Identifying and Mitigating Unrecognized Risk

Background

While risk is a constant, mitigating an institution’s exposure to potential pitfalls is critical to the success of any investment strategy. Identifying and diminishing this exposure is not possible without an in-depth evaluation of current strategies, especially when it comes to institutions with multiple investment portfolios. An educational institution unknowingly facing this type of challenge hired LAMCO to oversee their overall investment portfolio, which was comprised of a long-term endowed portfolio and a short-term portfolio.

Solution

Following a thorough evaluation of their current strategies, which, at face, appeared to be conservative, LAMCO noted that the institution was actually underwriting a substantial risk. LAMCO advised that the unspent funds needed to be available on demand and at their full value (Book Value). Because those funds were invested, the market value could be lower than the Book Value at any time, and if this were the case when the funds were demanded, the foundation would have to make up that deficit. Because the foundation had not maintained any reserves for this purpose, nor were they intending on building any reserves, they were taking a substantial and unrecognized risk.

LAMCO worked with the foundation staff to help build various cash flow models. Using these models, we divided the short-term portfolio into two and a liquidity portfolio was established to fund cash flows expected to be required in the next 24 months. The risk level of this portfolio was reduced substantially from the then current short-term pool. The short-term pool maintained the same strategy, which was deemed to be appropriate for cash requirements that would be needed in 24 to 60 months.

Results

Heeding our advice, about 60 percent of the assets remained in the short-term pool while 40 percent transferred to the liquidity pool. The amount of money that was transferred to the liquidity pool underscores the magnitude of the unrecognized risk that was being assumed, helping create a more stable investment strategy for our institutional client.

Working Together to Build a Successful Strategy

Background

Facing unique challenges and working towards specific goals, building a successful institutional investment strategy requires a thorough understanding of what success looks like for these organizations. Our client had a clear vision of where they wanted to be financially, and the resources to make that vision a reality, however, they lacked a sound strategy.

Solution

LAMCO became actively involved in our client’s strategic planning process, which included understanding their organization at a granular level. We became familiar with the opportunities that existed, the challenges they faced, and the risks, both near-term and long-term, that could derail their plan.

LAMCO participated as an advisor to their strategic planning committee and worked with their other strategic advisors to develop a customized investment strategy that addressed short-term risks and focused on long-term opportunities.

We developed a bucketed approach, with each bucket targeting a unique investment objective and possessing different risk, return and liquidity parameters. The allocation amongst the buckets was determined not by investment metrics but by business success metrics unique to their institution, allowing the strategy to be adjusted as their needs and/or business risks change.

Results

The investment structure LAMCO helped develop was presented to their strategic planning committee, investment committee and board, and received unanimous approval. By seeking the professional advising of our experienced team, our client took the first step in making their desired future success a reachable reality.

Wealth Advisors, Life Advisors

Background

An established executive, our client had made a successful career at a company that had recently been sold to a private equity firm. Over time, his role within the company had changed and he became disillusioned with the direction the company was taking and with his job responsibilities. Emotionally, he needed a change. While, on paper, this client had a substantial net worth, most of it was tied up in stock and options in the privately held business.

Solution

Considering a one-year sabbatical, a career change or acquiring or starting a business, LAMCO was engaged to help build the necessary scenarios to gauge the impact of such a change. We built complete forecasts of our client’s options for redeeming his stock at a discount, the potential loss of income over a short to intermediate horizon, the capital required to acquire or start a business and the return that would be required on that investment to offset the temporary loss of income and forgone earnings on investments.

Ultimately, we determined that making any change would result in a financial setback that would be difficult to recover from, and instead helped our client devise a five-year plan that afforded him the structure he needed to remain emotionally engaged in his current position while building options that could provide him with a viable exit strategy.

Results

Within two years, the private equity firm sold the business and the client received the maximum payout on his equity and options. Today, our client is financially secure and focused on investing his financial and intellectual capital in helping businesses reach their full potential.

For most of us, there comes a point in our lives at which we must make decisions, albeit tough ones, to best set ourselves up for future happiness. Making those decisions with purpose using robust, unbiased advice can help ensure the path you choose is the right one.

Looking Beyond Numbers to Build Security

Background

Known for surpassing our roles as wealth and investment advisors, we were approached by a client facing several obstacles, both financial and personal. With an ailing husband, this client needed help budgeting her expenditures to ensure her financial future was sound, but also that she wasn’t sacrificing her current wellbeing for future financial security. We were challenged to look beyond numbers to not only build a sound financial plan, but also build emotional security and stability.

Solution

Her portfolio had been too aggressively positioned with her previous advisor and, as a result, her investments had suffered larger than expected losses. We repositioned her portfolio to reduce her risk and improve tax efficiency, and designed reporting that allowed her to feel in control of her portfolio.

We helped our client analyze her cash flow needs and identify areas for potential savings, listening to her as she explained the lifestyle she wanted and translating those goals, wishes and desires into an actionable plan. LAMCO built a support structure around her that allowed her to have her questions answered quickly and accurately by a tight-knit team of professionals she could trust, pacifying her anxiety with sound strategies and proven solutions.

Results

Private wealth management is about more than just dollars and cents—it’s about understanding and truly caring about the financial and emotional wellbeing of our clients. For this particular client, LAMCO transcended the role of financial advisor, instead acting as a trusted and experienced sounding board for everyday life decisions, financial and otherwise. We were successful in helping our client stay on course through health and family challenges, understanding both the financial and emotional impact of these obstacles.

Sound Advice to Avoid a Life-Changing Mistake

Background

Our client’s previous advisor had built a diversification plan that focused only on tax minimization, leaving our client vulnerable with a large portion of her portfolio in a single stock. Worried a lack of foresight might hurt her investments’ potential, she sought a second opinion and engaged the LAMCO team for our expertise in portfolio diversification and focus on long-term success.

Solution

We started by conducting a complete evaluation of the security and noted the historic volatility of the stock. We built a customized analysis to do this, which overlaid that client’s cash flow needs and objectives with historic volatility to demonstrate why the existing approach was not prudent. Finally, our team constructed a new strategy, which accelerated the diversification and established a liquidity fund to meet cash flow obligations for the next 5 years.

Results

Within 9 months of starting this process, what every investor dreads happening, happened. The stock lost over 50 percent of its value. However, because of the collaborative approach followed, our client had diversified a majority of her exposure in the security and her lifestyle and objectives remained unchanged as a result.

Efficient Corrections and Audit Support

Background

After discovering that their platform had failed to auto-enroll almost 150 participants over a period of 18 months, the plan’s sponsor contacted the platform for assistance. Their platform representative claimed it was the client’s responsibility to correct the error, knowing it would be a costly and time-consuming endeavor. Frustrated, the client contacted LAMCO seeking experienced counsel.

Solution

The LAMCO team, which includes a Qualified 401(k) Plan Administrator and an ERISA Attorney, quickly got to work smoothing the situation. We contacted the platform and were able to put a correction plan in place to ensure our client’s plan was back on track as soon as possible, with the least out-of-pocket costs.

Results

LAMCO oversaw the enrollment process to completion. Though the total cost of the correction came in close to $131,000, LAMCO negotiated on the client’s behalf and we were ultimately successful in getting the platform to contribute just under 50% of the cost—the maximum they were allowed to pay.

The LAMCO retirement plan team documented the entire correction process for the plan’s auditors and the plan’s records. This documentation proved to be invaluable when, 12 months later, the plan was audited by the IRS. Our client turned to LAMCO for support again, and we were ready to help.

Our on-staff Enrolled Retirement Plan Agent designee coordinated the response to the IRS and was onsite to represent the client during the audit. The thorough documentation and rigorous organization of the records was noted and commended by the IRS agent, who was able to complete his onsite audit in only 4 hours.

Unique Focus on Participant Engagement

Background

Upon being selected to run the retirement plan for a national restaurant chain, we immediately recognized the need for a unique approach to the plan’s management. Restaurants typically have low participation and deferral rates due to the large number of employees who receive tips as a portion of their compensation (“tipped employees”). Auto enrollment would also not be a viable option, due to a high degree of employee turnover and the tipped employees.

Solution

In order to drive participant engagement, education and enrollment, LAMCO designed a customized enrollment and information program that focused on working with participants to teach them about their plan options and their financial futures. We created customized printed materials that showed each participant their potential retirement shortfalls and what their futures could look like with the proper amount of planning.

Results

By providing onsite education and guidance sessions to help restaurant employees feel comfortable and confident about their retirement plan, LAMCO was able to increase enrollment by almost 500 percent and boost the average deferral rate from 2.7 percent to 6.5 percent.

In-Depth Plan Evaluations and Cost Savings

Background

A nationally recognized firm issued a Request for Proposals in search of a new retirement plan service provider. While LAMCO was referred to them after the RFP had been completed and they had made their selection, we asked for the opportunity to review the winning proposal to demonstrate our capabilities.

Solution

Our review noted that the winning provider made a recommendation to include a Safe Harbor contribution, however the provider failed to recognize that the company had recently purchased another firm. The newly acquired company had seven times the number of employees as the original firm, making them a controlled group. Adopting this change would have required the parent company to offer the same benefit to the subsidiary company, resulting in an additional $480,000 cost.

Results

By conducting thorough research and in-depth evaluations, LAMCO was able to identify a major issue with the firm’s current retirement plan service provider. The contribution cost quoted by the provider was significantly lower than what the actual contribution cost would have been. Our diligent work to fully understand our clients’ needs and situations helped make a difference amounting to nearly half a million dollars for this LAMCO client.