Wealth Management for Individuals
Questions To Ask an Advisor
We want you to feel confident and secure in every aspect of retirement, especially when it comes to your relationship with us. As your advisory team, it is our fiduciary duty to serve only your best interests, so we prepared a list of questions for your path to finding the right partner for your investment.
What You Can Expect From Us
- Are you always a fiduciary, and will you state that in writing?
- Can you tell me about your conflicts of interest, orally and in writing?
- Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance?
- Do you believe in technical analysis or market timing?
- Do you believe you can beat the market?
- How often do you trade?
- How do you report investment performance?
- Which professional credentials do you have, and what are their requirements?
- After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term?
- Who manages your money?
- Can you list the number of clients you currently serve, as I expect you to have enough time to give my portfolio the attention it deserves?
Yes, always. To learn more about what it means for your advisor to be a fiduciary, read Does the Advisor Put Your Interests First?
Anytime DCM recommends that a client or prospective client move their assets to DCM from another firm or retirement savings plan, DCM stands to benefit from the future fees that will be earned on that account. We control for this conflict by fully disclosing it and by providing a clear explanation to the client or prospect of why we believe it is in their best interest. Clients and prospects are free to accept or reject our explanation and can choose any investment advisor they prefer.
Another potential conflict of interest is that DCM employees trade the same securities in their personal accounts that are also traded in client accounts. DCM controls for this potential conflict of interest by prohibiting any employee from trading on information that is not publicly available. Employees are also prohibited from buying any security just prior to a block trade. Block trades are when a security is either bought or sold for multiple client accounts at one time as part of a single transaction.
DCM is required annually to file registration forms with the SEC in which potential conflicts of interest must be disclosed. This form, known as the ADV Part 2, is publicly available at https://www.adviserinfo.sec.gov/. Please refer to the ADV for a complete and up-to-date disclosure of our potential conflicts of interest.
We provide financial planning services, including all of the elements described in the question.
No. Our securities generally average lower levels of daily price changes than the overall market (i.e., lower volatility securities). Lower volatility is generally considered less risky than higher volatility securities. This has a value to investors that cannot afford to lose large sums due to speculative investments that may fail.1 Since the overall market includes some very speculative opportunities, it can often generate a greater total return, especially when the market is “hot.” However, like the tortoise and the hare, dependable, high-quality, rising dividend securities held for the long term have historically provided very attractive returns on investment.
 All investing involves risk, including the possible loss of principal. There can be no assurance every client will achieve its investment objectives.
We have no set trading interval. But over the five years ending 7/31/17, our model portfolios in aggregate have averaged roughly 50% annual turnover. That means we hold the average stock for two years. However, since DCM does not charge clients for stock transactions, there is no incentive to buy and sell more often than is appropriate for the client.
We report total return after all expenses (market appreciation + income – fees and expenses).
DCM has eight Certified Financial Planners (CFP®) on staff and three Certified Public Accountants (CPA). Our Investment Policy Committee is supported by one Chartered Financial Analyst (CFA®) and one Certified Business Economist® (CBE). Our Retirement Plan Services Division has two Accredited Investment Fiduciary (AIF®) designees, and one Chartered Retirement Plan Specialist (CRPS®). In addition, most of our Client Service Managers are Financial Paraplanner Qualified Professionals™ (FPQP™).
Upon request, we would be glad to provide a list of educational requirements for each of the referenced certifications. In total, our Investment Advisors have over 100 years of experience as financial and investment advisors.
Our experience and research indicate that, for certain companies, there is a direct connection between dividend payments and stock price. We invest in companies that pay increasing dividends not only because they provide consistent and reliable income for our clients, but because dividends have historically led to the growth of principal over the long run. Our performance history is evidence of this relationship. GIPS® verified performance statistics are available upon request for each of our investment strategies.
We do. DCM follows a “model portfolio” approach. That is why we have one portfolio for each of our investment strategies that is used as the model for every client following that same strategy. The model portfolios do not have any client funds in them. Each model portfolio is managed directly by our Investment Policy Committee (IPC). Consisting of all Senior Investment Advisors and Research Analysts, the IPC is continuously reviewing and evaluating a wide array of investment research, global economic data, company filings and news, trends and outlooks in politics, industry, culture, technology, etc. The IPC members then use that information to debate and determine which stocks and bonds would be the best for each model portfolio. Decisions to add or remove a security from a model require each such decision be justified with objective data, defended in front of the IPC, and then voted for by a majority of the committee.
On an ongoing basis, every client portfolio under the responsibility of each Investment Advisor is periodically compared to the appropriate model. Based upon that comparison, changes (trades) are made in each portfolio to bring it as close to its model as possible, after allowing for client-specific requirements or requests that necessitate variation from the model. In other words, we have no independent operators here, no “market cowboys.” Every client’s assets are managed by the best collective judgment of the entire IPC. You should not be able to tell which Investment Advisor is managing a particular portfolio by examining its makeup. Each portfolio for a particular strategy should be the same, again after allowing for client-specific requests or requirements.
However, the buck stops with your Investment Advisor. He or she is directly and personally responsible for managing the investment of your assets according to the models; being intimately familiar with each client’s needs, preferences and other matters requiring the usually slight changes from the model for that client; and finally for providing and/or obtaining the financial advice that you need.
Many of us at DCM subscribe to the same methodology and invest our own personal assets in the same strategies as those of our clients.
DCM limits the number of clients each Investment Advisor/Client Services Manager serves specifically to protect the time needed to deliver superior service to every client, regardless of size. Whereas many investment advisors may serve upwards of hundreds or thousands of clients, as of December 31, 2017, the average number of clients served by DCM teams is 74.
What You Can Expect to Pay
A lot of people think the advisory fee is all they are paying for. And when working with other advisors, that is often not the case. There are a lot of ways in which advisors may be charging you fees, and it’s important to consider the all-in cost of investing and to be aware of the many ways that you could be paying extra fees.
With us, there are no hidden fees. Get a transparent look into exactly what our services will cost by going through the following questions with your advisor.
- Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?
- Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
- Will you itemize all your fees and expenses in writing?
- Are your fees negotiable?
- Will you consider charging by the hour or retainer instead of an annual fee based on my assets?
- Do you earn fees as advisor to a private fund or other investments that you may recommend to clients?
- Do you pay referral fees to generate new clients?
- Do you earn fees for referring clients to specialists like estate attorneys or insurance agents?
- What management fees are charged by you and/or your firm? Is there more than one level of fee? (e.g. active vs passive management)
- Are there any transaction charges?
- Are there one-time sales charges and ongoing commissions on securities or annuities you or your firm will be paid?
- Are there any commissions your company will be paid?
- Are there expense fees charged by any mutual funds or ETFs you recommend?
- Are there sales charges for any mutual funds: up-front (A shares), backend (B shares), and ongoing (C shares)?
- Do you charge early redemption fees?
- Do you charge for financial planning services?
- Do you charge per-hour rates or flat fees for working with my tax accountant, etc.?
- Do you charge trustee and/or custodial fees?
- Are there any expenses not listed here that I might have overlooked?
Yes, each quarter.
We have a one fee bundled billing structure, which is based on the market value of the portfolios we manage for you. We believe our all-in fee structure provides superior value. According to a 2017 financial advisory fee study from Bob Veres’ Inside Information, the average true all-in cost for financial advisors is higher than the average fee of a DCM client, at every level of AUM.1
The fee covers all investment management services and advice, trading costs, tax strategy advice, financial planning services, second-generation financial education services and notary public services; that is, any and all financial advisory services that we offer are included.
We do not utilize investment vehicles, such as mutual funds, which often carry additional expenses for the investor. However, we do use Exchange Traded Funds (ETFs) with minimal fees.
As referenced in our ADV, which can be found at https://www.adviserinfo.sec.gov/, we do have other billing structures for special circumstances. Custom pricing is also available for accounts larger than $10 million.
 Bob Veres Inside Information; 2017 Planning Profession Fee Survey; http://www.bobveres.com/
Advisors who charge by the hour may have less incentive to be efficient in managing your account or providing advice. But advisors who charge a fixed annual fee have an incentive to spend as little time as possible working with you or on your account. Charging an annual fee ensures that our firm is rewarded when you are rewarded, by increasing the market value of your portfolio.
Virtually all of our clients have come to DCM from unpaid client referrals.
We do participate in the Advisor Direct referral program with TD Ameritrade, in which TDA receives a percentage of the management fee. In this case, there is no additional fee incurred by the client.
Outside of the TDA Advisor Direct program, we have a single Solicitor agreement with whom we have a written referral agreement. This is the only such agreement we have, and DCM has no intention to enter into any future agreements. Of our 1,000+ client households, only three of them have been referred by this Solicitor. In any instance where this applies, the referral fee is not an extra fee incurred by the client.
Otherwise, whoever referred you to us did so because they were confident enough in the quality of our services and advice to risk their credibility in recommending you entrust your assets to our care.
Occasionally, DCM refers clients to Kemper CPA Group for tax advisory and preparation services. Clients are free to decline our recommendation of Kemper. But if they accept our recommendation, DCM will receive compensation for that referral. The arrangement is always fully disclosed to any client that does receive services from Kemper, and DCM ensures that clients understand they are neither required nor obligated to use Kemper, and are free to choose any tax or accounting firm they prefer.
In all other cases, we do not receive fees or any compensation when we refer our clients to such specialists.
We charge only one fee based on the market value of the portfolios we manage for you. The fee varies by total asset value, declining in rate as your asset value grows. If other members of your family are also clients, we combine the value of all family members’ assets when determining the fee rate for every family member. That lowers the fee rate for all. The average fee over our more than 1,000 clients is less than 1%, and in no case would the fee ever exceed 1.5%. Our fees only increase in dollar amount if the market value of your assets grows. If the market value drops (e.g., during a recession) our fee amount also drops.
DCM pays the transaction charges for the purchase and sale of stocks in your account. Bonds, on the other hand, are purchased one of two ways.
For DCM clients who qualify for and have signed a “Prime Brokerage” trading agreement with their custodian, DCM can purchase fixed income securities from any broker or dealer and allocate these securities to client accounts through the custodian Prime Broker platform. The Prime Broker platform broadens DCM’s market for bond purchases and creates more negotiation power when buying bonds for those clients. When DCM uses Prime Brokerage to allocate bonds from another broker or dealer, the custodian will assess a fixed transaction cost of $20 for these bond purchases. These transaction costs are the responsibility of the client and are paid at the time of execution.
For DCM clients that do not qualify or have not signed a “Prime Brokerage” trading agreement, DCM must purchase and allocate all bonds through the custodian bond desk. In instances when the custodian does not own the bonds that DCM wants to purchase for a client, DCM will direct the custodian bond desk to buy the bonds from a different broker or dealer. We call this a “Directed” trade. In these instances, the custodian bond desk will take a variable fee that is built into the cost of the bond for purchasing and allocating the bonds. However, this is not a separate fee.
Investment Advisors at DCM are compensated only through a base salary and a percentage of the management fee from the client assets that they manage. DCM Investment Advisors are paid no commissions on financial transactions or products.
Donaldson Capital Management receives no commission on financial transactions or products.
Our primary investment strategies invest only in individual securities. We do not invest in mutual funds. Because of the scarcity of attractive bonds in today’s low interest rate environment, we do occasionally use one or two bond Exchange Traded Funds (ETFs) with annual expense charges of approximately 0.25%. If new or existing clients transfer previously owned ETFs or mutual funds to our management, we will liquidate those holdings as quickly as is appropriate, in accordance with the client’s taxable gains sensitivity.
Occasionally we use ETFs, primarily for short periods to tax-manage capital gains and losses near year-end. The fees charged by ETFs are a small fraction of what mutual funds charge. Those small charges are paid by the client.
We do not invest in mutual funds or bond funds, so in effect there are no up-front, backend or ongoing sales charges.
We do not invest in CDs, mutual funds, bond funds, or annuities. Therefore, we charge no early redemption fees.
All of our planning services are free of any separate charge. The single management fee described in Item 1 covers all services that we provide to our clients.
We routinely help our clients with financial planning, and often work alongside their tax accountant, estate attorney, and other advisors as an objective and informed financial professional with a fiduciary responsibility to put the interests of our clients before all other interests. We do not charge extra fees to work with third party advisors, as described above.
Neither DCM nor the primary custodians we partner with charge custodial fees. Any trustee fees you pay would only be charged by third-party corporate trustees, should you employ one.
Certain segments of our clientele have accounts at FOLIOfn Investments, Inc. These clients are charged an annual maintenance fee of $25 for an Individual Retirement Account.