FAQs
THE FIRM
Who is Arlington Capital Management?
Arlington Capital Management is a premier, private wealth management firm, offering investment management and wealth planning solutions to the financial issues facing our private client group. We have maintained a leadership role in the investment management and advisory profession by using a proprietary investment methodology. As a fee-only investment advisory firm, our revenues derive solely from fees paid directly to us by our clients. The relationship with our clients is that of a trusted advisor, not a broker. We maintain a fiduciary responsibility in working in the best interest of each client, eliminating potential conflicts associated with commissions or proprietary investment products.
Members of our private client group benefit from proactive investment management strategies, such as our Proactive Asset Allocation Strategy (PAAS), Proactive Income Strategy and Proactive 401k Strategy. Using a proprietary research database and investment methodology, all investment management decisions are handled in-house. We do not outsource asset management to out-of-town money managers.
Many investment advisory firms specialize in either financial planning or asset management. The financial planners tend to outsource their clients’ asset management to out-of-town money managers whom the client, and sometimes the advisor, does not have direct access. Review meetings and communications occur regularly with each client and their advisor.
Our private client group consists predominantly of individuals ranging in age from 35 to 90 years old. Our average client is age 57, in a pre-retirement situation, although many are retired and drawing their retirement needs from the portfolio we are managing. Our clients tend to have similar psychological characteristics.
- They don’t have the time to manage their own assets effectively.
- They may have the intelligence and wherewithal to manage their own assets but they want someone to do it for them.
- They don’t have the discipline to manage their own assets. They get too emotional.
The firm is privately owned by Joseph F. LoPresti (our President and Chief Investment Officer). Mr. LoPresti is an experienced portfolio manager backed by a highly qualified support staff. All the professionals working with our clients have completed the firm’s proprietary educational and training requirements.
INVESTMENT MANAGEMENT
What is your investment management philosophy?
Members in our Private Client Group benefit from a dynamic and proactive investment strategy designed to be flexible and adapt to prevailing market conditions. We strive to protect you during inevitable market declines, navigate your portfolio smoothly through rapidly changing environments, and capitalize on current opportunities.
We believe it is important to start with an appropriate asset allocation model based on your risk tolerance and personal financial situation. We manage five risk-type models ranging from aggressive to conservative. Each model is managed proactively in an effort to reduce risk during high-risk or bear market conditions, while maintaining the flexibility to grow your wealth during bull market conditions.
How does your firm’s investment philosophy differ from others?
We reject the use of a passive asset allocation approach popularly used by many investment advisors and financial planners, whereby a percentage of your portfolio invests in various asset categories and you hold on through thick…and thin. We find this approach archaic and uneducated. There simply is no reason to sit and watch a percentage of your portfolio experience a prolonged stint of extraordinarily poor performance. You will benefit from our proactive asset allocation strategy (PAAS) using proprietary asset class indicators.
Many money managers are dedicated to one specific style of investing. We disagree with this strategy because it works well only when their specific style is in accord with the prevailing market conditions, resulting in inconsistent performance for you. Our firm has found success in using a dynamic strategy. We strive to add value through active management using our buy, sell and reallocation signals, as well as our proven asset class selection system to help us know what to own.
What type of investments do you make?
As an independent registered investment advisor, we have access to the entire universe of investment alternatives. We currently employ the following investments:
- Exchange-Traded Funds & Notes (ETFs & ETNs)
- Individual equities
- Various income producing assets including bonds, preferred stocks, energy trusts, REITs, etc.
- Institutional no-load mutual funds
- Other instruments can be used at the discretion of our investment management team
We design and implement a customized investment portfolio for you utilizing the above security types. As fee-only advisors, we focus solely on your best interest. We base the investments selected for you on the expectation they will fulfill a desired result in the most cost efficient manner.
The actual composition of your portfolio will depend on a number of variables such as your asset allocation model, personal financial situation, current market conditions, etc.
There will be a “core” base of diversification in your portfolio using our Proactive Asset Allocation Model. The securities selected in the “core” base are Exchange Traded Funds (ETFs). Occasionally, an ETF does not exist in a particular asset class we are targeting for the “core” base. In these cases, we will select a no-load, mutual fund with the lowest expense that will accomplish our desired investment objective or a basket of individual securities that will provide your portfolio the desired exposure to the selected asset class.
We are committed to continuous development of new technologies to help understand capital markets in ways not yet realized. The investment strategies we use will help you reduce life’s stress and make more confident and informed investments.
Is my account bundled together with other clients or managed separately?
Your account is managed separately from other clients. This allows for personalized management based on your tax and other considerations.
Why should I choose a separately managed account over a mutual fund?
When you invest in a mutual fund your money is pooled with many other investors' assets. For this to work well for everyone involved, each investor's objectives and circumstances should be identical. A key benefit to choosing a separately managed account is the ability to structure a portfolio according to your specific needs. With a separate account, issues such as concentrated positions, personal tax situations and income needs can easily be addressed. Another key benefit to a separately managed account is the ability to manage assets you already own. Mutual funds will only invest cash you give them. For many investors, the more difficult decisions are what to do with securities they already own.
How often will you trade in my account?
Your account will be traded only when we deem it necessary to keep you positioned in accordance with the prevailing market conditions. We have no incentive to trade your account more than we find necessary. We do not earn trading commissions. We do not get paid to transact your account; rather, we get paid to manage it. Our only basis for deciding when to enter into a transaction for you is based on your best interest.
How frequently do you review my investments and account?
Daily. All of our asset allocation models are centrally managed. Our Investment Committee meets daily to review changes in market, industry sector and asset class conditions. If we find it appropriate to make a tactical change to your asset allocation model, that change will be reflected in your portfolio that day. All securities (stocks, bonds, funds, etc.) held in your account are also reviewed daily to monitor the desired result expected from those positions. If any security strays from the desired result, it is sold or other risk management strategies are implemented. In addition to the daily review of investment positions, your personal advisor will manually review your account regularly to make sure your asset allocation and the securities held are in accordance with our desired investment strategy.
WEALTH PLANNING
What is your wealth planning philosophy?
We believe the best plans are those that are executable. In the age of computerization, many financial planning strategies have become too complex to be carried out effectively. We develop common sense plans for you that our investment management team can execute.
Goal Setting
We believe it is our responsibility to educate clients in the process and to assist them to define, quantify, and prioritize their goals.
Cash Flow
We believe cash flow should come in the form of a combination of income (dividends and interest) and capital appreciation. Clients in need of cash flow for retirement or other needs should seek total return, not just dividends or interest. The traditional concept of a fixed income portfolio to satisfy retirement needs is inappropriate and archaic. Retirement needs will grow as the cost of living increases. Clients will need appreciation from their portfolio to provide increased cash flow needs.
Expectations
We believe both conservative and aggressive assumptions are dangerous. An investment plan should not be prepared based on unrealistic expectations.
Risk Tolerance
We believe your risk tolerance is an important factor in the wealth planning process.
Asset Allocation
We believe your appropriate asset allocation model is based on a combination of risk tolerance and your personal financial situation.
Expenses
We believe a primary element of responsible asset management is the minimization of controllable expenses. We select investments for you based on accomplishing a designated investment strategy at the lowest cost possible. As your fiduciary, we are always conscious of your expenses.
Taxes
We believe taxes are an important consideration in wealth planning. Both cash flow needs and return expectations should be based on after tax assumptions.
Taxes are also an important consideration in investment management decisions; however, they should not be the dominating consideration. Investment decisions should be primarily based on the ability of a particular security to provide a desired result. Often times, certain securities need to be sold with the goal of protecting unrealized gains. We believe in “making it and keeping it”. Taxes should be considered a cost of successful investing. The alternative does not appeal to us.
Total ReturnWe design our asset allocation models to deliver a total return. Total return includes income (from dividends and interest) and appreciation of securities. Total return investing focuses on the net portfolio change in market value and, except for the impact of taxes, is indifferent as to whether market value change comes from income or appreciation.
COMMUNICATIONS
Will you consult me prior making trades in my account?
Not generally. You will want us to react quickly to changes in market conditions or other situations we may encounter. The custodian holding your account will immediately provide trade confirmations to you on every transaction we enter into on your behalf. When making important changes to your portfolio allocation, we will generally send you a Flash Report via your preferred means of communication. The report will brief you and provide a rationale for the transactions made. The transactions can be further discussed with your personal advisor via phone or email, or during your next review meeting. Of course, you also receive our insightful market updates and PAAS reports, which summarize our thoughts on market and economic conditions.
Monthly account statements are also sent to you by the custodian holding your account, summarizing all activity for your account. You will receive a comprehensive quarterly report from our office summarizing the quarter’s activity, current asset allocation, a list of positions held, performance for the period and other valuable information.
When we first begin working together, we will collaborate and establish an appropriate asset allocation model (from aggressive to conservative, or somewhere in between) based on your personal situation. You will understand and agree with the general asset allocation model used to manage your portfolio. We have the discretion to decide what securities you own and when to make changes to your portfolio. When implementing our investment strategies, you will want us to react quickly to changes in the market.Can I review my account online?
Yes, providing your custodian has the ability. All of our recommended custodians offer online viewing of your account.How often will you meet with me?
We recommend that we meet either quarterly, semi-annually or annually depending on the complexity of your investment portfolio and wealth planning needs. It is typical that we will meet more frequently early in our relationship. When we first begin working together, there will be a series of meetings that will include one or two initial consultations. If it is appropriate to proceed, we will meet again to complete any account documents that are necessary to begin managing your assets and collaborate on the appropriate model for your personal situation. After the first 45 days, we would like to meet with you again to make sure our relationship gets off on the right foot. From that point on, there would be a quarterly, semiannual or annual meeting.
You will work directly with a portfolio manager from our Investment Management team.
Do you work with my accountant?
With your permission, we will always work with any other advisors you may have. We can speak with them directly and provide data or information allowing for seamless handling of your tax and financial needs. In most cases, we can provide your accountant data in a format that will save time… and money in tax preparation fees.
Can I trade in my investment account with you?
Generally, we do not recommend that you trade in any investment account we are managing. We will however, be happy to open a trading account for you to make your own investment selections and trades.
FEES AND EXPENSES
We are solely compensated by advisory fees paid by our clients directly to our firm based on the value of assets we are managing. The firm is not a broker/dealer and derives no revenue from transaction charges. By charging a percentage of assets under management, our incentive to perform well is directly aligned with your investment objectives. We receive no commissions or referral fees. You want us to be an advisor you can trust and is working in your best interest at all times.
Investment Management Fee Schedule
For families with investable assets greater than $500,000
Assets Under Management
$0 - $1 million | 1.50%, $7500 annual minimum fee |
$1 M -$2.5 M | 1.25% |
$2.5 M - $5 M | 1.00% |
over $5 million | .80% |
For families with investable assets less than $500,000
Assets Under Management$0 - $500,000 | 2.00%, $4000 annual minimum fee |
$500,000 - $1M | 1.50% |
$1 M -$2.5M | 1.25% |
$2.5 M - $5M | 1.00% |
over $5 million | .80% |
How and when am I billed for advisory fees?
Advisory fees are paid to our firm quarterly. The quarterly fee is based on the total value of your assets under management at the beginning of each quarter (Jan1, April 1, July 1, and Oct 1).
You have the option of paying the fees directly from the assets we are managing or you can pay them separately.
In either case, you will receive a management fee statement as part of your quarterly investment report, which shows the calculation for the quarterly fee.
For many of our clients, the advisory fee is a tax-deductible expense.Are there other costs involved?
Yes. As with all investment advisory platforms, there are other potential costs; however, as fee-only advisors, we sit ‘on the same side of the table’ with you. We are diligent in our effort to control your costs.
Transactional fees are paid to the securities custodian primarily for executing trades within your account. We have negotiated very low trading fees with our recommended custodians. For accounts held at custodians recommended by our firm (TD Waterhouse, Charles Schwab), we estimate that this cost is approx. 1/4 th of 1% on an annual basis, but will vary based on the size of the account, market conditions, etc.. All transactional fees are reported on the trade confirmations.
Mutual fund expenses are associated with the operational costs of mutual funds that may be selected for your portfolio from time to time. If and when selecting funds for your portfolio, we always choose the lowest expense fund that will provide the desired investment results. Mutual funds are NOT selected often for use.
All performance reports provided to you are net of any fees or expenses you may incur.SECURITY/CONFIDENTIALITY
No. We are registered investment advisors, not brokers. We do not hold your assets. You will find comfort in knowing there is a separation between the entity managing your money and the one holding your assets. When appropriate, we generally recommend the establishment of accounts at major low-expense brokerage firms (Charles Schwab, TD Ameritrade, etc.). These firms act as your custodian and provide safekeeping services for your monies and securities. The account is maintained in your name. You are the only one who can access the funds. You provide us limited power of attorney, which means we can enter transactions in the account on your behalf. We cannot access funds from your account. Your brokerage account is insured by the custodian for as much as $500 million per account. The only funds we receive from clients are the advisory fees.
Will I be required to transfer my assets?
We will consider managing your assets at the current custodian on a case-by-case basis. When managing an account away from one of our recommended custodians there are a few disadvantages. You will not have the benefit of participating in block transactions nor will you receive preferred transaction rates. Some custodians have limited investment options making it prohibitive to implement our desired investment strategies for you.
What is Limited Power of Attorney?
Limited power of attorney (discretionary management) is the authority you provide our firm authorizing the custodian of your assets (e.g., Charles Schwab, TD Ameritrade, etc.) to accept our instructions regarding purchases and sales within your account. As we are not your broker, we cannot trade your account to benefit our firm through the receipt of commissions. Limited power of attorney does not allow us to have funds dispersed from your account, other than delivery to you at your address of record.
Through discretionary management, we can use block trading, allowing you to participate in average price execution of a block trade. When we make changes to an asset allocation model, we will act universally for all our clients, including you. For example, when we identify an opportunity we will purchase a block of that security. You will receive your allocation of that block purchase and participate in the average price paid for the transaction. When conditions arise and a security should be sold. You will want us to act quickly. When we are selling a block of a security, you will participate in the average price of the block sale.What are your policies concerning privacy and confidentiality?
You can expect us to be diligent about protecting your confidentiality. We have instituted a privacy policy, listed on this Website under Working with ACM that protects your confidentiality on a daily basis.
What about Internet protection?
We have instituted a best practice methodology of multi-layered security systems for our office, including best of breed firewalls, intrusion detection and prevention systems, and use the latest anti-virus and anti-spy ware programs. Communication outside our office is encrypted and our web-based software uses strong encryption and secure socket layer (SSL) technologies.
REPORTING
How often will I get reports from you?
Although custodians send monthly reports, we provide a comprehensive customized quarterly report to you. This report can also be generated on demand, whenever you would like to see one.
What do you provide for me at year-end for tax purposes?
Although the custodian of the assets is the official record keeper, our firm downloads complete data regarding all of the accounts under our discretionary management. Utilizing sophisticated, professional portfolio management software enables us to continually monitor your transactions and tax basis. Consequently, we can provide you, and/or your tax preparer, detailed tax-related information (e.g., realized and unrealized short- and long-term gains, taxable income, etc.) at any time. In most cases, we can provide you or your accountant data in a format that will save time… and money in tax preparation fees.