Are You Getting What You Pay For?

By Noel LaMontagne, Director, Verdence/PRO, Verdence Capital Advisors

How to Ask if You are Building Your Wealth or Someone Else’s

Some of the most simple and common adages in life directly apply to the most complex and lucrative aspects of business and building wealth. A penny saved is a penny earned, is as clear as wisdom can get, but what if you are referring to hundreds of thousands of pennies and not just one? The amount of money that the clients of financial advisors unknowingly spend on fees, commissions, and other undisclosed costs add up to significantly more than just a few pennies on the dollar.

The key to saving all these pennies and compounding them up to millions of dollars over time is asking the right questions. If you want to know how much the financial advice you get costs, you must know and verify the following:

  1. What are the fees I am paying directly to my advisor (Advisory or Wrap Fee)?
  2. What fees am I paying to the investment managers my advisor hires?
  3. Has my advisor made a commission on any of the products I currently have, and can they continue to make commissions going forward on any products?
  4. Does my advisor have any “soft-dollar” (advisor benefits in return for using products or services) arrangements with custodians or investment managers?
  5. Can I have a copy of the advisory firm’s fee schedule and is my fee in line with the firm’s fee schedule?
  6. What do the additional services my advisor provides cost me or are any of them included in my advisory fee?
  7. What is my portfolio performance “net of all fees and costs”?
  8. Does my advisor accept gifts or any incentives from asset managers, insurance companies, or any service provider to entice them to select offerings from those companies?

Additionally, on any advisor’s website, you should be able to get a copy of the Form CRS (Customer Relationship Summary) which outlines, among other important details and information, exactly how the advisor is compensated and whether they are fee-only, commission based, or a combination of both. This form will also disclose any conflicts of interest, legal or disciplinary history, and other costs related to services provided by that advisor.

A handful of simple direct questions and some additional research time can provide you with a wealth of knowledge, and most importantly they expose how efficiently you are building your wealth versus contributing to the wealth of someone else. Every dollar that you save and invest should pay you back first, foremost, and always as efficiently as possible. The fees, commissions, add-on costs, and conflicts that pile up in portfolios can be staggering. Conflicts can be especially troublesome when your advisor is incentivized to select certain investments for you instead of finding the best solution for your need at the best possible price. The collective impact of all these factors that erode portfolio performance is called “scrape” and it can drag any portfolio growth to near stagnation or worse.

The erosive effect that fees and costs have on portfolios emphasizes how vitally important the final question from above regarding net performance is to investors evaluating their advisors. The total amount that you pay for advice is independent of the returns received, and therefore “returns net of fees” truly shows you where you stand. As an example, three separate firms offer different fee structures and descriptions:

  • Firm A charges 50 basis points (one-half of 1%) annually on assets under management, no other fees/commissions, and produces a 6.0% gross portfolio return for clients, while touting how they are simple, efficient, inexpensive, and do not waste client money on needless services to get their results.
  • Firm B charges a 100 basis points (1%) on assets under management, no other fees/commissions, takes no soft dollars from managers, and produces a 9.0% gross portfolio return for clients, while advertising client experience, few conflicts of interest, an extensive service package beyond financial advice, and continuing business and financial education.
  • Firm C charges 50 basis points, 8% commission on annuities, 10% commission on private investments, receives soft dollar benefits from their managers, and additional fees above their base fee on proprietary investments, and produces a 10.0% gross portfolio return for clients, while highlighting how great they are at driving high returns and making money for clients.

The most client performance-centered option from this group is Firm B, who has eliminated incentivized advice and scrape, and focused their attention and service on their clients, while driving the best “net of fees” return for those clients. Firm C has produced impressive results for a low base fee, but they are riddled with conflicts that may not put clients first, and their commissions and proprietary products incentivize them to put firm before client to make more money above their base fee. The actual net return from Firm C will be reduced dramatically with hidden costs and fees. Firm A charges the least overall and looks efficient, but their net results lag the others, while offering no additional services to clients that justify accepting a comparatively lower overall return. This simplified example illustrates that how much an advisor costs is not directly correlated with what advisor is best. A more real-world scenario would require more depth in the overall analysis of these firms, but the concept of this comparison is the importance of evaluating cost versus overall reward. This is also true for money managers, private investments, insurance products, and any proprietary investment vehicles that are engaged or recommended by your advisors. It is equally important to understand the fee structures of all these providers, along with your advisor, so you know exactly what the collective cost is for your services and overall return.

The willingness to pursue this conversation with your advisor is crucial because building wealth requires more than just assets under management and a good strategy. It requires discipline, efficiency, and understanding. The discipline to follow the strategy that has been designed and implemented by your advisor. The streamlined and cost-effective application of your assets towards implementing that strategy, the understanding of how to adjust over time, and exactly what you spend on advice versus what gets invested back into your portfolio.

The expectation that assets are efficiently invested should be universal. Smaller investors often feel they lack the financial clout to demand favorable fee structures from their advisors. Business owners, athletes, and the ultra-wealthy are as equally susceptible as anyone to excessive investment costs. The asset bases of the wealthy fluctuate substantially through different pay frequencies and liquidity events. This, along with hectic lifestyles and an aversion to appearing financially uninformed, create ideal environments for advisors and managers to not disclose and diminish the visibility of the totality of advisory costs associated with investment products and vehicles.

Each investor, no matter the size of your asset base or portfolio complexity, should understand the fees associated with your relationship, how their advisor is compensated, and what, if any, conflicts of interest exist within their advisory relationship. Armed with the questions listed above and the ability to hold all advisors accountable to their answers, any investor can harness the power that comes from the answer to one more adage, are you getting what you pay for?

Verdence Capital Advisors is a fully independent Investment Advisor, and if you need help getting answers to the questions proposed in this article or verifying the accuracy of the answers you are given, please do not hesitate to contact our experienced team of advisors and industry professionals.


Important Disclosures

The information contained herein is educational in nature and not designed to be taken as advice or a recommendation for any specific action, product, strategy, plan, or other purpose in any jurisdiction. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized advice from Verdence Capital Advisors and/or its affiliates. To the extent that a reader has any questions regarding the applicability to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing.  Verdence Capital Advisors is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Verdence Capital Advisors current written disclosure statement discussing our advisory services and fees is available for review upon request.

You made it first. Now make it last.

Name Image Likeness Freedom. Now What?

By Noel LaMontagne, Director, Verdence/PRO, Verdence Capital Advisors

The NCAA gave up the “golden goose” that they held for decades in the name and likeness (NIL) marketing rights for college athletes in June of 2021. The conversation and process leading up to this momentous decision created a firestorm of predictions as to the overall impact of the newfound freedom of student-athletes to be able to capitalize on their personal and athletic notoriety. The question now lingers as to where this business shift has taken collegiate athletics and what lies ahead as the newfound freedoms continue to propagate through a system that was extremely resistant to substantive, and some would say overdue, change.

The overall impact of the change in NIL rules has not yet been fully realized. Many student-athletes in multiple sports around the nation have been able to secure deals that have compensated them in some fashion. Relatively recently a football player at a prominent university was touted by their head coach as achieving the status of earning over seven figures in committed endorsement dollars. Without intimate knowledge of the deals and structure involved in the contracts specific to this student-athlete, it is difficult to assess the validity of this claim. The early stages of this new business model have also not afforded much insight into the impact of marketing dollars flowing through student-athletes versus athletic departments and institutions. These statistics should become more transparent over time, depending on the degree to which the total dollars shift their allocation from one to the other.

Outside of the overall shift in financial allocation, the change in the NIL rules has definitively created opportunities for student-athletes and entities that would like to be affiliated directly with student-athletes. With this comes some early-stage lessons to help future deals take proper shape and assist those engaging in these opportunities to maximize their benefits.

When negotiating NIL agreements on the representation and opportunity side of the equation, knowledge for the student-athletes involved is power. Student-athletes entering NIL contracts with agencies or paying entities should realize that they hold all the cards and set the rules of engagement. There is no reason to surrender control, agree to lopsided terms, or relinquish rights that have nothing to do with the deal presented to them.

A marketing agency that wants to utilize the NIL of a student-athlete should be willing to acknowledge that the value in the relationship is mostly held by the student-athlete. If this was not the case, the marketing agency would not pursue a business-oriented relationship with the student-athlete because there is no profit to be made. For the student-athlete, the first negotiation should be extremely deliberate, with the understanding that fees are negotiable and there is no “industry standard” because the industry is completely new. Negotiating a flat fee per engagement, a small percentage, or restrictive terms related to how an agency is compensated for any deal is fair game. Additionally, no fee term should extend beyond the collegiate eligibility of the student-athlete.

Many agencies in the professional ranks charge upwards of 15-20% for marketing and endorsement deals they initiate or share, which has become an industry standard at that level. These fees are related to professional athletes that are unrestricted and separately paid by their professional contracts. These fees have been negotiated and have become acceptable over time, but this should not guarantee correlation to a collegiate athlete. Because college athletes have no other substantial form of compensation and limited marketing opportunities overall, to agree to pay the same as their professional brethren, should not be assumed. It is completely fair to demand far lower percentages or flat rate fees that put most of the profits into the pockets of the student-athletes. It could be argued that professional athletes are giving up too large a piece of the pie, but at least they have completely free access and will, along with their other income, which in essence entitles them to do whatever they want financially. Collegiate athletes should think about their agreements and assignment of rights with this in mind.

Another component of NIL contracts that student-athletes need to be aware of is the extent of the usage rights to their name and likeness. If a student-athlete is contracting with an entity for such usage, it needs to be defined clearly and with limits that prevent it from continuing beyond any agreed period or scope. The student-athlete should know exactly how their NIL is going to appear as it relates to any specific contract they agree to engage. Additionally, in agreeing to be marketed by an agency, no student-athlete, in this case defined as clients, should allow for the marketing agency to utilize the NIL of the student-athlete for themselves without compensation. The “parent” agreements between student-athletes and marketing agencies should only allow the marketing agency to procure marketing opportunities for the student-athletes. Many marketing agencies try to create a free association with a student-athlete, for their own benefit, in return for marketing said student-athlete. If a marketing agency believes that being associated with a student-athlete is worthwhile, the agency should pay for that association, or they should only market the student-athlete as they are contracted, they should not be allowed to benefit on both ends of the relationship. If the scope of the contract expands beyond this, the terms of that extended scope should be negotiated and should provide compensation in some form to the athlete.

As it pertains to limitations, no student-athlete should feel obligated to enter into agreements that overlap or supersede any other marketing agreement they have consummated. If an agency wants to bring an agreement to the table that the agency designated by the student-athlete has not initiated, there should be no requirement to surrender representation terms, like fee or usage, that are not in their parent agreement. The student-athlete has hired their primary agency to be their primary agency and that designated agency should protect the student-athlete from any terms that are not in their best interests. Fees can be reduced to fit within the scope of the parent contract, they can be shared, payment terms can be adjusted, along with reporting, all of which allow the student-athlete to maintain continuity in their marketing relationships. Student-athletes are busy, and they are often still maturing in their overall business acumen, so efficiency is important to maintain.

The legal responsibility associated with any agreement should also be considered and student-athletes should be protected by their parent agency or the contractual agreement for any given opportunity. This would include legal costs if the effects of a marketing deal were to take an unexpected turn beyond the control of a student-athlete. If an agreement is presented to a student-athlete, the ramifications of the agreement should be agreed to in advance to indemnify and hold harmless the student-athlete to anything that is outside their control. In these cases, it is acceptable to hold harmless the agency responsible for the deal as it relates to the behavior of the student-athlete. There should never be confusion that contracts have consequences and responsibility for all parties to the agreement, so everyone should be expected to behave as such.

There should never be additional terms like financial planning or tax preparation expectations associated with any marketing contract. Any student-athlete associating themselves with a marketing contract or agency should have independent and competent advisory assets in place for all aspects of their business to help them work through the ramifications of any contract they sign. It would be inappropriate to assume that the interests of the financial windfall of any contract would be best served to be managed or overseen by anyone directly involved with that specific deal. Student-athletes should engage with competent, experienced, and sophisticated advisors at all levels of their business enterprise. Student-athletes need to view themselves as entrepreneurs or business owners themselves, and they need to surround themselves with the best available advisors to help them with each aspect of their business portfolio.

The NIL marketplace will grow and evolve, and there will be definitive indications of the lasting impacts of this business model for student-athletes and institutions. The freedom that the NIL changes created carries responsibilities and options that many student-athletes have not had to consider up to this stage in their lives. As personal profits increase, incorporation, tax consequences and filings, tax-efficient and taxable investment vehicles, business management, retirement funding, and many other advanced concepts can become accessible and important. All of these require expertise, sophistication, and should also come with an educational focus to help student-athletes mature as entrepreneurs. Assembling a team of advisors that will always look out for the best interests of the student-athlete is a difficult, but essential, task. Student-athletes should be as decerning in selecting their advisors in all aspects of their business as they are when they select what marketing opportunities they will engage. At this early and exciting time in their lives, it is vital that student-athletes look and think long term, to make sure that their future is fully understood, properly structured, and always protected.

At Verdence Capital Advisors and Verdence/PRO, we view athletes as entrepreneurs and their own private business owners. We understand the value of independent, sophisticated, and expert advice for these highly accomplished types of people. We also know how essential it is to focus on the client and work as a part of a team to achieve goals and reach the level of success desired by our clients. If you need to find out more about properly structuring your financial and business relationships, please contact us.


Important Disclosures

The information contained herein is educational in nature and not designed to be taken as advice or a recommendation for any specific action, product, strategy, plan, or other purpose in any jurisdiction. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized advice from Verdence Capital Advisors and/or its affiliates. To the extent that a reader has any questions regarding the applicability to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing.  Verdence Capital Advisors is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Verdence Capital Advisors current written disclosure statement discussing our advisory services and fees is available for review upon request.




You made it first. Now make it last.

What is your risk tolerance?

Take emotions out of investing

Time to shed expenses

Embrace tax season?

Your End-of-the-Year Financial To-Do List

By Noel LaMontagne

As we are finally bringing this year to a close, take some time to check off a few important items before year-end:

1. Check your overall portfolio allocation

    • 2020 has been a record-setting, volatile year, and it is not over yet, so, have you harvested enough liquidity to capture opportunities moving into 2021?
    • Have you adjusted your holdings for where the market is now or are you still holding onto pre-COVID assets that are no longer viable long-term?
    • What is your advisor’s projected 2021 plan and beyond—long-term horizon 2-5 years into the future— and how will your allocation continue to adapt?

2. Make sure your portfolio is tax-efficient

    • All of the 2020 volatility can create options to capture some losses that will help you offset your gains. Has your advisor analyzed your portfolio and updated you?
    • Have you discussed your 2020 tax situation with your tax professionals to understand projected tax burdens prior to the close of the year?
    • Have you finalized and confirmed any planned donations or tax-efficient contributions before the close of the calendar year?

3. Review your risk-management and overall insurance

    • If 2020 has taught us all anything, it is that uncertainty and the unexpected are always around the corner, so make sure that all of the defensive mechanisms you have in place are current and at the proper levels
    • Insurance needs change all the time, personally and professionally, so there is no better way to tidy up your life than making sure that you are properly protected
    • Verify all your premiums are paid in full and that your policies are in good standing

4. Review your estate plan

    • The close of any year is a wonderful time to focus on family and friends, so as you enjoy your legacy, when is the last time you checked on your estate plan?
    • Unfortunately, even when life is good, you have to be prepared for the inevitable, so make sure that your estate plan reflects any recent changes in your life
    • Family additions, property additions, business adjustments, liquidity events, health changes…any number of events can trigger needs to review and adapt your estate plan

5. Reflect on your year and set goals for next year

    • Despite 2020 and all it has challenged us with, many have fought against the flow to achieve, maintain, or adjust and everyone should take stock of what they have been able to learn from this year
    • If 2020 was up or down, always plan to rise in the future, and where will that plan take you? How can 2021 be your best year, what are your goals, what will you do to get the year kicked off quickly and in the right direction?
    • Always celebrate something. Positivity is infectious, and the best among us chase success, not hide from failure


Your teen’s…retirement?

By Michael Hoffman CFP® and Michele Welsh

Roth IRA strategy for teens offers a jump start on long-term savings.
And it could provide a gifting opportunity
for parents or grandparents to chip in, too.

Yes, retirement.

Let’s start with the basics.

IRA: “Individual Retirement Account” (or “Individual Retirement Agreement”)

There are two main types of IRAs:

  • Traditional
  • Roth

While both are beneficial, one can be more advantageous than the other based on your age, years until retirement, and tax situation.

The two biggest differences between the types of IRA are:

  1. when you pay taxes on your investments and
  2. the potential tax deductions along the way

Traditional IRAs give an immediate benefit to the owner by offering a tax deduction up to the amount of the contribution in the year it is made. While advantageous immediately, the downside is that in retirement when funds are withdrawn, the contributions and all the earnings are taxed at your current income tax rate.

Roth IRAs do not offer the immediate benefit of a tax deduction, however, during retirement when funds are withdrawn, the contributions and all the earnings are tax-free. This is a massive advantage for those who are younger and have more years until retirement because those earnings will compound greatly over time, and the benefit of tax-free earnings will far outweigh any initial deduction.

Roth IRAs can also benefit in estate planning because they can be left untouched for the remainder of your life if you so choose or left to your heirs for a tax-free transfer of wealth.

Teenage Roth IRA – Part-time jobs/long-term savings

Although retirement is the last thing on the mind of your teen, starting a Roth IRA early is a smart way to accelerate savings, and it only requires modest contributions to make a significant future impact.

For example, Grayson is a 16-year-old with a part-time job who meets the requirements for a Roth IRA. Namely, she:

  • is single
  • is employed and receives a W-2 or 1099 tax form
  • earns less than $139,000 per year

Grayson is eligible to deposit up to the lesser of her total earnings or $6,000 each year into a Roth IRA. She can elect to make the entire deposit herself, or she can make a partial deposit, then her parents and grandparents can contribute to make up the difference. To encourage her, they may offer her a savings match for every dollar Grayson saves — think of it as a 401-Kid plan — as long as the total annual amount deposited is equal to or less than her earnings, up to $6,000 maximum.

Fast forward 49 years to age 65. If Grayson had made that one-time $6,000 contribution and simply ignored it, she will have amassed an estimated $104,000-$165,000 tax-free at age 65.1 Taken a step further: If Grayson had made one $6000 contribution every year, she will have accumulated approximately $1.53 million – $2.18 million by retirement age!1

For Grayson, charting a path for savings and visualizing its potential can help motivate her toward a lifetime of prudent financial decisions. She may not fully grasp the benefits of the Roth right away, but over time she is learning the concept of a disciplined, long-term investment horizon, and she’s getting an incredible leg up on her future.

As always, our financial planners and advisors are available anytime you have questions.


1 Calculated estimate assuming an average 6-7% interest earned per year age 16 till age 65


Getting Your Financial House in Order

Pro Careers on Hold?

Advising Pro Athletes With Their Seasons, Careers On Hold

By Noel LaMontagne, Director, Verdence Capital Advisors

While the cancellation of live sporting events would not make it into a top 20 list of coronavirus-related hardships, it has nonetheless removed what would have been a major source of distraction for these shelter-at-home times. More than half of all scheduled sporting events have been or will be cancelled this year, by some estimates, and more cancellations are likely on the way. Major League Baseball, the Masters, the NCAA basketball tournament, all gone or pushed into an indeterminate future.

This is a big hole to fill. According to Nielson, over the past 10 years more than half of the 199 most-watched primetime programs were sports telecasts. NFL games alone accounted for a full third of list, 67 telecasts in all.

Nature may abhor a vacuum but for financial scammers it looks more like an opportunity. Professional athletes are especially attractive targets. They have assets and are suddenly left with a lot of time on their hands. Like the rest of us, they are alarmed by the market volatility and concerned about the direction of the economy. More than most, they recognize that they have a finite working life, with sometimes only a few years to achieve financial security. They have families, dependents, and staff that depend on them to provide. Their careers have taught them they are in control of things and their split-second decision at the right moment will determine their ultimate success or failure.

Entertainers have the same obligations away from the stage and face similar professional challenges caused by social distancing rules that force new productions of movies and television shows to be postponed or cancelled outright. But, while athletes may have long-term contracts, entertainers are often more like members of the gig economy – they’re only paid when they work.

These specialized individuals are unique when it comes to talent but like everyone else in most other aspects of life. They’re susceptible to the stress of isolation and the uncertainty about what comes next, two prominent ramifications of the current pandemic. They worry about their immediate future. They stress over their friends and family who are struggling with them. But unlike many of us, they are public figures, and their stories often play out for all to see and judge. Their employment contracts are often the source of headlines, missteps ridiculed by all manner of media, and insecurities ridiculed as weakness or immaturity. Outside the relevance of this being fair or reasonably expected, fully understanding a life in the spotlight can make anyone appreciate the benefits of a more traditional existence.

Away from the glitz and glamour, in their financial lives, celebrities may also have a history of participating in private investments. They may own shares of restaurants, car dealerships, or other businesses that leverage their status and notoriety. All this can make them more susceptible to new pitches. The truth is that it’s hard to say “no,” especially during times of crisis when typical means do not provide their usual safe-haven. Scammers know this, too, and pitch their deals accordingly.

In considering how to advise a client who finds him- or herself in this situation, it’s worth keeping in mind the words of Warren Buffett’s long-time business partner, Charlie Munger. Referring to Berkshire Hathaway, he recently told The Wall Street Journal, “We’re like the captain of a ship when the worst typhoon that’s ever happened comes. We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity.”

There are a few best practices to keep in mind for periods like this. First, sometimes doing nothing is the best action you can take. That can be hard for an athlete and entertainers to hear. These are people used to taking charge of their situations on set, the field or in the arena. They are generally highly self-motivated people, but sometimes taking control can specifically mean self-control or sitting still.

Second, the numbers still matter. Valuations may be down for everything from real estate to boat dealerships, and assets may appear cheap, but sometimes they’re cheap for a reason. Run the numbers and rely on experienced due diligence. Deals that include unrealistic assumptions about the pace of an economic recovery should get particularly close scrutiny to verify their validity.

Third, watch for the misdirection; if it looks too good to be true it probably is. The Financial Times reported earlier this year that the City of London police saw a 400 percent increase in Covid-19 related fraud in just a month. In the U.S., we have the example of the Great Recession which resulted in a major increase in financial crimes involving private placements, non-public real estate, and even certificates of deposit, among other frauds, many of these structured as Ponzi schemes. Most probably seemed attractive when pitched.

A recent private real estate investment opportunity was pitched to several highly paid professional athletes directly in the locker room. The deal was organized and backed by the son of a successful real estate developer and another professional athlete. The locker room representative for the presentation to players was another well-known and wealthy veteran player. The investment was described as a “can’t lose” deal with minimal risk. The investment targeted the need for post-career income.

After professional due diligence was conducted on the investment, it revealed several inconsistencies. The pitch described the deal as minimal risk and a cash-flowing property. What investors were receiving was a high-risk, ground-up real estate development, with no cash flow for 4 of more years. Additionally, the perception that investors could receive their money back at any time, which was inherently false. The deal was highly illiquid to investors. Due diligence also showed those same individuals pitching the deal would not be investing their own money in the investment. They in fact intended to utilize the proceeds raised through the locker room in order to have the fund purchase some of their own personal properties and eliminate their risk and debt. This deal was nothing close to what it was described to unknowing investors, and at this time, only a few years after it was presented to potential investors, the fund is nowhere to be found.

As noted earlier by Mr. Munger, liquidity is good. In the wake of a crash, everyone talks about how they got back in at the bottom. No one brags about how they jumped in too soon, or lost money in a can’t miss idea that later turned out to be a scam. There will be good opportunities again once the crisis recedes.

Everyone likes to win; everybody loves a good comeback story. But for now, it’s not necessary to be a hero. Pick the sports metaphor that resonates best with you – don’t score any “own goals”, avoid unforced errors – just don’t let extra downtime make you any more susceptible to taking a swing at a bad pitch.

# # #


As seen in Financial Advisor:
Go to article link here.


Noel LaMontagne is a former NFL player and a Director with Verdence/PRO, the division of Verdence Capital Advisors focused on professional athletes and entertainers.

You made it first. Now make it last.