By Connor Donovan
Important Disclosure: The following hypothetical case study is based on events and circumstances that have arisen during our experience working with clients. We have protected the identity of the clients by changing names and locations. Given that many of our clients experience similar life events, the case studies are designed to depict the value proposition Simon Quick brings to the table. Each family we work with is unique. There is no “cookie-cutter” set of solutions. We bring our full set of resources to the table to solve, educate, implement, and monitor.
Josh Jones is a young entrepreneur who recently launched a successful technology start-up company after working as an Investment Banker on Wall Street for five years. He opened a brokerage account after his first few years of working and has been adding to it over time. He has always enjoyed following the stock market and picking single name stocks for fun. However, since his business takes up most of his time, Josh is no longer able to monitor his account closely. While he has around $150k invested in stocks, Josh has accumulated nearly $600k that is sitting in cash. He has never worked with a financial advisor before but he was contacted by a handful of advisors after his company gained some credibility and media attention. He was encouraged by a friend to speak with an advisor from Simon Quick Advisors.
The Simon Quick team started the meeting by reviewing a financial planning checklist, which helps both Simon Quick and Josh to review his current financial situation and analyze where he would like to be in the future. The topics covered included:
• Short & Long Term Goals: Business growth, marriage, family planning, travel
• Concerns: Business risk
• Retirement Planning: Has 401k from previous employer
• Estate Planning: Nothing in place
• Insurance (Life, P&C, Health etc.): No Life Insurance or property & casualty insurance, health insurance through work
• Cash Flow (Income & Expenses): Business-related expenses, wedding expenses, income is tied closely to company’s success
• Charitable Giving: A modest amount per year (~ $500 - $1,000/year)
• Tax Planning: Has never consulted with a CPA & utilizes online tax preparation software
Key Discussion Items
As the team ran through this list with Josh, he became increasingly aware of all of the things that he hadn’t thought much about previously.
Josh made it clear that his main goal was for his new business to flourish. He believes in his company and will do everything in his power to make sure its success continues. However, his main concern is that his business may fail and the technology will become obsolete. Josh often cannot sleep at night because he’s so worried about the business and letting his employees down.
• The Simon Quick team explained that it is their goal to give Josh the freedom to pursue what really matters to him, and right now, that is his business. Simon Quick wants to be Josh’s first call to take care of any financial matters. By assisting Josh, Simon Quick aims to reduce the stress that takes his focus away from his business priorities. By acting as a fiduciary, Simon Quick acts in Josh’s best interest and has a duty of care and loyalty when it comes to Josh’s finances.
Also, along the lines of his business, Josh told the team that his tax situation has gotten a lot more complex. Josh used to be able to do his taxes himself online, but now as a business owner, he’s receiving a Schedule K-1 on top of the 1099 Tax Form from his brokerage account.
• Simon Quick explained that they work with a multitude of CPAs, and would be happy to recommend one for Josh. Simon Quick works with accountants to make sure that they have all necessary tax documents, and will even consult with accountants from time to time before making some investment decisions to be fully aware of any significant tax impacts.
Although Josh loves his job right now and wants the best for his company, he realizes the importance of retirement planning. Josh wonders, “At what age can I retire and live comfortably?” and “What will my financial picture look like if my business fails in 5 years, 10 years, etc.?”
• The Simon Quick team introduced Josh to Simon Quick Money, a financial planning online software that, among other things, can analyze Josh’s retirement and financial needs. The team demonstrated Simon Quick Money’s capabilities by entering certain inputs into the system (income, expenses, links to investment accounts, insurance policies, other assets, liabilities) and assumptions (cost of a home, additional expenses, family-related expenses). The software also takes taxes and inflation into consideration when creating a financial projection. After entering all inputs and assumptions into the system, the team ran an analysis to show Josh how his cash flows would change if he were to retire at different ages. Using Simon Quick Money is especially helpful for someone in Josh’s position, as the assumptions can be easily adjusted to show financial projections if the business were to fail in 5 years, 10 years, etc.
• Simon Quick also encouraged Josh to explore rolling his 401k into an Individual Retirement Account (IRA). Since Josh invested in his 401k through his former employer, he is no longer able to add funds to it. The 401k plan also offers limited investment options, while an IRA offers the ability to access a wider range of investments. By rolling the 401k into an IRA, Josh will be able to have a consolidated retirement brokerage account that he can add to over time.
Josh told the Simon Quick team that he’s considering proposing to his girlfriend in the near future and was curious as to what were the big items or areas to focus on.
Simon Quick touched on a few important topics and ensured Josh that they would be there every step of the way as these future needs become even more of a reality.
• Buying vs financing an engagement ring
• Opening a joint bank account – can be used for family-related expenses
• Joint Investment account – Joint Tenants with Rights of Survivorship (JTWROS) vs Tenants in Common (TIC)
• Creating a will – Simon Quick can introduce Josh to a Trust & Estate Attorney that can help
• Updating beneficiary information on retirement accounts & insurance policies
• Insurance policies – Simon Quick explained that they work with different brokers that could help him with putting insurance policies in place (life, umbrella, etc.)
• Creating a family budget – Simon Quick Money can be utilized to assist with this
• Tax filing status
Finally, Josh asked about the investment process, as he was curious as to how his money would be invested and how Simon Quick could improve his current portfolio. The Simon Quick Team described each step of the investment process:
1) Investment Policy Statement: This is a document that serves to guide the Simon Quick team and the client throughout the relationship. It includes information regarding the client’s background & goals, risk tolerance & asset allocation, investment time horizon, liquidity requirements, tax considerations, meetings & communication, administration, and any portfolio restrictions. Risk tolerance is generally sorted into 5 different categories (Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive) based on time horizon, tolerance for volatility, and growth expectations.
Despite Josh’s long-term investment horizon and high growth expectations, the Simon Quick team recommended a Moderate Risk portfolio defined by the below allocation and ranges. In talking with Josh, the team recognized that he has a significant amount of risk in his business. His portfolio needs to support this risk, and also supplement the equity portfolio that he has built.
|Asset Class||Allocation Range||Target Allocation|
|Equites||40% - 60%||60%|
|Fixed Income||10% - 40%||25%|
|Alternative Investments||5% - 25%||15%|
|Cash & Equivalents||0% - 10%||0%|
2. The Simon Quick Team ran an analysis of Josh’s current equity portfolio. While Simon Quick does not specialize in picking individual stock names, the research team was able to analyze Josh’s positions at a macro level and provide some insights on how the current market environment might impact the positions going forward. Further, the client team performed a tax analysis on Josh’s portfolio, examining the long-term and short-term gains that would be incurred if Josh were to sell the positions. The team recommended using these low basis, highly appreciated positions to gift to charity over time. Although charitable donations are not front of mind for Josh at the moment, they likely will be in the future as his tax liabilities become more of a concern. By gifting shares rather than cash, Josh will be able to avoid recognizing gains on these positions.
3. After Josh and the Simon Quick team agreed on the Investment Policy Statement and his outside portfolio, the Simon Quick team took a deeper dive into Josh’s proposed portfolio. The team showed Josh manager profiles for each of the equity, fixed income, and alternative managers that they proposed to add to his portfolio. These profiles show information relating to the manager including the selection process, the backgrounds of key personnel, strengths & weaknesses, fees, risk-return, and other financial metrics. This level of transparency was vital to helping Josh feel educated and aware of all of the investments that the Simon Quick team was proposing.
After reviewing the areas mentioned above with Josh, he agreed to work with the Simon Quick team. He opened a new custodial account the Simon Quick team implemented a customized, Moderate risk portfolio designed to fit Josh’s needs and goals. Our mission is to allow Josh to spend most of his time focused on his business while trusting that his outside financial life is being taken care of by Simon Quick.
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