Frequently Asked Questions
How do your services differ from those of a broker?
Under the strict rules of the SEC, LVM Capital Management, as a Registered Investment Advisor (RIA), has a fiduciary duty to our clients. This is a moral and legal obligation to place a client’s interests first. While brokers may operate in a morally responsible manner, they are under no legal obligation to act in their clients’ best interest. A broker’s first duty is to his/her firm.
Generally, a broker’s role is to facilitate security trades. A broker may make purchase or sale recommendations that are “suitable” for the client. A broker is typically compensated with transactional trading commissions. Some brokers may be compensated under a "wrap" program which often includes an asset-based fee as high as 2% of the asset value. When sales incentives or a brokerage firms’ best interests drive purchase and sale decisions, the client’s chance of achieving a fee-efficient, tax-efficient, well-performing portfolio are diminished.
LVM Capital is compensated on a fee-only basis, on a percentage of assets under management. Our fee revenue increases only if the client’s account market value increases. LVM receives no compensation for any investment product or commission incentive to do trading in client accounts. Therefore, clients can be assured that their portfolio manager is constructing a portfolio that meets their specific investment strategy, risk tolerance, asset allocation, income needs, and financial goals.
As a Registered Investment Advisor (RIA), we are prohibited from holding your assets at LVM Capital. Accounts are established at a third-party custodian, such as a bank trust company or major brokerage firm. The brokerage firm acts merely as a custodian and does not have the authority to initiate any trades unless directed by LVM Capital. Due to economies of scale, LVM is often able to negotiate with third party custodians to secure significantly lower trading costs, which are in the best interests of our clients. Also, by using a third party custodian, clients are able to compare account information provided by LVM against statements provided by the custodian, as a check-and-balance.
What is the advantage of using individual securities versus mutual funds?
Mutual funds have a place in investment management. For the client with less than $500,000 to invest, mutual funds can provide an efficient means to diversify a portfolio. However, it is important that the savvy investor be aware of the hidden fees often embedded in mutual funds. It is important to read the fine print when considering mutual funds as an investment alternative.
There are many benefits of using individual securities for a client who has over $500,000 to invest. The diversification benefits of mutual funds for the smaller client can also be achieved using individual securities for the larger client. However, the advantage to using individual securities is that the portfolio is completely customized to the unique goals, desires, and needs of the individual client. For instance, you can exclude stocks from your portfolio that don’t reflect personal beliefs and values. It is also easier to coordinate your investment objectives with financial planning goals because you have control over the asset allocation and are immediately aware of any changes that take place in your portfolio.
An additional advantage to owning individual stocks is that you are less affected by the behavior of other investors. If investors in your mutual fund panic and sell shares, the fund manager may have to sell stocks at depressed prices to meet redemptions when the manager would actually prefer to be picking up bargains. Another benefit is the ability to purchase and sell securities in real time during the trading day, compared to mutual funds which are priced once daily at the close of the market.
Of course, if the portfolio under consideration is a taxable account rather than an IRA or other tax-advantaged account, the benefits of individual securities are even more dramatic. You have the ability to determine when and if you want to take any capital gains or losses in a given year and can offset gains with losses to minimize tax liabilities. You also establish your own cost basis when you purchase individual securities as opposed to participating in the embedded capital gains you inherit when you buy shares of a mutual fund.
One of the most important considerations for using individual securities over mutual funds is that when investing in mutual funds, you are simply one of many ’investors’ to that mutual fund manager. The fund manager operates under guidelines prescribed in the fund prospectus, rather than your individual needs as a client. When working with a firm such as LVM Capital, which uses individual securities to accomplish your goals and objectives, you will meet face-to-face on a regular basis with your investment professional, making strategic decisions for your individualized portfolio.
How do I integrate my existing estate planning relationship with LVM’s wealth management services?
Our financial planners will review your existing estate plan and make appropriate recommendations. Our planners are "fee only", and do not earn any commissions on any products recommended, thus, you can be assured that recommendations are in your best interest. Any alterations or additions recommended would be made in collaboration with your existing estate planning advisors or attorneys to ensure proper implementation.
What is the advantage of integrating my financial planning with asset management?
By integrating asset management with the financial planning process, one can be assured that strategies are aligned and consistent with specific financial goals. An LVM CFP® Practitioner begins the process by preparing an initial financial plan, which includes recommendations for establishing various trusts, taxable, and tax deferred accounts, based on an understanding of the client’s financial universe. Then, working with one of our CFA Charterholder portfolio managers, the proper investment allocations are determined for the various accounts. The financial planner and portfolio manager work together to create a customized strategic plan – a financial road map that shows where assets stand today and guides you down the most appropriate wealth management path to achieve overall investment objectives.