| 
- What is Fiduciary responsibility?
- Who custodies my money and how are trades placed?
- What happens to my existing holdings if I
become a client of LMC?
- What type of account statements will I
receive?
- Why don’t you invest in Mutual Funds?
- Why don’t you invest in Index Funds?
- If I have questions regarding my investments,
who answers them?
- Am I able to place trades with my account?
- How often can I expect to be in contact
with my Portfolio Manager?
- Do the Portfolio Managers and the Principal
of the firm invest regularly in the market?
- Does holding the same stocks as your client
cause a conflict of interest?
- Does your investment strategy change if
you feel the market is going to make a big move one way or
the other?
1. What is Fiduciary
responsibility?
Fiduciary responsibility means that we have
the duty to act in our client’s best interest by always
putting our client’s interests first and foremost. Fiduciaries
must act prudently and must diversify investments in order
to minimize the risk of losses. We must also use the best
broker/dealer for the custodian of client funds and transaction
execution.
^back
to top
2. Who custodies my money
and how are trades placed?
LMC is a registered investment adviser, but
not a stockbrokerage company. While LMC is able to provide
advice and management of securities accounts for a fee, we
are not authorized to hold the clients' assets. Holding of
assets must be done by a company that is registered as a broker/dealer
and a member of the National Association of Security Dealers.
For the trading of securities and custody of
assets LMC uses the following brokerage companies: Charles
Schwab & Co., Inc, Fidelity Investments, and TD
Ameritrade.
LMC is not constrained to purchase securities
only from the brokerage company where the client's account
is located (the custodian). At all times, LMC is free to seek
the best security selection and execution from any brokerage
company on behalf of its clients. Securities purchased from
other brokerage companies will be delivered into the client's
account.
^back
to top
3. What
happens to my existing holdings if I become a client of LMC?
LMC will first evaluate current holdings to
determine if they are appropriate for your investment strategy.
LMC does not immediately liquidate all holdings. Often clients
hold stocks that are appropriate for their accounts. For stocks
determined to be appropriate for the account, the stocks will
be held and monitored on a continuous basis.
For stocks determined inappropriate, LMC will
devise a selling strategy. Each stock will be analyzed to
determine the appropriate selling strategy. Risk of the holding,
cost basis and applicable capital gains taxes are just a few
factors that will be considered when determining the best
way to sell a stock.
^back
to top
4. What type of account
statements will I receive?
From LMC you will receive the following:
Semi-Annual Report: Indicates overall
account status as of June 30th of the current year.
Annual Report: Summarizes the performance
in the account for the calendar year. The annual report also
includes all tax information associated with the account.
This allows you to easily give your CPA or tax advisor a clear
picture of all trading activity and tax consequences for the
account
Your Brokerage firm will also send the following statements:
Trade Confirmation: Describes each individual
transaction, sent within several days of the transaction.
Monthly Statement: Summarizes all transactions
within the account for the month. Provides a month end statement
of the holdings in the account. (Quarterly reports may be
substituted if there is no activity in the account for 3 months.)
If you desire, and depending on which brokerage
firm your choose, we can provide you with online access to
your accounts.
^back
to top
5.
Why don’t you invest in Mutual Funds?
LMC primarily invests in individual equities and
fixed income securities. There are numerous reasons why we
do not invest in mutual funds. Below are some of the main
reasons:
Choices
The number of mutual funds available is staggering. With
so many funds it is very difficult to know which fund is
best suited for our clients.
Holdings
It is very difficult to determine which stocks a mutual
fund holds. Mutual funds normally only list their major
holdings and what sectors they invest in. One has to do
intensive research to find out what individual securities
a mutual fund holds. This would be fine, but mutual funds
are only required to report holdings twice a year. This
means that a mutual fund can hold certain stocks one day,
report their holdings, and then next day sell all the holdings
and purchase something else, completely changing the structure
of the fund. This is often referred to as “Window
Dressing” and is a common practice in the mutual fund
industry.
Full Investment
The majority of funds must be fully invested. They cannot
contain large cash positions. This means that even in Bear
markets, your money is fully invested in the market. This
is not always the best investment strategy and often leads
to taking unnecessary risks. At LMC we do not have to be
fully invested in the market. We can hold cash positions,
which gives us the ability to wait for opportunities that
offer the best potential.
Fees
It is difficult with mutual funds to determine exactly what
fees you are paying. You may pay one fee to purchase the
fund and another fee (also referred to as expenses) for
transactions within the fund, salaries of management, and
marketing of the fund. If the fund has a high turn over
(meaning they are buying and selling stocks on a regular
basis), large salaries for management, and a large marketing
budget, the overall fee could be greater than 2%. If you
then select an investment firm that utilizes mutual funds,
then you are often paying two fees – one fee to the
investment firm and another fee for the mutual fund.
Regulation
The latter part of 2003 has shown just how loosely the mutual
fund industry is regulated. Mutual funds do not have the
same regulations and reporting requirements that investment
advisors do. All investment advisors are monitored very
closely by the SEC, state, and local agencies.
Tax Efficiency
Mutual fund managers do not take taxes into consideration.
This is because mutual fund managers are concerned only
with the performance of their funds and not the situation
of individual clients. This means that at any point in time
they can sell profitable securities, leaving the investors
with a large capital gains tax to pay. You may see great
gains in a mutual fund’s performance, but if the majority
of those gains are short-term gains, then the tax consequences
will hurt your overall gains. At LMC we consider each clients
tax situation and develop a tax efficient strategy. We closely monitor gains and losses in a client’s account and
can make buy and sell decisions that will have more favorable
tax consequences.
The fact is that mutual funds are not tailored
to the individual. They are an investment vehicle driven by
performance, and not by the best interest of the individual
client. At LMC we create an investment strategy tailored to
each individual client. Superior performance is always a goal
for our clients, but we also consider taxes and other outside
factors that may influence our decisions.
^back
to top
6. Why don’t
you invest in Index Funds?
We choose not to invest in Index Funds for many
of the same reasons that we do not invest in Mutual Funds.
Most people forget that a manager at a company creates an
Index, like the S&P 500 or Russell 2000. That person is
selecting stocks that they believe will perform and that belong
in the Index. You know nothing about that person’s investment
strategy or philosophy, and even more importantly, they know
nothing about you and your needs.
An Index fund simply mirrors a major index.
If we did not believe that we could beat an index fund in
performance, we would not be in this business. We feel that
our investment strategy will consistently bring better returns
than can be obtained via an index fund. Plus, we are able
to take outside factors into consideration that can have an
impact on the overall performance of your portfolio.
^back
to top
7. If I
have questions regarding my investments, who answers them?
At LMC you are a phone call away from talking
directly to the portfolio manager that manages your account.
We feel that it is very important that our clients talk directly
to the person making the investment decisions with their money.
This also allows you to develop a relationship with your portfolio
manager so that you feel comfortable and confident in the
decision that he or she is making.
At most firms each client is assigned a “Client
Representative” that acts as a middleman between you
and the person making the actual investment decisions. LMC
is one of the few firms where a client is able to talk directly
to their Portfolio Manager.
^back
to top
8. Am I
able to place trades with my account?
Clients can place trades, but we prefer that
they do not. When you become a client of LMC, you sign a document
that gives us discretionary power over the account. This allows
us to act on your behalf when buying and selling securities.
If you are interested in trading stocks, we
advise our clients to maintain a separate account with a brokerage
firm. We do ask that you keep us apprised of your investment
decisions so that we can tailor our strategy to your needs.
Again, we look at the whole picture, not just the portion
we manage when making investment decisions.
^back
to top
9. How often
can I expect to be in contact with my Portfolio Manager?
At LMC you can talk or meet with your Portfolio
Manager as often as you like. We have no set schedule for
meeting or phone conversations. Clients are encouraged to
call and talk with their Portfolio Manager as often as they
like.
^back
to top
10. Do the Portfolio
Managers and the Principal of the firm invest regularly
in
the market?
Not only do the Portfolio Managers and Principal
of the firm, Norman Lehrer, invest in the market, their portfolios
hold many of the same stocks that our clients hold in their
portfolios. We feel it is important for our clients to know
that we also have our money in the market right along side
theirs. (For the same reason that you would not take
your car to a mechanic that did not do the work on his
own vehicle.) We do not buy you one stock and then buy another
stock for our own accounts. We are often making the same decisions
for you that we make for our own money. We feel
this is very important and something that not many firms do
for their clients.
^back
to top
11. Does holding the
same stocks as your client cause a conflict of interest?
Absolutely not. At LMC we adhere to the strictest
ethical guidelines (see Ethics
& Privacy), as well as the rules set forth by the SEC.
When we sell a security, we place the sales for all clients
first, and then sell the security in our own accounts. The
same goes for the purchasing of securities. We always do what
is best for the client - no matter what. This is something
that we firmly believe in and it shows. Many of our clients
have been with us for over 20 years, and that is something
that we are very proud of.
^back
to top
12. Does your investment
strategy change if you feel the market is going to make
a big move
one way or the other?
At LMC we utilize both a “top-down”
and “bottom-up” investment approach. A “top-down”
approach means first looking at the overall economic and financial
condition of the current markets, and then working down to
make a decision on the individual equity or fixed income level.
A “bottom up” strategy means beginning with fundamental
analysis such as net income and debt level growth, and then
working towards a more broader view. By utilizing both strategies,
we are in a better position to make investment management
decisions.
Asset allocation decisions are made at
the individual client level, but can be affected by our top
down investment strategy. For example, during 2001 and 2002,
a general shift was made into cash from the clients’
equity allocations due to the uncertainty in the market. The
environment demanded a more conservative approach. In 2003,
those equity allocations were rebuilt with new positions,
many purchased in the period between October 2002 and April
2003. Thus, depending on the market environment, the strategy
will shift.
^back
to top
|
