Frequently Asked Questions

Who is MAG?  
MAG has established itself as a leader in the financial planning and investment advisory profession by continually providing solutions to the financial issues facing our clients.   Daniel M. McDermott, the Principal of MAG, has been providing personal financial advice since 1987.  Our firm has over 150 client relationships and manages more than 125 million in assets. Most of our clients have had a long term relationship with us.  

For clients with significant assets, we offer assistance in estate planning, retirement planning, insurance planning, income tax planning, and other areas of finance.  This provides them with a complete evaluation of their financial resources, personal risk tolerance, and capital need requirements.

We identify, quantify and prioritize our clients’ personal and financial goals.  An Investment Policy Statement is implemented and managed by the firm to document the client's goals.  The Investment Policy is provided to the clients so they can understand the approach of their asset allocation recommendation.

 

What separates the firm from other financial advisors?
We believe that the foundation of sound investment advice begins with the creation of a comprehensive financial plan.  Although we have some clients where we only manage their investment portfolio, the majority begin a relationship with us through a comprehensive financial planning analysis.

Our approach to recommending an investment allocation is more detailed than others and is at the core of our service offering. We utilize both the client's risk tolerance and retirement planning analysis to arrive at an asset allocation to meet their objectives. Most firms arrive at an allocation recommendation based solely on a risk tolerance questionnaire. We delve into all components of our clients' financial lives and review their assets, liabilities, income, and expenses in order to arrive at a solution that 'looks and feels like them'. The ultimate recommendation is tailored to their specific needs, goals, and objectives, not a “fit in the box solution.” 

 

Please describe MAG’s Planning process
The process for financial planning involves extensive data gathering of all financial information. First, we request that a client completes one or more of our comprehensive data gathering questionnaires as well as provide us with all of their financial information. If necessary, we communicate with the client’s employer’s human resources personnel as well as their accountant, attorney, insurance agents, bankers, and stock brokers as needed for additional information.  After we have reviewed the information, we verify the information with our clients for accuracy.  We then quantify our clients’ goals and objectives they would like to meet from the planning process.  Next, we prepare financial statements, which include a balance sheet, an income tax projection, and a cash flow analysis.  From there we will develop other projections as needed, such as education funding, estate death tax, retirement calculations, IRA distribution analysis, insurance reviews, and survivor analysis. We then review with the client their overall financial situation as well as what issues they need to have addressed in each area. The areas we cover include essential finance issues such as refinancing mortgages or other debt, analyzing a client’s liquidity, and discussing any cash flow and/or savings issues that may arise. We spend time discussing how to reduce income taxes, and how to fund children’s educations in a tax-efficient manner, if applicable. We review all of the existing estate documents and suggest alternative ways to plan the estate. We also investigate exactly how much life insurance, if any, is needed and review all of the different insurance coverages in-depth. Furthermore, we discuss with the client an overall investment strategy to meet their goals.

If a client is near or in retirement, we spend a great deal of time discussing distribution strategies from retirement plan(s).  Once we provide a client with recommendations, we assist in the implementation phase.  In the implementation phase some of the value-added services that MAG provides include speaking with the client’s employer’s human resources personnel; their accountants; actuaries; attorneys; bankers and insurance agents to ensure that everyone is on the same page. For example, we often see clients who have complicated will and trust documents, and the titling of their assets and beneficiary designations are outdated. As a result, their estate will not flow properly. Therefore, if major changes are needed, we discuss them with the client’s attorney and if necessary, we meet with the client and his/her attorney to review estate planning strategies. The same applies for income taxes. We provide any information that we are aware of in advance of income tax preparation time to the client’s accountant so that all of the information is ready to prepare income tax returns. We also coordinate with the client’s various insurance agents to ensure that the client has the proper coverage. With regards to banking, we provide the bank with updated financial statements to facilitate any lending and/or refinancing on behalf of the client.  MAG assists in the implementation of all recommendations wherever possible.

 

What is your planning philosophy on these Items?

Goal Setting
We believe clients must set their own goals. It is our responsibility to educate them in the process and to assist them to define, quantify, and prioritize their objectives.

Cash Flow
We believe clients should seek total return on cash flow, not just dividends or interest. Return on assets comes from a combination of income and appreciation.

Risk Tolerance
We believe a client's risk tolerance is a significant factor in the wealth management process. We measure success by our clients' ability to achieve their goals while providing them counseling during turbulent markets.  We often speak of our goal as a “higher floor and a lower ceiling” with respect to the volatility of our clients’ investment portfolio.

Taxes & Expenses
A snapshot of our clients’ income and expenses is critical to assessing their long term needs.  Since future returns are uncertain and risky, tax savings and expense reduction are riskless and provide guaranteed returns. We believe when in a low return environment, a primary element of intelligent management is the minimization of the controllable elements of expenses and taxes.

Retirement Planning, Estate Planning and Risk Management
MAG’s planning process provides a detailed assessment of the client’s status in areas of retirement, estate, and risk management.  We offer specific recommendations to improve the financial position and the likelihood of achieving the goals.  

Investment
Through coordinating the results between the retirement simulation, the risk tolerance questionnaire and our in-depth discussions, we design a Diversified Investment Portfolio to meet every clients’ unique goals and objectives.

The End Result
The planning process provides MAG and the client with a thorough analysis on where they are and what is required to attain their lifetime goals. 

 

Does MAG specialize in working with any particular type of client?
We work with clients of all kinds, including individuals, entrepreneurs, families, trusts, and endowments, and we have experience in working with physicians, attorneys, retirees, pre-retirees, and widows.
 

Does MAG work with clients nationally?
Yes, currently we work with clients from 13 different states.  If working with MAG is deemed a mutually beneficial relationship, the client’s residence is not a factor. 

 

Will MAG consult with me when making trades?
Our policy is to consult with clients during the initial portfolio construction before any investments are made. Once a strategy is decided upon and we are granted discretion, we proceed without consulting. In certain cases it is necessary to react quickly to management changes, the market, or other situations we may encounter.  The custodian immediately provides trade confirmations to the client and all trades are reflected on the next monthly report to view. Some of our clients wish to be notified before trades are placed, and we make exceptions in some cases.  

 

Will I see a list of investments before they are purchased?
Absolutely.  When we first work with the client, we discuss in detail the suggested investments to use before creating the Investment Policy Statement (IPS).  Prior to implementation of the purchase, we provide the client with the IPS which elaborates on the appropriate asset allocation. In cases where we have information regarding a client's current investments, we provide our recommendations there as well.  

 

Do you work with our accountant?
We prefer to work as a team with the CPA giving us the ability to provide information and speak with them directly about tax issues of our clients' financial needs.

 

Can I trade in my investment account through MAG?
Generally, we do not recommend that a client trades in their investment account.  If a client wishes to make their own selections and trades for a portion of their assets, we recommend they open a separate account which is not managed by MAG.

 

 

SECURITY/CONFIDENTIALITY

 

I am worried about privacy and confidentiality. What can I expect from MAG?
Clients can expect our firm to be equally concerned. We have instituted a privacy policy, (see “Privacy Policy” on this website), that directs our actions on a daily basis. In addition, all staff members have signed a confidentiality agreement. Our recommended custodians and technology partners are equally committed to maintaining this confidentiality. We do not reveal any information to a third party unless the client has given us explicit consent.

 

Will MAG hold my money?
No, we do not hold client assets. The only funds we receive from clients are the management fees. We generally recommend establishing accounts at major low-expense brokerage firms (e.g., Charles Schwab), where we are given limited discretion authority. We have negotiated institutional pricing for our clients at these firms.

 

What is Limited Discretionary Control?
Limited discretion is the authority clients provide to MAG regarding their investment portfolio. It authorizes the custodian of the client's assets (e.g., Fidelity and Charles Schwab) to accept our instructions regarding purchases and sales within the account. Limited discretion does not allow us to have funds dispersed from the account other than delivery to the account owner or for payment of our management fees.

 

 

COSTS AND FEES

 

How is MAG compensated?
The majority of our revenues are derived by fees paid by our clients to us.  In most years, fees represent more than 85% of our compensation. These fees may be in the form of an initial financial planning fee or an asset fee, which is based on the amount of assets we manage.  These asset based fees are billed quarterly in advance.  There may be circumstances where we assist in a solution where a product is used, in which case a commission may be paid to MAG.

 

 For Investment Advisory accounts, what other costs are involved?
As with all investment related advice platforms, there are a variety of potential costs.  We are diligent in our effort to control all costs and taxes that may be incurred.

Custodial costs are fees paid to the securities custodian for holding our clients assets, providing monthly reports and executing trades within our clients' accounts. We have negotiated very low fees with our recommended custodians.  For accounts held at custodians recommended by our firm, we try to utilize funds that do not carry a transaction fee. In some cases this cannot be avoided.  All stocks, exchange trade funds, and closed end mutual funds are traded at a flat charge.  This ranges from $8.99 to $19.99 depending upon assets and whether the client has elected to be on paperless electronic communication.

For open-end mutual funds, trading fees for applicable purchases and sales are charged $24 per trade. Many of our mutual fund trades are not assessed a trading charge.

There may also be short term trading fees charged by either the mutual fund and/or the custodian.  These fees are designed to deter short term market timing.  MAG will usually not incur these types of fees, unless these trades are made at a client’s request.

All trading fees are subject to change at the custodian’s discretion.

 

How often is my account traded?
We do not generally 'trade' our clients’ accounts. However, we have a carefully constructed rebalancing procedure.  We rebalance our clients' accounts according to the directives of the Investment Policy Statement. We also may make special trades for tax purposes, changes in investment strategies, or changes in management style.
 

How often do you review my investments and my account?
We monitor our investment managers and mutual funds on a continual basis.  We perform a detailed review of performance (e.g., cash positions, turnover, expenses, investment size, quality, maturity, as well as absolute and relative performance). We review activities in our discretionary accounts on a daily basis and allocations on a quarterly cycle.  Prior to client review meetings, we review the entire portfolio and make specific recommendations tailored to the client’s unique circumstances. 
 

How often will you meet with me?
We meet with our clients as often as necessary. We typically meet with them at least once per year.  Many of our clients we meet with 2 – 3 times a year and correspond via phone or email regularly.  We ask our clients to contact us if there are any changes in their financial situation or investment objectives for the purpose of reviewing, evaluating, revising our previous recommendations and/or services, or if they want to impose, add, or to modify any reasonable restrictions to our investment advisory services. We also provide our clients with comprehensive customized semi-annual reports. On a monthly basis we send out emails or letters with news and economic thoughts. Our goal is to educate our clients and provide them with complete information so they can make informed decisions.
 

 

INVESTMENTS

 

What is your investment design philosophy?
Asset Allocation / Investment Policy

Asset Allocation (diversification) is the strategy of spreading investments over a variety of different asset classes and management styles in order to reduce the risk of substantial loss. Lack of proper diversification can cause investors to miss unexpected opportunities and/or expose them to unforeseen investment pitfalls.  Allocating capital according to a carefully planned diversification guide enables investors to achieve the greatest possible risk adjusted.

We are aware that asset allocation alone does not make a successful Investment Policy.  Therefore, we periodically increase or decrease our allocation to certain specific asset classes where we see value.  We believe in maintaining a constructive strategic asset allocation for core holdings and only revise that allocation on occasion.  The influence of taxes and transaction costs direct us to conclude that rebalancing with fairly wide bands of opportunity is the most appropriate solution.

Active versus Passive
MAG believes the choice between active and passive management is not either/or; instead we use both.  We believe diversification among traditional active strategies should be combined with passive strategies, subject to the constraints of expenses and taxes.
 

 

What is your investment implementation philosophy?
Managers

We believe the performance of professional money managers will generate results far superior to a client's direct security selection and management. Effective portfolio implementation should include consideration of professionally managed funds, individual stocks, closed end funds, and exchange-traded funds.  Our philosophy is that we select managers, not the fund or management company they work for.  Often we will use Institutional Share Classes for our clients, which are not normally available to the retail investor. 


We believe managers should be selected and evaluated based on their philosophies, processes, and people. Once selected, managers should be allowed periods of under-performance if they remain consistent to their philosophy and process. Evaluations of managers entail a detailed review of all available pertinent information.  However, the ultimate decision to hire or fire should be based on fundamental data. Performance for these managers is measured against appropriate investable benchmarks, not broad market indices.

On-going Management
We believe a clients' personal situation should be regularly reviewed to determine if they are continuing to move in the direction of achieving their goals. This includes revisions in strategic allocations as a result of revised assumptions and/or changing client goals. Our responsibility is to assure that our clients 'stay the course' and do so with comfort. Our focus is always our clients' well-being and the achievement of their goals, not the numerical performance of a portfolio.

 

What types of investments do you offer?
A significant part of our practice is focused on the design and implementation of customized investment portfolios.  We engage many of the world's best money managers in a wide range of investment styles and classes for recommendations.   We focus on selecting managers and strategies that are cost and tax-efficient.  As an independent registered investment advisor, we have access to the entire world of investment alternatives. We currently employ the following investments and managers:
 

  • Exchange-Traded Funds (ETFs)
  • Institutional active and passive mutual fund managers
  • Public active mutual fund managers
  • Separate account, quantitative core equity manager
  • Closed end funds
  • Immediate and deferred, fixed and variable annuities (in specialized circumstances)
  •  Non-publically traded Real Estate and Timberland Investment Trusts

 

Over what period will my money be invested?
Money will be invested according to personal time horizons and asset allocation. Generally if funds are needed in three years or less, we will restrict investments to cash equivalents (e.g., certificates of deposit, money market) and short- to limited-term bonds.

 

Can you discuss your firm's investment performance?
Due to the fact that each of our clients' portfolios are uniquely positioned based on their asset size, along with a mix of taxable and qualified assets, tax bracket, risk tolerance, and individual preferences, we do not have firm performance numbers that are available. However, we can share with our clients a list of the current managers included in the portfolio and their performance over the preceding years.

 

How often will I get reports from you?
Although custodians send reports with transactions and other information on a monthly basis, we provide a semi-annual Investment Summary and Holding report, along with updated reports at any time upon our client's request.  

 What do you provide for me at year-end for tax purposes?
Although the custodian of the assets is the official record keeper, our firm downloads data daily regarding all of the accounts under our discretionary management. Utilizing sophisticated, professional portfolio management software allows us to continually monitor our clients' transactions and tax basis. Consequently, we provide our clients and/or their tax preparer, detailed tax-related information (e.g., realized and unrealized short- and long-term gains, tax accounting, taxable and tax free income).
What do you provide for me at year-end for tax purposes?
Although the custodian of the assets is the official record keeper, our firm downloads data daily regarding all of the accounts under our discretionary management. Utilizing sophisticated, professional portfolio management software allows us to continually monitor our clients' transactions and tax basis. Consequently, we provide our clients and/or their tax preparer, detailed tax-related information (e.g., realized and unrealized short- and long-term gains, tax accounting, taxable and tax free income).

What do you provide for me at year-end for tax purposes?
Although the custodian of the assets is the official record keeper, our firm downloads data daily regarding all of the accounts under our discretionary management. Utilizing sophisticated, professional portfolio management software allows us to continually monitor our clients' transactions and tax basis. Consequently, we provide our clients and/or their tax preparer, detailed tax-related information (e.g., realized and unrealized short- and long-term gains, tax accounting, taxable and tax free income).

 

How does MAG utilize the risk questionnaire FinaMetrica? 
FinaMetrica is a comprehensive financial risk tolerance test which provides reliable detailed insight into the clients’ financial attitudes, motivations and preferences.  It is important for clients to discuss their specific risk profile with us because it is critical that we both have the same understanding of risk tolerance.  This test compares the client to a representative sample of the adult population to demonstrate relative tolerances.  In every case the factors which influence risk tolerance would include personality, financial experience, along with personal and work situations. 
 

Once a client implements an investment strategy with MAG, are they required to stay with MAG for a certain amount of time?
Although we would like every client to stay with MAG forever, there is no required commitment.

 

Is there a charge for the initial meeting with a client?
MAG does not charge a fee to prospective clients for the initial meeting.  If the client is interested in our services and chooses to create a financial plan with our team, the fee is one of the many topics discussed at the following meeting.  Once a client and MAG agree that proceeding with the planning process is mutually beneficial, MAG charges a fee for the financial plan.  These fees generally range from $2,500 - $5,000.