©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004 -2008 All rights reserved P...

©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004 -2008 All rights reserved

P r o v i d i n g W E A L T H C A R E

W E A L T H C A R E W E A L T H C A R E

Do You Perceive A Do You Perceive A Contradiction?Contradiction?

Presenting the Wealthcare Value Proposition

Presented by:

David B. Loeper, CIMA®, CIMC®

©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004-2008 All rights reserved


“Everything that can be invented has been invented…”Charles H. Duell

Commissioner, U.S. patent office, 1899

“If you perceive a contradiction, check your premises…”

Ayn RandAtlas Shrugged

PAGE 2


P r o v i d i n g W E A L T H C A R E PAGE 3

“Everything that can be invented has been invented…”Charles H. Duell

Commissioner, U.S. patent office, 1899

We know the best practices…-Have they all been invented already?-Should we just execute the steps of the best practices?-How has the market responded to our best practices?-MPT is more than 50 Years Old…Modern or Antique?-Do we perceive any contradictions?

“If you perceive a contradiction, check your premises…”

Ayn RandAtlas Shrugged



What does it take for ANY product or service to be successful?

1- Meet Target Market NEED or DESIRE»We do not VOLUNTARILY spend money for something we don’t need or want




1- Meet Target Market NEED or DESIRE»We do not VOLUNTARILY spend money for something we don’t need or want

2- Easy to Use & Understand – CONVENIENT

We do not seek to complicate our lives for things we do not understand




1- Meet Target Market NEED or DESIRE

We do not VOLUNTARILY spend money for something we don’t need or want



3- Reasonably Reliable…A “Good” Product

Too unreliable = Doesn’t deliver as promised = ultimate failure




1- Meet Target Market NEED or DESIRE

We do not VOLUNTARILY spend money for something we don’t need or want



3- Reasonably Reliable…A “Good” Product

Too unreliable = Doesn’t deliver as promised = ultimate failure

Have we ever examined financial services “best practices” from the criteria that ANY product or service MUST HAVE to make it?

Do our best practices MEET A TARGET MARKET NEED/DESIRE?Are they EASY & CONVENIENT?Are they RELIABLE?



Examine the “best practices” of:Financial Planning & Investment Consulting

1- Obtain Complete Financial Profile

2- Determine Financial Goals

3- Identify Risk Tolerance

4- Optimize Asset Allocation(highest return for risk tolerance)

5- Establish Performance Benchmarks

6- Project Future Resources Based on Conservative Assumptions

7- Determine Savings Shortfall-“Gap”

8- Search for Best Funds/Managers Based on Policy

9- Monitor Performance and Update Plan “Regularly”



Examine the “best practices” of:Financial Planning & Investment Consulting










-Meet Need/Desire?

-Easy to Understand… Convenient?

-Good/Reliable?



Do You Perceive a Contradiction to:Meeting a Target Market Need or Desire?










How Much Pain Can You Bear?













How Much Pain Can You Bear?Position You To Experience It














Sacrifice Your Lifestyle…SAVE MORE

& RARELY Less














Sacrifice Your Lifestyle…SAVE MORE

& RARELY LessTell You What Happened…Evade What it Means to You…

Go to Doctor AFTER YOUARE DEAD!













CONTRADICTION?


Sacrifice Your Lifestyle

Tell You What Happened…Evade What it Means to You

CONTRADICTION?



Do You Perceive a Contradiction to:Easy To Use? Understand? Convenient?










Insurance, Budgets, Benefits…

CONTRADICTION?













Insurance, Budgets, Benefits…What do Millionaires Spend

on Cable Bills?

CONTRADICTION?














on Cable Bills?

Retirement, Education, Estate=R1000 Growth/Mid Cap Value

CONTRADICTION?














on Cable Bills?


Loaded With Jargon…Greek Literally Greek…Alpha/BetaCLIENT MUST SPEAK OUR

LANGUAGE (INSTEAD OF US SPEAKING THEIRS) & WASTE

TIME ON MEANINGLESS DETAILS

CONTRADICTION?













CONTRADICTION?

CONTRADICTION?


on Cable Bills?


Loaded With Jargon…Greek Literally Greek…Alpha/BetaCLIENT MUST SPEAK OUR LANGUAGE (INSTEAD OF US SPEAKING THEIRS) & WASTE

TIME ON MEANINGLESS DETAILS



Surely Our “Conservative” Projections Are Reasonably Reliable In Meeting Clients’ Goals…










CONTRADICTION?



Current “Best Practices”Identify risk tolerance, optimize asset allocation, & do a financial plan...

For Example, Harry Abernathy...54 Year Old, $900,000 Portfolio, Saving $16,000 a year, Retiring at 61 with a retirement income goal of $112,500 -

Projected Portfolio Values at age 94 based on???






10 Yr Return of 15.2%?






10 Yr Return of 15.2%? 20 Yr Return of 15.8%?







40 Year 12.23%?







40 Year 12.23%? $23 Million Estate….CRATS, CRUTS, and ILITs !!








Market Reality:

Actual Market at 12.23% (’60-’99):

Actual Results:








Market Reality:


Actual Results:

Broke @ Age 85








Market Reality:


Actual Results:

Broke @ Age 85Actual Market at 12.09% (’61-’00):








Market Reality:


Actual Results:

Broke @ Age 85Actual Market at 12.09% (’61-’00): $1.5 Million + 9 Years








Market Reality:


Actual Results:

Broke @ Age 85Actual Market at 12.09% (’61-’00):Actual Market at 9.79% (’35-’74):

$1.5 Million








Market Reality:


Actual Results:


$1.5 Million$5.7 Million








Market Reality:


Actual Results:


“BEST” Practice OR MALPRACTICE?

$1.5 Million$5.7 Million



Of Course, This Is Due To Assuming ZERO RISK...

Even Though We Identified

This Risk

Standard Deviation




Even Though We Identified This Risk

Standard Deviation

We Will Assume ZERO

Standard Deviation in

His Plan




Even Though We Identified This Risk

Which Looks Like This As Downside

Risk:

Standard Deviation

We Will Assume ZERO

Standard Deviation in

His Plan

Of Course…Monte Carlo Simulation Solves This Problem…



Because with Monte Carlo we include risk and show the

important information that he will end up:



Because with Monte Carlo we include risk and show the

important information that he will end up:

Somewhere between:$242 million

BROKE @ Age 67



But we can get Harry to the

HIGHEST Probability of

“Success”(So he won’t have to

worry about eating cat food in retirement)



But we can get Harry to the

HIGHEST Probability of

“Success”(So he won’t have to

worry about eating cat food in retirement)

By getting him used to the taste

NOW! (Requires $250k A YEAR in SAVINGS)



And Leave Him With A

75-90% Chance

By getting them used to the taste

NOW! (Requires $250k A YEAR in SAVINGS)



And Leave Him With A

75-90% Chance

By getting them used to the taste NOW! (Requires $250k A

YEAR in SAVINGS)

Of Dying On A Death Bed

Stuffed With Money He Wished

He Had Spent!



Do You Perceive a Contradiction to:Reliable?










Retirement Age?“Financial Independence”?Sacrifice Goals You Want, for

those you DO NOT VALUEFinancial Independence?3-6X Estate Goal?















Either:Ignore Risk…UNRELIABLEInclude Risk…Nearly Certain

Sacrifice to One’s Only Life















Either:Ignore Risk…UNRELIABLEInclude Risk…Nearly Certain

Sacrifice to One’s Only Life

CONTRADICTION?

CONTRADICTION?












What We “Say” What it REALLY MEANS!

CONTRADICTION!!!

Do You Perceive a Contradiction to our Best Practices?












Inconvenience All ClientsData Points, Not PrioritiesHow Much Pain Can You Bear?Position You To Experience It!

Measure Markets Not GoalsIgnore Risk – UnreliableInclude Risk – Certain SacrificeSave More, NOT Less!In Greek and Ignore Uncertainty

of UnderperformingShow What Happened, NOT

what it means to you…Repeat Initial Inconvenience…

“Regularly”


CONTRADICTION!!!

Do You Perceive a Contradiction to our Best Practices?













Measure Markets Not GoalsIgnore Risk – UnreliableInclude Risk – Certain SacrificeSave More, NOT Less!In Greek and Ignore Uncertainty



“Regularly”


CONTRADICTION!!!

WOULD YOU BUY THIS???!



We Need To Start From Scratch!

NEW PREMISES OF WHAT FINANCIAL ADVICE IS:

How about this for a value proposition?

I help clients make the most of the one life they have…



We Need To Start From Scratch!

NEW PREMISES OF WHAT FINANCIAL ADVICE IS:

How about this for a value proposition?

I help clients make the most of the one life they have…

How do you do that?

By CONFIDENTLY achieving the goals each client uniquely values

-Without needlessly sacrificing their lifestyle-And avoiding unnecessary investment risks



Resolution to Contradictions of FORMER Best Practices…


Measure Markets Not GoalsIgnore Risk – UnreliableInclude Risk – Certain SacrificeSave More, Never Less!In Greek and Ignore Uncertainty



“Regularly”

RESOLUTIONS based on NEW PREMISES OLD Contradictions:

RESOLUTIONS!!!



Resolution to Contradictions of FORMER Best Practices…

1- Obtain Only What is Needed/Material

2- Identify Ideal Dreams and Acceptable Compromises…AND PRIORITIES

3- Avoid Unnecessary Risk

4- “Benchmark the beach house”Measure progress toward goals

5- Provide Comfort…rational confidence…Avoid too much: Uncertainty OR Sacrifice

6- Solutions based on acceptable compromises to achieve priorities

7- Speak clients’ language and avoid implementation uncertainty

8- Progress toward goals, and changing goals or priorities…on demand & proactive


Measure Markets Not GoalsIgnore Risk – UnreliableInclude Risk – Certain SacrificeSave More, Never Less!In Greek and Ignore Uncertainty



“Regularly”

RESOLUTIONS based on NEW PREMISES OLD Contradictions:

RESOLUTIONS!!!



The resolutions enable us to have a completely different and meaningful process, but also require us to change…

OUR VALUE PROPOSITION

HOW WE PROFILE

HOW WE DESIGN RECOMMENDATIONS

HOW WE IMPLEMENT

HOW WE MONITOR & SERVICE



The resolutions enable us to have a completely different and meaningful process, but also require us to change…

OUR VALUE PROPOSITION

HOW WE PROFILE

HOW WE DESIGN RECOMMENDATIONS

HOW WE IMPLEMENT

HOW WE MONITOR & SERVICE

Other than changing these things about our business…Everything else IS THE SAME?!

©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004 -2008 All rights reserved


Personal Wealthcarefor: Sample Client

A. Good AdvisorGood Advisor Consulting

ProvidingProvidingW E A L T H C A R EW E A L T H C A R E



A completely new advice process designed to:

Help you live the one life you have, the best way you can

The Premises of Wealthcare Advising:



A completely new advice process designed to:

Help you live the one life you have, the best way you can

The Premises of Wealthcare Advising:

»Confidence in achieving goals YOU value»Without UNDUE sacrifice to your lifestyle

»Avoid UNNECESSARY investment risk



Wealthcare is an easy process that puts everything together:

“Stress Test” Goals

Acceptable & Ideal Goals

Define Major Life Goals

Prioritize Goals

Recommendation “In Balance”

Comfort & Confidence

Implement Allocation

MonitorProgress

New Goals or Priorities



This new process has many benefits compared to traditional services:




Prioritize Goals




MonitorProgress


Traditional Financial Services

Wealthcare Benefit







Prioritize Goals




MonitorProgress



Wealthcare Benefit

Complicated questionnaires asking for meaningless details

Focus on what is important

Easier







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier

Goals compromised to maximize investment amount

Identify aspirations Achieve goals otherwise ignored







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier



Identify maximum risk tolerance…Position you to experience it!

Evaluate whether risk is necessary

Avoid unnecessary risk







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier






Solutions based on sacrifice (additional savings)

Solutions based on YOUR priorities

Avoid unnecessary lifestyle sacrifice







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier









Monitor performance(what happened?)

Monitor PROGRESS (will I meet my goals?)

Identify problems & opportunities in

advance







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier












advance

Update annually at best

Update on demand More choices and better decisions







Prioritize Goals




MonitorProgress



Wealthcare Benefit



Easier












advance

Update annually at best

Update on demand More choices and better decisions

Confidence completely unknown

Confidence (comfort) calculated, monitored and kept in “balance”

Comfort that goals can be achieved



Sample:Aspirations (Ideal) and Traditional Goals (Acceptable)

Traditional advisory services focus on maximizing the size of your investment portfolio by minimizing your spending, maximizing your savings and positioning you in a portfolio with the highest risk you can tolerate. Achieving goals otherwise ignored and minimizing investment risk is what the Wealthcare process is all about. For most people, some goals are more important than others. Your primary financial goals as determined in our goal assessment are outlined above.



“Stress Testing”

Uncertain <75%(under funded)A confidence level below 75% means that there is too high of a chance you

may not achieve your goals. Adjustments need to be made to your goals,

your allocation or your investments

Sacrifice >90%(over funded)

A confidence level above 90% indicates that you

are needlessly sacrificing your financial goals. You

could take less investment risk, achieve larger or more goals and still maintain confidence in your financial future.

Confidence & Comfort (in “balance”)A confidence level between 75% and 90% should give you confidence that your goals can be met. This reading indicates a set of goals that is manageable and avoids unnecessary investment risk. You may find at some future

date minor changes may be suggested, but they are likely to be small, easily manageable and exposed well in advance through ongoing monitoring.

How does “Stress Testing” Work?Central to the Wealthcare process is the Confidence calculation. This analysis simultaneously evaluates your goals, your investment allocation and your assets to determine how confident you can be that your goals will be met. The Wealthcare process subjects your goals and investment strategy to this sophisticated ‘stress testing’ process which simulates 1000 market environments, both good and bad. Your Confidence or Comfort is the percentage of the 1000 simulations that achieve your goals. For example, if you exceeded all of your goals in 830 of 1000 tests your confidence is 83%.

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

Comfort Assessment

Uncertain Comfort Sacrifice



“Stress Test” Results For Your Goals

Your Comfort Level…

Indicates the overall confidence in exceeding your most important life goals.

Remember, below 75% means you may be disappointed and above 90% means you are making needless sacrifices to your lifestyle.

Comfort Zone Too Much Compromise



Recommendation

Your Recommended Goals are custom designed based on your priorities.

This recommendation is designed to avoid undue sacrifices to your financial lifestyle and if possible avoid unnecessary investment risk.

With these objectives in mind, our recommended goals and investment strategy falls within balance so that you can be confident that any future modifications to your goals will be moderate and manageable through ongoing monitoring.



Achieving Your Goals

Monitoring Your Progress…As financial markets, financial goals and priorities change, we monitor your progress on an ongoing basis. The Wealthcare process identifies in advance the future portfolio values needed to maintain balance between confidence and undue sacrifice. This monitoring process enables us to track where your current portfolio falls so we can alert you of potential problems, or help you achieve additional goals you may have. Additionally, this dynamic process recognizes that throughout your life, goals and priorities change. In such cases we will design new recommendations for you.

Sacrifice- Over Funded

Uncertain

Your Portfolio

Too Uncertain- Under Funded



Updating Changing Goals

Please tell us about any new goals you may have:

________________________________________________________________________________________________________________

Please tell us about any changes to your goals you would like us to review by entering them in the amendments section to the right:

Current Status Updates*

Retirement Age

Client 65

Spouse 61

Retirement Need

Client $120,000

Target End Value $500,000

Avg. Annual Savings

Pre-Retirement $32,411

Default Inflation Rate 3%

Education Yes

Median Return 8.33%

Risk

Std. Deviation 12.12%

Downside (95%-tile) -9.73%

Other Goals

Gifting to Son No

Jamaica Trips $25,000As your goals and priorities change…So will your lifetime plan. Please use this form to update us on any changes you would like to make to your goals or inform us of new goals you may have. We will work with you to redesign your recommended goals for changes you may desire.



Wealthcare Benefits for Sample Client

Retire THREE YEARS EARLIER

$10,000 MORE in Retirement Income

$20,000 MORE for Travel

$21,000 LESS in Annual Savings

1/3 LESS Investment Risk

Wealthcare Benefit:Life With Wealthcare

Life With Traditional Services

Retirement Age 65 68

Retirement Income $120,000 $110,000

College Funding Yes Some

Retirement Travel $25,000 $5,000

Savings $32,411 $53,404

Estate Goal $500,000 $100,000

Asset Allocation Balanced Growth

Average Return 8.33% 9.93%

Downside Risk -9.73% -15.07%

Confidence & Comfort 83 Unknown Comfort that goals can be met

Fully Fund Education

$400,000 MORE as a Legacy



Summary – Wealthcare Benefits:

Easier

Achieve goals otherwise ignored



Identify problems & opportunities in advance

More choices and better decisions

Comfort that goals can be achieved

©Copyright Financeware, Inc., d/b/a Wealthcare Capital Management 2004 -2008 All rights reserved P...

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