About Our Philosophy
There are several core principles that guide our approach to financial planning and investment management. A summary of these principles is given below.
- The goal of financial planning is to be free from financial worry, not to gamble
- Client interests always come first
- A financial strategy should strive for steady, low-volatility growth
- Trust must be earned every day
- All fees and expenses should be fully disclosed and understood by the client
- Clients should not pay for things they don’t need (e.g. complex financial plans)
Free From Financial Worry
The goal of financial planning is to be free from financial worry, not to gamble in hopes of a huge return. The stock market does not offer a path to quick riches with little risk, no matter how long your time horizon. Prudent investing is one of the best ways to grow wealth, but it takes work, discipline, and a commitment to a long-term plan. Many investors forget (or choose to ignore) the fact that “risk” is defined as the possibility of loss, and that there is a direct tradeoff between high potential returns and risk. Our goal is to create portfolios and plans that will allow you to enjoy life, and not spend every day watching the market.
Strive For Steady Growth
Steady, low-volatility growth has several benefits, not the least of which is the increased chance that your money will be there when you need it. A strategy or plan that seeks to beat the overall stock market on a consistent basis must also take more risk than the overall market, and that’s just not our thing. By using a combination of low-volatility alternatives, diversified fixed income, and risk-managed stock investing, we believe that most investors will ultimately come out ahead of the market, even if they do not beat it year in and year out. Long-term investment wealth is built by losing significantly less than the market during bear markets and going along for the ride during bull markets, not by trying to pick better stocks than the 10’s of thousands of mutual fund managers.
Clients Should Understand Fees
VFM adopted a fee-only structure at a time when many industry pundits were convinced it was not a viable business model. The thought was that if clients really understood the fees they were paying, they wouldn’t use advisors. This never made sense to us because the alternative is to hide the cost of the service we provide. This still happens through revenue-sharing agreements, trailing commissions, and other less-than-obvious fees, but VFM stays with a simple percentage-based fee for asset management, and a flat fee for individual projects such as portfolio check-ups.
Clients Come First
VFM is held to a fiduciary standard, meaning that client interests are always put ahead of our own. This is possible because we are independent and do not answer to a specific broker-dealer, and the fact that we do not accept commissions makes it much easier to adhere to a fiduciary standard. It should be noted that “fee-only” does not eliminate conflicts of interest, but does make them easier to deal with. There is a lot of discussion in the industry about what it means to be a fiduciary, and VFM views the fiduciary standard as going further than simply being independent and having a particular compensation scheme. We believe strongly that acting in clients’ best interests requires on-going study of investments and economic factors to determine whether we are using the best investments for a particular situation. In other words, the fiduciary duty requires a commitment of time and effort in addition to independence.
Trust Must Be Earned
This philosophy may seem obvious, but it must permeate everything we do. Putting clients first does not stem from an organizational or compensation structure, although being independent and fee-only certainly makes it easier. We strive to be constantly aware of potential conflicts of interest, recognize they exist and disclose them, and constantly evaluate whether they are possibly influencing our recommendations. Conflicts of interest do not go away by pretending they don’t exist, but trust is earned by how we deal with them.
Don’t Pay For Things You Don’t Need
VFM derives the bulk of its revenue through asset-based fees for investment management. Studying the markets, developing appropriate strategies, and constant vigilance is where we believe we earn what clients pay us. A financial plan that identifies goals and desires, and establishes a mechanism to achieve them is essential to effective wealth management, but can typically be accomplished through something less than a fancy, verbose plan packaged in a colorful padded folder. If your financial plan can be adequately captured in a spreadsheet, we’ll do that and save you the cost.