Terminology

Lottsa Financial Services, Inc. is a fee-only advisor adhering to a fiduciary standard.

Fee-Only means that our sole source of revenue is what we bill to our clients. You can be assured that there are no referral fees nor is there compensation that is contingent upon the purchase or sale of a financial product.

A fiduciary standard means that we always exercise our best efforts to act in good faith and in the best interests of our client, and that any (potential) conflicts of interest we are aware of will be disclosed.

Fee Only

There is a confusing array of companies and individuals offering “financial services” to the public. It is often difficult to select a qualified provider who is a good fit for a particular individual or family. Far too often people have been taken advantage of by “financial services” representatives. We’ll describe some of the things that we value and leave it to you to determine if our approach is a match for what you seek.

We can begin by agreeing that advice is not free. Everyone in the financial services industry is out to make money – us too. You’re on our website to consider hiring a financial advisor and you expect there to be costs associated with that decision. One of our core beliefs is to be very up-front about our fees so that you can make informed choices about what you’re purchasing and whether what we offer has value for you.

Our contract will spell out how much you’re going to pay us, what we’re going to provide in exchange for those fees, and how they’re to be calculated (hourly, % of assets, negotiated fee, etc). We don’t receive commission streams, referral fees, or “hidden” income of any sort. We pride ourselves on transparency in the fee structure.

We believe that by being fee-only advisors, we are able to maintain the maximum amount of independence in offering advice. Although we do recommend insurance providers, attorneys, bankers, brokers, etc, there is no compensatory link in those relationships. We will refer you to people/firms that we think are worthy of trust and that provide good value and service to clients. We think that you can rest more easily knowing that there are no economic incentives weighing upon our recommendations.

Fiduciary Standard

We think that this sets us apart from many other financial services professionals, although thankfully the SEC appears to be moving toward requiring this. Our advice is always illuminated by “best interests of the client”. How this may impact you is best illustrated through a couple of examples.

Many practitioners adhere to a “suitability” standard. Assume that the client needs $500,000 more life insurance. Under a “suitability” standard, the agent moves right to selling one of the products that (s)he represents and that is perfectly acceptable under that model.

Using a fiduciary standard, though, we look deeper and consider such things as:

  • Appropriate mix of “term” and “permanent” insurance,
  • Financial wherewithal of the carrier,
  • Pricing, and
  • Relative cash value accumulations.

We weigh these different considerations in light of what we know about the client’s needs and then formulate a recommendation. Not only is it more holistic, but by utilizing low-load insurance vendors we are often able to guide clients to comparable coverage while enjoying lower premium costs.

Let’s try a mutual fund example. Having established that Client needs to increase her exposure to domestic large-cap equities (stock market) by $20,000, there are a plethora of investment choices available. Suitability checking ends there – any of these will do. The rep may be honorable by providing additional screening so that good choices are presented to the client. Of course, the rep may not do so yet (s)he will not have violated the suitability standard.

In contrast, under the fiduciary standard we must look deeper. There are a lot of factors in choosing a mutual fund – here are just a few. We may consider the relative success of the strategy employed, the experience of the manager, the risks taken on, and the long-term holding cost before recommending a specific fund. Although these considerations cannot guarantee future results, we think that they increase the probability of making a sound choice. Better to know that our recommendation is what we think is best for you instead of wondering how much the advice was tainted by the compensation of the selling representative.

Conflicts of Interest

One of the real minefields in financial services is the number of conflicts that exist. By eliminating streams of revenue from commissions and referrals, many of these are eliminated. Others, however, remain. There is no way we know of to eliminate all conflicts of interest.

Since they cannot all be eliminated, one of our goals is to be vigilant about these conflicts and to point them out whenever we are aware of them. You will find an expose’ of them in our registration form ADV on file with the state of MN and provided to all of our clients prior to engaging our services and annually thereafter.

As an example, consider a situation where we are the managers of your $1,000,000 asset portfolio and you have a $300,000 mortgage with a 5% interest rate. Assume too that you are paying us 1% of assets as a management fee. One of the scenarios that we have to consider is the advisability of having you pay off the mortgage using some of the $1,000,000 that we’re managing. Doing so has no effect on the client’s immediate net worth – it’s $700,000 with or without the mortgage. However, if the client pays off the mortgage, then we are managing $300,000 less in assets and LOTTSA’s fee declines by $3,000 per year.

This is a potential conflict of interest which you should be aware of since it may color the advice that you receive. Under our fiduciary standard, though, we are required to disclose this conflict and to base our recommended strategies for the mortgage using our best professional judgment of what is in the client’s best interests.