Business Relationships

You are known by the company you keep. At Financial Plan, Inc. we carefully select our business partners based upon their good reputation and the shared values that are so important to a client relationship based upon trust.

The values that are shared among all of our partners include integrity, fairness, and competence. Those who share these values will demonstrate it by delivering transparency, low costs, full disclosure, accurate reporting, and world class service that put the client’s interests first.

TD Ameritrade Institutional

It is reassuring for clients to have their accounts held at a third party firm. We place our accounts at TD Ameritrade Institutional, an experienced and established firm that serves over 4,000 independent advisory firms across the country.

Clients are assured that their statements are created by a separate firm, and the custody of assets are held at a firm that is a member of the Securities Investor Protection Corporation (SIPC). The SIPC provides insurance against insolvency and fraud to a maximum of $500,000 in securities per account. TD’s money market accounts are insured by the FDIC to a maximum of $250,000 per account. TD Ameritrade Institutional has purchased additional insurance through Lloyds of London to a maximum of $149.5 million per client account.

TD Ameritrade Institutional is an exceptionally low cost provider, which allows us to control our costs and reflect that in lower costs to our clients.

Dimensional Fund Advisor-logo

In February of 2003 we contacted a mutual fund company called Dimensional Fund Advisors (DFA).  We were interested in their approach, but to be able to participate we were required to undergo a thorough review process. DFA is quite selective about whom they do business with. They require that an advisory firm has a disciplined, passive low turnover approach and is fee based. Upon approval, we were one of only three advisory firms in Washington State who were accepted to do DFA business.

This was highly unusual because in every other instance mutual fund companies called on us to convince us to to sell their funds to our clients. In fact almost everything about DFA proved to be different:

Neither Active Nor Passive

DFA board member and Nobel Laureate Eugene Fama developed the efficient markets hypothesis (EMH) in his doctoral thesis.  An adherence to the EMH causes DFA to avoid a predictive approach which is widely used by active managers.  Although not active,  DFA management is not passive either.  DFA develops massively diversified baskets of securities without the need to slavishly trade based upon the reconstitution of indexes. This results in low cost mutual funds with turnover rates generally lower than that of the benchmark indexes. In 1993 The Fama/French Three Factor Model  was created by DFA board members Eugene Fama and Kenneth French.  The model expanded on the Capital Asset Pricing Model  (CAPM) by adding size and value factors to the market risk factor in CAPM. The Three Factor Model considers the fact that value and small-cap stocks outperform markets over long time periods. In 2012, Fama identified a fourth direct profitability factor, illustrating that in aggregate, companies with higher free cash flow outperform the market.

Opportunistic Trading

Sellers of stock shares are often impatient, causing them to sell large blocks all at once; not all of which can be sold at the current market price.  Due to market push, each lot of stock is sold at an ever decreasing price. As a patient buyer, DFA takes advantage of that. When selling shares, DFA is patient, often selling over long periods of time to avoid the results of market push.

Active managers are compelled to buy and sell specific companies as a result of their security research,  while passive index fund managers are compelled to buy specific names on specific dates in order to precisely match changes in their benchmark index.  By contrast,  DFA is flexible regarding which company shares they trade and the timing of those trades.  This flexibility results in better pricing and lower trading frictions.

Low Turnover

Active managers typically trade frequently.  This high turnover rate is a major component of cost. High turnover is not always the fault of a mutual fund manager, however. Flighty investors who move money in and out of mutual funds can force a fund to buy and sell securities within the portfolio. To combat this, DFA does not offer shares to the retail investor unless they work with an approved advisor or meet very high minimums. Typical minimums are $2 million. In this way, investors in DFA funds enjoy exceptionally low turnover rates.

the vanguard group

Vanguard offers open end mutual funds, ETFs, and a variable annuity,  and is known for their exceptionally low expense ratios. We find their passive index approach and low costs to be effective, especially when investing in bond mutual funds and bond exchange traded funds.

Deferred variable annuities are generally undesirable investments due to their excessive internal costs.  Vanguard is known for their low cost approach,  and Vanguard’s variable annuity is a good illustration of that.  While most variable annuities carry total internal costs in excess of 2%, and often even 3% per year,  Vanguard’s offering carries total internal costs of approximately .5% per year.  In those rare case in which Financial Plan believes it is in the best interests of the client to be invested in a variable annuity,  Vanguard is one of our top choices.

TIAA CREF is widely known as the premier provider of retirement plans for schools, hospitals, and other non-profit organizations.  Less well known is that they are one of only three insurance companies that carry the highest rating from all four independent rating agencies.

TIAA CREF also is a provider of no-load universal life insurance and annuities.  These contracts stand in stark contrast to expensive permanent life insurance and annuity contracts.  We find that the ability to participate in life insurance and annuities without a surrender charge to be helpful for many.

utah educational savings plan logo png

Financial Plan periodically reviews the 529 College Savings Plans of the fifty states. For clients who are residents of a state with an income tax, there can be advantages to investing in that state’s plan. For residents in a state without an income tax, such as Washington State, there is little motivation to restrict the selection to the home state. Our criteria in the selection process include the mutual fund companies that manage the plan, the internal investment costs, and the fee that the state exacts from the plan. Over the past ten years, Financial Plan has changed the plan that we use twice. Currently we are placing our clients into the Utah Educational Savings Plan (UESP) for its access to Dimensional Fund Advisors and Vanguard funds, its low internal costs, and the low fee .2% fee charged by the State of Utah.

Morningstar Logo

Financial Plan has contracted with Morningstar as our research engine. Morningstar provides us with robust portfolio management and performance reporting, advanced research capabilities, sophisticated investment planning, and secure client communications using our Morningstar Portal.

The Morningstar Portal is one of our three client portals. It provides data including daily value of all accounts, overall asset allocation, a breakdown of assets by global region, and a breakdown of accounts by tax status. The details of each account can be viewed, including data on equity holdings such as expense ratio, turnover ratio, book to market ratio, current dividend, and total return over one year and five years. For bond holdings, data on interest rate, credit equality,  duration and maturity data are also displayed. All transactions are listed including advisory expenses, and a cumulative time-weighted return chart for each account is displayed.

By All Accounts Logo

Financial Plan has contracted with By All Accounts to aggregate held-away accounts together with our custodial accounts. This makes it possible for Financial Plan to view holdings and effectively trade on an account regardless of where it is held. For example, in addition to accounts that are held at our custodian TD Ameritrade institutional, we manage held-away accounts such as Fidelity and Vanguard 401k plans, TIAA insurance policies, Utah 529 plans, Vanguard fee-only annuities, TRS plans, and others. The ability to aggregate is of importance in regard to objectivity: at times we will advise a rollover from a 401k to a TD Ameritrade IRA, or a “reverse” rollover from a TD Ameritrade IRA to a 401k. When we manage all accounts, regardless of where they are held, rollovers cause no change to our revenue. This eliminates a conflict of interest.

eMoney-logoFinancial Plan has contracted with eMoney to provide a robust investment and tax engine to assist in our financial plans. eMoney provides an intuitive interface, making it easy for advisors to illustrate various aspects of financial plans, including the balance sheet, cash flow statements, straight-line projections for the future, and Monte Carlo projections. Our Plan Dashboard is a personal website that allows clients to view their financial plan online. Important documents can be stored in the website vault. All information is protected behind a firewall and doubly encrypted.