The PCA Advantage
First and foremost, we serve as a fiduciary to our clients, which means we are obligated to put our clients’ interests ahead of our own. Serving as a fiduciary is a higher level of accountability than the many advisors in our industry that are bound only by the suitability standard. Advisors subject to the suitability standard must offer solutions that are appropriate given their clients’ circumstances, but they are not required to put their clients’ interests ahead of their own. The emphasis on fee transparency is one key issue with regard to the fiduciary standard. The fees our clients pay are clearly reflected on their account statements, in contrast to many other firms in our industry in which uncovering the fee structure is complicated and not clearly disclosed.
PCA’s most unique and distinguishable feature is our combination of comprehensive financial planning and in-house investment management. The leaders, as well as others on our teams, have the highest level professional designations for their respective areas of expertise:
- Chartered Financial Analyst (CFA)
- Certified Public Account (CPA)
- Certified Financial Planner (CFP®)
Most other financial planning firms have individual advisors or small advisor teams that are essentially separate, competitive businesses within their companies. In this model the advisors focus on asset allocation and planning, and typically outsource the investment management by using third party portfolio managers through ETFs, mutual funds or separately managed accounts. Alternatively, most asset management firms focus on institutional clients such as pension funds, endowments, or other financial firms and do not provide comprehensive financial planning services. At PCA, the combination of accomplished portfolio managers and experienced financial advisors on the same team allows us to be more specialized, and therefore add more value, while also reducing a layer of fees that comes with outsourcing either planning or portfolio management to a third party.
Our investment team manages five portfolio strategies for clients with a focus on portfolios of individual securities. The allocation to each of these strategies is tailored to the specific circumstances and goals of each client.
Managing portfolios of individual securities often provides better diversification, stronger protection against rising interest rates, more tax efficiency, and a lower cost structure than a portfolio of mutual funds. An investment portfolio built with mutual funds typically includes multiple funds owning the same securities. In addition, mutual funds only report their holdings 30 days after the end of a quarter, therefore it is impossible to know in real time how much exposure and investor has to a sector, industry, or company.
Individual bonds provide better protection than bond mutual funds during a rising interest rate environment. The market value of bonds decreases when interest rates increase. If investors in bond mutual funds decide to sell their fund holdings, then portfolio managers of these funds may be forced to sell the underlying bonds at inopportune times. Conversely, owners of individual bonds may hold their bonds to maturity.
Individual securities greatly improve tax efficiency and the ability to control tax outcomes. Owners of individual securities have their own cost basis in each holding. In contrast if a mutual fund manager sells a stock they have held for many years, the associated realized gain is passed along to current fund holders whether they participated in the gain or not. This represents not only a lack of control, but also the inability to reliably target income thresholds as part of strategic tax planning.
We save our clients a layer of fees as compared to an advisor-directed portfolio of mutual funds by managing portfolios in-house. Our clients pay one fee for our combined services while a mutual fund portfolio model includes fees for the advisor plus the expense ratio of the funds.
Depth of Planning
Our team approach allows our advisors to be more specialized and engage in more in-depth strategic planning than many other advisors in our industry. Strategic tax planning is one area of in-depth planning we can provide for clients. Our team works diligently with our clients’ tax preparers to identify unique planning opportunities. The transition period from accumulating assets to depending on those assets to generate income in retirement creates many opportunities for strategic planning that are often missed without professional help.
While we have a very broad range of expertise on our team, we also recognize that we can’t be experts in every area of finance. Over decades of experience, we have built a great referral network that can help our clients accomplish the needs we cannot fulfill. Some examples include tax preparation, estate planning and other legal services, Trust and Executor services, mortgage and other lending services, direct real estate investments, residential and commercial realtors, and property/casualty insurance. It is important to note that we identify referral sources based on our confidence in their ability to add value to our clients in their area of expertise. We are not compensated by these third parties and our only motivation for recommending them is to fulfill a client need. Of course many of our clients have pre-existing relationships in these areas that they value. These circumstances have often resulted in great experiences that have been the sources of a identifying an industry expert that we later refer to other clients.
Third Party Custodian
Fidelity Investments serves as custodian for PCA clients. This means that our clients’ investments are held directly with Fidelity and not with PCA. Furthermore, each client has their own specific account(s) at Fidelity and assets are not pooled with other clients. Fidelity generates our clients’ account statements and tax reporting documents. This structure protects clients from the Bernie Madoff-type Ponzi schemes which typically involve a firm holding assets directly, pooling with other client assets, and generating their own account statements.