Client Letter – Q2 2003

Since last quarter, most equity asset classes have experienced huge rebounds!  Finally, your patience has been rewarded!  Reuters reported that the S&P 500 had its “best quarter since 1998”—even though its quarterly return (about 15%) was less than that of many other equity asset classes.  For example, some of the top performing asset class funds in my portfolios included the DFA US Micro Cap Portfolio (27.35% return for the quarter), the DFA US Small Cap Value (28.03%), the DFA Emerging Markets Portfolio (26.39%), and the DFA International Small Cap Value Portfolio (27.34%).

The lesson here is that you never know which asset classes are going to be the winners—whether we’re in a bull or a bear market.  Those investors who continue to ignore the international markets or who always overweight the large growth stocks are going to really miss out during periods like this last quarter.  Since I give equal weightings to small and large stocks, domestic and international stocks, and value and growth stocks, my investment portfolios always benefit from the strong performance of the stellar asset classes, while limiting risk in any one asset class.  I don’t know which asset classes are going to outperform, so I own them all in equal proportions.

Although my strategy may seem conservative to some, it is actually designed to provide the best, long-term risk-adjusted return for each of my clients.  My asset management clients can easily judge the results by reviewing their “Asset Class Performance Summary” and “Portfolio Performance Summary” reports.  The “Asset Class Performance Summary” report shows the most recent year’s investment results by asset class; whereas, the “Portfolio Performance Summary” report shows portfolio performance for the client’s entire investment history with Keystone Financial Planning.  Please call me if you have any questions about either of these two reports.

Now, I need to discuss an important policy change that will affect my asset management clients.  On January 31, 2003, the Securities and Exchange Commission (SEC) adopted a new rule that imposes a number of requirements on investment advisors with respect to the voting of proxies for securities held in their clients’ accounts.  This rule requires a myriad of complex actions and paperwork that is onerous for many small advisory firms such as Keystone Financial Planning.  As a result, I have decided to discontinue the practice of voting proxies on behalf of asset management clients for all securities held in custodial brokerage accounts or otherwise.   This change will be effective as of July 15, 2003.

The primary impact of this policy change is that asset management clients will be responsible for all voting decisions or other actions solicited through issuer-related communications.  These responsibilities include directions regarding proxies, tender offers, proposed mergers, rights offerings, and exchange offers.  The practical implications are relatively minor, since the mutual funds that I use in client accounts do not ask shareholders to vote on issues very often.  Also, most of my clients do not own individual stocks and bonds, which practically eliminates the responsibility of dealing with most types of actions that are mentioned above.

The actual time and effort it takes to vote a proxy can vary.  The most time consuming part is doing the research to decide how to cast your vote.  Once you are ready to vote, I strongly recommend using an online voting site—  You can use this site even if you receive a proxy statement by mail.  The process takes only a few minutes, and you will receive a confirmation by email.  Please feel free to call me if you have any questions about proxy voting.

Finally, I have recently updated the “On-Going Planning Agreement” to provide all of my clients with the ability to request additional services that are “beyond the scope” of KFP’s basic financial planning services.  Additional services might include such things as negotiating employment contracts, advising on the purchase and/or maintenance of rental properties, spending extra time on complex cash flow issues, etc.  While these extra services may only be requested by a few of my clients, I want to make them available to every client without adjusting your fixed assets-under-management (AUM) fee schedule or your retainer fees. Therefore, I have decided to charge an hourly rate ($150 / hour) for assistance with these services.  I will be asking each of my clients to sign the updated agreement during our next annual review.

I certainly hope that our current stock market rally continues as the U.S. economy develops momentum and companies show improved earnings.  Only time will tell what the future has in store.


Chris signature

About Christopher Jones

Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.