ZAG Investment Management Standards

• Purpose: The purpose of this document is to set forth the minimum acceptable standards of practice pertaining to the discretionary management of an investment portfolio. Zero Alpha Group (ZAG) standards rise above those that typically govern the investment management industry. The limited existing Industry standards relate primarily to performance reporting. ZAG standards, in contrast, provide the most meaningful and cost effective solutions for the client’s lifetime goals and objectives. All members of ZAG consider themselves to be fiduciaries with respect to client assets under management.
• Investor Education: The starting point in the investment management process must be education from two perspectives. The advisor must understand the client’s current circumstances as well as goals and objectives. The client must be educated on historical capital market behavior, modern portfolio theory, strategic asset allocation, the benefits of broad, global diversification and the importance of cost control.
• Documentation of Investment Policy: The documentation of the client’s investment policy need not be a formal, lengthy document. It should, however, be in writing and should address the following areas:
• Client’s time horizon
• Investment philosophy
• Target asset allocation for major asset classes
• Investment selection criteria
• Frequency of review
• Cost Control: One of the items that is within the control of investors is the amount of costs they incur in the investment management process. Nobel Laureate William Sharpe, when asked about the single most important factor in selecting mutual funds, replied “Costs”. For this reason, ZAG member firms tend to utilize passive and structured asset class investments that keep expenses low. As client advocates, ZAG has gained access to even lower-cost versions of already low expense investments.
• Rebalancing of Portfolios: Portfolios should be rebalanced on an as-needed basis rather than on a strict time schedule. A portfolio with frequent deposits may not need rebalancing for many years because new deposits will be directed to the appropriate asset class(es), whereas a portfolio without deposits could require rebalancing more frequently than annually in a volatile market environment.
• Performance Reporting: Many investment approaches lack accountability. Accountability is critical. ZAG firms report performance in accordance with industry standards and compare performance to relevant benchmarks in light of client objectives.
• Tax Management: ZAG firms believe in maximizing after-tax returns and employ appropriate tax-management strategies when income taxation is relevant.
• Strategy: ZAG firms employ disciplined, systematic, client-by-client portfolio solutions instead of opportunistic investment strategies that rely on predictions of market movement or individual stock performance.