Frequently Asked Questions
1. WHO ARE YOU AND WHO ARE YOUR CLIENTS?
We are team of financial planning, investment management and tax professionals who specialize in providing wealth management services to households in the US and Switzerland and with US and/or Swiss cross-border financial interests. Our clients include many individuals living outside of their country of origin: Americans living in Switzerland and other foreign countries, Swiss citizens living in the USA, and Swiss and Americans with business or financial interests in the other country due to prior foreign assignments, marriage into multinational families, inheritance reasons or the globalization of business opportunities. We have offices in the US and Switzerland and Certified Financial Planner™ professionals in both countries.
2. DO YOU WORK WITH YOUNG CLIENTS AND CLIENTS WITH NO INVESTMENT ASSETS?
Yes, we work with clients of all ages, from their 20s into their 90s, even when they have limited or no assets for us to manage. We offer different service levels (see FAQ #6) to serve clients of various ages and at different life stages, with different financial planning and investment management needs.
The fixed portion of our annual fee helps cover the cost of financial planning, which tends to be very important with younger clients, and which many times is independent from investment asset levels. Clients who are young experience more frequent changes in their lives and tend to go through more regular life transitions, for example, they graduate from college, begin working, get married, purchase a home, pay off their student loans, start families, change jobs or careers, start businesses, move to foreign countries, return from foreign countries…
Due to their long-term horizon, young clients can benefit greatly from becoming financially educated and adopting good financial habits early in their careers. The compounded effect of both big and small good financial decisions, made over a long period of time, will allow them to grow their wealth faster, giving them greater confidence and financial independence and with it, more flexibility to live their lives in a meaningful and purposeful manner. We love working with young clients and we encourage them to reach out to us.
3. CAN I WORK WITH YOU IF I HAVE NO CROSS-BORDER PLANNING NEEDS?
Yes, we work with clients who have no cross-border planning needs. In order to be experts in US and Swiss cross-border issues, we have to be experts in domestic US and Swiss issues first. We can only be as good in cross-border advice as we are in domestic advice.
We specialize in US-Swiss cross-border advise and have a very deep understanding of the interaction between Swiss and US tax laws, and the US and Swiss retirement and financial environments. However, we also work with domestic US persons and domestic Swiss residents, or people and families that have only temporary cross-border issues but long-term domestic US or Swiss wealth management needs. WE also work with US Citizens and Green Card holders who live in other countries outside the US as many of the issues (especially around US tax planning) overseas Americans face are similar regardless of where they live.
4. CAN I WORK WITH YOU IF I HAVE NO TIES TO SWITZERLAND OR THE US?
We believe we can provide the greatest value to clients with US and/or Swiss ties. However, if you are moving to a third country or if you are looking for a cross-border advisor, and if one of your borders is the USA or Switzerland, do not hesitate to contact us. We may be able to assist you or connect you with someone with the niche expertise you need.
We are regularly approached by prospective clients who are interested in working with us because they have been unable to find a cross-border advisor in the niche they are looking for, or because they have been referred by one of our existing clients. Sometimes our clients start working with us due to their US and/or Swiss ties, and later move to a third country or return to their home country and want to continue working with us as their advisors.
5. WHAT IS DIFFERENT ABOUT YOUR FIRM?
We set our standards to the highest levels of competence, care, ethics and transparency in the financial services profession. We are US CERTIFIED FINANCIAL PLANNER™ professionals and many of us hold multiple professional designations, including Chartered Financial Analyst, Enrolled Agent and Swiss CFP® credentials. We each devote hundreds of hours annually to deepening and updating our knowledge of US and Swiss investing, tax, retirement, estate, insurance and finance, to name some of the most common planning services our clients seek assistance with.
The US and Swiss tax and financial environments are constantly changing, affecting our clients’ lives in ever more challenging ways. By following these changes as, they take place, we anticipate their impact, the problems and opportunities that will result from them, and proactively and holistically advise clients. This approach relieves our clients from the burden of constantly having to figure out how the latest rule, regulation or law change will affect them, and we can help them take advantage of new opportunities and mitigate new risks cost effectively and with agility.
6. WHAT ARE THE DIFFERENT WAYS IN WHICH YOU ENGAGE WITH CLIENTS?
We work with most of our clients in ongoing, long term advisory relationships. We have three main service levels, with different annual fee minimums, aimed at accommodating the needs of clients at various life stages and different asset levels, with simpler to more complex financial planning and investment management needs. On a limited basis and dependent on capacity, we sometimes offer limited financial planning project engagements and hourly consultations.
7. DOES YOUR FIRM PREPARE US AND SWISS TAX RETURNS?
We do not prepare Swiss income tax returns and we only prepare US tax for a very small number of clients at the Concierge Service level*, but different degrees of US and Swiss tax return review are included as a service in all client advisory service levels.
Over the years, we have developed relationships with tax preparation firms both in Switzerland and the USA, and thus we are able provide information about US and Swiss tax professionals who may be able to assist clients with their tax compliance needs. These firms are independent from us, and we make no assurance about the quality, delivery or cost of their services. Clients are encouraged to interview several tax professionals before retaining the services of any tax preparation firm and to reach out to their own networks for potential referrals.
*Tax preparation services are outsourced to MHTax, an independent firm owned and operated by Marina Hernandez or another trusted tax preparation firm.
8. HOW MUCH DO YOUR SERVICES COST AND DO YOU HAVE ASSET MINIMUMS TO WORK WITH YOU?
Our fees can be found on our website, on our SEC disclosure form ADV Part 2A and through this link. We do not have an asset minimum requirement, but we have a minimum annual fee that covers the delivery of financial planning services, including investment management, up to a certain limit of Assets under Management (AUM). Above these limits, additional AUM fees generally apply.
It is common for clients to reach out to us during major life transitions, when financial planning issues are the main concern and cross-border financial planning expertise is most valued. Our fixed advisory fee covers the cost of providing this financial planning advice. Examples of such transitions include:
International relocations to the US or Switzerland,
Planning for retirement between the US and Switzerland or with US and Swiss sources of income,
Getting married to or divorcing from a national of the other country,
Starting a multinational family or experiencing a death in the family,
Planning for home purchasing,
Saving for children’s education in the other country,
Caring for parents abroad or dependents with special needs,
Evaluating compensation packages when losing a job or being offered a foreign assignment,
Starting a new US-Swiss cross-border business,
Contemplating renouncing US citizenship or applying for US or Swiss citizenship, and
Many other life transitions with financial implications
We believe that investment management services are a critical piece of our clients’ wealth building puzzle. We provide this service as part of a holistic wealth management process in which we look carefully at the individual clients’ situation and goals. Our clients’ portfolio allocation is based on different variables of which their risk tolerance, need and capacity are only one of the many considerations. We also take into account the composition of their overall wealth, on which we can advise on even when we do not manage it; their different cash flow streams, financial commitments and investment horizons; the tax and legal systems they are subject to; their family situation (such as blended families, multiple generations, etc.); and their health, age, life stage (wealth building or distribution), and human and social capital, among other factors.
9. HOW DOES YOUR FIRM GET COMPENSATED?
White Lighthouse is a fee-only independent advisor (RIA), which means that we only receive compensation directly from our clients through quarterly invoices or payments for project work. Our fees are transparent, and our clients always know exactly how much our services cost. We never receive payments from custodians, banks, investment funds, other service firms we may refer client to or any other source.
We do not sell financial products, we are paid only for our advice and managing investments, and therefore we receive no commissions, referral fees or any other similar financial incentives from third parties. We believe that this model best aligns our interests with those of our clients allowing us to retain our Independence for the benefit of our clients. Our clients only engage us and are willing to pay our fees when we deliver advice that is valuable to them and which they believe improves their financial wellbeing.
10. I’M NOT FAMILIAR WITH THE TERM “INDEPENDENT ADVISOR”. WHAT EXACTLY IS AN RIA?
In order to understand what an independent advisor is, it is first important to understand the four participants in a financial advisory relationship: you, the clients; the investment product providers; the broker-dealers and custodians; and the advisors. We find it helpful to view the financial services relationship as a triangle between the advisor, brokerage/custodian and investments, all interrelated and working in conjunction with the client, looking at the triangle from above.
Imagine an equilateral triangle. On the bottom-left corner of the triangle is the investment products provider. This is the financial institution that sets up and manages investment funds, including Exchange Traded Funds (ETFs), mutual funds, etc. Unless an investor only holds individual stocks or bonds, they will purchase shares or interests in a fund from one of these institutions. BlackRock (iShares) and Vanguard are the two largest and very well-known examples of investment fund providers.
On the bottom-right corner of the triangle is the broker-dealer, which is often also the custodian. The custodian is the financial institution that holds the client’s investment assets. It is the safe keeper of the funds purchased from the investment fund company. Typically, the custodian is also the broker-dealer that purchases and sells the clients investments on the different stock exchanges. Broker-dealers can also trade individual stocks and bonds in the USA and, sometimes, in foreign exchanges. Charles Schwab and Co. Inc, Pershing, Interactive Brokers and E-Trade are several well-known examples of US broker-dealers and custodians, and Swissquote is a very well-known one in Switzerland.
Finally, at the top of the triangle sits the individual and independent advisor. The individual advisor is the person or team who has the relationship with you, the client, and who provides investment and financial planning advice to you. When clients retain the services of an advisor, they generally expect the advisor to select and purchase (and sell), through a broker, the right investments to meet their financial goals.
Individual advisors can work at Registered Independent Advisors (RIA)s or at other financial institutions. RIAs are not tied to any one custodian or fund family and can choose the investment solutions that they believe can best help their clients meet those financial goals. Individual advisors working at RIAs are held to a fiduciary standard, which requires them to provide investment advice that is in the best interest of their clients. Advisors at other financial institutions may or may not be held to a fiduciary standard. Many individual advisors at RIAs hold professional credentials such as the ones mentioned in question 2 above, because they believe that the professional training required to obtain and maintain these credentials will better qualify them to provide competent advice at the fiduciary level.
When an advisor is not independent, the individual financial advisor is typically employed by the financial institution that is also the custodian or a related party to the custodian. This advisor usually sells products, such as funds, which may also be managed by the same institution or a related party. Under this model, the advisor, investments and custodian are housed in the same or related financial institutions. These advisors may be held to a fiduciary standard but may also be held to the lower standard of suitability, which allows the advisor to recommend investments to clients even when a more suitable (or less expensive) investment that could better meet their needs exists. When they are not independent, advisors are more limited in the advice and solutions they can offer their clients, and they can be encouraged, through commissions and other types of financial incentives, to give preference to certain investments over others, which can create challenging conflicts of interest.
Although conflicts of interest cannot ever be fully eliminated, advisors who choose to provide services as fee-only RIAs do so because they believe that by disclosing and minimizing conflicts of interest and by expanding the universe of custodians and investments they can choose for their clients, they can better serve their clients’ needs.
11. IS MY MONEY SAFE WITH YOU?
When our clients retain our services, they give us a Limited Power of Attorney (LPOA) to manage their investment accounts at the chosen custodian, which means that our clients’ money is not with us, in the literal sense of the question. Our clients also give us limited authority to debit our advisory fees, but they do not give us authority to otherwise make withdrawals from their accounts. Only our clients can authorize or make withdrawals from their accounts.
Since we are an independent firm, our clients always have direct, independent and on-line access to their accounts through the custodian and can independently verify any information we provide to them regarding their account. They can also easily end our advisory relationship at any time by contacting the custodian and asking them to revoke our LPOA. Although this happens extremely rarely, when a client revokes an LPOA, from that moment on, we are no longer able to view their accounts, manage their investments or debit our fees. We believe that this independence between custodian and advisor provides an additional layer of checks and balances to clients working with us.
Investment accounts can lose value and are not FDIC insured. We only work with leading custodians in the USA and Switzerland, and we follow proven investment principles, which are outlined in our Investment Principles at the end. We believe this prudent and tested approach is the most likely to help our clients best meet their financial goals.
We require that our new clients work with us for at least one year to fully take advantage of our wealth management process and to fairly evaluate the value of our services. Since we are paid quarterly in arrears, if a client terminates the advisory services agreement prior to its first anniversary, the remaining annual fee becomes due immediately at that time.
12. WHAT IS YOUR AVERAGE PORTFOLIO RETURN?
We get asked this question a lot, but we believe that giving an answer, while technically correct, would not be helpful and could be potentially counterproductive. Each client’s portfolio is managed based on their individual circumstances. We use mostly low-cost and well diversified index ETFs and focus on building client portfolios that make the most sense based on each client’s unique characteristics. We do not try to beat the market, and we do not try to time the market. Portfolio returns are based on the client’s individual portfolio asset allocation, which is agreed upon in their Investment Policy Statement. As a result, the portfolio return will be dependent on the relative weight or allocation of each asset class and resulting ETFs within the client’s portfolio, and the return of the relevant index during the period in question.
Clients with more conservative portfolios should expect lower returns and volatility over a long-term horizon than clients with more aggressive portfolios. Please refer to the document on the last page for more information about our Investment Principles.
Beyond pre-tax returns, we pay careful attention to tax efficiency when we manage client accounts. Our clients’ accounts are many times taxed differently by Switzerland and the USA, as each country taxes investments differently and treats different types of accounts in a different manner. Whether they are treated as tax deferred, tax free or immediately taxable in one or both countries, we use different strategies to resolve these tax conflicts to our clients’ advantage. We make investment choices that take into consideration the different types of client accounts and the tax status of their owners, in order to maximize their after-tax return on investments.
13. WHAT VALUE CAN I EXPECT FROM YOUR SERVICES AND YOUR FEES?
We believe that our comprehensive financial planning and investment management approach, together with our cross-border expertise, provides exceptional value to our clients. We partner with our clients in long-term relationships that bring our technical and personal financial expertise in support of their values and goals and help clients make good choices. This approach not only helps our clients achieve greater financial wealth, but also gives them the comfort of knowing they can count on our competence and support whenever their next financial or life transition takes place.
Looking at the portfolio management side only, there are several measures that directly affect net worth. As a starting point we develop a well-thought-out long-term investment plan that helps clients stay on course when markets rise and fall. We also help clients legally minimize tax burden by efficiently allocating assets between taxable and tax-advantaged accounts and different individuals in their family, by realizing capital gains and losses at the right time and by developing a tax efficient withdrawal strategy during retirement. We do all this while keeping investment and transaction costs low. Investment costs can be easily overlooked but they can have a very significant impact on long-term returns.
The actual added value of this approach will depend on each individuals’ situation, but the combination of all these factors can easily boost returns by 1.5% or more per year. This extra return will never appear in a report and is often overlooked by other investment managers who lack expertise in US tax planning. This additional return makes a big difference in the long run through the power of compounding.
The incremental value of making good financial decisions and avoiding costly financial errors over a long period of time can be more difficult to measure but can be very significant. We have been able to save or generate tens of thousands to millions of dollars in additional long-term value to clients through tax optimization in small business management, retirement and estate planning, risk management, executive compensation, education funding, cash flow management and cross-border taxation. Sometimes our recommendations can result in a small recurring benefit that repeated over a long period can lead to significant aggregate savings. Other times, a financial recommendation made at a critical moment can result in hundreds of thousands of dollars of value at once. Since major life transitions that can have a great economic impact can sometimes be hard to predict, our client’s value that they can count on us to assist them when the moment comes.
14. SHOULD I INVEST IN SWITZERLAND OR THE USA IF I LIVE IN SWITZERLAND?
While we work with Swiss custodians through our Swiss firm in addition to working with US custodians, US citizens need to be mindful that Swiss mutual funds and ETFs and other foreign funds not registered in the USA, which are usually offered by Swiss brokers, are considered Passive Foreign Investment Companies (PFICs) from a US tax perspective. PFICs have onerous reporting requirements and are subject to punitive US taxation rules that make it very difficult to obtain reasonable after-tax investment returns through these investment vehicles. For this reason, we generally recommend using a custodian based in the USA even when our clients live in Switzerland.
Swiss residents who are not US tax persons do not need to worry about the PFIC rules but still need to be mindful of the higher costs of European or Swiss domiciled funds and Swiss custodians and brokers when compared to US alternatives. As outlined in question # 11 above, cost savings can have a very significant impact on returns over a long-term investment horizon and US markets offer the broadest and lowest cost investment options.
15. I NEED HELP BUT I CAN’T AFFORD TO PAY FOR ADVICE. WHAT CAN I DO?
As a service to the community, we offer no-cost or low-cost, no-sales educational presentations and seminars to non-profit groups and other organizations several times a year. These presentations are aimed at providing trustworthy financial education to the members of various groups for free or at a very low cost. In the past, we have presented for Americans Citizens Abroad, American Women’s Clubs, EPFL, Google, Roche, Nestle and others. If you are interested in scheduling an educational seminar or presentation, please e-mail us at firstname.lastname@example.org.
Additionally, the Articles and Presentations sections in our website contains valuable information about many common US and Swiss cross-border issues. This database can be a great resource for anyone looking for free, general guidance from a reliable source. If you use our articles database, please keep in mind that it provides general advice that may or may not apply to your situation. Details matter. Obtaining advice that specifically applies to you will generally require that you retain the services of a professional.
We will not try to time the markets
We will create a globally diversified portfolio
We will use a custom designed Asset Allocation, balancing return and risk
We will look for low to moderate cost, high quality, liquid investments
We will principally use ETFs because they are:
Very Low Cost
Offer a wide variety of asset classes
Administered by high quality organizations: Vanguard, BlackRock etc.
We will rebalance the Portfolio’s asset allocation as needed: up to 4 times annually.
Or as needed due to large changes in portfolio value or significant life changes, for example job losses, raises, retirement, etc.
We will only purchase Investment Grade Fixed Income Securities unless noted in the Investment Policy Statement.
We will, as necessary, recommend tax management transactions (Tax Loss Harvesting) if it can lower taxes and if it fits with overall client needs.
We will be guided by the Investment Policy Statement
THE IMPORTANCE OF A LONG TIME HORIZON
Investment markets are inherently volatile, including both the bond market and the stock market. Longtime horizon allows the investor to ride out the volatility and profit from the long-term growth of the US and world economies.
Are there any questions and answers that you would like to see posted here or answered personally?
Please contact us.