A Fiduciary is a person who is bound to act for another’s benefit.
Under the Prudent Expert Rule, a fiduciary must discharge his or her duties with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and aims.
The Prudent Man Rule directs fiduciaries “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”
So how does once exercise prudence in regard to the “permanent disposition of funds?”
We believe mindful stewardship requires good listening and a long-term approach to client relationships. As stewards, we are asked to act as the surrogates of our clients in the management of their property and financial affairs. As a result, we work hard to understand our clients deeply, as financial goals and objectives may change over time, but client values do not.
Once we have developed a deep understanding of our clients’ values, needs, resources, and objectives we work to develop an appropriate asset allocation. Asset allocation is the process of deciding how to divide your investment dollars across several asset categories. Stocks, bonds, cash and real estate are the most common components of an asset allocation strategy. The general goal is to minimize volatility while maximizing return (though asset allocation alone can’t ensure a profit or eliminate the risk of a loss). The process involves dividing your investment dollars among asset categories that do not all respond to the same market forces in the same way at the same time. The FinTrust asset allocation process considers both long term historical risks, returns, and correlations as well as more cyclical measurements of these three critical investment inputs.
While asset allocation is the process of diversifying a portfolio between asset classes, strategy diversification is the process of diversifying a portfolio within asset classes in order to minimize volatility or capitalize on opportunities. For example, dividend paying stocks behave differently than high growth technology stocks and inflation linked bonds behave differently than fixed rate bonds, while raw land and established income properties behave differently within real estate. The FinTrust process looks for opportunities within asset class by monitoring and researching a wide variety of asset class strategies.
Once asset allocation has been determined and strategies selected, one still must develop a cost-effective implementation as costs act as a drag on returns. In addition, it is possible that an individual security may not follow well designed plans at a higher level (for example, one might reasonable determine that an industry will exist in the future but that a particular company within that industry may not).
Portfolio rebalancing is the process of bringing a portfolio back into line with long-term asset allocations. The difficulty is that market movements may suggest a rebalancing but this decision must be balanced against real world implementation costs. The FinTrust rebalancing process compares a portfolio’s current position against the costs of moving to the desired position on a regular basis.
Why are we confident in this approach to client portfolio management? Because the following quote matches our decades of experience.