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 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.
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2. How long has Legend been in business?
Legend was incorporated in July, 1993 and began business operations in January, 1994.
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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 additional information about each of these customized strategies, please see our Portfolio Risk Spectrum.
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4. How does Legend select 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 generally not so called “marketing machines” (large fund groups that have huge quantities of assets especially in equity funds), and who have a flexible investment mandate. 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 often attract too many assets for equities (Please note that for bond funds this is typically less of an issue). Large dollar amounts under management result in mediocre investment performance over time and are also limited in what investments they can utilize. 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.
Our philosophy is 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 either in person or via conference calls. Furthermore, this interview process is a major criteria of our selection process. We are continuously looking for top-tier 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 perform an interview where we typically speak with the lead manager and several other investment team members. Finally, where possible, we will attempt to have a face-to-face interview preferably in the management team’s offices. Once we begin using a manager, we generally have teleconferences approximately once every six months if not more often. 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.
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5. What methodologies/disciplines does Legend employ with regard to mutual funds?
The due diligence and investment selection process is extensive. For mutual fund analysis, we screen the entire universe of mutual fund offerings utilizing both Morningstar Principia Pro Plus® and the Bloomberg Professional service. Both Morningstar and Bloomberg are recognized leaders in mutual fund data and research. Because Legend is an independent registered investment advisor, we are not limited, like large or independent brokerage firms, to a proprietary family of funds nor do we have an affiliation with a particular fund family that could be perceived as a conflict of interest. Furthermore, we do not need to purchase on a client’s behalf several funds out of the same mutual fund family (which will have a high overlap among its securities) to lower front-end commissions as some brokers do.
As mentioned above, once potential candidates have successfully passed our quantitative screens, we submit detailed questionnaires to each mutual fund portfolio manager to begin the qualitative portion of our due diligence process. Upon receipt of the questionnaire, the due diligence process continues as we then conduct several conference calls with the portfolio manager. Typically, we schedule face-to-face meetings with the portfolio manager and their investment team, although not in every case. At this stage, we focus on a mutual fund’s organization, investment philosophy, and culture.
We tend to favor smaller boutique-type mutual fund companies, as measured by assets under management (these firms tend to be poor marketers). The managers are almost always owners of the management firm. Owner-managers often have their name on the door and normally have a significant stake in the fund between their own monies, their relatives, and their retirement plan assets. Also, knowing that they will likely remain as manager and not “jump ship” to another fund provides us assurance that the portfolio composition and strategy will usually remain constant. We seek low expense ratios that are as realistically feasible as possible, based upon the type of fund. Furthermore, because of Legend’s reputation in the investment community and the fact that Legend’s President, Lou Stanasolovich, is the Editor of Risk-Controlled Investing, a nationally-recognized subscription service for financial advisors (3,000 people in the financial media also receive it monthly), Legend is able to gain and maintain access to funds that are either often closed to other investors or managers who normally do not wish to be interviewed.
Also, during our selection process we examine a mutual fund company’s willingness to close the fund at a certain asset size. This is important because asset size starts to “bloat”. For example, the large fund groups have numerous funds with asset sizes in the tens of billions that are not closed and don’t intend to close. The equity and sometimes fixed income funds that we select by contrast sometimes close at a few hundred million dollars, or at worst between one and two billion dollars. When asset size bloats, performance usually begins to falter. Not many mutual fund groups, especially publicly-traded and well-marketed groups, are willing to close because they derive their revenues by adding new assets. We seek funds that intend to be “fiscally responsible” and conscientious of their existing shareholders. We favor those managers who stand for what we stand for: taking care of the client.
We do not sell mutual funds very quickly for performance reasons. We typically watch them for a minimum of three quarters and place them on our probation list after they have underperformed their peers for an additional three quarters. At the end of those six quarters we will determine whether or not to liquidate the fund.
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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. Periodically, we also apply stop-sell orders to lock in gains and minimize risk.
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7. Does Legend utilize Exchange-Traded Products?
The short answer is yes. Legend is willing to entertain the idea of using virtually any type of security if it makes sense from the client’s standpoint. Members of Legend’s Investment Committee have spent countless hours understanding the various types of Exchange-Traded Products (i.e., Exchange-Traded Funds, Exchange-Traded Notes, leveraged funds, inverse funds), how they operate and the differences among them. We have focused on the intricacies of the underlying objectives of these products and the art of trading them efficiently. Many advisors and investors do not understand the number of moving parts associated with trading these types of products and, therefore, purchase securities at a heavy premium to the underlying Net Asset Value or sell at a steep discount to the underlying Net Asset Value. Without knowledge as to how to avoid such difficulties an investor often pays 5.0% or more in effect unnecessarily when trading exchange-traded products.
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8. Does Legend utilize separate account managers?
On rare occasions, Legend has in the past formed relationships with some of the premier investment management firms in the world. However, our assets managed by separate account managers are essentially non-existent at this point in time due to how expensive the management fees have become as well as how large minimum account sizes have become (typically $5,000,000.00 or more for the better managers).
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9. 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.
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10. What type of Investment Management reporting will clients receive?
Legend makes its securities trades through various custodians, including TD Ameritrade, Charles Schwab, Pershing, Shareholder Services Group and FOLIOfn. We primarily use TD Ameritrade as a custodian because of their trading and lower execution costs, but due to some client circumstances, assets may also be held at other custodians. Trades initiated by Legend are executed by the custodian. An account look-up feature for TD Ameritrade accounts is also available through Legend’s Website. Trade confirmations and monthly account statements are provided by the custodian. Additionally, Legend provides Investment Management performance reports on a quarterly and annual basis which will incorporate and consolidate accounts from all custodians. Organizations can receive these in either paper format or electronically.
We utilize PortfolioCenter™software, a comprehensive performance reporting package, which is used to help us provide clients their quarterly and annual performance reports. All account activity is downloaded and reconciled daily. This data is stored in Legend’s computer database and backed up locally and remotely. Any income and earnings distributions can be directed to specific sub-accounts pursuant to a client’s request. These, often times, are conducted electronically. We also use an extensive portfolio rebalancing software called iRebal to assist in the rebalancing process and review client portfolios on an ongoing basis.
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11. What are the costs to trade at the custodians Legend utilizes?
We try to utilize funds that do not carry a transaction fee but in some cases this cannot be avoided. All stocks, exchange-traded funds, exchange-traded notes, and closed-end mutual funds are traded at a flat $9.99 ticket charge at TD Ameritrade. For open-end mutual funds where trading fees are applicable, fund purchases and sales are charged at a flat $24.00 ticket charge at TD Ameritrade.
We have negotiated similar securities trading fees through the other custodians we utilize. All trading fees are subject to change at the custodian’s discretion.
TD Ameritrade has over 13,000 mutual funds available on its mutual fund network, and in excess of 1,500 in its No-Transaction Fee (NTF) program. In many of our mutual fund portfolios, several of the funds we use do not have trading fees.
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 $250,000.00 to $5,000,000.00, 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 have a short history, but whose managers are long on experience and success.
There may also be short-term trading fees charged by either the mutual fund and/or the custodian. This is common with any brokerage firm. These fees are designed to deter short-term market-timing. Legend will usually not incur these types of fees unless, at the client’s urging or request, we are forced to make trades, which would cause such fees to be incurred.
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12. How often are accounts traded?
Typically, it depends on the portfolio. For some portfolios we have one major rebalancing per 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. 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.
For other portfolios, such as the Opportunity and Ultra-Speculative, among others, trades will be made throughout the year dependent upon internal strategies.
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.
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13. How often will Legend review an investment portfolio?
Generally, we review each portfolio on a continuous basis. If circumstances warrant, such as market irregularities or a specific client need surfaces, we will review portfolios immediately.
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14. 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.
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15. 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 time, we will provide each client the option to meet with us when each investment management performance report is available. If a client chooses not to have a meeting, we will mail them the report and ask that they schedule a meeting, conference call, or Web conference with us.
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16. How often is a client 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.
The client will also receive a monthly statement online or via the mail from the custodian, which will list their 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.
The client may also view all of his/her accounts through the Clients Only section of Legend’s secure Web site. The Clients Only section provides information regarding investment positions, stock and mutual fund quotes, and account balances, to name a few.
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17. 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 the 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 with each client throughout the year. However, we will not discuss each and every trade with the client. All of our accounts are discretionary. Any client may, of course, call us to discuss any moves we are anticipating to make or have made. Also, in the case of portfolios primarily comprised of open-end mutual funds, if we deem it necessary to have a significant rebalancing for all client portfolios, it is our normal practice to inform our clients prior to executing any securities trades, stating in general what we will be doing and when. This provides the opportunity for clients to call regarding the specifics, if necessary.
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18. 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. The custodian that Legend utilizes maintains custody. Discretion simply means that we are able to make trades on a client’s behalf.
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19. Does a client have to stay with Legend's 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 so. 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 their contract at the end of any day. Of course, we will require payment of any fees owed through the date of termination.
Additionally, the only exceptions to the client’s ability to liquidate their investments would be in the event that illiquid types of investments are owned (although we rarely use illiquid investments) such as hedge funds, private equity and venture capital investments, or mutual funds that have restrictions. In these cases, there is very little liquidity, if any.
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20. What does Legend's fee structure for Investment Management services cover?
The fee structure noted below represents Legend’squarterly investment management fee. This fee is billed on a quarterly basis subject to a minimum quarterly fee of $2,187.50. Also, non-profit organizations are entitled to a discount on all fees listed, subject to our minimum fee schedule.
Quarterly fee schedule:
a. .2500% on the first $500,000.00;
b. .1875% on the amount in excess of $500,000.00 but not greater than $2 million;
c. .1250% on the amount in excess of $2 million, but not greater than $5 million;
d. .0625% on the amount in excess of $5 million.
These fees do not cover the transaction fees for purchasing or selling mutual funds, if there are any. We will typically invest in no-load, institutional class mutual funds, which do not carry a front-end sales charge or a deferred sales charge. Institutional share classes normally offer lower operating expenses. We will also utilize open-end mutual funds, which are pure no-load mutual funds, and on occasion front-end load waived mutual funds, which are funds for which investors do not pay front-end commissions.
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21. 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.
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22. 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 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 70½, we will discuss with him/her any minimum distributions from IRAs or retirement plans that need to be withdrawn on an annual basis.
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23. 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 arrangement, which includes fees for investment management. The fee will be fixed for a two-year period and will be billed quarterly, in advance. The fee quoted is based upon 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, etc. Our fee is for 365 days of service.
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24. Please describe Legend's 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.
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25. What makes Legend Financial Advisors, Inc. 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’s service initiatives are designed to be unparalleled. Clients will receive a number of phone calls from us discussing various aspects of bringing them on board initially and then providing them with ongoing service. Legend provides advice on all aspects of our clients’ finances while at the same time, assisting them with the implementation of their recommendations. 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 (Class A shares when buying mutual funds) or exorbitant fees. Other firms sell clients Class B shares where expense ratios often exceed 2.0% annually and Class C share mutual funds which charge 1.0% annually of assets regardless of portfolio size. This is a very expensive option for clients with more than $500,000.00 in assets. Legend, by contrast, offers numerous investment portfolio strategies as mentioned earlier.
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.
The bottom line at Legend is that our team focuses on the client’s financial goals, providing unparalleled service, and unbiased advice while being compensated only by the fees it charges.
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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 many instances, this has taken as many as three or four meetings and/or conference calls to discuss the client’s needs and goals, as well as how we can assist them.
For any questions where further explanation is needed, please contact us at (888) 236-5960 or via E-mail at email@example.com
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For any questions where further explanation is needed, please contact us
at (888) 236-5960
or via E-mail at firstname.lastname@example.org.