ANALYSIS OF SCREENING PORTFOLIOS SUBMITTED
The first portfolio (AXXXX) is a $4 million portfolio. The portfolio removed only 2% of the uncompensated risk that could have been removed, whereas the benchmark only removed 7%. At this portfolio level our experience tells us that at least 70% of the UCR not removed can be removed by a coordinated effort between PFA, the fiduciary/trustee and the investment adviser/broker. Portfolios smaller in size have smaller removal opportunities and the expected UCR removal drops to about 50%. But, in some cases the smaller portfolios are so poorly diversified that the recovery can also be 70%. Seventy percent of the difference amounts to about $33,000 in the year studied.
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The second portfolio (RHXXX) totals $800,000 which is partially in a variable annuity with some choices. We estimate that 60% of the remaining UCR can be removed representing about $9,000 in the year studied.
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The third portfolio (FRXXX) totaled $900,000 was a designed ETF equity portfolio after putting aside immediate funds needed for fulfilling a special needs trust. We estimate 70% of the remaining UCR can be removed by rebalancing and utilizing specific equities as well as ETFs where applicable. This would represent approximately $12,500 in the year studied.
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The fourth portfolio (XRXXX) totals $7,100,000 and is a portfolio with over 500 securities which is touted as being diversified just on the basis of an overwhelming number of securities. The max UCR portfolio consisted of only 38 constituents. The analysis was specifically designed to measure the results for the first quarter of 2018. This was done to measure results during the volatility that occurred the first quarter of 2018. We noted in the process that the 1.3% fees being charged by the wealth management company were excessive for this size of a portfolio. Regardless of the difference in fees the max UCR portfolio gross return was .29% for the quarter whereas the actual portfolio was a gross loss of -.23% for the quarter. This alone, aside of the fee difference, amounted to $36,000 for the 3 months studied; with lower fees the amount would have been over $50,000.
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