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Frequently Asked Questions (FAQ's)
Can you describe Stillwater Investment Management?
What is a Family Investment Counseling Office?
How is a registered investment advisor(RIA) different than a traditional stockbroker?
Can you detail the regulation and oversight for a registered investment advisor practice?
How is Stillwater Investment Management different than other RIA's?
Can you explain in more detail a "balanced approach" to investment management?
How do you customize an investment strategy for a family client?
What is the investment process for the equity(stock) component of the managed balanced portfolio?
What is your fixed income(bond) discipline?
How do you access International and Small-Cap asset classes?
Does Stillwater Investment Management have a "Unique Value Proposition" or Mission Statement?
Can you describe Stillwater Investment Management?
Stillwater Investment Management is an independent advisory firm registered with the
Securities and Exchange Commission. We are independent, own our firm, and are
therefore not controlled by others. Our business model takes the form of a family
investment counseling office with important adjunct advocacy services. We specialize in
providing our clients with balanced investment management services.
What is a Family Investment Counseling Office?
For centuries, wealthy families have hired professionals to manage their substantial assets
through a family business office. The family business office provides effective,
intergenerational planning, greater asset control and flexibility, a higher degree of
coordination among tax, legal, and investment disciplines, lower administrative costs, and
the subsequent elimination of potential conflicts of interest. These families have a
professional or a group of professionals on staff to analyze all aspects of the financial
planning process and then recommend the best course of action. Complete objectivity and
fee transparency are very important.
Our unique value proposition is to restore the philosophy of the traditional Family
Investment Counseling Office and offer this valuable service to those individuals and
families not in a position to establish their own. We act as their fiduciary as well as their
financial advocate. We minimize any conflicts of interest, stress open communication,
offer a superior level of personalized service, and provide accurate, timely reporting.
How is a Registered Investment Advisor (RIA) different than a traditional stockbroker?
A Registered Investment Advisor (RIA) is different from a traditional stockbroker based
upon the competing concepts of "suitability" and "fiduciary duty". Registered Investment
Advisors must adhere to a fiduciary duty to their clients. This duty is rooted in law and
obligates the advisor to always put the client’s interests first. A fiduciary is held to a higher
standard requiring care, confidentiality, impartiality, loyalty, and skill in the management
of investment portfolios.
A stockbroker/employee only has to know his/her customer and offer investment products
and services that are suitable for them. Conflicts of interest may arise because what is good
for the client may not always be the best for the firm and vice versa. It is important to
emphasize that stockbrokers are employees, not independent business owners. In April of
2005, the Securities and Exchange Commission approved the so called Merrill Lynch Rule
clearing the way for broker/dealers and their employee/stockbrokers to offer fee based
advice without having to register as investment advisors as long as the investment advice
offered was considered "solely incidental" to their order taking brokerage services. This
ruling was controversial and today these firms must disclose that brokerage accounts are
not advisory accounts and can present certain conflicts of interest which the client must ask
to have explained. It is important to note that Stillwater Investment Management believes
that the Registered Investment Advisor (RIA) model is superior, although we also
recognize that there are also mindful, professional stockbrokers.
Can you detail the regulation and oversight for a Registered Investment Advisor practice?
Registered Investment Advisors are subject to regulation and oversight by the Securities
and Exchange Commission (SEC) and are subject to the provisions of the Investment
Advisors Act of 1940. We must conduct our business at all times within the laws and
regulations administered by the SEC. Furthermore, we are subject to periodic audit of our
internal procedures and controls.
A second, higher level of ethical conduct is embodied in the provisions of the Code of
Ethics and Standards of Professional Conduct of the Chartered Financial Analyst Institute.
The CFA Institute, which confers the designation of Chartered Financial Analyst, is one of
the most respected trade organizations in the field of investment management. A key part
of the CFA Institute’s mission is to enforce a code of conduct that goes beyond that
required by law. This objective is closely aligned with the concept of fiduciary duty, to
"always place clients’ interests before those of the firm."
How is Stillwater Investment Management different than other Registered Investment
Advisors?
It is important to emphasize that not all Registered Investment Advisors pursue their
business in the same way. The common thread is that we must all adhere to the concept of
fiduciary duty to our clients. How we structure our individual practices to offer unique
financial services differentiates us. Stillwater Investment Management is different from
others in five unique ways:
- Conflicts of Interest Minimized
We decided to structure our firm as a family office. Hence, all conflicts of interest, whether
real or implied, need to be minimized. Two of the most common problem areas are selling
products and soft dollar arrangements.
Selling Products — We do not participate in selling insurance products, mutual funds, or
any other financial product or service other than our investment advisory assistance. We do
not participate in commission sharing. We believe in insurance and help provide direction
for our clients on the types of policies to purchase, but want a qualified broker to be
involved with the placement. We also do not participate in investment programs with
clients such as proprietary hedge funds or private equity deals. Once again, we believe in
these options for qualified investors, but want our clients to engage the best in these
respective investment areas. Our role is to simply oversee and advocate on behalf of our
clients to ensure that their decision-making is appropriate for their unique situations.
Stillwater Investment Management has the resources and strategic alliances available to
assist its clients. We feel strongly that we are in business for our clients and not with them.
Soft Dollar Arrangements — Soft dollar arrangements refer to an activity whereby an
advisory firm is paid a portion of the trading costs from the broker designated as the trader
for the client. In this type of arrangement, an advisory firm receives investment research or
other services in exchange for executing trades through the broker or by paying them
through commissions. These commissions are considered the property of the client.
Although widely used and fully disclosed, this form of indirect compensation opens the
door for conflicts of interest. The more trades, the more the advisor earns through the
arrangement. Over the past few years, the use of soft dollars by investment managers and
mutual funds has declined as a direct result of expected regulatory intervention. Stillwater
Investment Management only participates in the TD Ameritrade AdvisorDirect referral
program.
- Advocacy Service
PPreserving and enhancing family wealth is certainly a balancing act. We provide a key
component in this ongoing process: the management and oversight of assets. However, our
responsibility does not end there. We also act as our client's advocate to negotiate, evaluate, and coordinate the various components of a complex estate and to streamline the
administration of those assets. We do this in concert with the family’s other professional
advisors. Examples of this service include: working with an attorney on estate planning
and philanthropic issues, educating the children and grandchildren of our clients about the
responsibilities associated with wealth, analyzing alternative investment programs such as
hedge funds and private equity for inclusion in our clients’ portfolios, and consulting on
the design of a life, disability, or long-term health insurance program. This valuable,
comprehensive service is included in our simple fee structure and used by our clients on an
"as needed" basis.
- Team Approach
Stillwater Investment Management has an important differentiation characteristic.
Presently, there are four professionals associated with our firm and each one of them
brings years of experience to the organization as well as a unique blend of skills. When
combined, these proficiencies provide our clients with institutional capabilities delivered
on a personal level. The three essential components of a professional, high quality
investment management team include a portfolio manager/analyst, administrator, and
compliance/technology officer.
- Fee Structure
The commitment to our clients is again demonstrated by our simple, straightforward fee
structure. We charge a fixed percentage of the assets that we manage for a client – nothing
else. We do not accept commissions, nor do we accept soft dollars. Fees are negotiated in
advance with the partners of the firm and billed quarterly in arrears without upfront
charges, hidden costs, and no lock-in contracts. This is the only compensation we receive.
- Balanced Portfolio Management
Stillwater Investment Management specializes in constructing actively managed, balanced
investment portfolios for its clients. Studies have proven that a well-diversified, disciplined
approach greatly improves total return over long periods of time while reducing volatility
(risk). Balanced portfolio management stresses three important characteristics: asset class
diversification and sector allocation, periodic re-balancing, and dividend reinvestment.
We are interested in achieving the highest return given a comfortable level of risk and have
experience with a wide range of investments and how they correlate with one another.
Can you explain in more detail a "balanced approach" to investment management?
Typically, high net worth individuals and their families have five objectives:
- To assure a comfortable retirement.
- To protect assets from creditors.
- To minimize income and estate taxes.
- To continue to build net worth over time.
- To transition assets to the next generation.
In order to accomplish these objectives, a balanced, thoughtful approach is necessary.
Balanced management focuses on three objectives: preservation of capital, regular
income, and long-term growth of principal. By broadening the universe of investment
choices to a wide range of securities such as individual stocks and bonds, exchange traded
funds (ETF's), preferred stocks and convertible securities, cash equivalents, and open and
closed-end mutual funds, we strive to enhance returns with these diversification benefits
and reduce a portfolio's overall exposure to risk. An experienced portfolio manager will
apply a disciplined, consistent approach for their clients to establish an optimal allocation
and long-term strategy.
How do you customize an investment strategy for a family client?
Stillwater Investment Management customizes investment portfolios to meet the unique
needs of each and every client. The first step is to find the appropriate strategic asset
allocation - the right amount of stocks, bonds, and cash to meet the client’s objectives.
Essential inputs to arrive at a suitable allocation include: income needs, tax sensitivity, risk
tolerance, time horizon, and liquidity needs.
Analyzing these inputs with our clients allows us to establish a unique tactical asset
allocation. Through continuous analysis, Stillwater Investment Management may find that
certain asset classes become significantly over or under-valued at any point in time. We
will then make a tactical decision to invest to best preserve and grow capital for our clients.
We know market timing is very difficult to assess and believe that a disciplined approach
of analyzing asset classes based on valuation is a more prudent portfolio strategy.
What is the investment process for the equity (stock) component of the managed balanced portfolio?
Our firm begins with a top-down approach by assessing the macro-economic environment.
We study the economy, interest rates, and inflation to the degree that we can arrive at a
certain secular (long-term) conclusion as to how these factors will affect the underlying
asset classes. Stillwater Investment Management’s objective is to maintain asset allocation in harmony with secular trends. At this point, our bottom-up approach begins. We spend
considerable time evaluating investments on their own merit. Portfolio concentration is in
large-cap stocks that exhibit a blend of growth and value in combination with exchange
traded funds (ETF’s) for further diversification and asset allocation.
Equity investments are an essential component to all portfolios because they have the
ability to appreciate over time and provide a source of income through dividends. Inflation
is always a real threat to purchasing power, so the growth attribute of equities becomes
even more important.
We believe that long-term success in portfolio management depends largely on a
continuous review of our client’s sector asset allocation and the periodic re-balancing of
the account to stay in front of dynamic, secular trends.
What is your fixed income (bond) discipline?
Stillwater Investment Management concentrates on high quality investment grade bonds
primarily in three market segments: US Treasury and Agency, Tax-Exempt Municipal, and
Corporate. We also include preferred stocks and convertible securities when appropriate.
We adhere to a "price discipline" when negotiating with our dealer network. Stable and
improving credit quality along with a strong cash flow is important. To further diversify
and enhance a portfolio, we may use fixed income ETF's and closed-end bond funds. For
cash management, we use money market and short-term floating rate securities.
Adjustments are made to portfolios based on a changing interest rate and credit
environment with particular attention paid to maturity dates, call protection, and portfolio
duration.
How do you access International and Small-Cap asset classes?
Regions of the world that have different growth characteristics than the United States are
critical for consideration in a well-balanced portfolio. Importantly, many American
companies have significant exposure to international markets. For example, Proctor and
Gamble receives more than fifty percent of its revenue from outside the United States and
Coca Cola derives approximately seventy percent from outside this country. Therefore, we
can gain exposure to global financial markets by understanding the individual securities we
own. Additionally, our firm uses low cost exchange-traded-funds and selected mutual
funds for greater diversification and to capture returns from selected countries.
From time to time, we include small-cap stocks in our portfolio and access more
diversification in this important asset class through ETF’s such as the Russell 2000 Index.
Does Stillwater Investment Management have a "Unique Value Proposition" or Mission Statement?
A ten point value proposition serves as our Mission Statement and includes the following:
- To operate a professional, service-oriented investment management firm.
- To provide timely, proactive and appropriate investment counsel to our clients.
- To maintain complete objectivity in the design and implementation of our clients' portfolios.
- To integrate our clients' investment management services with their other professional, legal, and tax matters.
- To offer our clients meaningful value for our services.
- To develop a mutually beneficial, long-term relationship with our clients and families.
- To challenge our clients and ourselves to continue seeking solutions to complex and changing investment, related tax, and estate planning strategies.
- To commit to providing open communication between clients, strategic partners and our employees.
- To represent ourselves and our profession with the highest ethical standards and to uphold at all times the critical ideal that integrity must be one of our performance measures.
- To be recognized as a leading investment management firms in our region.
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