"presenting the wealthcare value proposition - do you perceive a contradiction?" william...

"Presenting the Wealthcare Value Proposition - Do You

Perceive a Contradiction?"

William B. Akers, CWA VP Financeware, Inc.

Wealthcare Capital Management

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“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

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“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

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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

2- Easy to Use & Understand – CONVENIENT»We do not seek to complicate our lives for things we do not understand

3- Reasonably Reliable…A “Good” Product»Too unreliable = Doesn’t deliver as promised = ultimate failure

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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?

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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”

-Meet Need/Desire?

-Easy to Understand… Convenient?

-Good/Reliable?

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

-Meet Need/Desire?

-Easy to Understand… Convenient?

-Good/Reliable?

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

How Much Pain Can You Bear?

Position You To Experience It

Sacrifice Your Lifestyle…SAVE MORE& RARELY Less

Tell You What Happened…Evade What it Means to You…Go to Doctor AFTER YOUARE DEAD!

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CONTRADICTION?

Sacrifice Your Lifestyle

Tell You What Happened…Evade What it Means to You

CONTRADICTION?

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

Insurance, Budgets, Benefits…What do Millionaires Spendon Cable Bills?

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

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

CONTRADICTION?

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CONTRADICTION?

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CONTRADICTION?

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CONTRADICTION?

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CONTRADICTION?

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

CONTRADICTION?

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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%? 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 Million

“BEST” Practice OR MALPRACTICE?

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

Broke @ Age 85Actual Market at 12.09% (’61-’00): $1.5 Million + 9 yrsActual Market at 9.79% (’35-’74): $5.7 Million

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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Market Reality:

Actual Results:

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

Even Though We Identified This Risk

Which Looks Like This As Downside

Standard Deviation

Of Course…Monte Carlo Simulation Solves This Problem…

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Standard Deviation

We Will Assume ZERO

Standard Deviation in

His Plan

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Standard Deviation

We Will Assume ZERO

Standard Deviation in

His Plan

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Because with Monte Carlo we include risk and show the

important information that he will end up:

Somewhere between:$242 million

BROKE @ Age 67

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Because with Monte Carlo we include risk and show the

important information that he will end up:

Somewhere between:$242 million

BROKE @ Age 67

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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 them used to the taste

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

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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

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And Leave Him With A

75-90% Chance

By getting him used to the taste

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And Leave Him With A

75-90% Chance

By getting them used to the taste

Of Dying On A Death Bed

Stuffed With Money He Wished

He Had Spent!

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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?

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Retirement Age?

Either:

Ignore Risk…UNRELIABLE

Include Risk…Nearly Certain Sacrifice to One’s Only Life

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Retirement Age?

Either:

Ignore Risk…UNRELIABLE

Include Risk…Nearly Certain Sacrifice to One’s Only Life

CONTRADICTION?

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Do You Perceive a Contradiction to our Best Practices?

Inconvenience All Clients

Data Points, Not Priorities

Position You To Experience It!

Measure Markets Not Goals

Ignore Risk – Unreliable

Include Risk – Certain Sacrifice

Save More, NOT Less!

In Greek and Ignore Uncertaintyof Underperforming

Show What Happened, NOT what it means to you…

Repeat Initial Inconvenience…“Regularly”

What We “Say” What it REALLY MEANS!

CONTRADICTION!!!

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CONTRADICTION!!!

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CONTRADICTION!!!

WOULD YOU BUY THIS???!

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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

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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

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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

Save More, Never Less!

RESOLUTIONS based on NEW PREMISES OLD Contradictions:

RESOLUTIONS!!!

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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

Save More, Never Less!

RESOLUTIONS based on NEW PREMISES OLD Contradictions:

RESOLUTIONS!!!

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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?!

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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?!

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

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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

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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

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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

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This new process has many benefits compared to traditional services:

Prioritize Goals

MonitorProgress

Traditional Financial Services

Wealthcare Benefit

Complicated questionnaires asking for meaningless details

Focus on what is important

Easier

Goals compromised to maximize investment amount

Identify aspirations Achieve goals otherwise ignored

Identify maximum risk tolerance…Position you to experience it!

Evaluate whether risk is necessary

Avoid unnecessary risk

Solutions based on sacrifice (additional savings)

Solutions based on YOUR priorities

Avoid unnecessary lifestyle sacrifice

Monitor performance(what happened?)

Monitor PROGRESS (will I meet my goals?)

Identify problems & opportunities in

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

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Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

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Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

Building

Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

Building

Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

Building

Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

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Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

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Prioritize Goals

MonitorProgress

Wealthcare Benefit

Easier

advance

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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.

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“Stress Testing”

Uncertain <75%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%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%.

Comfort Assessment

Uncertain Comfort Sacrifice

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“Stress Test” Results For Your Goals

Your 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

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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.

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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.

54 55 56 57 58 59 60 61Age

$3,000,000

$1,800,000

$200,000

Sacrifice

Uncertain

Your Portfolio

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Updating Changing Goals

As 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 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%

Std. Deviation 12.12%

Downside (95%-tile) -9.73%

Other Goals

Gifting to Son No

Jamaica Trips $25,000

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Asset Allocation

By 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.

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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

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Summary – Wealthcare Benefits:

Easier

Achieve goals otherwise ignored

Identify problems & opportunities in advance

More choices and better decisions

"presenting the wealthcare value proposition - do you perceive a contradiction?" william...

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