Q: Why invest with DCA?

A: DCA is a Registered Investment Advisory firm formed under the preface of a simple, pragmatic, and morally right idea. Offering clients intelligently constructed investment solutions that intuitively allow them to match their investment objectives, risk tolerances, and time horizons with investment solutions that are delivered at a cost that is fair relative to the type of investment strategy being employed. In summary, our investment solutions are predicated upon the notion that our solutions will always reflect  architectures that demonstrate efficient administrative, delivery models, that match a corresponding capital allocation strategy to an appropriate aggregate expenses burden (as it relates to the risk/reward performance characteristics of the investment strategy), as deemed “prudently reasonable”, in accordance to the expectation an expert in the field of investment management would deem to be prudent and fair in current market conditions (in other words, if the principals of DCA decided to outsource capital allocation responsibility for their own personal accounts, what would be their expectation of a fair fee relative to a given type of asset management strategy being employed on their behalf).

Q: What do you mean by “fair relative to the type of investment strategy being employed”?

A:  The model of having a commissioned based financial advisor recommend investment products tied to actively managed mutual funds, in which they get paid a commission from said recommendations, has proven to be deficient in both performance and relevancy. To explain this statement, we will point out two points of facts that are derived from real world experience/observations as evidenced by numerous studies and data sets.

1. 25+ years of data measuring mutual fund performance has demonstrated that overwhelmingly, the average mutual fund does not generate sufficient returns over long periods of time, as compared to an applicable low cost index, to justify their average higher expense burdens, relative to a low cost index fund.
2. Fifteen to twenty years ago the ability to gain exposure to a certain asset class via a low-cost index fund was confined to a very narrow scope of indices/securities type (namely the S&P 500). In 2009, this is no longer the case, as technology has enabled Index funds to grow significantly in both numbers offered, and in the type of securities/asset classes that can be accessed via low index securities.

As a result, it is demonstrated empirically, and has been for some time, that high expense actively managed mutual funds have proven to be generally poor investment vehicles (from a risk/reward perspective) for most individual investors seeking a conservatively postured investment portfolio for a retirement solution.  

To clarify this point, we refer you to the hypothetical example DCA provides in its service section of the website, which demonstrates, with all other things being equal (which studies prove to be normally the case with respect to investors in mutual funds), the effect expenses can have on the ending balance of a retirement portfolio over a long period of time.  

Q: What does “helping you keep more of the pie” mean?

A: DCA operates on the premise that long term capital appreciation can only be accomplished by looking at all aspects of an investment strategy; this includes all expenses passed down to the investor. So DCA tries to cut overall costs not only through the use of low cost investment vehicles and brokers, but also by outsourcing its administration and custodial work to firms that are not only well respected in the industry but have proven to have low overall operating costs that we can pass along to anyone who invests with DCA. Thus enabling our investors, specifically those seeking retirement solutions or other conservative portfolio management strategies, to keep more of the return they generate and therefore “helping you keep of the pie”.

Q: So does a .50%- 1.5% differential in expense fees really matter?

A: If you’re paying the above average expense fees, in exchange for being invested in mutual funds, then the answer is a resounding yes. Two key points have to be considered when assessing the merits of an investment strategy predicated upon the use of highly diversified investment instruments such as mutual funds.

1. Returns, before expenses, gravitate toward the average of an applicable index over time.
2. Studies have proven that past returns of mutual funds, Morningstar ratings, manager tenure, and various statistical measures emanating from Modern Portfolio Theory, all prove to be unreliable proxies for predicting future fund performance.  

As a result of the previous two points, an objective analysis weighing the 25+ years of historical data measuring mutual performance clearly demonstrates that over time, excessive fees are unlikely to be offset by an equal or greater annualized gain, thus resulting in lost potential capital appreciation. See the DCA brochure to view a hypothetical example of what a 1.5% differential in expense can have over a thirty year time period.

Q:  How are DCA’s investment solutions different from those recommended by your current financial advisor or planner?

A: Most financial professionals, whom advertise their services under the title of financial advisor, operate under the designation of a broker dealer license. What this means to the client, is that the financial representative making recommendations to you:

1. Often receives compensation through commissions.
2. Only has to recommend a product or investment strategy that is reasonable in relation to your risk tolerance and life circumstances and not necessarily in your best interest.
 

As a result, it is unlikely that a financial advisor’s investment recommendations, either because of a lack of incentive or a deficiency in knowledge, will properly account for the cost and risk/reward characteristics of investing in actively managed/high expense mutual funds, as proven by 25 five years of historical data sets and studies. DCA is not a broker-dealer, financial advisor, or salesman for any fund group; hence we manage your assets directly and receive no commission related incentives.  

Q: So are mutual funds poor investment vehicles?

A: Actually, DCA uses mutual funds as a large part of its investment strategy, but there are few actively managed mutual funds that have routinely beaten their applicable index. Statistically speaking, more than 90% of actively managed mutual funds have not beaten their applicable index over the past 20 years. Actively managed or high expense mutual funds, have proven to be, in the long term, inferior investment vehicles when compared to alterative low cost index funds over the same periods of time for investors trying to achieve a diversified exposure to marketable securities, irrespective of asset class. DCA uses low cost index funds as the base of its investment strategies for retirement investment solutions.

Q: How do I know if I’m getting poor investment advice?  

A: If all your investment advisor or financial planner is offering you are high cost actively managed mutual funds, you should be wary. Also, if they are only offering you mutual funds from one fund family you should also be skeptical, because most likely they are receiving a commission from that fund group to push those particular funds. You should also look at the management fees you are being charged and if they exceed an aggregate of 0.80% then most likely you are over paying for the services being provided to you by your financial professional.

Q:  What if I want to try to beat the market?

A: DCA has solutions that are designed around individual securities employed in a concentrated non-diversified portfolio for qualifying investors. The fee structures for these types of accounts are more aggressive and they usually include a performance fee on top of our basic management fee.

Q:  What is DCA’s view on the cause and solution with respect to the current economic downturn?

A: DCA’s own personal analytical assessment of the current financial/economic upheaval is deemed to be a function of three main elements:  

1. A principal agent dilemma permeating and manifesting in various forms within the America economy, as most aptly observed via the market dynamics exhibited in both the financial service-asset management industry and likewise, in the general behavior observed in the corporate governance standards of large public entities (reflected in compensation practices that leave large potential gains on the upside, but little probability of loss on the downside). A free market capitalistic system is designed to reward those most generously who have either: a.) Brought innovation to the market b.) Risked capital, or c.) Some combination of (a) and (b). A CEO of a large public company, though tasked with great responsibility, has in most cases not facilitated explicitly the creation of an innovation or risked significant capital. As such, a competent shareholder base (which unfortunately is far to uncommon) should bind the board of directors to reflect this reality in their compensation practices (common sense reasoning dictates that building a business franchise/foundation is an endeavor most intertwined with inertia, adversity, risk, while maintaining it, or even growing it from a base foundation, entails equally less talent for innovation and likewise, risk).
2. Monetary, business, and capital distorting polices caused by China and other emerging/developing economies that, as a result of point number one, were unable to be properly absorbed by the U.S. capital markets.  
3. With respect to a solution, inevitably the veracity and speed in which short term credit markets seized to function in a normalized manner invariably had to be addressed (business models predicated upon this model, with respect to financing working capital, cannot be changed overnight. Moreover, it was reasonable to assume, in many cases, that it was a sound business strategy for credit worthy companies to predicate working capital management strategies on a well functioning capital/banking market which by definition, assumes these entities are controlling risk to a competent enough degree to assure that even in a recessionary environment, the integrity of these credit markets would be maintained). Beyond this, DCA views many of the solutions implemented to mitigate the effects of the crisis to be, in general, inadequate; as they largely do not address the root cause of the problem and therefore, will have long term ramifications that in most cases, will likely cause future disruptions to continued/controlled economic growth.

To clarify point number three within the frame work of the first two points, DCA views the ramifications of point number one, even if it had been addressed and/or not a relevant factor, to be inconsequential, from the standpoint that such scenario would have only delayed the inevitable effects of point two. In retrospect, therefore, the principal-agent problem effecting American capitalism only accelerated the inability of the American capital markets to inadequately absorb excess liquidity, and was not necessarily the driving force of the current recessionary environment. DCA believes the ramifications of the current economic stimulus being employed; as well the continuation of many of the structural deficiencies which skewed risk management and the cost of capital in the first place, must explicitly be factored into the risk/reward assessment of any investment strategy.

Q: Are DCA’s solutions tax efficient or customized to achieve said effect?

A:  DCA’s investment philosophy is by its very nature, tax efficient, as we seek long term positions (and therefore capture long term capital gains when applicable in the majority of the instances), irrespective of the security type.   With respect to customization, we believe this notion is often misrepresented by selling parties of financial solutions, as generally, there are a very limited number of core investment philosophies that can be employed, and moreover, tax effect should always be captured in the analytical process of any prudent asset manager. We do not setup trust, and/or other structured vehicles to mitigate tax effects; however, we will manage assets on behalf of a trust.