Roger –  Welcome to Sterling Insights. Our guest today is Jill Carrothers. Jill is the Vice President of Investment Advice at Rebalance. Jill has over 25 years in financial services, and she combines a deep technical expertise with a warm, client-centered approach. And I know you’re going to get the feel of that because I’ve already gotten it in the five minutes that I’ve been talking to her before we started recording. Jill’s known for using detailed mind maps to uncover what truly matters to her high-net-worth clients and for delivering white-glove services that goes far beyond the mere numbers. Jill, it’s a pleasure to have you with us.

Jill –  Thank you so much, Roger. I’m happy to be with you today.

Roger –  Maybe you can start off by just giving us at whatever level of 10,000, 100,000 feet, whatever makes sense, a little bit about you, a little bit about Rebalance and how you got to be where you are at Rebalance.

Jill –  Okay, great. So I guess we can go back a little far back into the archives of how I got started in this business. And when I first graduated from college, I started my career in the nonprofit industry. And during that time, I brought together in partnership local businesses in San Francisco, national businesses, but local in San Francisco with the public schools of the area. And when I was doing that work, I really saw firsthand the power of building community. And whether that was having some professionals read to children or set up a student store or maybe building a garden together, that experience rooted me in a very deep sense of purpose and how I wanted to pursue my career. And that was to find connection between people and bringing people together for meaningful change and to work collaboratively to get to success.

And so after a little while, I decided I wanted to move out of the city and into the suburbs. And I shifted my career at that time. I knew I always wanted to be in the world of finance, and I transitioned into the mortgage industry. And I really helped people, I enjoyed helping people buy their first home or move into a bigger home or downsize depending on where they were in their lives. But the one thing about that business I found was that it was very transactional, and I knew something was missing. And I wanted to be part of something bigger with those clients. And I wanted to help them not just with buying a home, but also with all the components of their full financial life. And the other thing is I noticed when I was working in the financial, in the mortgagebusiness, that people would focus really on one thing, and that was buying a home. And oftentimes they did that at the expense of some other financial decisions that maybe could have been made differently. So I would oftentimes refer them to a financial advisor. And one day I thought, I don’t want to refer them away. I want to do this work with them.

So it was really a natural evolution for me to shift into wealth management and financial advising for my clients. So that’s how I got here today. And I really enjoy the work that I do with my clients. It allows me to spend time with them, to know who they are, to develop meaningful connections with them, to think about strategies that help them reach their goals today, but also midterm and long term, as well as leaving a legacy when they’re no longer with us.

Roger –  And what does your ideal client look like?

Jill –  So my ideal client is typically people in their 40s and 50s, people who are really in those peak earning years and also in peak spending years and helping them navigate through the financial complexities that that stage of life brings.

Roger –  And are they typically high earners? Are they business people?

Jill –  Yeah. So I live in the San Francisco Bay Area. So many of my clients are from this area. They’re typically, you know, in 40s and 50s, they’ve reached some successful moments in their career and they’re pretty, pretty busy. And they have a lot of competing demands on their time. So oftentimes they’re trying to figure out how do I manage, you know, raising a family, managing a household, continuing to move along in my career. And one of the things that often gets overlooked in this period of time is managing their finances. So people oftentimes come to me at this point. They may have been, especially in the Bay Area, a lot of people have been do-it-yourselfers up until this point. And they realize that the moves that they make today are important. They’re complex. And if they do it well, it can set them up for financial success for the long term or potentially if they make mistakes, could cause some pretty significant problems.

Roger –  Do you have minimums?

Jill –  We do. So at Rebalance, our minimum is $1 million, $1 million of investable assets.

Roger –  And tell us a little bit about Rebalance in case people aren’t familiar with the firm.

Jill –  Rebalance is a registered investment advisory firm and we work with clients to help them with their overall comprehensive wealth management strategy. So we start with investments and make sure that they have a good investment philosophy in place and then implement that strategy for them. And Rebalance really focuses on creating a sophisticated strategy, but also something that’s very simple and straightforward and easy for people to understand. So we are big believers in index funds and critically important in our philosophy is keeping fees low.

Roger –  Would it be helpful to talk about a hypothetical client? Or, I mean, it could be a real one as long as you don’t use any identifying information about somebody comes to you. Let’s just not talk about an actual client, but somebody comes to you, let’s say it’s a 50-year-old executive. Is that a typical thing that you see? Yeah. And maybe it’s a couple. Maybe one or both of them have been working in San Francisco area. It’s probably high tech. And so they’ve got some money. They’ve got a 401k. Tell us an example of how that might look.

Jill –  Yeah. So I would say very often I will have a client arrive because they’ve reached this point where maybe they haven’t taken the best care of their finances because either they’re too complex or they’re too busy. And so they really want to engage a partner in financial planning. And so one of the first things that I see with many of my clients is that their money is spread out. So they have a lot of different accounts in different places. And one of the first things that we look at is how can we simplify? How do we bring all of these accounts together so that we can think about them holistically and put together an investment strategy where we are addressing everything that you’ve got? It’s not unusual to have people who maybe have worked at three or four companies. And so they have 401k accounts with old partners.And there’s an opportunity to either bring those accounts into an IRA and manage them independently of the businesses or roll them into their current 401k plan. But really what’s important is to try to consolidate as much as possible because it gives greater clarity and helps our clients keep control over their money, where it is and how it’s invested.

And then that leads into another point and that is that there can also be lack of integration. So we might be looking at accounts that aren’t taking into account the overall financial picture. So we want to make sure we’re looking at everything that a client has, including 401ks. A lot of my clients have some kind of stock compensation, so managing that. And then thinking about things like 529 plans if people have kids and want to think about sending them to college, how does this fit into their real estate situation, whether they own their primary home or maybe a couple of homes.

And thinking about things like insurance to make sure that they’re protected and also thinking about their estate plans. So once we put all these pieces together, making sure that when they pass away at some point in the future that they leave the legacy that they want to leave for themselves and for their family.

So another thing because I work in the Bay Area and we have a lot of equity compensation, this is an area where I do a lot of planning. So stock compensation, a lot of it is through RSUs, but we still also see options and other kinds of equity. Making sure that people don’t build up concentrated position in their company stock. That’s an issue that we deal with often when people come to us. So they built up a lot of positions in their company stock. If they’ve been there for a number of years, it may be highly appreciated. So how can we help them diversify out of that to create greater stability in their portfolio?

And then I would say another thing is that people oftentimes will sort of ignore their accounts. Maybe they have a 401k. They set up an automatic contribution. They set it and they forget it. And then they’re not making decisions about that account as part of an overall portfolio strategy.

And one of the things that we also see because of that is that people oftentimes will sit in cash for a long period of time. And cash is something that we want to have some of. We want to have it in our checking account, maybe a little in savings. But we want to keep people’s assets invested in the market for long-term growth. Cash is something that loses value over time because of inflation. And investment accounts, while we do see volatility in investment accounts over the long term, have proven to provide a nice way to grow people’s wealth over time.

So those are some of the things that people come to me with. And then one of the things that we think about is not just their assets but also their overall financial plan. So once we understand where we’re going and what we’re trying to do, we want to make sure that as people continue to move along in their career, that as their incomes rise and as they start to naturally spend more money, we stop and take a look at that.

If people have gotten to a place of financial comfort and sort of touched on all the things that are important, they’re contributing to their 401k, they have college savings for their children, if they potentially might need to support family members, they’ve got that covered, this is a great time to shift from increasing spending to increasing savings so that we start to build long-term wealth for our clients and they know at some point down the road they’re going to be able to retire.

Roger –  So if your clients started a minimum of a million, what’s the median client say? It’s probably a lot higher than that. Well, at the firm we have clients that range from a million all the way up to significantly more than that, yes. But really it’s about that place of a million dollars where the complexity starts to set in where we can have a significant impact through not only investments but also through financial planning.

So how often you mentioned concentrated stock holdings, which there’s a lot of that in the Bay Area. So someone comes to you, it might not be that uncommon that as a family they’ve got half their net worth in one company. Is that reasonable?

Jill –  We see that. We do, yes. And then what do you guys do? And I guess if it’s in retirement plans and stuff it’s easy. You just sell it and diversify it. But a lot of times,I know because we see a lot of it, it’s not in a retirement plan. It’s taxable. And in California that means it’s 37% for a lot of these people. That’s right. So there are a number of strategies that we can deploy when we have people who have concentrated positions. As you mentioned, one of the complexities, if it’s in a non-retirement account, is that there are going to be tax implications to any reallocation in that portfolio. So we want to be tax sensitive with the understanding that if these funds to a large degree haven’t been taxed yet. So we don’t want to let the taxes make the decision for us, but we want to be very tax aware.

And we also have an opportunity sometimes to balance that with other strategic advising. So if we have clients who are charitably inclined, we may do some significant selling of a concentrated stock position with gains and at the same time maybe open a donor advised fund and superfund it so that we get a tax break at the same time we’re creating a tax consequence. And those can really offset each other nicely. So we look to see what’s important to the client, how can we pair these things together so that we can minimize taxes and optimize their wealth over time. We want to be as simple as possible, but there are lots of layers that we can add onto that if need be.

So we can use tax loss harvesting if we’re in a market where there’s opportunities to recognize some paper losses. We can tax loss harvest and help offset some of the gains. And if need be, we can also do some options strategies if that feels like it’s important to unwind a little more quickly. I think it’s probably something that you and I might want to talk some more about because we do a lot of work. We don’t manage money, but we do a lot of work with advisors like you setting up tax exempt trusts for exactly that situation where a client has a large appreciated position, it’s concentrated, and you want to diversify without paying the tax. We should talk about that afterwards.

Roger –  So I know you guys, I mean, your name of the company is Rebalance. I suppose that’s probably not based on being in the shoe business and combining Reebok and New Balance. I assume that it has to do with your approach to ongoing portfolio management. Can you talk a little bit about that?

Jill –  I can. So when we put together a strategy for our clients, we want to make sure that the allocation that we have recommended and that they have agreed to stays in line as the market moves. So we rebalance the client’s portfolio twice a year. We don’t want to be too reactionary because we do know the market is going to move. But over the long term, we do want to make sure that the allocation stays in line with what we’ve set out as their portfolio strategy.

Roger –  Are you rebalancing taxable as well as tax-exempt accounts or non-tax accounts?

Jill –  We do. We do. And if there’s a significant tax impact on the taxable accounts, then we will take a look at that and talk to our clients about what the tax implications look like and make a decision if we’re going to rebalance the entire account or if we may want to delay some of the rebalancing.

Roger –  There’s more than one approach, algorithm, whatever you want to call it, to rebalancing. Which ones do you guys use? And maybe you can talk a little bit about how you do that and why.

Jill –  Can you clarify the question a little bit?

Roger –  So, for example, you could rebalance based on a calendar. You could rebalance based on percentage allocations. You could rebalance based on size of a market move. I was wondering which of those, if any, or other approaches do you guys use?

Jill –  Yeah. So we rebalance based on a calendar. So we do it twice a year. We do it in the spring and again in the fall. And if there’s ever a significant event that may make us want to think about specific clients who may need more aggressive rebalancing, we do that on a case-by-case basis. But as a firm, we’re going to look at everybody’s portfolio during those two times of the year.

Roger –  Okay. So, for example, when fairly recently the market took a 20% or so tumble, did that cause you guys to rebalance?

Jill –  We did not rebalance right away. We were watching the market to see if it would correct itself or if we needed to make some moves in the client portfolios. And, of course, the market corrected itself, and so we didn’t have to do that.

Roger –  Okay. You guys must have done, or there must be studies, I’m not familiar with them, but on rebalancing. of how to do it, what the value added is, what the costs are. How do you talk to clients about that?

Jill –  So the importance of rebalancing is really to think about what is the strategy that we want to put in place for our clients, and that’s based on where they are in their life cycle. If they’re early in their career, we may have portfolios that are a little more aggressive. If they’re nearing retirement, we’ve tapered those down potentially. Also, what their risk tolerance is. We may have clients who are at a place where they really don’t mind taking more risk in their portfolio, and they have the ability to absorb short-term losses in the account so that they can benefit from the bounce after a loss. So we are working with our clients in their specific situation to choose an allocation, and then what we really want is to make sure we stay true to that, because that has been strategically designed specifically for them.

Roger –  What are the asset classes that you would typically select among or from for your typical client?

Jill –  So we’re looking at a really broadly diversified portfolio. So one of the number one things we know that leads to success in a portfolio over time is broad diversification. So we’re diversified across asset classes, not just stocks and bonds, but also within those, we want to be diversified across the globe and across the particular types of holdings. So we are indexers, so that we’re also mimicking the broader market.

Roger –  So do you have a benchmark index that you then, like for the whole firm, or you have multiple indexes, or how do you do that?

Jill –  We have multiple indexes, so we have allocations that are geared toward each of the different asset allocations. We have sort of the ideal portfolio that we would like to get to. But of course, with each individual client, they may have legacy holdings, they may have embedded gains, there may be reasons why we’re holding on to things that aren’t exactly in line with what would be our ideal portfolio. But we can use things that they’re holding as a proxy to make sure that their portfolio is still balanced, even if it’s not exactly the holdings that we’ve selected for the portfolio.

Roger –  So is it basically equities and bonds that you’re…

Jill –  Yes.

Roger –  And then on the bond side, how do you guys look at bonds? Do you look at them… Are you looking at the whole bond index, or are you looking at… How do you guys think about bonds?

Jill –  Yeah. So we have a mix of bonds. So we like government bonds, and particularly in some of the cash reserve areas, we like people to stay in government bonds because they tend to be more safe and secure. But we also want to have some corporate bonds and high-yield bonds in our portfolio. So we have quite a blend of bonds that we use.

Roger –  And how do you guys think about duration on the bond portfolio?

Jill –  We have a mix, so between short and midterm bonds. What’s the longest that you guys will generally go out? Like what’s the longest duration you’d have for a client bond portfolio?

You know, I’d have to defer that question to my… Yeah. I used to be a bond trader, so… You know, off the record here, we’re building out some bond ladders, and so we’re looking at duration right now, and I’m not exactly sure where they’ve landed on that.

Roger –  Yeah, okay. And then you choose between taxable and tax-exempt based on the client’s tax situation and the portfolio?

Jill –  We do, but we do find, you know, the tax-exempt can be beneficial at certain times, but we are always assessing where best to allocate to bonds.

Roger –  Would you tend, everything else equal, to hold more of the client’s bonds in a, like a retirement plan?

Jill –  You know, not necessarily. Not necessarily. We look at… Sometimes we’re managing accounts based on… We can have a different allocation to different types of accounts within the portfolio. We’re looking at the portfolio comprehensively, but we may have different allocations to different accounts

Roger –  On the equity side, do you look at it as U.S. and international, or do you look at the whole world? Do you look at it as U.S. and international or you look at the whole world or how do you guys look at that?

Jill: We do. We look at U.S., international, and emerging markets, and we are participating in all of that.

Roger –  And so if you had a, like, I don’t know if you have a standard way that you spread the equity, but if you do, what would that be among all those different markets?

Jill –  So our biggest position is going to be in U.S. equities, but also the U.S. equity market represents, what, 60% of the world equities, so it’s balanced to some degree based on that as well. So how much of the market that country owns.

Roger –  Okay. Do you guys, I know you said you were indexers, do you do any fundamental indexing or smart data or anything like that, or you just do straight indexes?

Jill –  You are now getting into the investment committee level, and so we have, at Rebalance, we actually have a pretty illustrious investment committee, and they meet with frequency to talk about the investment strategy as well as looking at the market, where we’re anticipating the market going, not looking at the frothy headlines but more the fundamentals of the market, and looking to see if we ever need to make any adjustments to the portfolio. But they are making the decisions about what’s going to go into our portfolio.

And then as advisors, we are working with our clients to figure out what allocation we’re looking for, and then we work with our investment committee to create a portfolio based on what they’re currently holding as well as the allocation that we’re looking to get them to ultimately.

Roger –  Can I ask you guys about how you mentioned keeping costs down, can I ask you guys about how you guys view fees and how you guys get compensated?

Jill –  You most certainly can. So there are two parts of fees to a client:

So we are, in the world of advisory firms, we are on the lower end of the cost structure, so the first million dollars starts at 75 basis points for our clients, and then it tapers down as we are investing more of their money. As far as the holdings that we have within our portfolio, we are looking at some of our funds are three basis points. So we’re trying to keep the costs in the portfolio quite low, so three, four, five, six basis points for each one of our holdings.

Roger –  You guys are able to do that kind of across the board with your –

Jill –  We have a very strong commitment to that because we believe that the more that they pay in fees, the less that goes into their portfolio, and with the power of compounding over time, a small change in fee can have a pretty significant impact in their wealth creation.

Roger –  Are there particular providers that you guys prefer over others, or you just look at – you’re mostly using ETFs?

Jill –  We are, yes. So you’re just looking out there and whatever looks like it is a good fit for whatever strategy you’re trying to do is you’ll use those ETFs. That’s right.

And the investment committee is taking a look at what’s being held within those, but we’re indexing, so there shouldn’t be such great variability, but oftentimes there’s variability in the fees. So that’s one of the key things that we’re looking at. And I would say that the investment committee overall selection, we’re looking at the balance of the percentages for the different areas of the globe, as well as the fees and, yeah, I think those are the key things that we’re looking at.

Roger –  And we don’t have a ton of time left, Jill, but I want to ask you about mind maps.

Jill: –  Yes.

Roger –  Can you tell me – and I’m not familiar with mind maps. Can you just give us a high-level overview of what it is and how you apply it to help your clients?

Jill –  Okay. Yes. So the mind map, the purpose of the mind map is it’s a tool that we use. It’s a pictorial version of the many important components of our clients’ lives that play into their financial well-being. And it’s a way for me to have a conversation with my client to help really get to know who they are and put us both on a really clear understanding of what their financial goals are and all the important parts of their life that are going to play into that.

So just to give you a high-level example of how I use that, when I begin working with a client, we don’t generally start withthe numbers. What we’re starting with is the values that they have around money. And what I want to understand is what really matters most to them. So, you know, how do they define success? What kind of life are they trying to build? And what’s the legacy that they’re hoping to leave? So that becomes the foundation of everything that we do together.

And when we’re building out that mind map, we call it a discovery meeting. As we’re building out that mind map, I’m talking to them about not only what are their values, but who’s in their family. And that can bring up a lot of important issues:

We’re also talking about their career and are they in the job that they want to stay in? Is there potentially a move on the horizon? When do they want to retire? If they’re not ready to retire, are they going to go upstream? Are they going to start to throttle back? So we can start planning around all of those key events in their life.

We also talk about where they live. Are they going to stay in their current home? Do they want to buy a second home? How much traveling do they do? All of those things that become part of their daily lives.

And then also really importantly, what are their goals today? Maybe midterm, also long term. And how are we going to get there? And one of the final questions we ask is, what are the things that keep you up at night? What do we need to be addressing to get you to a place of feeling financially secure?

And the mind map is that document where we have that question. And oftentimes I have clients tell me that this is one of the best meetings they’ve ever had because it makes them stop and really think about what am I doing? Where am I headed? And what am I trying to accomplish in my life?

I also oftentimes will have couples who communicate a lot. They seem to be on the same page, but they do this work together and they say we learned something about each other. So it’s a really great place to make sure that we’re all on the same page and all working toward the same goals.

And the mind map is so powerful and it’s something that I go back to time and time again during my work with my clients.

Roger –  Awesome. Thank you. Is there anything else that we didn’t get a chance to touch on that you want to make sure that the audience hears before we wrap up?

Jill –  I don’t think so. I think we’ve covered a comprehensive bit of financial planning and it’s been a pleasure. It’s been our pleasure.

Roger –  Before we wind up, I do want to ask you, how can people get in touch with you if they want to learn more?

Jill –  They can reach me at jcaruthers at rebalance360.com. So that’s jcaruthers, C-A-R-O-T-H-E-R-S at rebalance360, the digits spelled out, 360.com.

Roger –  That’s right. Thank you so much, Jill.

Jill –  It’s been a pleasure. Thank you, Roger.