General

• What do you do, exactly?
• What makes you different from other firms?
• Who are you?
• What is your relationship with Girard Securities?

Investing Approach

• What is your investing philosophy?
• What are your current investment strategies and thoughts regarding the financial markets?
• Isn't it true that it's impossible for active managers to beat index funds?
• Do you buy individual stocks or mutual funds?
• Do you tailor account allocations to individual clients' situations, needs, risk tolerance, etc.?
• Do you personally invest in the same instruments as your clients?
• What is your performance track record?

Qualifications and Clientele

• What are your backgrounds and qualifications?
• Have you ever been subject to any disciplinary actions or other regulatory events?
• How many clients do you have?
• What is the typical size of your managed accounts?
• Can you provide client testimonials?

Investment Account Details

• Who holds the money?
• Do you pool client funds or keep everything in separate accounts?
  
• What protections are in place for investors?
• Will I get account statements?
• Will I be able to view my accounts online?

Working with PCA

• What is your fee structure?
• Do you work on a fee-only basis?
• Can you work with clients who live out of state?
• What are your minimum investments?
• What types of accounts can you manage?
• Do you communicate with investment clients on an ongoing basis?
• I'm interested in a managed investment account, financial planning, or one of your other services -- what now?

Please feel free to contact us if this list leaves any questions unanswered.

General

What do you do, exactly?

Our primary business is to actively manage separate investment accounts for individuals, companies, and trusts. How we go about doing so is the subject of many of the questions on this FAQ list.

In addition to investment management, we offer comprehensive financial planning, which includes retirement planning, estate strategy, insurance (life, health, long-term care, and disability), and general advice on all things financial. We also offer home loans and, while we no longer offer real estate brokering services ourselves, we can refer you to some excellent people who do.

What makes you different from other firms?

In our experience, the vast majority of investment advisors end up with investments that are remarkably similar to one another and, by no coincidence, to the major stock market indices. We take quite a different approach. To put it very briefly, we combine the independence and rigour of traditional value investing with a heavy focus on global economic and monetary trends. The end results are investment allocations that are very different from those of the typical index-hugger, and ones that we think will provide our clients with superior long-term returns while exposing them to less risk.

Our investing approach is described in much more detail on the investing approach section of this page and via the finance and investing articles we regularly write for this website.

Our investing philosophy is by far our biggest differentiator, but there are others as well. We have a fairly unusual breadth of expertise and knowledge -- in addition to investing, we have deep expertise in many aspects financial planning, housing market analysis, mortgages, and real estate transactions.

A final and rather huge distinction from the rest of the selling-centric financial advisory industry is that we are terrible salespeople. We'd much rather research financial markets than attend networking events any day of the week, and we cringe at the idea of putting pressure on people or otherwise being "salesy." Instead, we focus on helping people make informed decisions and we hope that our successful and uniquely sensible investing approach will do the selling for us.

Who are you?

Please see the PCA staff page for more info about us.

What is your relationship with Girard Securities?

Girard Securities, Inc. is a Broker/Dealer and Registered Investment Advisor. They deal with the, shall we say, less exciting aspects of running a financial advisory business. This includes most of the regulatory compliance tasks (of which there are an enormous amount), accounting, keeping all investment- or planning-related forms and processes up to date, and setting up agreements with third parties such as clearing firms, mutual fund companies, and private placements so that we may offer these services and investments to our clients. Allowing Girard to handle all of this stuff frees up our time to focus on what is most important: investment research and client interaction.

We work with Girard Securities because it is a customer-focused firm run by very honest people who can meet all our needs while allowing us to be entirely autonomous in terms of the investment strategies we choose to follow. To find out more, you can visit Girard's website or search for Girard Securities, Inc. in FINRA's BrokerCheck application. (For more about BrokerCheck please see the qualifications section of this page)

Investing Approach

What is your investing philosophy?

In the broadest sense, we are value investors. This means that we seek to buy assets we think are being undervalued by the market and we patiently hold onto those assets until their value is recognized. Similarly, we seek to avoid risks that we think are being underestimated by the market. Our opinions as to what is valuable and what is risky are based on fundamental analysis and our own extensive research into global economic and monetary trends.

One of our big advantages is our focus on long-term results. Fundamentals and valuations offer little predictive value in the short term but they are highly predictive of long term returns. Fortunately for us, the vast majority of investors both professional and amateur are chasing short-term returns, thus presenting numerous opportunities for patient and forward-looking investors to find good values while avoiding undue risk.

What are your current investment strategies and thoughts regarding the financial markets?

We could write about this for pages -- and we have. We've written many articles regarding the state of the financial markets and potential investing strategies. You can also evaluate our past analytical track record by reviewing the older articles (which are unchanged from their original form, and which go back to January 2007 when we posting commentary articles on the site).

If you are looking for some fairly representative "big picture" articles, we recommend What's in Store for 2008 to get our current outlook and A Financial Market Roadmap to see that we had a fairly good handle on what was to come when that article was written in early 2007.

Isn't it true that it's impossible for active managers to beat index funds?

No, this is not true. There is indeed plenty of evidence showing that that majority of actively managed mutual funds are unable to beat a simple index fund over time. We agree completely with this conclusion. But this is because most mutual funds chase short-term returns and "hug" the indexes. They end up owning the same stocks as the indexes but they incur higher fees than the index funds, so they are destined to underperform.

However, it is a huge mistake to misinterpret these results as proof that active managers cannot beat the indexes. As a matter of fact, skilled practitioners of the value investing style have an excellent track record of beating the market indexes over long time periods. In brief, the reason is that the approach of buying the whole market at any given time ignores fundamentals and valuations -- which, as we noted above, are predictive of long-term returns. By heeding the crucial information provided by valuations, value investors can avoid a lot of risk even while garnering superior long-term returns.

For those interested in more detail, we will be writing some in-depth articles on this topic in the future.

Do you buy individual stocks or mutual funds?

First, the short answer: we buy a combination of mutual funds, closed-end funds, individual stocks, and exchange-traded funds.

Here's the long answer. We focus on top-down analysis, meaning that we analyze fundamentals and market trends in order to determine what sectors, asset classes, and areas of the market offer the best value for the lowest risk. We take this approach because asset allocation -- what areas of the market you are in at any given time -- is the most important determinant of returns.

For example, we have been bullish on gold mining stocks since the beginning of 2004. The most important decision was to own gold mining stocks -- a chart of any gold mining stock index will show that the sector in general has made huge gains and that individual stock picking, while not unimportant (as we will discuss below), would have had a much smaller impact on returns than picking the right sector. The same principal applies to what investments not to be in. To cite a notable example here, we have been skeptical of financial stocks for a couple years now. We didn't know precisely which companies to avoid; we just knew that the sector as a whole had far too much exposure to the recent mortgage and housing madness so we avoided the entire sector. This decision has been of tremendous benefit to our clients during the recent financial-led downturn.

Picking the right stocks is not as crucial as picking the right sectors, but it is still an important part of maximizing returns. However, bottoms-up analysis of the merits of individual stocks versus their sector counterparts is a different skill from the high-level analysis at which we excel, so we are happy to leave the stock-picking to those who we think will do it better than we would.

For this reason, we tend to use actively managed mutual funds or closed-end funds more than anything else. Once we have decided on a sector or investment approach, we carefully assess the the philosophy, market outlook, investment approach, value-seeking discipline, holdings, expenses, and track record of the managers within that sector before picking the instruments we think will deliver maximum risk-adjusted returns for our clients.

We also buy individual stocks or passive sector-wide ETFs when we think it will lead to better returns. Right now, for instance, we are buying several individual gold mining stocks in many of our managed brokerage accounts. Even in this case, however, we heavily rely on research we get from expert sector analysts.

This approach of combining our top-down asset allocation expertise with the bottoms-up stock, bond, and currency picking of world class money managers and analysts has been extremely successful for us and our clients.

Do you tailor account allocations to individual clients' situations, needs, risk tolerance, etc.?

Yes. We arrive at an account allocation for each client based on a discussion with each client about their goals, timelines, other investment holdings, and personal feelings on risk tolerance and specific asset classes. Clients are encouraged to keep us up to date if their situation has changed in a manner that might necessitate a new investment posture.

As it happens, most of our clients end up owning a fairly similar set of investments. The percentages may change, in that we will dial down the more volatile investments for conservative or shorter-term investors and vice-versa, but the general themes are the same. This is because the risk-reward profile of the investments we tend to like are typically appropriate for most investors.

Do you personally invest in the same instruments as your clients?

Yes. We (the partners at PCA) invest the vast majority of our personal wealth into exactly the same things we are buying for our clients. The percentages might not always be the same, mostly because we have a higher tolerance for volatility with our own money than we do for client money, but the overall strategy and the specific investment instruments are the same.

What is your performance track record?

We are eagerly working on putting together an audited track record, but this is a complicated affair with as many accounts as we manage. For now, we can say that we have a long track record of success in delivering market-beating returns while subjecting clients to substantially less risk and downside volatility than the overall markets. While awaiting further detail, feel free to review our older articles, which show that we have had a fairly good analytical track record since we began posting commentary articles to this website at the beginning of 2007.

Qualifications and Clientele

What are your backgrounds and qualifications?

Please see the PCA staff page for details about our background and qualifications.

Have you ever been subject to any disciplinary actions, customer disputes, or other regulatory events?

No. Honesty, integrity, and the welfare of our clients are extremely important to us and we have a clean bill of regulatory health to show for it. Of course, we don't expect anyone to take our word for it, so we encourage you to use the BrokerCheck feature at the website of FINRA, the regulatory agency that governs financial advisors.

Once you're into BrokerCheck you can do a Broker search for PCA's active partners, John Matthew Simon and Richard Esteban Toscano, and you will see that we are free of customer disputes, disciplinary actions, or regulatory events. You can also do a Brokerage Firm search for Girard Securities, Inc. to see that our broker/dealer Girard also has a record free of disciplinary actions or other regulatory events.

How many clients do you have?

We have about 500 client households and businesses, for whom we manage a total of approximately $100 million.

What is the typical size of your managed accounts?

We are all over the map on this one. We manage multi-million dollar accounts, small 403Bs of teachers just getting started, and everything in between.

Can you provide client testimonials?

Testimonials are a tricky area, compliance-wise, because the regulators are rightly concerned that advisors could "cherry pick" the clients with the very best results. We are working on putting some testimonials together, but we want to make sure to do so in a compliant manner -- please check back soon.

Investment Account Details

Who holds the money?

The managed brokerage accounts (see the fee question above for more info on the different accounts types) are held at one of two clearing firms, Pershing (owned by Bank of New York Mellon) or NFS (owned by Fidelity), and the direct mutual fund accounts are held at Franklin-Templeton investments. All three firms are huge, established, and highly-regarded. For more information see the Pershing, NFS, and Franklin Templeton websites.

Do you pool client funds or keep everything in separate accounts?

Each client has their own separate account(s) in their own names or in the names of their trusts or businesses.

What protections are in place for investors?

Girard, Pershing, and NFS are all members of the SIPC. SIPC offers protection in the case of brokerage firm financial troubles of up to $500,000 per customer (of which $100,000 can be cash). More information about this protection can be found at the SIPC website.

Additionally, Pershing and NFS -- where the investment accounts are actually held -- have both taken out additional private insurance to cover investors beyond the SIPC limits to a theoretically unlimited amount.

Mutual fund companies like Franklin-Templeton are not part of the SIPC. However, such companies keep fund assets at a separate custodian company, so trouble at the mutual fund management company is prevented from impacting the custodian's assets.

Will I get account statements?

Yes. Clients get paper statements mailed at least quarterly, or monthly if their was activity in the account in a given month.

Will I be able to view my accounts online?

Yes. Clients have access to an online account monitoring website where they can view account holdings, activity, and performance.

Working with PCA

What is your fee structure?

Managed Brokerage Accounts:

Accounts over $50,000 can be placed in a managed brokerage account that allows us access to buy pretty much anything sold on the stock exchanges. The fees for managed brokerage are based on a percentage of assets under management, with that percentage declining for larger account sizes as follows:

Brokerage accounts also have transaction fees as follows: mutual funds are $20.50 per trade; equities are $31.50 per trade; and bonds are $46.50 per trade. These fees do not benefit us in any way. We try to minimize transaction fees to the extent possible, but as active (if long-term) investors there will be occasional purchases and sales.

Direct Mutual Fund Accounts:

Accounts under $50,000 will be placed in a direct mutual fund account at Franklin-Templeton Investments. There are no trading fees for the direct accounts, but we will receive an annual advisory fee of between .65% and 1% of assets per year, depending on the allocation between equity funds and bond funds. These fees are industry standard C-share fees; we believe that the "pay as you go" C-share model is the most appropriate in light of our ongoing active management and for the flexibility that C-shares provide.

Financial Advice:

We offer informal financial planning and advice as a free service to investment clients. For more in-depth consultations or formalized financial plans, we charge a fee. We also provide fee-based financial, real estate, or investment consulting for people who prefer not to become investment clients. The fee for these services is $225/hour.

Do you work on a fee-only basis?

We can perform fee-only consulting on financial planning, real estate, investing, and other financial matters as described in the prior question. When it comes to investing, we will do fee-only consultations if clients request it but due to the complex and constantly-changing nature of the financial markets it is our preference to take a more active and ongoing approach. The vast majority of our clients choose to have us actively manage their accounts.

Can you work with clients who live out of state?

Yes; we have many out-of-state (as well as in-state but distant) clients with whom we communicate solely via phone and email. We are perfectly comfortable with this approach so long as the client is comfortable as well.

What are your minimum investments?

We are proud to have scaled our processes so that we can provide active investment management even for those investors with smaller accounts. However, due to administrative overhead costs we are compelled to require a minimum household investment of $25,000. This minimum is waived for active 403B accounts or other accounts with automatic monthly contributions.

What types of accounts can you manage?

We can manage many account types, including:

• Traditional, Roth, or rollover IRAs;
• 403Bs;
• 529 College Savings Plans or Coverdell Education Savings Accounts;
• and plain old taxable investment accounts.

For businesses or indepedent contractors, we can also set up and manage employer-sponsored retirement options such as:

• SEP and Simple IRAs;
• Individual-Ks;
• and 401Ks.

We cannot manage active employer-sponsored 401Ks (unless we have set them up ourselves) or Thrift Savings Plan accounts, but we can convert former employers' plans into rollover IRAs that we can manage.

We can also manage annuities, although we feel in general that annuities are only a good choice in specific and relatively rare situations.

We can manage accounts on behalf of individuals, companies, and trusts.

Do you communicate with investment clients on an ongoing basis?

An important facet of the long-term, value-based investing strategy that we practice is to thoroughly understand and have confidence in one's investment themes. This helps to prevent one from panicking out of a perfectly sound long-term investment during a temporary correction or feeling compelled to chase the latest investment fads.

For this reason, it's very important to us that our clients understand what we are doing and why. In addition to the articles on this website, we send regular letters to our clients describing our thoughts on the current market situation and the strategies that we are employing.

We are additionally always happy to answer any questions that aren't covered by the articles and letters or to discuss any changes to or questions about our clients' financial situations.

I'm interested in a managed investment account, financial planning, or one of your other services -- what now?

If you think you might be interested in working with us, please contact us to let us know what your situation is and how you think we might help. If there appears to be a good fit, we can set up a meeting by phone or at one of our offices in Del Mar or South Bay.