A Word From The Advisor
Cost Matters

We invite you to consider one of Oakwood’s key wealth management tenets: the notion that costs matter.

Oakwood’s value-added comes in part from our ability to minimize the frictions of investing for our clients, costs among them. Along with asset allocation and proper portfolio structuring, cost containment is a crucial component of investment success.

Controlling the inevitable
Costs and expenses are inevitable in investing. The wealth management activity we undertake on your behalf—creating and managing portfolios, providing account statements, offering our customized advice and service—engenders costs. However, Oakwood’s intelligent investing combined with our careful, conscientious scrutiny of costs—management fees, operating costs, tax costs, transactional costs, other expenses—positions our clients to capture an enhanced share of market return over the long term. While we cannot control the market’s direction or its outcome, containing costs is one of the most powerful tools to increase the potential for investment success.

Long-held Oakwood policy
Cost containment has been integral to our service promise for years. This benefit applies to all Oakwood strategies across the board. Each one has a philosophy of best price and best execution while avoiding unnecessary turnover. We do not chase hot investment products, companies, funds, or the investment theme of the month. Instead, we stay true to our philosophy of seeking higher expected return over time with lower risk and minimizing costs. Remember, our sole compensation is a fraction of a percent, calculated quarterly, on your assets under management (this fee may be tax deductible). Our goal is to grow your assets while minimizing the frictions of costs and expenses.

Partnership with DFA
Most of you know that for several years Oakwood has forged a strategic alliance with Dimensional Fund Advisors (“DFA”), one of the industry’s most consistently successful, low-cost, no-load mutual fund companies. Through DFA, Oakwood offers structured global equity strategies based on the science of capital markets with the objective of increased returns through state-of-the-art portfolio design and trading. DFA’s asset-class-driven approach allows Oakwood to structure portfolios with easily understandable risk/reward dynamics, providing our clients with institutional execution consistent with our low-cost approach.

Oakwood has been approved by DFA to offer these extremely cost-effective funds in your Oakwood account. The fact that the general public cannot access DFA funds through retail or discount brokers relates strongly to cost. We’ve identified nine key building blocks of this cost-efficiency from DFA. Please note how well they synchronize with Oakwood’s approach to wealth management:

• Low expense ratio
  This refers to the percentage of fund assets that go exclusively toward the cost of running a fund. The expense ratio is comprised of internal management fees, administrative costs, distribution fees, and other operating expenses. DFA fund expense ratios, compared to those generated by the average mutual fund, fall into the lowest decile.
  
  
• Low distribution costs
  By offering funds exclusively through wealth management firms like Oakwood, DFA circumvents traditional mutual fund distribution channels. It therefore reduces hefty marketing and distribution costs like advertising and brokerage commissions.
  
  
• Aggressive negotiation of fees
  DFA can aggressively negotiate fees based on its strength as a $150 billion mutual fund company. They diligently negotiate with vendors and custodians—from the company that prints prospectuses to the broker transacting trades; from rent and electricity to foreign exchange commissions. The leverage DFA’s size commands in negotiating these costs subsequently benefits investors, who profit from proportionally higher returns. This is highly consistent with Oakwood’s approach.
  
  
• Low portfolio turnover
  This rate represents the percentage of a fund’s assets that turnover, or change, every year. DFA funds are steeped in an academically driven, asset-class approach that delivers much lower turnover than the industry average. This translates into lower transaction costs.
  
  
• Tax efficiency
  Investors strive for tax efficiency in funds that are held outside retirement assets such an IRA or 401(k) plan. DFA manages funds with the specific intent of minimizing tax consequences when selling shares and realizing gains. This is achieved by careful selection of what shares to sell and by matching capital gains with capital losses. These tax-managed structured funds defer gains until they are long term and taxed at a lower rate. In short, we exercise particularly thoughtful discretion when we sell. Finally, reducing portfolio turnover also reduces taxes.
  
  
• Lending / hypothecating
  Like most mutual fund companies in our industry, DFA lends and hypothecates against the securities in the portfolio. This is basically a way of creating liquidity in less-liquid markets. It also earns income. Some mutual fund companies put this income into their own pocket. DFA delivers this income back into the portfolio to enhance returns and benefit the investor.
  
  
• ‘Just say no’ to hot money
  DFA fund management is based on academic research that confirms the advantages of longer-term holding periods. “Hot money” investors buy and sell based on emotions, swings in the market, or whatever style might be in favor. This creates massive inflows and outflows for mutual fund managers who may be forced to buy or sell at inopportune times.
  
  
• Focus on the high-net-worth market
  DFA, like Oakwood, primarily serves high-net-worth clients. These are relatively patient investors who think long term, unlike “retail” investors who trade and turnover frequently, generating transaction costs that gnaw at returns.
  
  
• Avoiding momentum
  One of the key ways we add value is by separating your emotions from your portfolio. This benefit is crucial, though difficult to quantify. Our dispassionate and intelligent approach protects you from costly errors arising from emotional investing or buying momentum.

Continuous investment management

At Oakwood, we increasingly believe our greatest value comes from properly structuring portfolios to reflect your investment goals, time frame, and risk tolerance. Properly structuring portfolios goes a long way toward achieving good total returns.

Because it’s intelligent investing that beats the market, we deliver a comprehensive wealth management experience that aims to give clients a rewarding investment experience.

Much of our management of your money is transparent and highly visible. But our other actions may be less apparent, and yet, we are constantly monitoring and managing on your behalf. Our ability – and our promise – to contain the hidden costs associated with investing remains a key tool in our arsenal to increase your opportunity for higher portfolio return relative to risks.

Please call us if you have any questions or would like to discuss this topic further.