FAQs

Choosing an Adviser

Why do I need an investment adviser?
I feel comfortable choosing my own asset allocation, and I know how to keep fees and taxes to a reasonable level.Why would I use an investment adviser?
Is it worth 1-2% of my money to have Jacobs Equity manage my portfolio?
What sets Jacobs Equity apart from other investment advisers?

Stockbrokers and Financial Planners

Since my stockbroker (or financial planner) is not a ‘fiduciary’, does that mean he is not required by law to place my interests ahead of his own?
If my stockbroker can recommend any product or transaction whether or not it’s in my best interests, how do I know whether to authorize a transaction?
How are stockbrokers compensated?
How are financial planners compensated?
Anything else I should know about how financial planners are compensated?
How does it impact me if my stockbroker (or financial planner) isn’t required by law to put my interests above his own?
Does a financial adviser or financial planner invest my money for me?
You point out on your website that you’re not one of the ‘free’ advisers? Why wouldn’t I want a free adviser?
How do the ‘free’ advisers make money?
Why would I want to use a ‘fee-only’ adviser?

Complimentary Portfolio Review

Can you give me a second opinion on how my current adviser is doing?
What do I need to send you to participate in the complimentary review program?

Clients of Jacobs Equity

What is your typical client profile?

Being Wise About Fees and Expenses

Why do you spend so much time on your website talking about fees and expenses?
You spend a lot of time talking about fees and expenses on your website. Do you use any funds with high fees or loads?
If you don’t invest your clients’ portfolios in mutual funds with high fees, what do you invest in?
If I engage Jacobs Equity to manage my portfolio, will I pay any of the hidden fees you mentioned?
Where can I find a few easy to understand articles about the various fees you mentioned?
Why do you not use investments with large front-end loads or 12b-1 fees?
My last adviser picked some funds for me and then I found out I had to pay several thousand dollars to buy in. Will that happen at Jacobs Equity?

Being Wise About Taxes

Why do you spend so much time on your website talking about taxes?
How do I know if my current adviser is investing in a tax efficient way?
Why is it better to use individualized portfolios for each client rather than a ‘one size fits all’ or model portfolio?

Our Services

Are you one of those companies that picks mutual funds for me and then I never hear from you again?
Can I invest with Jacobs Equity and keep my current adviser?
Why is it less common for non-high net worth individuals to use multiple advisers?
Can Jacobs Equity help me with my 401(k)?

Tax Returns

Can you file my tax return?
Can you file my return no matter where I live?
What does it cost to prepare my return?

What Happens Next?

I’ve reviewed your website and decided I want to learn more about your investment approach. What should I do?
Which one should I contact, Rob or Jeff?

Choosing an Adviser

Why do I need an investment adviser?

Without knowing your individual situation it’s impossible to know whether the services of an investment adviser make sense for you. You may wish to review our page Would an Investment Adviser Benefit You?

I feel comfortable choosing my own asset allocation, and I know how to keep fees and taxes to a reasonable level.Why would I use an investment adviser?

There are many “do it yourself” investors that do a magnificent job of managing their own investments. If you have the time and expertise to build and monitor a portfolio in an intelligent and thoughtful way, you may not need us.

We have found that “do it yourself” investors tend to be educated, well-qualified in their chosen profession, and busy. Most have salaried jobs that don’t fit into a neat 9-to-5 box. Many have a spouse or children. Many have significant outside interests.

Some engage us as a way to ease the time burden of implementing and monitoring their portfolio. Some engage us for access to our expertise in quantitative modeling or tax planning. Some want to regularly reduce taxes by tax-loss harvesting, but find it too time consuming to do so properly. Others simply feel more comfortable with professional money management.

Is it worth 1-2% of my money to have Jacobs Equity manage my portfolio?

If you have the time and expertise to build and regularly monitor your portfolio to maintain proper and effective diversification, tax-loss harvest to reduce taxes, manage commissions and expenses, etc, then you may just want to manage your own portfolio and invest that extra 1-2%. If you don’t have the expertise or time to regularly do these things, then you may be making less or paying more than you should. Our clients report that the increase in their after-tax, after-expense returns by using our services more than justifies our 1-2% management fee.

What sets Jacobs Equity apart from other investment advisers?

There are many well qualified investment advisers available. You would do well to go with any well qualified adviser who puts your own interests ahead of his or her own. With that said, we feel that we offer several advantages over most other advisers.

Stockbrokers and Financial Planners

Since my stockbroker (or financial planner) is not a ‘fiduciary’, does that mean he is not required by law to place my interests ahead of his own?

Correct. Generally speaking, a stockbroker or financial planner can recommend any product or investment without regard to whether it’s in your best interests. Practically speaking, the only threshold is whether he or she can convince you to undertake the transaction.

If my stockbroker can recommend any product or transaction whether or not it’s in my best interests, how do I know whether to authorize a transaction?

Investors using a stockbroker should be selective about the transactions they authorize. It is possible (probable?) the stockbroker is urging you to undertake the transaction because it will generate a commission for him or her, and not because it’s a good transaction for you.

How are stockbrokers compensated?

Generally by commission. The more transactions they convince you to undertake, the more they make. Generally, their bottom line is affected by the number of transactions you perform and not by whether your account balance grows.

How are financial planners compensated?

“Financial planner” is a broad term that can encompass many types of advisers as well as many different compensation plans. As a result it’s difficult to tell how any specific financial planner is compensated without learning more about your specific arrangement with the planner.

But there are a few common compensation plans. Some planners use one of these and some a combination of two or more:

  • Many financial planners are compensated by commission or referral fee. They receive a commission for each mutual fund, insurance product, or annuity they sell to you, or for each referral they send to the adviser who actually invests your money.
  • Some are compensated directly by their clients which helps to eliminate some of the conflicts of interest of a commission or referral arrangement. Direct fee arrangements can be flat fee, hourly, or a percentage of assets under management.
  • Some planners that are affiliated with a larger company may receive a salary.
  • Some receive a combination of the above.

Anything else I should know about how financial planners are compensated?

While not true in every case, some financial planners earn most of their compensation at the time of setting up a client account. As a result, these advisers have incentive to get clients in the door, but not necessarily to provide valuable ongoing management or oversight.

How does it impact me if my stockbroker (or financial planner) isn’t required by law to put my interests above his own?

We evaluate many portfolios managed by stockbrokers or financial planners. In our experience, the majority of these portfolios include investments that are not right for the client. The most common example is high-load or high-expense mutual funds where a more efficient, less expensive alternative is readily available. We also commonly see large brokerage commissions or other large fees that are often not obvious just by looking at the brokerage statement.

Does a financial adviser or financial planner invest my money for me?

Not all advisers or planners invest their clients’ money. In many cases the adviser with whom you directly interact does not actually invest any of your money. They pass the business of managing your money to another division or affiliated investment company to actually invest your money. As a result your adviser may not know the details of your portfolio, and the person actually investing your money may not know anything about you. We have even heard clients of such advisers complain that the adviser was essentially playing the part of a salesman rather than a trusted adviser. Jacobs Equity clients like to know that their money is invested and managed by the advisers they met on the first day.

You point out on your website that you’re not one of the ‘free’ advisers? Why wouldn’t I want a free adviser?

When people talk about a “free” adviser, they are generally referring to a financial planner that provides recommendations without charging a fee. Such planners generally are compensated through commissions or referrals. In other words, they make money when you agree to buy a certain product. As the astute reader will notice, this type of arrangement presents an inherent conflict of interest by encouraging the planner to recommend products based on the size of the commission or referral bonus, and not on their suitability for the client.

How do the ‘free’ advisers make money?

As mentioned in a previous question, “free” advisers make money through commissions or referrals. The advice is not free of course. Ultimately the client pays for the advice through fund fees, loads, or an improperly structured portfolio as a result of conflicts of interest.

Why would I want to use a ‘fee-only’ adviser?

As a fee-only adviser our advice is independent and unbiased, eliminating a problematic conflict of interest that compromises the recommendations made by advisers and planners compensated by commission or referral arrangements. Our clients save money because they don’t pay the mutual fund loads that finance the referral fees. It also means we are fee to choose the best securities for our clients rather than the securities that pay the highest “finder’s fee.”

Ask your adviser if he or she accepts referral fees or “finder’s fees” from mutual funds. If the answer is yes, ask how much he or she received by selecting particular mutual funds on your behalf. You should also ask whether he or she would have selected those particular funds if there had been no referral fee.

Complimentary Portfolio Review

Can you give me a second opinion on how my current adviser is doing?

Yes. We offer a complimentary portfolio review program. Several of our current clients participated in the complimentary review program as a way to become familiar with our approach and assess our capabilities. We like to think they liked what they saw.

Whether you have another adviser or manage your own portfolio, please contact us if you are interested in having us review your portfolio or would like to learn more about the complimentary review program.

What do I need to send you to participate in the complimentary review program?

Generally we can perform a satisfactory review with the most recent statement from your adviser or broker showing your investments. We may need to see more than one recent statement to get a full picture of your portfolio, especially if you receive monthly (rather than quarterly) statements.

Clients of Jacobs Equity

What is your typical client profile?

We do not have a typical client profile. Our client base is diverse in age, financial status, homeownership status, career profile, retirement status, and account balance. Some clients previously managed their own portfolio while others came over from other advisers. Some have retirement accounts, some have non-retirement or taxable accounts, and many have both.

Being Wise About Fees and Expenses

Why do you spend so much time on your website talking about fees and expenses?

Research has shown that managing fees and expenses is correlated with a successful portfolio. Due to compounding, reducing annual fees and expenses by a single percent or two can save hundreds of thousands of dollars over an investing lifetime. For most portfolios that we review, lowering fees and expenses is the easiest way to increase return and increase an investor’s likelihood of achieving his or her financial goals.

You spend a lot of time talking about fees and expenses on your website. Do you use any funds with high fees or loads?

We have found that many advisers tend to use funds with relatively high fees and expenses. Many advisers favor such funds because the fund pays a high referral commission or bonus to the adviser.

For most investors there is little or no need to use load or high expense funds. One of the great financial advances of our era is the availability of thousands of no-load financial products that more efficiently accomplish the same goals that had previously been fulfilled by load funds over the last few decades.

We have concluded that the use of such funds simply cannot be justified for most investors. High fee funds tend to underperform the market and often result in higher tax burdens. This results in lower returns and a lower likelihood of the investor achieving his or her financial goals. For these reasons Jacobs Equity does not use funds with high fees, expenses, or loads.

If you don’t invest your clients’ portfolios in mutual funds with high fees, what do you invest in?

Over the last several years there has been a virtual explosion in the availability of low cost funds that compete quite favorably with the venerable high cost fund model of the past. It is possible to construct a well diversified, high quality portfolio using reasonably priced stock and bond funds in conjunction with individual stocks.

If I engage Jacobs Equity to manage my portfolio, will I pay any of the hidden fees you mentioned?

No. Jacobs Equity does not purchase funds with front-end loads, back-end loads, or high expense ratios. Jacobs Equity encourages its clients to use only high quality, financially stable, cost effective brokers.

Where can I find a few easy to understand articles about the various fees you mentioned?

The world wide web is filled with articles discussing the various fees imposed by mutual funds. The Securities and Exchange Commission discusses several mutual fund fee types.

Investopedia has a short article on mutual fund costs and expenses with some good insights. You may also try Wikipedia.

Why do you not use investments with large front-end loads or 12b-1 fees?

Investments with front-end loads or 12b-1 fees are favored by many advisers.When an adviser buys a fund with a front-end load on behalf of a client, the mutual fund pays a significant “finder’s fee” to the adviser.The mutual fund charges the front-end load or 12b-1 fee largely to fund the “finder’s fee.”Once the adviser has bought the fund, he has locked in his pay day.He may make more money from the “finder’s fee” than he would from ongoing management fees.As a result, the customer service of some advisers drops significantly after initial account set up. He has received his “pay day” and his incentive to maintain a good working relationship or perform services on behalf of his client is significantly reduced.While this approach is great for the adviser’s bottom line, it is very damaging to the client’s portfolio.

We do not believe in this approach.We believe in establishing and maintaining long-term relationships with our clients.We do not charge any up-front fees or “finder’s fees” nor do we receive fees from any investments that we buy on behalf of our clients.This allows our clients to maintain more of their money.We grow as our clients grow.

My last adviser picked some funds for me and then I found out I had to pay several thousand dollars to buy in. Will that happen at Jacobs Equity?

No. Because of the types of investments we use, our clients don’t pay any “buy-in” purchase fees or front-end loads.

Being Wise About Taxes

Why do you spend so much time on your website talking about taxes?

Tax can create significant drag on a portfolio. Fortunately tax happens to be an area where investors can exercise a fair amount of control over their portfolio.

Our background in federal and state tax provides an excellent backdrop to which we develop investing strategies that allow our clients to minimize their tax bill.

How do I know if my current adviser is investing in a tax efficient way?

It is our experience that most advisers, planners, and brokers do not pay attention to taxes. They leave their clients to worry about the tax consequences of their investing decisions.

At Jacobs Equity we consider the tax consequences of each investing decision. We do not use a “one size fits all” portfolio for our client base partly because of the associated tax inefficiencies. By having a customized portfolio for each client, we can tightly control the tax effects of our investing decisions.

In many cases we are able to reduce our clients’ tax liabilities by more than the amount of our management fee. Talk about a win-win!

Why is it better to use individualized portfolios for each client rather than a ‘one size fits all’ or model portfolio?

Many advisers and planners use a “model portfolio” approach to manage client accounts. The adviser establishes a small number of model portfolios. Each client is matched to one of the models. When the adviser makes a change to the model portfolio, securities are bought or sold on behalf of each client following that model portfolio.

In many ways it is like investing in a mutual fund. Like mutual funds, the “model portfolio” approach has advantages and disadvantages. The main advantage is easing the burden on the adviser. The adviser is able to manage dozens, hundreds, or even thousands of client accounts by managing a small number of model portfolios. The adviser does not have the burden of individually managing separate portfolios for each client.

A disadvantage is the inability to tailor each individual client’s portfolio. All clients are different and have unique needs. A “one size fits all” approach will not allow the adviser to meet the needs of each client.

Another significant disadvantage of the “one size fits all” approach is the adviser’s inability to control the individual tax consequences for each client. When the adviser makes a change to a model portfolio, each client account based on that model portfolio automatically makes the same changes regardless of the tax consequences. The tax consequences for each client are dependent on several factors, including how long the client has been invested in the portfolio, the price of the investments when the client entered the portfolio, and the the individual tax situation of each client. While some clients may benefit by the transaction, inevitably others are harmed by the transaction because of adverse tax consequences.

The reverse is also true. Some clients in a “one size fits all” portfolio may stand to benefit by a transaction for tax reasons, but the adviser does not undertake the transaction because it doesn’t make sense for the “model portfolio.”

To summarize, some transactions that should occur in a model portfolio, don’t. And some transactions that shouldn’t occur, do. The adviser simply can’t optimize the portfolio for each client because of the different tax circumstances of each client.

At Jacobs Equity, we are able to significantly increase our clients’ after-tax returns by establishing individualized portfolios for each client. We are able to take into account each client’s individual tax situation and use it to our client’s advantage.

In many cases we are able to reduce our clients’ year-end tax liabilities by more than the amount of our annual management fee.

Our Services

Are you one of those companies that picks mutual funds for me and then I never hear from you again?

We perform ongoing management of all of our client accounts. We monitor client accounts, make available monthly statements, regularly meet with our clients to review their portfolio, and have ongoing communication with each client.

We are familiar with the kind of company you’re talking about. Several of our clients formerly were clients of such companies.

Can I invest with Jacobs Equity and keep my current adviser?

Yes. We are the sole adviser for most of our clients, allowing us to take a more holistic approach to managing their portfolio. Many high net worth individuals use multiple advisers. We are able to function in a multiple-adviser role.

Why do many high net worth individuals use multiple advisers?Generally there are two principled reasons why an individual uses multiple advisers. First, some advisers specialize in specific asset classes, geographical areas, or other market niches. Second, the individual is applying the principle of diversification in adviser selection.

In many cases individuals use multiple advisers for neither of the above reasons, but rather for business or personal reasons. For example, an individual might use an additional adviser because the adviser was referred by a friend or an important business contact.

Why is it less common for non-high net worth individuals to use multiple advisers?

Because they are unable to meet the minimum account size for each adviser.

Can Jacobs Equity help me with my 401(k)?

Generally we don’t manage 401(k) or other employer-sponsored accounts unless the plan provides a self-directed option and our client wants us to manage the account. Apart from that, we often provide general guidance to our clients with respect to their 401(k)’s for two reasons. First, knowing the way a 401(k) is invested allows us to make better decisions with the rest of the client’s portfolio. Second, it makes our client’s life a little easier, which is something we like to do.

Can you help me select insurance products, such as life insurance, disability insurance, or long term care insurance?We focus on establishing and managing investment portfolios. We may be able to provide some common sense general guidelines on insurance.Feel free to ask.But we do not specialize in insurance and don’t claim any expertise.

We can refer you to an insurance agent or financial planner that specializes in those products. We do not receive any compensation for such referrals.

Tax Returns

Can you file my tax return?

We didn’t start Jacobs Equity with the intention of offering tax return preparation services. However, due to client request, we now offer tax return preparation services. We believe our clients appreciate the sophistication and comprehensiveness we bring to the portfolio management process, and they want the same approach taken with their taxes. Since we already have much of the information necessary to file tax returns for our clients, they find it saves them time over doing it themselves or using another tax preparer.

Can you file my return no matter where I live?

Jacobs Equity can file federal returns as well as some state returns. Certain states, however, require that tax return filers be attorneys or CPAs. We are not a law or accounting firm and therefore do not file returns in those states. If you live in a state in which Jacobs Equity is not qualified to file a tax return, we may refer you to Jeff Jacobs in his individual capacity. Jeff is an attorney and should be able to help you. Jacobs Equity does not receive a referral fee or other benefit for these referrals. Feel free to contact us to see if it may make sense for us to prepare your return.

What does it cost to prepare my return?

We charge $265 for most individual or joint returns. More complicated returns may cost more, as would partnership, corporation, or other more complex returns. If you believe your return is more complicated, we will review your tax situation and come to a mutually agreeable fee arrangement before preparing the return.

What Happens Next?

I’ve reviewed your website and decided I want to learn more about your investment approach. What should I do?

Give either Rob or Jeff a call, or send an email via our contact us page.

Which one should I contact, Rob or Jeff?

Either. Both Rob and Jeff are involved in all portfolio management decisions.