HCMI Client Survey- December 20th, 2006

Dear Clients and Friends,

We are delighted to enclose a summary of a survey recently completed by our clients for AdvisorImpact on our behalf.  The purpose of the survey was to assess those factors of our relationship that are most important to our clients, and also identify areas that our firm should focus on to improve our service to them.

The survey was sent to all our clients on board at least 6 months; 41% of those clients participated.

The results were graded on a 1-5 scale, with 1 indicating “Highly Dissatisfied,” 4 indicating “Satisfied” and 5 indicating “Highly satisfied.”

            Overall satisfaction with the relationship                                       4.7

Of the 4 factors rated most important to our clients, in descending order of importance:

            Advisory is trustworthy                                                               5.0

            Client would refer to friends, family and colleagues                        4.9

            Calls are returned promptly                                                         4.8

            Client is comfortable with plan to meet retirement goals                 4.6

Naturally we are delighted that our clients find us trustworthy, would most likely refer our firm, and are pleased with our core service.  Digging further into other factors we see some areas of concern and opportunities for improvement.

Client Communications

            My calls and e-mails are returned promptly                                   5.0

            Any problems I encounter are resolved quickly                              4.8

            The frequency with which my advisor contacts me

               meets my expectations                                                            4.3

            Clients would like, on average, 2.4 portfolio reviews per year

Historically we have told clients that, while their portfolios are under continuous review by us, we would schedule at least one portfolio review with the client per year.  This review is generally in December but often accomplished in the course of the year.  However, clients are telling us that they would like more frequent reviews.  Accordingly, we will plan on two reviews per year, usually in June and December – more often if requested by a specific client.  Our clients told us that they generally prefer telephone consultations (83%) to face to face meetings (17%); we will differentiate among clients so that they get the review format they prefer.

Portfolio Performance

            The short to mid-term performance (1-5) years of

               my portfolio meets my expectations                                                     4.2

            My financial advisor takes a pro-active approach

               to managing my investments                                                                4.0

These ratings are lower than we’d like to see, and mirror feedback we’ve been receiving in client meetings and telephone discussions this year. 

It's important to remind clients of our core investment strategy, which is:

            Protect clients’ principal by diversifying broadly across stock market sectors and individual companies

            Emphasize mid-cap companies, which have higher prospective returns than large cap companies but are not as risky

               as small or micro-cap companies

            Match or exceed the appropriate benchmark returns (the S&P 500 for all equity accounts, a blend of the S&P 500 and Lehman Bond Index for balanced accounts)

            Minimize the realization of capital gains, and therefore minimize taxes, by focusing on those companies we expect to hold for at least 5 years

Clients’ expectations of this strategy have evolved over time.  Through the beginning of 2000, clients wanted us to “swing for the fences” and chase the dot com bubble stocks (which we didn’t do – thankfully!)  From 2000-2003, including the bear market and the 9/11 attacks, clients were grateful that their portfolios were down but not out and indeed began making new highs in 2004.  In 2006, clients seem less focused on risk and are more focused on returns.   Accordingly, clients have less patience with us holding stocks that appear from an investment perspective to be good values, but whose price has not budged, in some cases, for five years. 

Typically, we rebalance a client’s account at least once every two years back to our model sector allocations, which usually means taking some profits and rolling the proceeds into new ideas.  Quite a few of our mid-cap picks from years ago have grown into large-cap companies, which means that while our target large cap allocation is 45-50%, we’re currently at 71% on average across our accounts.  So in 2007, it will be our strategy to realize more capital gains among our large cap positions, and rolling those proceeds into mid-cap positions.  Another risk management rule that we employ is to automatically sell half of any position that reaches 10% of an account.  We had a couple of large positions take a dive in 2006 (United Healthcare, for example, on options back-dating concerns.)  Going forward, we intend to adjust that rule to sell half of any position that reaches 7% of an account.

Clients tend to notice when their portfolio underperforms the indexes by two points, and but tend to forget when they outperform (human nature, as it turns out.)  When we do inception to date performance reviews, clients are often surprised that their portfolio has performed a lot better than clients’ expectations.  We are upgrading our quarterly reporting systems in January 2007, and we’ll be adding inception to date performance reporting to our client quarterly reports.

Investments Education

Clients are interested in learning more about:

Estate planning                                     60%

Retirement planning                               58%

Charitable giving                                    48%

Education planning                                46%

Family wealth planning                           45%

Trust services                                        41%

Executive benefits                                  37%

Stock option diversification                      33%

We routinely address these topics with clients as their situation merits.  However, we see from the results of this survey that there is a large unmet need for further education (we were shocked to learn that 24% of our clients don’t have wills!)  Accordingly, we will start producing bi-monthly “quick takes” on these topics.  Meanwhile, clients should feel free to discuss these issues with us.  If we don’t have the immediate answers, we can help you frame the question for your lawyers and accountants, or introduce you to a referral network of estate lawyers and accountants should you need these services.  Fidelity Investments, our custodian, also has a vast array of information and services that our clients should start taking advantage of, and we will highlight these options in our “quick take” newsletters.

Overall, we were very satisfied with the administration of this survey and the information obtained, and we expect to repeat the process in April 2008.  As always, please don’t hesitate to call with comments on this survey and with other questions and concerns.