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What is a registered investment advisor?

What is the difference between a registered investment advisor and a broker?

What is the principal determinant of investment performance?

How will my assets be allocated?

What are exchange traded funds (ETFs)?

What are the advantages of investing with ETFs?

What are my total estimated investment costs, including adviser fees, fund expenses, etc.?

Which custodian will be used to hold my account?


What are Fidelity's commission rates?

Does Servant Financial charge for an initial consultation?

Who has access to my money?

What type of reporting will I receive?



What is a registered investment advisor?

Registered investment advisors are financial consultants who are required by law to act in a fiduciary capacity in their dealings with clients. As fiduciaries, they are held to a higher standard of professional and personal responsibility and must act solely in the best interests of the client. Additionally, they must make full and fair disclosure of all material facts, particularly when the advisor's interests conflict with those of the client. < Back to top >


What is the difference between a registered investment advisor and a broker?

Unlike investment brokers that act as salesmen of investment products for commissions, registered investment advisors provide a fee-based service and have a legal obligation to place their clients' interests ahead of their own. < Back to top >



What is the principal determinant of investment performance?

Achieving long-term, risk-adjusted returns starts with a sound asset allocation policy. Studies indicate that approximately 90 percent of the variability of returns stems from asset allocation, leaving only 10 percent of the variability of returns due to security selection or market timing. < Back to top >



How will my assets be allocated?

Servant Financial's investment process involves assigning each client a risk metric based on our assessment of your risk profile. For each risk metric, we construct and maintain broadly diversified portfolios with exposure to a range of investment asset classes, including domestic and international equities, bonds, real estate and cash. We primarily use exchange traded funds or ETFs as our core portfolio construction tool, rather than individual stocks and bonds or actively managed mutual funds. A more detailed discussion of asset allocation can be found in Risk-Based Asset Allocation. < Back to top >



What are exchange traded funds (ETFs)?

Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded intraday like a single stock. Each ETF is a basket of securities that is designed to generally track an index - broad stock or bond market, stock industry sector, or international stock market. ETFs add the flexibility, ease, and liquidity of stock trading to the benefits of traditional index fund investing.

ETFs are the most recent innovation in the evolution of investment management. Like the previous developments in mutual funds and discount brokerage services, ETFs result from the application of the latest advancements in information technology and processing capability to the enormous benefit of the individual investor. ETFs were one of the fastest growing investment vehicles in 2004. < Back to top >



What are the advantages of investing with ETFs?

ETFs provide a great combination of diversification, lower cost and performance.

Diversification

Because each ETF is comprised of a basket of securities, it inherently provides diversification across an entire index, such as the S & P 500 and the Lehman Treasury Indexes. Furthermore, the expanding universe of ETFs provide investors with exposure to a diverse collection of markets, including:

  • broad-based equity indexes (such as total market, large-cap growth, and small-cap value)
  • broad-based international and country-specific equity indexes (such as Europe, EAFE, and Japan)
  • industry sector-specific equity indexes (such as healthcare, energy, and real estate)
  • U.S. bond indexes (such as long-term Treasury bonds and corporate bonds)
Lower cost - annual expenses

Expenses can have a significant impact on returns for investors. ETFs, in general, have significantly lower annual expense ratios than other investment products. The ETFs that Servant Financial utilizes also generally have lower costs than traditional mutual funds. As a frame of reference, according to Morningstar, the expense ratio of the average domestic equity ETF is about 0.36% compared to 0.99% for the average equity index fund and 1.52% for the average actively managed equity mutual fund.

Lower cost - tax efficiency

ETFs, like index funds in general, tend to offer greater tax benefits because they generate fewer capital gains due to low turnover of the securities that comprise the portfolio. Generally, an ETF only sells securities to reflect changes in its underlying index. Exchange trading of ETFs further enhances their tax efficiency. Investors who want to liquidate shares in an ETF simply sell them to other investors through exchange trading. Because of this unique structure, ETFs are not required to sell securities to meet investor cash redemptions as can often be the case in a traditional mutual fund, potentially generating capital gains tax liability for remaining investors. Keep in mind that the sale of an ETF will generate capital gains/losses for the investor liquidating shares.

Performance

ETFs address the problem of benchmark underperformance by active managers. Numerous studies have shown that the majority of active managers have underperformed their benchmark indexes. The high rate of underperformance relative to indexes principally results from the expenses associated with active management. Furthermore, there are very few active managers who consistently outperform their benchmark indexes. So while it is possible to identify outperforming managers in hindsight, the difficulty lies in identifying such managers that will consistently outperform in the future. For a more detailed analysis of active manager performance against indexes, please go to Investment Process. < Back to top >



What are my total estimated investment costs, including advisor fees, fund expenses, etc.?

Servant Financial's asset-based management fees are based on a percentage of your assets under management at the beginning of the calendar quarter. The advisory fees are separate and distinct from fees and expenses charged by exchange traded funds (ETFs) and mutual funds which may be recommended to clients. We are happy to review all fees so that you are fully aware of the total amount of investment expenses incurred. For a more detailed description of our fee structure, please go to About Our Fees. < Back to top >



Which custodian will be used to hold my accounts?

Fidelity Investments will provide custody and brokerage services for your account. Fidelity is our custodian of choice because of its excellent reputation, its competitive trading costs and its high levels of customer service. < Back to top >



What are Fidelity's commission charges?

Fidelity charges $17.95 for equity trades, which includes ETFs. Accounts with $1 million and above in assets are eligible for $8.00 per trade pricing. The number of trades per year in our portfolios will vary based upon market conditions, but clients should expect approximately 10-12 transactions (buys and sells) in a typical year. < Back to top >



Does Servant Financial charge for an initial consultation?

There is no charge for an initial consultation. We recognize the importance of earning your trust, and offer our insight and expertise without obligation. < Back to top >



Who has access to my money?

The only person or persons who have access to your money are those individuals listed as the owner(s) of the account. Servant Financial has limited power of attorney to buy and sell securities, but does not have direct access to funds in investor accounts. < Back to top >



What type of reporting will I receive?

In addition to regular monthly custodial statements from Fidelity, clients will also have access to the monthly portfolio reporting available on Servant Financial's website, www.servantfinancial.com. The portfolio reports include analyses of performance, investment holdings and valuations, asset allocations and investment earnings and cash flow. < Back to top >

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