Once the client selects us as the portfolio manager, the following major initial steps are followed before we start investing the funds. We set aside a significant amount of time (in person and/or by phone) to make sure that the following items are fully discussed and the decisions (guidelines) made are the ones the client feels comfortable with.
We discuss and determine the financial goals after acquiring relevant personal and financial information of the client as well as financial history. We provide an overview analysis of the current assets and investment vehicles from financial and social criteria perspectives. We administer a risk preference questionnaire which provides a good assessment on the risk tolerance preferences and risk-return parameters of the client. Based on the information from and discussion with the client, decisions are made on the following (after going back and forth for modifications and refinement):
- financial goals and time frame
- asset allocation guidelines (maximum and minimum percentages) including amount of liquid funds required
- investment style and vehicle preferences (preferences for large, medium or small stocks or a mix), and
- investment term horizons (short, medium and long term)
These decisions can be modified as the financial and personal situations of the client or the organization change over time.
Investment Policy Statement
The decisions regarding financial parameters made above and a clear definition of the roles and responsibilities of each party are incorporated into an investment policy statement which are reviewed and signed by the client. This document acts as an overall guideline for investment management.
Social Criteria Parameters and Personal Values
We discuss the life and personal values of the individual client, organization or company. This discussion provides a broad view of what is important to the client. We then discuss various social criteria areas (see issue areas listed elsewhere) and determine which areas are the most important, next important and so on. We determine what kinds of companies to avoid on a relative or absolute basis. We discuss what kinds of companies or positive impact areas to emphasize, on a relative basis. We also discuss how much, if any, of the smaller positive impact companies to include in the portfolio. We further discuss the desire, if any, of directing investments into community investing, indirectly through community loan funds or other intermediary organizations or directly into specific projects.
Account Application and Transfer of Assets
The next step is to fill out an application to open an account, investment manager agreement form, and forms to transfer the assets the client holds in other places. This process is relatively easy, and the transfer of assets usually takes about 2 to 3 weeks, depending on how quickly the current holder of assets responds.
We can transfer the client’s assets in kind. This means we can transfer various stocks, bonds and mutual funds exactly as they are into our firm’s client account without having to sell it before transfer. Of course, money market funds and cash can simply transfer as cash. Many clients transfer securities that both the client and we are interested in selling for social criteria reasons but which have significant capital gain attached to it. In order to minimize the tax consequences of the sale of these securities, we discuss and work out a timetable for sale of all such securities over a period of time (one year to a number of years depending on the clients) as well as developing other strategies to minimize tax. Thus, it can take a few months to a number of years, depending on the desire and tax situation of the client, to completely transform the portfolio into one that is in line with the social guidelines of the client.
Investments, Reports, and On-Going Communication
Detailed monthly reports are provided by Schwab and T.D. Waterhouse. We work with these two firms as the custodian and broker for trading . All funds and securities are in custody at these firms. Thus, our firm does not hold any of client’s funds or securities.
They provide monthly reports directly to the client with a copy to us that show all trades, transactions, and balances with a complete listing of all assets and related data on them. We provide the quarterly reports showing performance and listing of all assets.
As described elsewhere, we are committed to on-going communication with the clients. We conduct and welcome phone or personal meetings with clients at any time. We will have quarterly or annual meetings with clients as desired by the clients. We also provide periodic written or email communications to clients on issues as they come up, especially on social criteria issues on companies or the general economic outlook.