Frequently Asked Questions
- What type of a firm do you represent (ex.; Brokerage, Registered Investment Advisor, Money Manager,
etc.)?
Premier Financial Group, Inc. is a Registered Investment Advisor with the Securities and Exchange Commission.
- Are the investment options retail or institutional?
Premier Financial recommends institutional programs because of the fee schedules
used with institutional programs and it is much easier to monitor the investments
compared to retail mutual funds.
- Can your firm serve as a NAMED FIDUCIARY under ERISA with a written understanding
of such status reviewed by the plan’s ERISA counsel? If so, is your
firm willing to serve as an independent fiduciary with express written responsibility
for the selection and monitoring of the plan’s investment menu?
Premier Financial Group will accept a co-fiduciary relationship with the trustees and any other fiduciaries of the plan and will provide a written acknowledgement of this relationship. In our written acknowledgement we will expressly acknowledge the specific duties for which we will be co-fiduciaries with you, including the selection and monitoring of the investments. This is a unique relationship, and our acknowledgement of our co-fiduciary relationship with you is a cornerstone of our fiduciary support services program for trustees and other fiduciaries. Hiring and appointing Premier Financial Group, a Securities and Exchange Commission Registered Investment Advisor, as your plan consultant assists the trustees in identifying and managing plan liability.
- Do you maintain insurance/bonding that covers acts adverse to the Plan? Please
identify the amount and coverage.
Yes, Premier Financial Group carries an ERISA Bond through Theodore Liftman
Insurance, Inc. This is a regulatory requirement because the firm manages
ERISA money. In addition to the ERISA Bond, Premier Financial Group, as a
co-fiduciary with its retirement plan clients, carries Registered Investment
Advisor Errors & Omissions insurance. In addition, the firm has
a Fidelity Bond.
The daily valuation platform 401(k) provider we would recommend is insured
through the group coverage of the American Society of Pension Actuaries Professional
Liability Insurance Group, Swett & Crawford of Georgia. They also have
a fidelity bond with Fidelity & Deposit Company of Maryland extended
to cover employee dishonesty, forgery and/or alteration.
- Is Premier Financial Group subject to full disclosure rules?
Premier Financial Group, as a Securities and Exchange Commission Registered Investment Advisor, is subject to full-disclosure under the 1940 Investment Advisor Act. This regulation requires full-disclosure on fees, conflicts of interest and other areas. This is important to trustees and we recommend any advisor you are considering fall under this requirement.
- State what you believe distinguishes your services from your competitors.
We strongly believe the most distinguishing service that differentiates us from our competitors is our written acknowledgement of our fiduciary relationship with our clients and the fiduciary support services we provide for trustees. The following quote is at the heart of our fiduciary services. This quote by James D Kemper, Esq., and Jason E. Levine, Esq., of Ice Miller, an employee benefits law firm specializing in fiduciary services states, “Pension plan fiduciaries can protect themselves, or at least greatly reduce their exposure to fiduciary liability, by adhering to a properly established prudent process which, if correctly followed, will shield fiduciaries from liability regardless of whether their actions result in investment losses.” The quote represents the essence of the Premier Financial Group belief system. The firm’s comprehensive fiduciary services and formalized documentation process provides each client with a prudent course of action. Also, we believe our understanding that without satisfied participants, a plan is more likely to fail. If employees are not educated and empowered to take advantage of the plan, there is a high likelihood that plan participants will not be fully satisfied. Therefore the trustees are likely to get more complaints both formally and informally from the participants. Premier Financial places a strong emphasis in the delivery of effective employee education.
- Is there a surrender charge, other similar fee, for termination of your
services?
Premier does not have any surrender charges or termination fees.
The firm has a 30-day notification of termination of services. Premier
has an ongoing fee-for-service relationship without any hidden or undisclosed
charges of any kind. We strictly adhere to a full-disclosure of fees policy.
- In layman's terms, what is the Efficient Market Hypothesis?
The Efficient Market Hypothesis says that market prices are fair: they fully
reflect all available information. This does not mean that prices are perfect;
some prices may be too high and some too low, but there is no reliable way
to tell. In an efficient market, investors cannot expect to earn above-average
profits without assuming above-average risks. Market efficiency does not
suggest that investors can't "win." Over any period of time, some
investors will beat the market, but the number of investors who do so will
be no greater than expected by chance.
- If everyone followed an indexing strategy, would markets still be efficient?
This question has come up repeatedly ever since indexed strategies first
appeared in the mid 1970s. Critics of indexing assert that markets would
be less efficient if all investors adopted a market-fund investment approach.
One can accept this theoretical viewpoint and still embrace indexing with
enthusiasm.
If the adoption of indexed strategies became so pervasive that market efficiency
was impaired, Dimensional believes it would be a self-correcting process.
Mispriced securities would create opportunities for investors to earn profits
in excess of their research costs, and their activity would drive prices
back to equilibrium levels. We will never know how much information and liquidity
are required for an efficient market. Markets for consumer durables such
as homes or autos appear to be at least reasonably efficient, despite very
poor liquidity, high search costs, and the absence of perfectly replaceable
assets. This behavior suggests a shift to passive investing would have to
be very pronounced to have any effect on market efficiency.
Even if all professional investment managers adopted a passive approach,
other market participants would continue to provide price-setting information.
Sources of such information could include corporate stock buybacks, acquisitions,
and the investment activities of officers, employees, competitors, and suppliers.
Despite the impressive commercial success of indexed investing strategies
over the last twenty-five years, they still represent only a fraction of
total stock market wealth. The assets of all index mutual funds managed by
indexing giant Vanguard Group were approximately $176 billion as of December
31, 2001, or roughly 1% of the nation's total stock market value.
- Dimensional does not "pick stocks," so how do they decide which
stocks to buy?
Buying stocks for the funds is a detailed process but can be described in
general terms. They create an eligible universe of all traded stocks of
real operating companies. They then apply filters to exclude stocks that
do not fit the asset class of the fund or that have specific pricing or
trading concerns. The remaining stocks are eligible for purchase and are
subject to rough market-capitalization target weights. They regularly monitor
trading in the market place with real-time checks for current news that
may impact prices, such as a looming takeover. Other than that, they’re
generally indifferent among the stocks in the eligible universe, which allows
them to trade opportunistically and take advantage of liquidity premiums
that benefit client returns. For additional information regarding the investment
strategies of each fund, please go to
http://www.dfaus.com and read each fund's prospectus and statement
of additional information carefully.
- Can any single industry — for example, the high-tech sector — assure
investors above-average returns?
Detailed research into the sources of investment returns (Fama, Eugene F.
and Kenneth R. French. "Industry Costs of Equity." Journal of Financial
Economics 43 (1997), 153-93.) concludes that industries, or companies' products,
are not a factor in expected stock returns. Industry effects can influence
prices, but in a seemingly random, short-term way that can be mitigated in
a diversified strategy. Therefore, industry effects, though they pose risks
that are worth taking into account, are not a primary variable on which to
sort securities for investment purposes.
Firms developing new technologies have no assurance of earning above-average
long-run profits. The competitive forces in a free market work constantly
to disperse the benefits of innovation throughout the economy. The retailer
using new high-speed computers to cut inventory costs, for example, may reap
greater economic rewards than the company who developed them. And if competition
pressures the retailer to pass the resulting savings along in the form of
lower prices, the ultimate beneficiary is the consumer. Even if one could
correctly predict technological trends, identifying the winners from an investment
standpoint becomes an elusive exercise.
Consider the birth of the personal computer industry in the early 1980s and
its subsequent explosive growth. Industry pioneers IBM and Apple Computer
were responsible for many innovations, yet shares of both firms have lagged
the broad stock market: total return for the 20-year period ending December
2001 was 333% for Apple Computer, 1360% for IBM, and 1606% for the S&P
500 index (Center for Research in Security Prices, University of Chicago;
Ibbotson Associates).
- Why does Dimensional offer a global fixed income strategy but no international-only
fixed income strategy? Shouldn't the allocation decision between domestic
and international fixed income be made by the advisor?
Dimensional's global fixed income strategy reflects our view that the sole purpose of fixed income in a balanced account is to dampen the volatility of equities. Returns for a US investor in non-dollar denominated securities are determined by a combination of changes in foreign currency exchange rates and the return on the underlying fixed income securities. The return component attributable to fluctuating exchange rates frequently exceeds that of the fixed income securities by a wide margin. The additional volatility attributable to the currency fluctuations defeats the purpose of holding fixed income securities. If one could predict future changes in foreign exchange rates, it would be possible to engage in selective hedging activity in an effort to improve the reward-to-volatility characteristics. There is little evidence, however, that active managers are able to extract excess returns from foreign exchange trading with any consistency. As a result, Dimensional employs foreign currency forward contracts to hedge exchange rate risk at all times. High-grade securities from eight major international bond markets (Australia, Canada, Denmark, Euro countries, Japan, Sweden, the UK, and the US) are placed in competition with each other. Non-dollar denominated assets are purchased only when their expected returns (net of all hedging costs) exceed those of comparable US instruments. No more than 30% of portfolio assets can be invested in any single country outside the US. It is not unusual for the portfolio to own issues from major multinationals such as G.E., Hewlett-Packard, or McDonald's in several different currencies. By eliminating both the potential profit and loss from currency movements, the strategy minimizes the greatest source of risk in a global bond portfolio. The increased diversification provided by owning securities in multiple bond markets suggests it is appropriate to consider using Dimensional's global strategy as a substitute, not just a companion, for a US-only approach.
- Why doesn't Dimensional offer portfolios investing in mortgage-backed
securities, convertible bonds, or high yield debt?
Dimensional believes that five factors explain the vast majority of returns
in diversified portfolios (market, size, and value for equities; term risk
and default risk for fixed income). They also appear to explain the behavior
of hybrid asset classes such as high yield bonds or convertible securities.
In general, Dimensional believes the behavior of these asset classes can
be captured more reliably and at lower cost by using some combination of
structured equity strategies combined with high-grade short-term fixed income
securities.
- What is the role of fixed income in portfolios?
In fixed income, low-grade obligations have higher expected returns than
high-grade obligations and long-term bonds have higher expected returns than
short-term bonds. We believe, however, that these premiums are historically
not large enough to reward the additional risk.
The primary roles of fixed income are diversification and to dampen portfolio
volatility. By keeping maturities short and credit quality high, portfolio
risk from fixed income is minimized so investors can focus on the much higher
returns of stock factors.
