Our Focus: Woodstock’s Fiduciary Duty

Perhaps, we are entering a decade of below average returns for US stocks. From a strategic perspective, you already know that many other asset classes surrender return to equities and that the tax-free compounding of an equity-like return is the goal. If you follow the hedge fund or private equity markets you know that unless you are helping to run the fund, the managers expect you to receive and be happy with, an enhanced bond return. The upside of the investment beyond that ceiling tends to stay with the managers. Many developed markets and emerging markets tend to be burdened by excessive local government regulations and bad national tax policies and a dearth of good business operating numbers to crunch. We don’t know what the US equity market will return over the next ten years, but we believe it has an excellent chance of being better or as good as the alternatives.

Besides what to invest in, there are some important choices to make regarding how to invest. Who owns what you’re invested in? Is there a way to reduce the fees you pay? Once you determine the tactical opportunities available for the next one to three years, can you implement it and stay within your strategic objective? Most investment choices are pooled investment vehicles that may or may not owe a fiduciary duty to you, the investor. Within these structures, you are probably merely a creditor of the real owner. The real owners of stocks held in mutual funds are its trustees, of stocks held in another type of entity its stockholders, partners or managers. If things go badly for the fund management company, the US economy or the global economy you may wait in line for your assets. An individually managed account at Woodstock is in your name at a separate custodian. You own the stocks in your portfolio. Economic disaster may strike the companies you own, but you own them. And you own all the upside. A recent article describing tax loss harvesting illustrates both the benefits and pitfalls of the practice. For taxable accounts it is the long term practice of taking investment losses to offset investment gains in any tax year. [1] The prohibition on repurchase of the sold asset for 30 days, a wash sale, is what the article described as tripping up robo advisers recently, but the successful implementation of the strategy may provide an after-tax benefit of 77 basis points (“bps”), according to Betterment, LLC. [2] It is easier to implement in an individually managed account with 30 to 40 equities in it and Woodstock managers are well versed in this technique. Of course, it is impossible in a mutual fund for the investor to implement and is not the goal of the performance oriented mutual fund managers, anyway. [3] Implementing tactical insights involves watching individual companies, industries and sectors. Vanguard has estimated that asset allocation decisions implemented while maintaining a measured and steady approach to investing can generate savings annually of 300 bps, not earned consistently but earned intermittently over the years and this does not include savings from tax loss harvesting. [4]

At Woodstock you own what’s in your account, we owe a fiduciary duty to you to put your interests before ours and using tax loss harvesting and asset allocation decisions in concert with your investment manager can offset the investment management fee you pay. Strategically these “hows” ought to be “written in stone”! Now let’s deal with the tactics.

We know that you are the most valuable business development tool that we have. Your referral of a friend, colleague or family member to us is the most important way that we grow.

We thank you for your support and want you to know that we are dedicated to serving your best interest.

William H. Darling, Chairman & President
Adrian G. Davies, Executive Vice President

1 WSJ 4/16/19
2 WSJ 4/16/19
3 Vanguard claims to have patented a method of avoiding capital gains taxes by pairing mutual funds with ETFs. Bloomberg.com
4 Vanguard research, September 2016