How It Works

Our financial planning philosophy revolves around six key elements.

financial planning philosophy

Our financial planning philosophy is easy to follow.

Structure: We can help you gain control of your financial life with a range of customized services and online tools that will organize everything from budgeting, taxes and insurance needs to planning, investments and goal setting.

Progress: Helping you identify and prioritize your goals is step one for us. Periodic reviews and consistent encouragement, to help you stay on course and achieve your goals, is step two through infinity.

Objectivity: We understand your finances are personal and important decisions can be emotional. Our goal is to provide objective advice and guidance, backed by research and time-tested strategies, when you need it most. We promise transparency and full-disclosure of our costs and compensation

Proactivity: Life happens. While no one can predict with 100 percent certainty what lies ahead, we can help you create a flexible financial plan that can enable you to proactively manage life’s hills and valleys.

Insight: Knowledge is a two-way street. We’ll strive first to understand your background, philosophy, needs, objectives and concerns to develop a personal plan for your unique situation. Then we’ll provide you with the necessary resources to help you understand your options and make confident decisions.

Collaboration: We’re in this together. Because we strive to develop a long-term relationship based on mutual respect, your success becomes our success. We’re committed to working collaboratively with you and on your behalf.

Our Planning Process

Financial planning can sometimes seem intimidating, but it doesn’t have to be. We follow a straight-forward, 7-step process with our clients, as outlined by the CFP Board. Those steps are detailed below.

To understand you and your needs, we obtain qualitative and quantitative information; and we explain why this information is necessary to the process. Examples of qualitative (or subjective) information include your health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action. Examples of quantitative (or objective) information include your age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee/government benefits, insurance, estate plans, retirement benefits, and capacity for risk. We analyze all this, and address with you any area with incomplete information.

We’ll help you identify goals and explain the potential effect that selecting a particular goal may have on other goals. This discussion is based on reasonable assumptions and estimates. These may include life expectancy, inflation rates, tax rates, and investment returns, among other factors. Then we’ll work with you in selecting and prioritizing your goals.

We analyze your current course of action, including its material advantages and disadvantages, and its potential for meeting your goals. Where appropriate, we also explore the advantages and disadvantages of one or more potential alternative courses of action, and how each integrates the relevant elements your personal and financial circumstances.

From the potential courses of action, we select one or more recommendations designed to maximize the potential for meeting your goals. This may mean continuing with your current approach, taking a different course, or a combination of elements. For each recommendation, we consider: the assumptions and estimates used; the basis for making the recommendation; the anticipated effects; how it integrates relevant elements of your circumstances; the timing and priority of each recommendation; and whether each is independent or tied with another recommendation.

The next step is presenting you with our recommendations and the information considered when developing them.

We will then discuss with you and establish whether we will have implementation responsibilities should you choose to move forward with the plan. One of our key roles will be to communicate implementation of the financial plan with you and any relevant third parties. Implementation includes identifying, analyzing, and selecting actions, products and services. In doing so, we consider a number of things, including: the anticipated effectiveness of each action, product or service is expected to be; and the advantages and disadvantage of each relative to reasonable alternatives. We will then make recommendations for next steps and keep you informed as we put those steps into action.

We will establish whether you would like us to have the responsibility of monitoring and updating your plan. If you would, we will outline which actions, products, and services will be our responsibility, as well as how and when we will monitor them. It will also be your responsibility to inform us of any material changes to your life and information. At appropriate intervals, we will review and analyze your progress, obtain additional information, and update your goals and our recommendations as needed. This will be a collaborative process between client and planner. We will update this process in accordance with the CFP® Practice Standards.

 Our Investment Strategy

Modern Portfolio Theory was first documented in 1952 by Harry Markowitz, who later won a Nobel Prize in Economics for his work. The theory helps quantify risk and has become widely accepted by Institutional Investment Managers during the past 50 years.

Diversification is more than simply dispersing one’s “eggs” into many baskets. Modern Portfolio Theory explains the benefits of portfolio diversification and demonstrates quantitatively why and how it works to reduce risk.

Markowitz was also the first to establish the concept of an efficient portfolio. An efficient portfolio is one that has the smallest attainable portfolio risk for a given level of expected return (or the largest expected return for a given level of risk).

It’s important to maintain a diversified portfolio, especially in challenging economic times. That means keeping an appropriate balance of your investments in the stock market. If you’re invested in the market, even by a small percentage, your chances of benefiting from a recovery are greater, according to the Schwab Center for Investment Research (SCIR). In the 12 months following the end of a bear market, a fully-invested portfolio has returned an average of 47 percent, the center reports, and if the first six months of the recovery were missed because the portfolio was totally in cash, the return was only 11 percent. (1926-2002, Ibbotson Associates, using the S&P 500 as proxy for the market.)

A sound investment strategy includes a well-diversified portfolio of stocks and other securities. A common pitfall among investors is the urge to commit a disproportionate percentage of funds to an individual stock (IBM, for example, because you inherited the shares from your grandfather) or to try to cash in on certain stocks or industries that may seem hot at the moment (such as defense industry stocks during wartime). Rather than becoming married to individual stocks, investors should commit to an investment strategy that helps them to pick and choose investments and get out when appropriate.

Diversification means more than simply dispersing one’s “eggs” into many baskets. The goal is to balance risk and return within your portfolio of investments. The best way to reach that balance is through strategic asset allocation based on modern portfolio theory.

Modern portfolio theory explains the benefits of portfolio diversification and demonstrates quantitatively why and how it works to reduce risk. First documented in 1952 by Harry Markowitz, who later won a Nobel Prize in Economics for his work, the theory has become widely accepted by institutional investment managers during the past 50 years. Markowitz was also the first to establish the concept of an efficient portfolio. Simply put, if efficient is defined as more output for less input, then an efficient portfolio can be defined as more return for less risk.

So what does all this mean, exactly? Keeping in mind that it’s called modern portfolio theory and not modern portfolio absolute fact, there are ways you can apply this concept to your investment plan.

Begin by infusing as much “fact” into your plan as possible. How old are you? When do you want to retire? What lifestyle do you currently enjoy (measured by monthly expenditures)? From these facts, you can derive additional facts – such as your retirement lifestyle goal, the amount of capital required and consequently your required rate of return.

Next, begin applying theory. Markowitz suggests rate of return can be predicted based on the type (or asset class) of an investment. The risk of an investment can become an objective measure by calculating the standard deviation of its past returns. The standard deviation is a statistical calculation that will tell us the likely range of possible returns compared to the average return. In simple terms, you might have an investment that averages 10 percent return with a standard deviation of 8 percent. In this example, most returns will range between 2 percent and 18 percent in any given year.

By analyzing expected returns and corresponding risk for each asset class, we can begin to determine if the required return for your plan is achievable. We can also determine the likelihood of meeting that return. Further, by combining multiple asset classes into your portfolio, we can further reduce your risk, while maintaining expected return. Thus, the portfolio becomes more efficient.

The planning process becomes subjective at this point, as we work to assess whether you can tolerate the level of risk (standard deviation, uncertainty) required to meet the expected return. Do not minimize the importance of assessing your risk tolerance. Risk assessment is the most important, and most difficult, step. Since sticking to your plan is the biggest determinant of success, it’s critical that you choose a plan that you will keep. Taking on too much risk results in anxiety, stress, sleepless nights and ultimately abandonment (and subsequently, failure) of the plan.

Again, bring as many facts into the equation as possible. How did you react to past market losses? Did you sell out, feel anxiety, experience regret? How readily can you replace your portfolio, or where are you in your wealth building cycle – creation, accumulation, preservation, depletion? And how important is your objective? Are you willing to take additional investment risk that may result in the delay of retirement five years if you don’t achieve the expected return?

After assessing risk, you must then determine if the expected return in the investments that you are considering with your corresponding risk will meet your needs. If not, it’s back to the beginning, to re-evaluate your financial needs and goals.

Once you’ve established the best plan for your needs, stick with it – but don’t neglect it. A recent Harris Polls Interactive survey found that approximately 12 percent of investors have never reviewed their investment portfolio, and about 22 percent have not reviewed their portfolio for two or more years.

Your portfolio can get out of shape over time, due to the outperformance or underperformance of various asset classes and industry sectors. Your personal circumstances also can change over time, which impacts your overall financial plan. Thus, periodic reviews of your plan and rebalancing of your investment portfolio are essential to assure your long-term financial success.

As part of the firm’s strategic investment process, the Perspective Investment Committee meets quarterly to review and fine-tune the list of funds our advisors utilize to build balanced client portfolios.

In an open discussion format, the team reviews the merits of various funds in each investment category. Funds are selected based on several criteria and must pass a series of “cuts” to make the list. Considerations include factors such as cost and the fund manager’s tenure, as well as overall performance and risk vs. return (both of which we compare to peer funds and other benchmarks).

The process begins each quarter with Perspective’s Portfolio Administrator who conducts preliminary research and narrows the field of funds for consideration to about 30 in each category (from a universe of several thousand choices). Perspective uses two advanced industry software programs to analyze hundreds of funds. We also tap into the Schwab Institutional website, to which individual clients do not have access, and obtain additional fund data. Finally, the firm utilizes Fi360, a leading resource for investment fiduciaries that provides research, analytics and reporting.

Funds already on the list are reviewed for any changes, such as new management, increases or decreases in returns, or changes in expenses or risk. Funds that no longer meet our strict criteria are removed from the list. Likewise, new funds are discussed and, when appropriate, added to Perspective’s list of approved investments. All this fits within our financial planning philosophy and your unique plan.

Portfolio Management with a Broader Perspective

Part 1: Creating the Right Mix of Investments – understanding asset allocation, diversification and individual client risk tolerance (approx. 3 minutes)

Part 2: Fine-Tuning Our List of Funds – conducting quarterly analysis of investment options (approx. 2 minutes)

Part 3: Adjusting the Sails – performing monthly client portfolio reviews (approx. 3 minutes)

Click here to read the video transcripts.

Please Note: The scope of any financial planning and consulting services to be provided depends upon the terms of the engagement and the specific request and needs of the client. Perspective does not serve as an attorney, accountant or insurance agent (it does not prepare estate planning documents or tax returns; it does not sell insurance products). Click here to read important disclaimers.