What You Need to Know Before You Invest Your Money

MarketPlus Investing® Helps Investors Choose What’s Right for Them

By SJS Investment Services President Kevin Kelly, CFA.

With countless investment options available to you, with so much written about the state of the markets, the state of the economy, and the state of the world, deciding how to invest your money - whether it be your own or an organization’s - keeps getting more complicated. Smart investors do their homework, seek out people they can trust, and find investment strategies that work for them. In words, that sounds easy. In practice it isn’t very easy at all.

SJS Investment Services has spent decades helping people choose what’s right for them when it comes to investments through our proprietary investment process called MarketPlus Investing. And through it all, we have discovered the three most important things investors need to know about themselves before they invest.

WHO ARE THE PEOPLE YOU CARE ABOUT AND HOW DO YOU WANT TO TAKE CARE OF THEM?

In the course of conversation, SJS Investment Services gets to the core of what’s important. It might be a person or a cause, but until we know who you care about and how you want to take care of them, we don’t know enough about you to fully guide you.

WHAT IS YOUR TIME WINDOW? (OR, HOW LONG IS YOUR RUNWAY?)

How long before you or the people you care about need your money? This makes a big difference when determining an appropriate investment vehicle for you or your organization. Some individuals have a time window of twenty years or more. Others, including organizations, want investments that cover their expenses next month or next year. Between the extremes are an infinite number of scenarios, and each imply a different investment strategy.

HOW RISK AVERSE ARE YOU?

When asked this question, investors are often quick to say that they are comfortable with risk. But the reality is that many investors are more risk averse than they think. That’s why SJS Investment Services digs deeper than just this question to find out the real answer. And more importantly, we ask about necessary or desired return on an investment*, so we can help design an investment portfolio appropriate for you.

At SJS Investment Services, these three questions are just a part of getting to know you. The more we know about you, the better we can design a MarketPlus Investing portfolio for you. Because MarketPlus Investing is our proprietary science-based process of structuring investment portfolios to help people achieve their specific financial goals, there are countless options. And the more we know, the better we can apply the academic models, the market trend analysis and consider ever changing key indicators on your behalf. SJS Investment Services through MarketPlus Investing seeks to develop the right portfolio design to meet your needs.

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Important Disclosure Information:

*There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.

Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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What Is The Value Of Your Advisor? – Looking Out for Your Best Interests

By SJS Senior Client Portfolio Manager Tom Kelly, CFA.

Last year, I wrote a piece entitled What is the Value of Your Advisor?, which highlighted some of the aspects of your relationship with your SJS advisor, such as designing portfolios to support your goals, reviewing your current investment approach, and recommending revisions that might make sense for you. Our approach is centered around sitting on the same side of the table as you, acting as a fiduciary, being bound ethically to act in your best interests.

Unfortunately, some in the investment business haven’t always shared this approach. With potential misaligned incentives, some firms focused on selling complex high-fee products that have led investors to sacrifice net-returns to costs and commissions, losing a lot of money unnecessarily in the process.

One example was recently highlighted in The Wall Street Journal article, “Bankrupt in Just Two Weeks – Individual Investors Get Burned by Collapse of Complex Securities.” Investors seeking high returns poured their portfolios into leveraged exchange-traded notes, which are unsecured debt instruments that follow an underlying index of securities. Exchange-traded notes are often pitched as offering steady payouts and high upside compared to typical investments such as bonds or indexed mutual funds. But the devil is in the details, and the notes can come with high fees and complexities such as being redeemed at a moment’s notice when it favors the issuer, not the investor. The Securities and Exchange Commission (SEC) even issued an Investor Bulletin in 2015 to inform investors of the significant investment risks and complexities of these instruments.[1] The swift market collapse in March left several notes virtually worthless when they were redeemed by the issuing banks, leaving investors with significant realized losses.[2]

As the economic adage says, “There’s no such thing as a free lunch.”[3] Unfortunately for some, the cost of that “free lunch” was their entire life’s savings. In the investing world, we know all too well that there is no such thing as a long-term investment that is both safe and highly profitable. That’s why we design portfolios specific to you to help you achieve your financial goals, carefully balancing your risk tolerance and ability with your return needs.

So the next time you hear about a hot tech stock or a “can’t miss” investment product, pause and remember this cautionary tale. We’ll be here with our disciplined, time-tested approach to investing. We invite you to give SJS a call! We are happy to buy you lunch, but if makes you feel better, we will split the check too!

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Important Disclosure Information and Sources:

[1] “Investor Bulletin: Structured Notes”. SEC Office of Investor Education and Advocacy, 12-Jan-2015, sec.gov.

[2] “‘Bankrupt in Just Two Weeks’—Individual Investors Get Burned by Collapse of Complex Securities.“ Akane Otani & Sebastian Pellejero, 01-Jun-2020, wsj.com.

[3] There’s No Such Thing As a Free Lunch. Milton Friedman, 1975, Open Court Publishing Company.

Advisory services are provided by SJS Investment Services, Inc., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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What is YOUR Expected Return?

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By SJS Managing Director Jennifer Smiljanich

When you make an investment, you are probably hoping to receive a return of, and on, that investment.

As a client of SJS, we know that what you expect from your investment return is a great deal more than just a number or percentage. And what you expect is specific and incredibly meaningful to you.

You might be looking for peace of mind when you retire, or sell your business.

You might want help with monetizing your life’s work in a way that preserves and protects what you’ve built for your loved ones.

You might wish to provide your children and grandchildren with opportunities you never had – without undermining their ambition.

For some of you, your goal may be to leave a legacy to an organization that you feel is making the world a better place.

No matter what you expect as the return on your investment, our pledge to you is that we will strive to match your risk tolerance to appropriate investments and returns.

MarketPlus Investing® is designed to capture premiums, or patterns, that have historically persisted in global financial markets. We stand on the shoulders of some really smart academic people who discovered these patterns, and believe these patterns will continue into the future.

This does not mean that every quarter will result in a positive return on your investments. We know that there will be periods of time where the markets take a turn in a negative direction, leading to returns that we neither expect nor want.

By following the discipline of our MarketPlus Investing strategy, our goal is to design your portfolio to capture the benefits of premiums that have persisted over time.

We understand that your investment return has a purpose, that the numbers on your statement have meaning beyond their intrinsic value. They are connected to the people, the enterprises, and the causes that matter to you.

The responsibility of this task is not lost on us – ever. We work hard every day to help you achieve the return that matters to you.

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Important Disclosure Information:

Past performance does not guarantee future results.

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Is Your Investment Professional A Butcher? Or A Dietitian?

By SJS Founder & CEO Scott Savage

It’s a sunny Saturday afternoon. You’re in the mood to barbecue, so you hop in the car and head over to your friendly neighborhood butcher shop to get some meat to throw on the grill.

Or, maybe it’s a weekday afternoon, and you’re headed off to an appointment with a dietitian who is going to evaluate your diet and its healthfulness – or not – to help you figure out what you should be eating more of, or less of, and why.

Two different kinds of encounters, with very different end results. When you visit the butcher, you expect that he’s going to sell you some meat – and it will probably be tasty, although not necessarily healthy – and it will also be good for his bottom line to make the sale.

On the other hand, when you visit the dietitian, you can expect that she’s going to tell you what foods would be best for you to eat. Even though you’re probably paying her a fee for the appointment, her advice is given without any consideration to what might be in it for her.

Believe it or not, you can take the story of the butcher and the dietitian, and apply it to the investment world.

The storyboard below, created by the HighTower Company[1], shows the difference between an investment professional who works at a broker dealer – the butcher – and an investment professional who works for a Registered Investment Advisor (or RIA) such as SJS Investment Services – the dietitian.

Broker dealers (think – butcher) are supervised by a group called FINRA, a self-regulatory oversight body, or SRO. That’s right – broker dealers are supervising themselves. (FINRA is overseen by the Securities and Exchange Commission, which does have the power to approve or reject any rules FINRA may wish to adopt.)

RIAs (now, think – dietitian) are regulated directly by the Securities and Exchange Commission, and are held to what’s called “a fiduciary standard” by the SEC.

What does that mean? Simply put, firms like SJS have a responsibility to behave in a way that is in the best interest of our clients. There should be no conflicts of interest.

A broker dealer’s standard of care is one of what’s called “suitability.” As long as the investments being sold can be considered “suitable,” FINRA is satisfied. Even if the broker may recommend investment products to his clients because they offer him a higher commission – and not necessarily because the products may be in a client’s best interest.

How does that sound to you? Does a “suitable” investment sound good enough? Or are you thinking, “That doesn’t seem right. Somebody should make all investment professionals play by the same rules.”

There was an attempt to do so. In 2016, the Department of Labor introduced the Fiduciary Rule to require broker dealers to operate under the same standard of care as RIAs.

But, those broker dealers carry a lot of sway in Washington D.C. The Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute (FSI), which represent the independent broker-dealer industry, argued in statements to the Fifth Circuit Court of Appeals that they are not in the business of advice, and not in an advice relationship of trust and confidence with their customers.[2],[3]

Go ahead, re-read that last paragraph.

In my experience, just about all broker dealers’ ads and marketing materials sure sound like they want you to believe they are in the advice business.

Sadly, the Fiduciary Rule went down in flames earlier this year. The SEC has proposed a new “Regulation Best Interest” rule that would establish a standard of care for all broker dealer representatives and require them to act in the best interest of their clients when making recommendations.[4] However, at this point in time, the “butcher versus the dietitian” remains the current state of things in the investment world. Investors still need to beware of a butcher in dietitian’s clothing.

We realize this scenario is complicated. Remember, we’re always here for you, to answer any questions you might have, or to simply talk through what we believe are the differences between a broker dealer, and an RIA like SJS. Just give us a call!

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Sources:

[1] “HighTower Whiteboard Animation: Brokers vs. Fiduciaries,” YouTube.com, March 16, 2012.

[2] “DOL Rule One Step Closer to Death,” wealthmanagement.com, May 1, 2018.

[3] “Financial Industry Celebrates, Mourns Fiduciary Rule Decision,” www.fa-mag.com, March 16, 2018

[4] “Proposed Rule: Regulation Best Interest,” www.sec.gov, April 18, 2018.

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How To Get Back To Counting Sheep

By SJS Founder & CEO Scott Savage

Do you ever lie awake at night, and instead of counting sheep, find yourself pondering these questions?

• Is my money in the right place, with the right advisor?

• Am I getting the attention I deserve?

• Is my advisor always objective when making recommendations?

• Is my advisor a fiduciary?

Well, let us attempt to give you some answers, so you can get back to those sheep!

As an independent Registered Investment Advisor, or RIA, your SJS team lives by a simple rule – to  always act in the best interest of our clients. Our role is to serve you, not to sell you something.

“Fiduciary” is a buzz word that has been tossed around a lot lately, in the news and in TV commercials. But, it’s a word, and a concept, that we think is very important. An Investment Advisor is always a fiduciary who, by law, is required to act in your best interest. But, all investment advisors may not be created equal – even if they are technically fiduciaries. We think an advisor who truly has your best interests at heart will take the time to get to know you – to know who and what you care about, so you can plan for them, too.  It’s not just about the money – it’s your life’s work. It’s about taking care of your family, and planning for your future and the legacy you leave behind. We believe a good investment advisor will take his or her role very seriously. When you can work with people you trust, people who will put you first all the time, every time – why would you work with anyone else?

And, your investment advisor should be someone you trust, and your true partner. Someone who acts in your best interest because it’s the right thing to do, not just because the law says so. Someone who sits on the same side of the table to serve only one person – YOU. We might be biased, but we think an advisor who provides a science-based investment process, like MarketPlus Investing®, gives you the best of both worlds: a major money center investment experience wrapped in the small-town values of people who care.  We call that the “plus” in MarketPlus Investing.

We don’t just talk the talk. We put you first, all the time, every time.  Your side of the table is our side of the table. We’re here to help you live your dreams, live a life you love, and care for the people you love, too.

So, instead of worrying about your investments and whether your advisor has your best interests in mind, you can rest easy.  Sweet dreams!

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How to Choose the Right Financial Professional

If You Know One Thing About Investing, Know This

By SJS Founder & CEO Scott Savage

You’ve worked hard your whole life; you have built your life’s savings, maybe from the sale of your company, through frugal living, or through some other means. You can’t leave that money in a bank. You want it to work for you and the people and causes you love. You want it to be there as you age. You need a financial professional to assist you. Where do you turn?

According to a February 2015 report published by the White House Council of Economic Advisers (CEA), making the right choice could save investors $17 billion per year. Yes, that’s right – $17 billion. That’s the amount the CEA says investors lose on their independent retirement accounts due to a financial professional’s conflict of interest. The CEA also found that conflicted advice leads to lower investment returns. (“The Effects of Conflicted Investment Advice on Retirement Savings.” White House Council of Economic Advisers, www.whitehouse.gov, February 2015.) In other words, some professionals appear to be providing advice that is not in their clients’ best interest.

You might be wondering how someone who is “advising” you – which by definition means guiding, informing, and counseling – could be in conflict to your interests? That would be like your kids’ high school guidance counselor purposely steering your son or daughter toward a particular college not because it’s best for the student, but because it is best for the counselor. Who would tolerate that?

Conflict of interest has a legal definition, but in simple English it means: providing advice that benefits a financial professional or his company, and not the investor. Before I started SJS, I worked in the sales-focused brokerage world. Those are the jobs many young people get coming out of college, and I was no different. Every day, I’d come to work, call up people on my list and tell them the investments they should buy. I didn’t make a dime unless I made a sale and a trade occurred. It was a brutal job, and at the young age of 22 I discovered the meaning of conflict of interest. I didn’t like it very much. In fact, I found it so uncomfortable, I almost left the industry I had wanted to be a part of since I was 12 years old.

Consider another example, from April of this year. BlackRock Advisors agreed to pay a $12 million penalty to settle charges filed by the Securities and Exchange Commission (SEC) that BlackRock failed to disclose a conflict of interest created by the outside business activity of one of its top portfolio managers. (“BlackRock To Pay $12M To Settle Fiduciary Duty Charges.” Financial Advisor, April 20, 2015.) The portfolio manager in question was managing energy-focused funds and other accounts at BlackRock when he founded a family-owned and operated oil and natural gas company. He later formed a joint venture with a publicly traded coal company that eventually became the largest holding (almost 10%) in the $1.7 billion BlackRock Energy & Resources Portfolio, the largest fund he managed. The SEC found that BlackRock knew and approved of the manager’s investment as well as the joint venture, but failed to disclose this conflict of interest to either the boards of BlackRock registered funds or its clients. “By failing to make such a disclosure, BlackRock deprived its clients of their right to exercise their independent judgment to determine whether the conflict might impact portfolio management decisions,” said Andrew Ceresney, director of the SEC’s Division of Enforcement.

So how do you know whether you are being given advice that is in your best interest? The answer lies in one word: fiduciary. Although it’s a technical-sounding word, “fiduciary” has a simple definition, and understanding it could save you money, time, and aggravation. Simply put, a fiduciary has a legal responsibility to put your best interests first, not his or her own.

Fiduciaries have a responsibility to provide you with a strategy designed to deliver the best possible net return given the level of risk you are willing to take. Since no one can control the ups and downs of the market, this responsibility plays out by making sure they minimize fees and minimize trades (AKA taxable events), so you are able to keep more of your money.

If getting advice from a fiduciary is in your best interest – and, in the interest of full disclosure, SJS Investment Services is a fiduciary – how do you tell if you are working with one? How do you select a financial professional where you come first? The answer is: shop around and follow these simple guidelines:

• Ask, “Are you a fiduciary?” and if the answer isn’t, “Yes,” or this person isn’t a Registered Investment Advisor (RIA), or doesn’t know what a fiduciary is, consider moving on. 

• Ask for references of current and past clients to learn why people stay and why they go.

• Avoid any financial professional who doesn’t want to really get to know you, your goals, and your needs.

I started SJS in 1995 because I knew the only way I could stay in the investment services industry was if both my client and I could sit on the same side of the table. It was my way of preserving and actually fulfilling my boyhood dream. And ever since that first day, I can say without hesitation that we have put our clients’ needs first. Our tag line, “You come first. All the time. Every time.” isn’t an ad pitch. For us, it’s a way of life.

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