Investment Integration:

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1 A Holistic Approach to Managing Intel Retirement Plan Assets A CORDANT WHITEPAPER tel info@cordantwealth.com Learn more at cordantwealth.com

2 As an employee of Intel, you have access to a wide number of investment options, accounts, and benefits through the Intel retirement plan. These can be very valuable for your retirement planning, yet also very complex and time-intensive to manage. Unfortunately, the traditional financial advisory industry is not set up effectively to help you manage your retirement plan assets. However, there is a better solution. The effective integration of your Intel accounts with your other outside assets, and the alignment of all resources with your unique goals can lead to a superior, more holistic plan for your retirement. KEY POINTS The financial advisory industry is traditionally not set up to manage Intel retirement plan assets. Managing your accounts in a segregated fashion can cost you money, time, and deviation from your specific risk tolerance. An integrated approach to managing retirement plan assets is superior to the traditional, segregated industry approach, and consists of the following steps: o All assets are aligned with your goals o Each investment account is directed for its best use o There is seamless, efficient interaction and execution across all of your accounts o There is monitoring and aggregated reporting across all of your accounts There are multiple, quantifiable benefits to managing your assets in an integrated fashion: o Incremental Return A more robust asset allocation can potentially increase returns by 1.2% to 1.5% annually i leading to nearly $1mm in additional wealth over a twenty year period. 1 See chart below. o Lower Taxes Utilizing tax-efficient asset location can reduce income taxes by up to 0.20% % per year. ii,iii This may not seem like much, but could over $500,000 to wealth over twenty years. 1 That is $500,000 additional dollars that you keep instead of handing over to the government. o Lower Investment Costs Utilizing lower cost and more tax-efficient investment vehicles may save between 1.71%-2.52% each year. iv v This could add over $1.30mm in wealth over a twenty year period. 1 o Customized Risk Exposure All accounts are coordinated and in line with your specific risk tolerance. o Daily monitoring and a reduced burden of execution 1 Assumes $2 million beginning portfolio value 2

3 Robust and tailored systems allow for the integration process to be executed efficiently. When hiring an advisory firm, there are several questions you should consider asking: o How will you define a successful outcome for me and, how do I track my progress towards success? o What experience do you have working with retirement plan assets and Intel employees specifically? o What advice will you provide on my other financial questions? How should I deal with my Intel Stock Option plan? How do I coordinate my health care coverage in retirement? When should I begin taking Social Security? o How are you compensated? o Do you stand to benefit financially from recommending one product over another? $3,500,000 INCREMENTAL RETURN Based on a $2mm beginning portfolio value $3,000,000 $2,500,000 $1,376,293 $2,000,000 $1,500,000 $603,637 $1,000,000 $500,000 $965,819 $- Year 0 Year 5 Year 10 Year 15 Year 20 Allocation Taxes Vehicle Cost 3

4 INTEL RETIREMENT PLAN: THE TRADITIONAL APPROACH The Intel retirement savings and stock compensation plans have evolved into a robust, but sometimes complicated mix of programs. The best way to manage and optimize the variety of accounts - traditional 401(k), Roth 401(k), the Retirement Contribution Plan, Non-Qualified Deferred Compensation (SERPLUS), stock compensation via Options, RSU s and SPP Shares - is not always clear. Questions you may have regarding your retirement assets Typically, people will seek advice when they have questions such as: What level of investment assets do I need to accomplish my goals, and what return is necessary over time? What is the most appropriate balance of risk and return for me? Do I have a diversified, low-cost portfolio? How do I navigate the separate investment options in my 401(k), BrokerageLink, Retirement Contribution Plan and SERPLUS accounts? Do I have the discipline to stick to the plan when things get bumpy? Industry constraints Unfortunately, the financial industry is typically not structured in a way that allows advisors to provide guidance on, and effectively manage Intel retirement plan assets. This can cost you money, time, and deviation from your specific risk tolerance. Certain segments of the industry have constraints on the advice they are able to provide regarding retirement plan assets. Typically, any advice is delivered in one of the following ways: 1. ADVISOR TO THE PLAN An advisor, or firm, that is a plan fiduciary has been hired by your company to manage the 401(k) directly. Sometimes your company will arrange for this advisor to also provide advice to the participants in the plan. For Intel employees, Strategic Advisers, Inc., Fidelity's registered investment adviser, does provide basic asset allocation and asset mixes that are included in an online tool available through the Fidelity site. Unfortunately, this guidance is fairly generic across all participants in the plan, instead of customized specifically to your individual goals and objectives. 4

5 2. SEGREGATED ASSETS If an advisor does not have a relationship with the plan directly, they can still provide you some advice provided that their firm allows it. Most large brokerage firms (i.e., wirehouses ) do not allow their advisors to provide advice directly due to the extra burden of supervising the activity. Typically, when advice is provided in this way it is done in a segregated structure. This puts the burden on you to execute the recommended allocations changes. In addition, investment reporting is typically not supported other than that available from Fidelity directly. A NEW APPROACH: INTEGRATION A natural solution to the problems and inefficiencies created by the traditional industry approach of segregating retirement assets, is integration. Your assets are managed directly, they are incorporated into your assets outside the retirement plan, and your aggregated investment reporting is holistic across all accounts. Managing your assets in a truly integrated fashion should include, at a minimum, the following steps. Alignment with your goals Each investment account should be incorporated into your own unique financial plan and managed to your specific risk tolerance. Because the 401(k), Retirement Contribution and SERPLUS accounts each have different investment options, they must each be managed in an integrated manner, and in line with your overall risk tolerance. Each account for its best use Integration: The process of viewing all assets as a coordinated whole, utilizing each component for it s highest and best use. Your 401(k) has different investment options than your BrokerageLink account and the Retirement Contribution has different options than the SERPLUS account. Furthermore, your retirement accounts have a different tax treatment than your taxable investment assets. The investment options available and the tax treatment should be factored into the decision of which specific investments to hold in each separate account. 5

6 Seamless, efficient interaction and execution Given the different tax treatment and investment options available in your accounts, an integrated technology platform becomes a very helpful tool in making sure each account is used efficiently. This allows all assets to be incorporated into your overall portfolio based on your specific risk tolerance, and ensures that any necessary changes can be executed in a timely fashion. Holistic reporting and monitoring Integration does not stop after your assets are incorporated into your plan and the accounts are positioned appropriately. You need to monitor whether you are meeting your goals and determine if you are being successful. This becomes difficult when you have separate reporting on your Intel retirement accounts at Fidelity and the investment assets outside of the plan. An integrated approach should have the ability to monitor and report on all your assets across multiple custodians. THE BENEFITS OF INTEGRATION Incremental Return Data show that you can improve your return by adding diversified private investments and other alternative strategies. On average the impact can be 1.2% to 1.5% annually, i leading to nearly $1mm 2 in additional wealth over a twenty year period. Due to the varied investment vehicle lineup available across your different accounts, the preferred allocation may not be achieved unless an integrated approach is used. For example, more targeted exposures in certain assets classes - corporate bonds, municipal bonds, regional specific exposure (i.e., Europe, Japan, etc.), Hedge Funds, REIT s, Integration Benefits: Incremental Returns Tax Mitigation Lower Cost Vehicles Customized Risk Exposure Execution & Monitoring Commodities, Private Equity and Managed Futures cannot be achieved by relying solely on the options available in the 401(k). When developing a robust asset allocation that includes some, or all, of these of strategies, it is necessary to manage multiple accounts in a cohesive fashion. 2 Assumes $2million beginning portfolio value 6

7 Lower Taxes Studies show that you can reduce your tax bill by holding the investments with the highest expected tax impact in your tax-deferred accounts. On average, the savings can be 0.20% % per year. ii, iii This may not seem like much, but could add $500,000 3 to wealth over twenty years. That is $500,000 additional dollars (or a couple of Tesla Model S cars) that you keep instead of handing over to the government. 110% 100% 90% Private Equity Domestic Mid Cap International Emerging International Developed Domestic Large Cap Locate in Taxable account: More tax efficient Tax Efficiency 80% 70% REIT's Locate in Tax Deferred account: Less tax efficient Real Assets 60% Cash Taxable bonds Hedge Funds Managed Futures 50% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Tax Drag - % of Annual Returns The chart above depicts how assets classes that are less tax-efficient (in the lower right) should be located in taxdeferred accounts, while the more taxefficient asset classes should be placed in a taxable account (upper left). Asset Location: Placing the asset with the lowest expected tax drag in the taxable account and those with a higher expected drag in the taxdeferred accounts. 3 Assumes $2million beginning portfolio value 7

8 Lower Investment Costs Studies show that you can lower costs and improve your return by paying attention to the type of management and the costs inside the investment vehicle. On average, you may save between 1.71%-2.52% each year. iv v This could add $1.30mm in wealth over a twenty year period. 4 The Intel 401(k) currently has 32 investment options available; yet only nine of these have an expense ratio of under 0.50%. vi By selecting the best of the vehicle options available in the Intel retirement plans and integrating them with your other accounts, you can lower your underlying investment costs while staying in line with your unique risk tolerance. Customized Risk Exposure Across All Assets For the majority of participants, the Intel Retirement Contribution plan is invested in the Global Diversified Fund. While this is a diversified allocation vii, the risk exposure may not be appropriate for all investors. Instead of managing the remainder of your assets to your specific risk target and leaving the Retirement Contribution on the side, an integrated approach can tweak the allocation in the remainder of the assets to either increase or decrease risk, thereby dialing-in all your assets to your specific allocation and risk profile. Execution, Monitoring and Adjustments The tax savings from asset location can range from 0.20% to 0.75% annually, on average. Integration allows for timely execution across all assets so that necessary adjustments are made and opportunities are not missed. Additionally, having all of your assets monitored in the same system enables ongoing rebalancing and other necessary adjustments. 4 Assumes $2 million beginning portfolio value 8

9 HOW IT WORKS Trading Technology Across Multiple Custodians Using trading technology allows for efficient execution across multiple custodians. By utilizing direct feeds from custodians and third-party data aggregation services, the account information from your Intel retirement accounts at Fidelity and your other investment assets can be pulled into one consolidated platform. After the data is in the system, the technology allows trading across all of your accounts, and the management of the preferred asset allocation and investment vehicles in the desired accounts. Asset Location Example: Putting it all Together The tables below should help you understand what integration looks like, and how it may differ from a traditional, segregated approach. Table 1: Intel 401k & Taxable IRA Total Segregated BrokerageLink Account Account Domestic Stocks 30% 25% 25% 27% International 30% 25% 25% 27% Stocks Bonds 37% 22% 22% 27% Cash & Short- 3% 3% 3% 3% Term Bonds Hedge Funds 0% 15% 15% 10% REIT s 0% 5% 5% 3% Commodities 0% 5% 5% 3% Notice how in the Table 1 ( the segregated approach ), Hedge Funds, REIT s and Commodities are not allocated to in the 401(k) because the investment options are not available outside of the BrokerageLink option. Because of this, the overall allocation is shifted heavier into stocks and bonds than it otherwise would be in an integrated approach. 9

10 Table 2: Intel 401k & Taxable IRA Total Integrated BrokerageLink Account Account Domestic Stocks 4% 46% 25% 25% International 0% 46% 30% 25% Stocks Bonds 66% 0% 0% 22% Cash & Short- 0% 9% 0% 3% Term Bonds Hedge Funds 0% 0% 45% 15% REIT s 15% 0% 0% 5% Commodities 15% 0% 0% 5% In Table 2, you can see how the desired allocation is achieved with 25% of the total allocated outside of stocks, bonds and cash. In the segregated approach example, we could only place 16% of the total in these other diversifiers. Additionally, notice how bonds and hedge funds are concentrated in the BrokerageLink and IRA accounts, respectively, due to their inefficient tax treatment. This frees up the taxable account for the equity allocations, which are more tax-efficient assets. QUESTIONS TO ASK If you have decided that an integrated approach makes sense and you need an advisor to help you execute on the approach, the following questions would be a good place to start in evaluating a candidate: o o o o o How will you define a successful outcome for me and, how do I track my progress? What experience do you have working with retirement plan assets and Intel employees specifically? What advice will your provide on my other financial questions? How should I deal with my Intel Stock Option plan? How do I coordinate my health care coverage in retirement? When should I begin taking Social Security? How are you compensated? Do you stand to benefit financially from recommending one product over another? 10

11 HOW CORDANT CAN HELP Cordant primarily serves current and former employees of Intel, and our team has helped many people through their decision to retire. Specifically, we seek to deliver the following benefits: CLARITY - Help you quantify and prioritize your goals and objectives. PLAN - Develop a comprehensive financial plan, and meet regularly to assess whether you are on track to achieve your goals. RISK MANAGEMENT - Quantify and monitor the risks posed to your plan and retirement funding strategies. COMPREHENSIVE - Assist with every financial decision, from financing the purchase of a home, to managing investment assets, to estate planning. TRANSPARANCY - Offer aggregated reporting and online access for all of your financial assets, regardless of where they are held. ABOUT US Cordant specializes in wealth management for high-level corporate employees. We deliver an integrated approach to wealth management that empowers every financial decision with intention. With more than 10 years of experience helping Intel employees manage their wealth, the Cordant team has deep expertise in the retirement, benefit, and compensation plans of Intel. Our highly-skilled wealth planning and investment professionals deliver a broad array of investment, tax mitigation, income enhancing, and legacy planning services that align our clients direction with their vision for life. We utilize a historic wealth management model that requires our team to be fully aligned with our clients, and focused on managing their wealth holistically. Our unique systems and technology allow us to manage, integrate, and measure both company and non-company assets and benefits. Cordant s solutions are transparent and objective, so you have peace of mind that your wealth is well-managed. We ve adopted the highest fiduciary and legal standard of care, choosing to act as an unwavering fiduciary in the best and exclusive interest of our clients. In addition to being regulated by the SEC, we have built in additional transparency and safeguards for clients. For more information please call or visit cordantwealth.com. At Cordant, we empower every financial decision with intention. 11

12 The information provided herein is for informational purposes only and is not intended as tax advice or investment advice. Any investment or personalized financial planning advice provided by Cordant is client specific and based on each client s risk tolerance and investment objectives. Cordant, Inc. is not affiliated, associated or endorsed by Intel. i Using Mpi Stylus, from Markov Processes International, Cordant s calculation is comparing a basic, three-asset class portfolio (Stocks, Bonds and Cash) with a more robust portfolio including diversified, private investments (Stocks, Bonds, Cash, Hedge Funds, Private Equity, Managed Futures, REIT s and Commodities). Time period analyzed is from January 1990 through December 2013 and assumes monthly rebalancing. ii Jaconetti, Colleen M. (2007) Asset Location for Taxable Investors iii Gobind Daryanani, Ph.D., CFP, and Chris Cordaro, CFP (2005). Asset Location: A Generic Framework for Maximizing After-Tax Wealth Journal of Financial Planning iv Arnott, Robert D., Andrew Berkin, and Jia Ye. (2000). How Well Have Taxable Investors Been Served in the 1980s and 1990s? The Journal of Portfolio Management Summer 2000, Vol. 26, No. 4: pp v Bogel, John C. (2014). The Arithmetic of All-In Investment Expenses Financial Analyst Journal January / February 2014, Vol. 70, No. 1: pp vi Based on the vehicle lineup listed on the Fidelity NetBenefits site from February vii Via the Morningstar factsheet on the Global Diversified Fund. 12