors, a prospective client will be provided with a proposal letter that details exactly what we will be addressing in every area of their finances. A fee will also be quoted.
Back to top
23. Please describe Legends Financial Planning process. The process for financial planning involves extensive data gathering of all financial information. First, we will request that a client complete one or more of our data gathering questionnaires as well as provide us with all of their financial information. We will then send out individual questionnaires to insurance companies for all of their insurance policies and annuities. We will prepare authorization letters on the client’s behalf to each of their other professional advisors. We will then converse with the client’s employer’s human resources personnel as well as their accountant, attorney, insurance agents, bankers, and stock brokers, as necessary. Once we have obtained this information, we will begin preparing financial statements. The financial statements include a balance sheet, an income tax projection, as well as a cash flow analysis. We will also provide the client with support pages to determine how we made up the balance sheet and other statements. We will then have a data verification meeting to ensure that we have all pertinent information and that it is correct. From there we will develop other projections, such as education funding, estate death tax, retirement calculations, IRA distribution analysis, insurance reviews, and survivor analysis. When this is complete, we will then begin reviewing with the client their overall financial situation as well as what issues they need to have addressed in each area. The areas that we will cover will include basic finance issues such as refinancing mortgages or other debt, analyzing a client’s liquidity, and discussing any cash flow and/or savings issues that may arise. We will spend time discussing how to reduce income taxes, and funding children’s educations in a tax-efficient manner, if applicable. In addition, we will review all of the existing estate documents, as well as suggest alternative ways to plan the estate. We will also analyze exactly how much life insurance, if any, is needed and review all of the different insurance coverages in-depth. Furthermore, we will discuss with the client an overall investment strategy to meet their goals. If a client is near or in retirement, we will spend a great deal of time discussing those issues including distribution strategies from retirement plans. Once we provide a client with recommendations, we will then assist in the implementation phase. In the implementation phase, some of the value-added services that Legend provides, which most firms do not, include speaking with the client’s employer’s human resources personnel; their accountants; actuaries; attorneys; bankers and insurance agents to ensure that everyone is on the same page. For example, we often see clients who have complicated will and trust documents, but the titling of their assets and beneficiary designations are incorrect. As a result their estate will not flow properly. Therefore, if major changes are needed we will discuss this with the client’s attorney. If necessary, we will meet with the client and his/her attorney to review estate planning strategies. The same applies for income taxes, in that we will provide any information that we are aware of, in advance of income tax preparation time to the client’s accountant, so that he/she will have all of the necessary information to prepare the client’s income tax returns. We will also coordinate with the client’s various insurance agents to ensure that the client has the proper coverage. When it concerns banking, we will provide the bank with updated financial statements to facilitate any lending and/or refinancing on behalf of the client. Also, if a client is missing an advisor, we will suggest one that has been pre-screened by us. Legend will always assist in the implementation of its recommendations wherever possible.
Back to top
24. What if a client has a large position in one stock? What assistance will Legend provide in this situation? This is not an unusual occurrence since a number of our clients have large stock option awards from their employers. There are different strategies that we can utilize to defer income taxes and diversify investment portfolios. Some of these strategies include: - Utilizing “Equity Collars” and/or Pre-Paid Variable Forwards, which would allow a client to protect his/her individual stock position in terms of the existing gain. Sometimes this can be done without any direct cost to the client. The client would then be able to obtain money from the proceeds of the stock to invest in a diversified portfolio.
- Utilizing “Exchange Funds,” also known as “Completion Funds”. This is a partnership when each client, together with a number of other individuals in a similar situation, combine their large ownership positions of a single stock into a diversified portfolio of stocks contributed by individuals with similar single large holdings, so that each partner would own a portion of that portfolio without having to liquidate their existing stock position. Obviously, this strategy substantially reduces the investment risk as compared to owning a single stock.
- Utilizing “Tax Loss Selling”, also known as “Loss Harvesting”. This strategy can, over time, chip away at a large stock position if the client has losses at present and develops future losses with other securities that the client owns.
- Utilizing “Charitable Trusts” to avoid any large capital gains taxes. This involves contributing highly appreciated stock to a Charitable Trust, selling it within the trust, thereby avoiding capital gains taxes, diversifying the proceeds within the trust into other securities, and taking a larger annual income from the trust for the rest of one’s lifetime as well as perhaps his/her survivor’s lifetime.
- Hiring an outside portfolio manager that manages large numbers of stocks to whittle away at large capital gain positions (known as a tax-managed portfolio) by harvesting positions that lose monies in addition to building a more diversified portfolio.
Depending upon which of these strategies suit the client’s situation best, we will assist the client every step of the way.
Back to top
25. What makes Legend different from banks, brokerage firms and/or other financial advisory firms? Legend is different from other financial advisory and brokerage firms as well as banks in a number of ways. First, Legend provides advice on all aspects of our clients’ finances while at the same time, assisting them with the implementation of their recommendations. Legend’s service initiatives are designed to be unparalleled. No detail of a client’s finances is overlooked. Reviews of employment contracts, real estate leases, wills, trust agreements, stock option agreements, property and casualty insurance, non-qualified deferred compensation agreements, private investments, hedge funds, corporate minutes, buy-sell agreements, retirement plan documents, business income tax returns, U.S. savings bonds, and even the evaluation of retirement village contracts are routine at Legend. Interaction with the client’s other advisors, such as actuaries, accountants, attorneys, bankers, insurance agents, and employee benefits specialists to ensure that everyone is working on behalf of the client is an everyday occurrence. Brokerage firms and banks do not supply this type of service while other financial advisory firms may only offer a few of these services, and often in a superficial manner. Legend by contrast, offers its services in a very detailed manner. From an investment standpoint, most advisory firms offer one service: asset allocation with mutual funds. Some of these advisory firms are compensated by commissions or exorbitant fees. Other firms sell clients Class C share mutual funds and receive a constant 1.0% of assets regardless of portfolio size. This is a very expensive option for clients with more than $500,000 in assets. Legend, by contrast, offers several investment strategies including Legend’s nationally-profiled Lower Volatility Portfolios, individual stock portfolios such as value-oriented tax-managed portfolios, and multi-strategy domestic equities, bond portfolios, and hedge funds. We will also assist the client in seeking private equity investments, if they so desire. Banks and brokerage firms sometimes provide a few of the same investment offerings as Legend. However, the advisory fee charges are frequently at twice the cost and are provided without an understanding of and oftentimes without concern for their clients’ overall objectives. In comparison to brokerage firms, we do not underwrite individual securities that we sell to our clients. Brokerage firms are in the position of having to discourage clients from selling securities that they underwrote when they want to liquidate them, because the brokerage house is responsible for supporting those underwritten securities in the aftermarket. The bottom line at Legend is that our team focuses on the client’s entire financial situation, assists clients in achieving their goals, attempts to provide unparalleled service, and does it without a bias on a fee-only basis. For a side-by-side comparison, of Legend’s services versus other firms please see our Competitive Analysis section. A Competitive Analysis Comparison Chart is provided.
Back to top
26. Is there a charge for the initial meeting? Legend does not charge any fees to prospective clients until they actually decide to become clients. In a few instances, this has taken as many as three meetings and often includes a few phone calls to clarify points of our service, before a client comes on board.
Back to top
27. What non-traditional services does Legend offer? Please see question #25: What makes Legend Financial Advisors, Inc.® different from other financial advisory and brokerage firms?
Back to top
For any questions where further explanation
is needed, please contact Louis P. Stanasolovich at (412) 635-9210 or via
E-mail at
legend@legend-financial.com.
|