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Citi Wharton: Creating a Smart Wealth Management Plan

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Investors sometimes ask: Am I making the right decisions with my investments? Does my financial advisor truly have my best interests at heart? Should I be managing my money on my own? How can I ensure fees aren’t corroding my investment returns?

Charlotte Beyer – author of Wealth Management Unwrapped and founder of The Institute for Private Investors, which provides peer-to-peer networking and investor education for its members – discusses how you can go about finding the right financial advisor and ensuring you are comfortable with your investment plan.

Selecting an advisor

In selecting an advisor, you first need to know what kind of investor you are –your needs and expected outcomes.
Take your time to meet multiple advisors and you’ll begin to discern who is right for you. You need a person whom you can understand and who is going to suit your personal needs as well as goals. Ask each advisor exactly the same questions to put them on a level playing field.

Set expectations with your advisor. Determine your risk tolerance and the returns you are hoping for. Decide when you want to receive a call versus an email, as well as how often you want to meet up. Subsequently at each meeting, evaluate your advisor’s performance by comparing it against the metrics that were set out.

A good advisor would be able to guide you through different life stages. You may have one type of investment allocation at a certain age or in a certain circumstance, but you’ll need a different strategy later in life.

Understanding fees

Ask to see the fees that are being offered, the fees offered by competitors and the levels of fees charged for individuals with different levels of wealth. This will show a potential advisor that you’re well informed and will help you understand if the fees are fair. Remember, going to the cheapest provider may be alluring – but there is the risk that you will get what you pay for. With the cheapest provider, you may be missing out on some critical advice.

Active or passive?

Some believe that investing using a passive indexing approach is better than trying to outsmart the market: a passive approach allows you to diversify your risk and your investment performance will track a broader market.

However, it is dangerous to pick one investment strategy, put it on autopilot and go away.

Most investment professionals would agree that asset allocation is key. Even if all your money is in passive investments, you still need to be aware of how you’re allocating your money.

The importance of trust

Trust is the glue that holds together any investor-advisor relationship. The way to develop trust is to create metrics for valuing advice as well as a report card so you can track what is discussed, what is agreed upon and how your goals match up with your investment plan and performance.

But trust is a two-way street. Professional advisors need to expect investors to be trustworthy and to share information that will help them do a better job.

Most investment professionals would agree that asset allocation is key. Even if all your money is in passive investments, you still need to be aware of how you’re allocating your money.

From Knowledge@Wharton. December 22, 2014. The original article can be found at http://knowledge.wharton.upenn.edu/article/creating-smart-wealth-management-plan/

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Bond Ratings

(MLP’s) - Energy Related MLPs May Exhibit High Volatility. While not historically very volatile, in certain market environments Energy Related MLPS may exhibit high volatility.

Changes in Regulatory or Tax Treatment of Energy Related MLPs. If the IRS changes the current tax treatment of the master limited partnerships included in the Basket of Energy Related MLPs thereby subjecting them to higher rates of taxation, or if other regulatory authorities enact regulations which negatively affect the ability of the master limited partnerships to generate income or distribute dividends to holders of common units, the return on the Notes, if any, could be dramatically reduced. Investment in a basket of Energy Related MLPs may expose the investor to concentration risk due to industry, geographical, political, and regulatory concentration.

Mortgage-backed securities ("MBS"), which include collateralized mortgage obligations ("CMOs"), also referred to as real estate mortgage investment conduits ("REMICs"), may not be suitable for all investors. There is the possibility of early return of principal due to mortgage prepayments, which can reduce expected yield and result in reinvestment risk. Conversely, return of principal may be slower than initial prepayment speed assumptions, extending the average life of the security up to its listed maturity date (also referred to as extension risk).

Additionally, the underlying collateral supporting non-Agency MBS may default on principal and interest payments. In certain cases, this could cause the income stream of the security to decline and result in loss of principal. Further, an insufficient level of credit support may result in a downgrade of a mortgage bond's credit rating and lead to a higher probability of principal loss and increased price volatility. Investments in subordinated MBS involve greater credit risk of default than the senior classes of the same issue. Default risk may be pronounced in cases where the MBS security is secured by, or evidencing an interest in, a relatively small or less diverse pool of underlying mortgage loans.

MBS are also sensitive to interest rate changes which can negatively impact the market value of the security. During times of heightened volatility, MBS can experience greater levels of illiquidity and larger price movements. Price volatility may also occur from other factors including, but not limited to, prepayments, future prepayment expectations, credit concerns, underlying collateral performance and technical changes in the market.

An investment in alternative investments can be highly illiquid, is speculative and not suitable for all investors. Investing in alternative investments is for experienced and sophisticated investors who are willing to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks before investing. Certain of these risks may include:

  • loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices;
  • lack of liquidity in that there may be no secondary market for the fund and none is expected to develop;
  • volatility of returns;
  • restrictions on transferring interests in the Fund;
  • potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized;
  • absence of information regarding valuations and pricing;
  • complex tax structures and delays in tax reporting;
  • less regulation and higher fees than mutual funds; and
  • manager risk.

Individual funds will have specific risks related to their investment programs that will vary from fund to fund.

Asset allocation does not assure a profit or protect against a loss in declining financial markets.

Diversification does not guarantee a profit or protect against loss. Different asset classes present different risks.

The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance.

Past performance is no guarantee of future results.

International investing entails greater risk, as well as greater potential rewards compared to US investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics.

Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.

Factors affecting commodities generally, index components composed of futures contracts on nickel or copper, which are industrial metals, may be subject to a number of additional factors specific to industrial metals that might cause price volatility. These include changes in the level of industrial activity using industrial metals (including the availability of substitutes such as manmade or synthetic substitutes); disruptions in the supply chain, from mining to storage to smelting or refining; adjustments to inventory; variations in production costs, including storage, labor and energy costs; costs associated with regulatory compliance, including environmental regulations; and changes in industrial, government and consumer demand, both in individual consuming nations and internationally. Index components concentrated in futures contracts on agricultural products, including grains, may be subject to a number of additional factors specific to agricultural products that might cause price volatility. These include weather conditions, including floods, drought and freezing conditions; changes in government policies; planting decisions; and changes in demand for agricultural products, both with end users and as inputs into various industries.

The information contained herein is not intended to be an exhaustive discussion of the risks, strategies or concepts mentioned herein or tax or legal advice. Readers interested in the strategies or concepts should consult their tax, legal, or other advisors, as appropriate.

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  2. Companies, partnerships, trusts or other commercial undertakings, which have financial assets available for investment of not less than USD 25 million; or
  3. Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

Israel: This communication is directed at persons who are "Eligible Clients" as such term is defined in the Israeli Regulation of Investment Advice, Investment Marketing, and Investment Portfolio Management law, 1995 (the "Advisory Law"). This communication is not intended for retail clients and Citi will not make such products or transactions available to retail clients. The presenter is not licensed as investment advisor by the Israeli Securities Authority (“ISA”). The information contained herein may relate to matters that are not regulated by the ISA. Any securities which are the subject of this communication may not be offered or sold to any Israeli person except pursuant to an exemption from the Israeli public offering rules.

UAE: In the UAE, Citibank N.A. UAE Branch is licensed by the Central Bank of the UAE as a branch of a foreign bank.

The private banking business operates under Citibank N.A. UAE branch which is licensed with UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity of A) promotion under license number 20200000097 B) Trading broker in international markets under license number 20200000198.

Mutual funds distributed by Citibank N.A. UAE private banking business are registered with SCA.

The approval of SCA, in relation to the promotion of the investment products in the U.A.E. does not constitute a recommendation by SCA. to purchase or invest in the respective investment products and SCA accepts no responsibility and shall not be held liable for the failure of any concerned parties to fulfil their obligations and duties in relation to the investment products or for the accuracy and integrity of the data contained in the relevant subscription prospectus.

CONSUMER, CITIGOLD AND CITIGOLD PRIVATE CLIENT SEGMENT MARKET SPECIFIC DISCLOSURES

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs, and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors, as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

CSL does not provide discretionary portfolio management services.

UAE: Citibank NA UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch. Tel.: 04 311 4000. Citibank, N.A. - UAE Branch is licensed by the Central Bank of the UAE as a branch of a foreign bank.

Citibank N.A. UAE is licensed with UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity of A) promotion under license number 20200000097 B) Trading broker in international markets under license number 20200000198.

Investment products are not bank deposits or obligations or guaranteed by Citibank N.A., Citigroup Inc. or any of its affiliates or subsidiaries unless specifically stated. Investment products are not insured by government or governmental agencies. Investment and Treasury products are subject to Investment risk, including possible loss of principal amount invested. Past performance is not indicative of future results: prices can go up or down. Investors investing in investments and/or treasury products denominated in foreign (non-local) currency should be aware of the risk of exchange rate fluctuations that may cause loss of principal when foreign currency is converted to the investors home currency. Investment and Treasury products are not available to U.S. persons. All applications for investments and treasury products are subject to Terms and Conditions of the individual investment and treasury products. Customer understands that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If customer changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Customer understands that Citibank does not provide legal and/or tax advice and are not responsible for advising him/her on the laws pertaining to his/her transaction. Citibank UAE does not provide continuous monitoring of existing customer holdings.

Product Key Fact Statements and all other fees and charges are mentioned in the Schedule of Fees and Charges can be found on our website - www.citibank.ae.

Citibank UAE is a distributor of mutual funds which are managed by asset management companies who are our third-party product providers. We use UBS AG as an intermediary for execution and custody services to offer equities, and bonds to our customers.

Mutual funds distributed by Citibank N.A. UAE Consumer Business are registered with SCA and structured notes distributed by Citibank N.A. UAE Consumer Business are approved by the Central Bank of UAE.

The approval of SCA, in relation to the promotion of the investment products in the U.A.E. does not constitute a recommendation by SCA. to purchase or invest in the respective investment products and SCA accepts no responsibility and shall not be held liable for the failure of any concerned parties to fulfil their obligations and duties in relation to the investment products or for the accuracy and integrity of the data contained in the relevant subscription prospectus.

The information provided herein does not constitute the marketing of any products or services to individuals resident in the European Union, European Economic Area, Switzerland, Guernsey, Jersey, Monaco, San Marino, Vatican, The Isle of Man, the UK, Data Privacy (GDPR, LGPD & NZPA)*

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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