Martinelli Discenza
Q. With what types of clients do you work?
A. Our investment advisory clients have a broad range of employment backgrounds, ages, and investment objectives. The majority of our clients are individuals, and their retirement plans (such as IRAs) or trusts. We can be particularly valuable to clients who are going through a life transition, such as retirement, divorce, loss of a spouse, or sale of a business. We are effective in translating new financial circumstances into sustainable, long-term investment strategies. Normally, our clients will have a minimum of $250,000 of investable assets available for management. We currently manage investment portfolios with over $2 million dollars for six families.
Q. What is your investment approach?
A. We are “value” oriented investors who build portfolios around a core of no-load mutual funds the managers of which seek to identify the “intrinsic value” of securities, to purchase securities at a significant discount (25% or more) from intrinsic value, and to sell such securities as they approach “intrinsic value.” “Intrinsic value” is dynamic and subject to change over time based upon what is happening in the underlying business (not in the securities marketplace).
We also seek to reduce market risk by diversifying client holdings across multiple asset classes including not only traditional equities and fixed-income securities, but also including commodities, timber and real estate.
In general, we subscribe to “active management” of portfolios rather than “passive investing” through “index funds.” While indexing can be shown to be effective over very long time horizons, we think the shorter-term time horizons common to most of our clients are better served through active management.
Q. What types of personal financial planning services are offered?
A. We are responsive to the particular needs of each client, and strive to help them with personal financial planning issues. Our available services include:
- providing an analytical report that attempts to project income sustainable over one's lifetime, based on a client's assets, tax rates, assumed inflation and assumptions unique to each client's income goals;
- guidance on gifting strategies, including amounts and forms of the gifts;
- savings strategies for specific long-term goals, such as developing a plan to fund a college education;
- analyzing specialized client holdings, such as stock options, concentrated holdings and highly appreciated securities, and stock purchased through an employee stock purchase program; and
- planning and calculating opportunities to use tax-deferred retirement plans for both company-employed and self-employed individuals.
- structuring retirement plan withdrawals and plan asset transfers.
Q. What other services do you provide?
A. We consult with the client to determine their overall financial objectives, and then design an investment program that is consistent with those goals. We continuously monitor the markets, and the client's situation to adjust or “rebalance” the investment holdings to reflect conditions. We report quarterly to clients on their investment assets and performance, and recommend at least annual face-to-face meetings to review their overall financial health and investment results and to provide more detailed financial planning analysis and guidance on issues specific to each client as they arise.
Q. Can you help with my interests in closely-held LLCs and partnerships owning investment real estate?
A. Yes. Based upon our experience representing law clients in the purchase, sale, leasing and management of real estate and the organization of real estate holding entities, together with one of our principal's experience as a real estate owner and developer, we are able to assist you with a spectrum of services ranging from occasional advice to complete management and oversight. Our fees for this work would be individually negotiated and would depend upon the scope of services you required.
Q. How are you compensated, and when do you get paid?
A. We charge a management fee based on a percentage of the value of the assets we manage. We are “fee only” advisers and accept no commissions or other forms of compensation from investment product providers or financial institutions. The fee is quoted as an annual percentage fee, and is billed quarterly in arrears by applying one-fourth of the annual percentage fee to the managed assets at the end of each calendar quarter. For example, if the annual fee is 0.9%, then 1/4 of 0.9% (0.225%) is applied to the market value of the client's account at each quarter-end. The fee is normally deducted directly from the client account or accounts.
Q. How will you communicate with me about my account?
A. You will receive a quarterly written investment performance report from us (in addition to your monthly brokerage account statements from Charles Schwab & Co., Inc.). We will also have occasional special mailings on topics of interest and clients will often talk with us by telephone several times during the year. We like to meet in person with each client at least once per year. Clients are also encouraged to contact us by e-mail or telephone at any time to discuss their investments, ask any questions, or discuss any financial matter.
Q. Who will be working on my account?
A. Your account will be individually reviewed at least monthly by our Investment Committee comprised of Gary Martinelli and John Discenza. In between meetings, Gary is principally responsible for portfolio decisions and John for financial planning. Lisa Kozak is your Client Service Representative and regular point of contact.
Q. Will I have to sell all or part of my current investments to work with you?
A. In most cases, there are some significant changes we would recommend, but often these can be implemented over time, or can be adapted to some of your current holdings. For example, a client may have significant unrealized investment gains in his current holdings that could trigger income taxes if they were sold. In other cases, clients have specific holdings that they have a particular reason to keep. In all cases, we will use our best judgment to recommend the most appropriate course and then adjust and adapt it to accommodate specific concerns.
Q. Can you arrange for regular payments or transfers of cash to be made from my account?
A. Yes. We can set up regular, periodic transfers of a fixed dollar amount on a monthly or quarterly basis. Alternatively, we can arrange to have all of the interest and dividends earned paid from an account.
Q. Will I get reports to help with income tax return preparation?
A. Yes. We can send you a report of taxable events, including earnings form interest, realized capital gains, and capital gains distributions. We can also prepare a report showing the gains in your account at any time.
Q. Can you provide advice on how I should invest the money in my company's 401(k), 403(b) or 457 Plan?
A. Yes. If you are a client and are actively participating in your company's 401(k), 403(b) or 457 plan, we will provide guidance assisting you to choose among the available funds in your company plan without additional charge. As a quid pro quo, we ask that you consider our firm for asset management when you withdraw your assets from your plan.
Q. What is the process to start working with you?
A. We recommend starting with a brief 15-20 minute phone call to understand what your overall assets and needs are, and to plan the first meeting. Before our first meeting, we will send you an informational package about our firm, and encourage you to fill out a Personal Information sheet.
During our first meeting we will explore your expectations in much more detail, introduce you to our investment approach and reasoning and describe how we believe our approach could best be applied to your situation. We will answer questions you might have about how we would work with you.
At this point, if you have decided to work with us, we would take you through the implementation steps for your investment program.
Q. Must I engage your law firm in order to be an investment counsel client?
A. No. While our firms offer a full range of legal and investment counseling services, clients are free to choose the services they desire. MDICI not only provides investment advice to clients of lawyers in other offices but also to other lawyers themselves.
Q. What does the term “investment counsel” signify?
A. Under the Investment Advisers Act of 1940, a federal law, an investment adviser may not hold itself out as an “investment counsel” unless a substantial portion of its business consists of rendering “continuous investment advice based upon the individual needs of each client.”
An investment adviser who simply recommends financial products from time to time, or manages a pool of assets such as a “hedge fund” or a “mutual fund” would not be considered an “investment counsel” because individual circumstances are not considered when rendering advice. An investment adviser who renders “periodic” advice would not be considered an “investment counsel” because his advice is not “continuous.”
Q. If I already have a lawyer and a broker, why would I need a firm like Martinelli Discenza?
A. If you already have a lawyer who is competent in the specialties of estate planning, estate taxation, family asset transfers and the law of deferred compensation plans such as IRAs, 401(k)s, 403(b)s, profit sharing and pension plans, you may not need our law firm. Similarly, if you have a broker who develops an investment plan for you with appropriate diversification and risk limitations and provides ongoing strategic thinking and oversight of your individual investment requirements, you may not need our investment counsel services. If either your lawyer or broker does not furnish the services outlined or if you would prefer to have one firm with a full spectrum of services looking at your “big picture,” you should consider Martinelli Discenza.
Q. Is there a difference between a “broker” and an “investment adviser”?
A. Although many large brokerage firms blur the differences between their “registered representatives” to whom they sometimes refer as “financial advisers” (they cannot use the term “investment adviser” without qualifying as such) and “investment advisers,” there is a decided legal distinction between the two. “Investment advisers” are regulated under the federal Investment Advisers Act of 1940 (for larger advisers) or under similar state laws (for smaller advisers) and, under these statutes, are considered “fiduciaries” who are duty-bound to place client interests above their own, to disclose all possible conflicts of interest, and to furnish clients with written, detailed business and personal histories and business policy statements. “Brokers” are regulated under the Securities Exchange Act of 1934, as amended, which imposes neither “fiduciary duties” nor similar disclosure requirements. As a result, the broker-customer relationship is usually an “arms's length” rather than a “fiduciary” relationship.
To mitigate the confusion that has recently arisen as a result of brokers shifting away from traditional commission-based compensation to asset-based fees, the traditional form of adviser compensation, a new SEC rule (Rule 202(a)(11)-1) requires that a broker who advertises or contracts for asset-based fees include a prominent statement disclosing:
“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons' compensation, may vary by product and over time.”
Q. Are my communications with your investment advisory firm “privileged?”
A. Although both our law firm and our investment advisory firm are required to, and as a matter of practice, treat your personal information confidentially, applicable law makes communications between a lawyer and a client “privileged” whereas communications between an investment adviser and a client are not “privileged.” A “privileged” communication is communication that a person generally is not required or free to disclose in a legal proceeding.
Since all of the investment advisory representatives of our investment advisory firm are also lawyers associated with our law firm, it is IMPORTANT for clients to know that communications (even with lawyers) will be “privileged” only to the extent made in the context of a legal consultation.
Generally speaking, our law firm bills for its services on the basis of hourly fees. Our investment advisory firm is compensated based upon a percentage of assets under management. Although not always determinative, if you do not expect to be billed for legal services on an hourly basis, your communication with our personnel likely arose in an investment advisory context and would not be “privileged.” Should you be in a “gray area” or otherwise in doubt about whether your communications with us are privileged, please ask the attorney or investment advisory representative with whom you are working.
Link to our “Notice Concerning Your Privacy Rights” for more information about investment advisory accounts.