Retaining New Capital Management
Retaining an advisor is a process, and this page is intended to help you better understand the process of retaining New Capital Management and - if we proceed – to help make your transition from prospective client to client as smooth as possible.
Initial Meeting
Our initial meeting would (usually) take place at my office. My office is designed to be comfortable for clients to sit and talk, sign papers, visit, have lunch, and so forth. At our meeting, I will ask you questions about your personal history, your finances, and your goals, and you may of course ask me any questions on your mind. In my experience, you should be prepared to meet for about two hours – a significant commitment in both time and energy for both of us. I therefore do not take meetings with prospective clients lightly, and I ask that you not seek a meeting with me unless you are a serious prospect.
Any and all information conveyed to me verbally or in writing – whether you become a client or not - is kept completely confidential at my office. Your documents do not leave my office, and I do not mention your visit to anyone unless you request that I do so. If you have been referred to me, I will thank the referrer, but I will not convey any detailed information that you have conveyed to me. If you do become a client, I do not divulge that you are a client unless you request that I do so. My goal is to maintain your confidence to the same degree as an attorney, banker, physician, or therapist would.
Due Diligence
Some prospects decide to become clients during our initial meeting (which is fine), but in my experience most prospects leave and conduct some elements of a due diligence process which might include:
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Discussion. Many prospects, especially couples, engage in some form of discussion together to agree on whether I am a good fit for them. You should of course counsel with whomever you wish to discuss aspects of retaining me or any advisor.
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Alternatives. Some prospects seek out additional meetings with other advisors for comparison. If you want comparisons, you should not hesitate to seek them.
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References. Some prospects wish to speak to some of my clients as references. I am more than happy to provide such references, and I simply ask that you not seek references unless you are seriously inclined to hire me, as I prefer not to otherwise take their time.
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Additional Questions. You may have additional follow-on questions for me. You should feel free to contact me by phone or email, or even seek an additional meeting if you wish.
During your due diligence process, I will not “chase” you as many financial firms do. I am not a stockbroker or salesman, and it is very important to me that my clients want to work with me of their own volition and free from any pressure. I may drop you a note or place a call asking if there is anything more that I can do for you, but that is all. Your privacy and space to make an important decision are also important to me.
While you should of course take the time necessary to make a decision, I prefer prospects that are prepared to make a decision within a two-month time frame. If you do not believe that you are prepared to make a decision in that time frame, then I simply ask that you not seek a meeting with me until you have decided that you are seriously seeking to hire an advisor. When I meet with a prospect who then “disappears” for many months, the momentum and immediacy of our initial meeting is lost, circumstances change, and our initial discovery work is for naught.
Fees
Unlike a commission-based broker, whose fees may be embedded in the products they sell, I am paid directly by you on the basis of the value of your assets under my management (see Form ADV II for a current schedule).
You will also incur any “internal” fees on funds that we purchase; however, note that because I am not compensated by any funds, my incentive is to obtain the best funds at the lowest costs, which I work hard to do. You will also incur trading costs, which through Fidelity Investments, my custodian, are negligible. Finally, please note that if you itemize your deductions on Schedule A of your federal tax return, you may deduct any management fees paid to New Capital Management under “Other – investments, safe deposit box, etc.” In all, I believe that New Capital Management provides great value: industry-comparable net fees with a far higher service level.
Communicating Your Decision
If you decide that you would like to become my client, simply communicate that to me in a call or email. Your indication will trigger the production of a volume of documents and initiate several actions described next.
Investment Management Agreement
We will sign New Capital Management’s investment management agreement. This document outlines the essential features of our relationship, including responsibilities, authorizations, liabilities, conflict resolution, termination procedures, and fee arrangements. We will carefully go through this contract together so that you fully understand it and have every chance to ask questions about it.
Accounts and Asset Transfers
In all likelihood, you will transfer custody of your assets from your current advisor/broker to my custodian, Fidelity Investments. Fidelity is one of the largest asset managers and custodians in the world, and in my opinion, they are a great value, bringing the capabilities of large institutions for a fraction of the normal cost. All of my personal accounts are in custody at Fidelity, and I trust them completely. Please understand: I am not paid by Fidelity, and I am free to leave them and move my clients at any time if we are ever unsatisfied with them.
Many prospects who hold mutual funds at other institutions (such as Vanguard, AIM, etc.) are confused as to the issue of custody of those funds at Fidelity. Please note: transferring those assets to Fidelity does not mean that you must sell those funds; Fidelity has an arrangement with all of these funds such that it can provide custody of its mutual fund competitors’ funds. If you have Vanguard funds, you may still hold Vanguard funds at Fidelity, they will simply be reported on a Fidelity statement. By transferring your various accounts to a consolidated custodian, you will gain enormous benefit from superior reporting and simplified organization.
For each of your accounts, I will generate an account application, transfer documents, and supporting documents. I will need to provide a copy of your current account statements as proof of ownership for Fidelity. It is important that this work be done very precisely, and it may take me several days to complete it. Upon completion, we will make arrangements for you to return to my office to sign (or I will send you the documents if you are not able to visit). I will then convey the documents to Fidelity, and the asset transfer process will initiate. You do not need to do anything else: Fidelity will request the assets from your current custodian, and they will take from one to two weeks to transfer.
If you have a current advisor or broker, and you appreciate the work that the advisor has done for you, you may as a courtesy wish to alert the advisor of your intention to change and thank them. For many people, this is hard and nerve-wracking to do. Don’t worry; just be honest about your reasons for moving, your advisor will understand and will thank you and wish you well.
Many people (including me) these days use brokerage accounts in the same way that they use bank accounts: regular deposits, direct deposits, automatic drafts, check writing, and ATM withdrawals. Accordingly, you may wish to consolidate your “regular” banking with a Fidelity account. Such consolidation has the additional benefit of allowing us to jointly monitor and report on your income and expenses as part of your overall financial health.
Upon receipt of your assets, I will spend additional time to enter the cost basis of securities held in taxable accounts. By doing this, all tax lot accounting will be maintained by Fidelity’s computer system, and any transactions will report accurately on the annual 1099 tax statement sent to you by Fidelity. I will also set up your profile and accounts in my portfolio accounting and analytics system, so that I can produce analysis reports for us to better understand your current portfolio and upon which to base our investment decisions.
You may have accounts that are “held away” at other institutions, either by your choice or because they are part of an active retirement plan (such as a 401K). Upon your provision of a recent statement for such accounts, I will enter them by hand into the portfolio accounting system so that we can take them into account as well for our investment decisions.
Portfolio Triage
Often, immediately subsequent to transfer of a new client’s assets, I will see a number of glaring problems with a portfolio that require immediate attention and action. Included in such problems may be significant unrealized tax losses, overweight (risky) positions, insignificantly small positions, or securities held inappropriately in either taxable or non-taxable accounts. In such cases, I will often recommend that we take rapid action to address the positions, regardless of whether we have yet established more formal investment policies for your accounts.
Financial Plan
With your input, I will generate a financial plan which will essentially serve as a “guidebook” for financial life. This plan will compile your goals and objectives, assets, liabilities, constraints, special issues, portfolio allocation, and more. Every year we will review the financial plan to ensure that it continues to represent an accurate appraisal of your situation.
Statements, Reports, and Letters
Each month you will receive a full statement of account from Fidelity. You may elect to consolidate multiple accounts into one household statement, and you may also receive your statements in electronic format. If any trading is undertaken in your account, you will receive a trade confirmation from Fidelity. Each year, Fidelity will issue to you a full tax report (1099) for use in preparing your taxes.
Every night, your account data transfers from Fidelity’s trading and custody system to Morningstar’s analysis system. One of my tasks is to make sure that the data transfers correctly and without mistakes. Based upon these transfers, each quarter you will receive a set of performance and analysis reports from New Capital Management.
I usually issue a number of direct client communication letters on an annual basis, discussing issues in financial and capital markets, new products of interest, financial planning concepts, and so forth.
Regular Communications
Over the course of a year, we will have several - sometimes numerous - communications about various items that pertain to your portfolio and finances. Increasingly, these communications occur through email, where through an exchange of notes we decide to trade a security or pursue a course of action. Or we may use the phone for a longer conversation. In certain circumstances we may choose to meet in person to take the time needed to fully understand an issue. As a client, you should always feel free to ask me for a meeting to discuss any matter of importance to you. It is also common for my clients to meet with me whenever unexpected events occur.
Regular Reviews
I expect to meet with every client at least annually, and in some cases more often. At a meeting we will review:
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Your own personal situation to determine if there are any changes that in turn require changes to your financial plans.
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The allocation of your portfolio and if changes are required, including automatic re-balancing of the portfolio assets.
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The performance of your portfolio and how it compares to particular benchmarks.