“if you perceive a contradiction, check your premises…” ayn rand atlas shrugged

"Presenting the Wealthcare Value Proposition - Do YouPerceive a Contradiction?"

William B. Akers, CWA VP Financeware, Inc.Wealthcare Capital Management

Copyright Financeware, Inc. 2001-2003 All rights reservedBuilding

Everything that can be invented has been inventedCharles H. DuellCommissioner, U.S. patent office, 1899

If you perceive a contradiction, check your premises Ayn Rand Atlas Shrugged


Everything that can be invented has been inventedCharles H. DuellCommissioner, 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 OldModern or Antique?Do we perceive any contradictions?If you perceive a contradiction, check your premises Ayn Rand Atlas Shrugged


What does it take for ANY product or service to be successful?1- Meet Target Market NEED or DESIREWe do not VOLUNTARILY spend money for something we dont need or want 2- Easy to Use & Understand CONVENIENTWe do not seek to complicate our lives for things we do not understand 3- Reasonably ReliableA Good ProductToo unreliable = Doesnt 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 Consulting1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly


Examine the best practices of:Financial Planning & Investment Consulting1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly


Do You Perceive a Contradiction to:Meeting a Target Market Need or Desire?1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly

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

Sacrifice Your Lifestyle SAVE MORE & RARELY LessTell You What Happened Evade What it Means to You Go to Doctor AFTER YOU ARE DEAD!














Do You Perceive a Contradiction to:Meeting a Target Market Need or Desire?1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly CONTRADICTION?


Sacrifice Your Lifestyle Tell You What Happened Evade What it Means to You


Do You Perceive a Contradiction to:Easy To Use? Understand? Convenient?1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly Insurance, Budgets, Benefits What do Millionaires Spend on Cable Bills?

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

Loaded With JargonGreek Literally GreekAlpha/Beta CLIENT MUST SPEAK OUR LANGUAGE (INSTEAD OF US SPEAKING THEIRS) & WASTE TIME ON MEANINGLESS DETAILS














Do You Perceive a Contradiction to:Easy To Use? Understand? Convenient?1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly CONTRADICTION?Insurance, Budgets, Benefits What do Millionaires Spend on Cable Bills?




Surely Our Conservative Projections Are Reasonably Reliable In Meeting Clients Goals1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly


Current Best PracticesIdentify 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%? 20 Yr Return of 15.8%?40 Year 12.23%? $23 Million Estate.CRATS, CRUTS, and ILITs !!Market Reality:

Actual Market at 12.23% (60-99):

Actual Results:Broke @ Age 85Actual Market at 12.09% (61-00):$1.5 MillionActual Market at 9.79% (35-74):$5.7 MillionBEST Practice OR MALPRACTICE?
































Actual Results:Broke @ Age 85Actual Market at 12.09% (61-00):$1.5 Million + 9 yrsActual Market at 9.79% (35-74):$5.7 MillionBEST Practice OR MALPRACTICE?














Of Course, This Is Due To Assuming ZERO RISK...Even Though We Identified This RiskWhich Looks Like This As Downside Risk:

Standard DeviationOf CourseMonte Carlo Simulation Solves This Problem



Standard DeviationWe Will Assume ZERO Standard Deviation in His PlanOf CourseMonte Carlo Simulation Solves This Problem



Standard DeviationWe Will Assume ZERO Standard Deviation in His PlanOf CourseMonte Carlo Simulation Solves This Problem


Because with Monte Carlo we include risk and show the important information that he will end up:Somewhere between:$242 million

BROKE @ Age 67


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 wont have to worry about eating cat food in retirement)By getting them used to the taste NOW! (Requires $250k A YEAR in SAVINGS)


But we can get Harry to the HIGHEST Probability of Success(So he wont 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% ChanceBy getting him used to the taste NOW! (Requires $250k A YEAR in SAVINGS)


And Leave Him With A 75-90% ChanceBy 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?1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly

Retirement Age?Financial Independence?Sacrifice Goals You Want, for those you DO NOT VALUE Financial Independence? 3-6X Estate Goal?



Retirement Age?Financial Independence?Sacrifice Goals You Want, for those you DO NOT VALUE Financial Independence? 3-6X Estate Goal?Either:Ignore RiskUNRELIABLEInclude RiskNearly Certain Sacrifice to Ones Only Life



Retirement Age?Financial Independence?Sacrifice Goals You Want, for those you DO NOT VALUE Financial Independence? 3-6X Estate Goal?Either:Ignore RiskUNRELIABLEInclude RiskNearly Certain Sacrifice to Ones Only Life CONTRADICTION?


Do You Perceive a Contradiction to our Best Practices?

1- Obtain Complete Financial Profile2- Determine Financial Goals3- Identify Risk Tolerance4- Optimize Asset Allocation (highest return for risk tolerance)5- Establish Performance Benchmarks6- Project Future Resources Based on Conservative Assumptions7- Determine Savings Shortfall-Gap8- Search for Best Funds/Managers Based on Policy9- Monitor Performance and Update Plan Regularly 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 youRepeat Initial Inconvenience Regularly

What We SayWhat it REALLY MEANS!









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

How do you do that?

By CONFIDENTLY achieving the goals each client uniquely valuesWithout needlessly sacrificing their lifestyleAnd avoiding unnecessary investment risks


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 valuesWithout needlessly sacrificing their lifestyleAnd avoiding unnecessary investment risks


Resolution to Contradictions of FORMER Best Practices

1- Obtain Only What is Needed/Material2- Identify Ideal Dreams and Acceptable CompromisesAND PRIORITIES3- Avoid Unnecessary Risk 4- Benchmark the beach house Measure progress toward goals5- Provide Comfortrational confidence Avoid too much: Uncertainty OR Sacrifice6- Solutions based on acceptable compromises to achieve priorities7- Speak clients language and avoid implementation uncertainty8- Progress toward goals, and changing goals or prioritieson demand & proactive 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, Never Less!In Greek and Ignore Uncertainty of UnderperformingShow What Happened, NOT what it means to youRepeat Initial Inconvenience Regularly

RESOLUTIONS based on NEW PREMISESOLD Contradictions:

RESOLUTIONS!!!


Resolution to Contradictions of FORMER Best Practices

1- Obtain Only What is Needed/Material2- Identify Ideal Dreams and Acceptable CompromisesAND PRIORITIES3- Avoid Unnecessary Risk 4- Benchmark the beach house Measure progress toward goals5- Provide Comfortrational confidence Avoid too much: Uncertainty OR Sacrifice6- Solutions based on acceptable compromises to achieve priorities7- Speak clients language and avoid implementation uncertainty8- Progress toward goals, and changing goals or prioritieson demand & proactive 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, Never Less!In Greek and Ignore Uncertainty of UnderperformingShow What Happened, NOT what it means to youRepeat Initial Inconvenience Regularly

RESOLUTIONS based on NEW PREMISESOLD Contradictions:

RESOLUTIONS!!!


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

OUR VALUE PROPOSITIONHOW WE PROFILEHOW WE DESIGN RECOMMENDATIONSHOW WE IMPLEMENTHOW WE MONITOR & SERVICE Other than changing these things about our business Everything else IS THE SAME?!


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

OUR VALUE PROPOSITIONHOW WE PROFILEHOW WE DESIGN RECOMMENDATIONSHOW WE IMPLEMENTHOW WE MONITOR & SERVICE Other than changing these things about our business Everything else IS THE SAME?!

Personal Wealthcarefor: Sample ClientA. Good AdvisorGood Advisor ConsultingProvidingW 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:

Confidence in achieving goals YOU valueWithout UNDUE sacrifice to your lifestyleAvoid UNNECESSARY investment risk


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 valueWithout UNDUE sacrifice to your lifestyleAvoid UNNECESSARY investment risk


Wealthcare is an easy process that puts everything together:Stress Test GoalsAcceptable & Ideal GoalsDefine Major Life GoalsPrioritize GoalsRecommendation In Balance Comfort & ConfidenceImplement AllocationMonitor ProgressNew Goals or Priorities


This new process has many benefits compared to traditional services:Traditional Financial ServicesWealthcareBenefit
















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 90%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 achieved all of your goals or more in 830 of 1000 tests your confidence is 83%.

Chart1

0.750.150.1

Uncertain

Comfort

Sacrifice

Comfort Assessment

Sheet1

Uncertain75%

Comfort15%

Sacrifice10%

Sheet2

Sheet3


Stress Test Results For Your GoalsYour Comfort Level

Indicates the overall confidence in achieving 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


RecommendationYour 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 GoalsMonitoring 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. 54 55 56 57 58 59 60 61 Age $3,000,000 $1,800,000 $200,000SacrificeUncertain


Updating Changing GoalsAs 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. 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 StatusUpdates*Retirement Age Client65 Spouse61Retirement Need Client$120,000Target End Value$500,000Avg. Annual Savings Pre-Retirement$32,411Default Inflation Rate3%EducationYesMedian Return8.33%Risk Std. Deviation12.12% Downside (95%-tile)-9.73%Other Goals Gifting to SonNo Jamaica Trips$25,000


Asset AllocationBy implementing this allocation strategy along with your recommended goals, you should have a sufficient confidence level in achieving your most important goals with risks of changes being minor and manageable.


Wealthcare Benefits for Sample ClientRetire THREE YEARS EARLIER$10,000 MORE in Retirement Income$20,000 MORE for Travel$21,000 LESS in Annual Savings1/3 LESS Investment RiskWealthcare Benefit:Comfort that goals can be metFully Fund Education$400,000 MORE as a Legacy

Life With WealthcareLife With Traditional ServicesRetirement Age6568Retirement Income$120,000$110,000College FundingYesSomeRetirement Travel$25,000$5,000Savings$32,411$53,404Estate Goal$500,000$100,000Asset AllocationBalancedGrowthAverage Return8.33%9.93%Downside Risk-9.73%-15.07%Confidence & Comfort83Unknown


Summary Wealthcare Benefits:EasierAchieve goals otherwise ignoredAvoid unnecessary riskAvoid unnecessary lifestyle sacrificeIdentify problems & opportunities in advanceMore choices and better decisions Comfort that goals can be achieved

“if you perceive a contradiction, check your premises…” ayn rand atlas shrugged

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