Cornerstone Wealth Management
Model Wealth Program Due Diligence Questionnaire
Firm
1) What is the firm’s legal name, address, and website?
Firm name / Cornerstone Wealth Management LLC.Address / 7417 Mexico Rd.
Saint Peters, MO 63376
Firm website URL /
2) What are the primary contacts?
Alan Skrainka, 314-394-1670,
Liyin Bao, 314-394-1670,
Anthony Pietroburgo, 314-394-1670,
Dave Mack, 314-394-1670,
Katherine Latal, 314-394-1670,
3) Brieflydescribeyour organization,theyear itwas founded,itsownershipstructure,its primaryfocus,itsnon-profit experienceandits affiliationwith anyother companies.
Cornerstone Wealth Management was founded in 2005 for advisors seeking the opportunity to be independent and free of the broker dealer structure. The firm was originally founded in St. Louis, Missouri by Joe Kiefer (Managing Partner) and Greg Shoemaker (Chief Executive Officer). Additional majority partners are Alan Skrainka (Chief Investment Officer) and Dean Millonas. Since 2005 Cornerstone has grown into a firm with over 75 financial advisors nationwide. At Cornerstone Wealth Management, the financial advisorclears trades through LPL Financial, the largest broker dealer for independent investment advisors in the United States. Cornerstone’s primary focus is to serve as an independent alternative to wire house brokerage firms. Cornerstone primarily serves mid to high net worth clients. It is important to our firm that we offer services to our clients that are conflict of interest free, never using proprietary financial products or participating in revenue sharing arrangements with managers in our portfolios.
4) Is your firm a registered investment advisor under the Investment Advisors Act of 1940? Do you have a broker dealer affiliate?
Cornerstone Wealth Management is a registered investment advisor under The Investment Advisors Act of 1940 (please see included ADV). The CRD number is 164666. The firm is affiliated with LPL Financial.
5) Describe the ownership structure e.g., parent company name and ownership %, other significant owners and %?
Alan Frederick Skrainka / 5%-10% ownershipGregory Alan Shoemaker / 25%-50% ownership
Dean Andrew Millonas / 10%-25% ownership
Joseph Michael Keifer / 25%-50% ownership
Structure: LLC
Ownership Type: Independent
6) Is the firm GIPS compliant? If so, who is the verification firm?
Ashland Partners
7) Does your firm have E&O Insurance? YES / NO. If Yes, state per-occurrence and aggregate liability limits.
YES
Continental Casualty-
$2,000,000 per claim limit
$50,000,000 aggregate limit
8) Do your marketing materials include data from back-testing or other simulations? YES / NO. If Yes, explain.
No
9) Is the firm or any of its principals currently involved in any regulatory or criminal investigation? If Yes, provide a detailed description.
No
10) Is the firm or any of its principals currently involved in any regulatory or criminal investigation? If Yes, provide a detailed description.
NO
11) Please verify that your firm’s use of commissions complies with all applicable laws, rules and regulations. YES / NO
YES
12) Describeall business litigationwithwhichyour firm or anykeypersonnelhasbeen involvedwithinthelastfiveyears, indicating thestatusofthese proceedings.
There are no litigation procedures that have occurred in the last 5 years involving any Cornerstone key personnel.
Staffing
13) Identifytheinvestmentadvisor andother keystaff,includingtheirlocation,whowill be involvedinservicingthe accounts.Alsoprovidea brief biographyfor theseindividuals.
Alan Skrainka is the Chief Investment Officer at Cornerstone Wealth Management. Alan has over 35 years of experience in the investment industry and was previously Chief Market Strategist at Edward Jones. Author of the book, “Principle Based Investing,” Alan has also been a frequent source for national financial networks and publications. Alan became a Chartered Financial Analyst in 1986. He earned a bachelor's degree in business administration from the University of Missouri-St Louis in 1983, and earned an M.B.A from Washington University in St. Louis in 1990. Later in his career, Alan was one of a handful of economists that was invited to the White House to consult with the President.
Liyin Bao is a senior analyst. Liyin has a B.S. in Mathematics and a B.S. in Economics from University of Michigan, and went on to receive a M.S. in quantitative finance from Washington University in St. Louis. He received his Chartered Financial Analyst designation in 2017. Liyin focuses on performing cutting edge research on active managers.
Khurram Naveed is an analyst. He graduated from University of Missouri – St. Louis with an M.B.A. and Master of Arts in Economics. He also has previous work experience working as an equity analyst.
Anthony Pietroburgo is a relationship manager, focusing on client services and assisting investment advisors nationwide with regards to Cornerstone’s Model Wealth Program. Anthony holds a degree from the University of Kentucky and holds his Series 66 and Series 7 licenses.
Dave Mack is a relationship manager. Dave graduated from University of Missouri – Columbia and has over 18 years of experience in the financial services industry. Dave is Series 65 Licensed.
Kathy Latal handles trading responsibilities for Cornerstone’s managed portfolios. Kathy has over 16 years of experience in the industry and has her Series 6,7,63, and 66 licenses.
14) Please describe your firm’s staff/client relationship in terms of service and accessibility.
Our team is always accessible within normal business hours. In the case that Alan or his key personnel are temporarily unreachable Kathy Latal is the team’s experienced administrative assistant. Access via cell phones is encouraged if immediate action is required.
Marketing/Support
15) What marketing support is offered?
A monthly report is provided to advisors and clients. An enormous amount of material including reports, brochures, factsheets, videos, investment policy statements, risk tolerance questionnaires and other materials are provided on our website MWPhub.com.
Clients
16) Whatis yourfirm’s total assetsunder management byclienttype(e.g.individuals$1M, high networthindividuals, retirementplans,charitableorganizationsandcorporations)and therangeofyour organization’s clientsize? Whatis your averageclientsize?
Cornerstone Wealth Management has an AUM total of $3b. Assets managed in the Model Wealth Program exceeds $550 mm AUM as of June 1, 2017. Since the structure of our firm is focused on giving individual advisors and advisor teams their independence, it is difficult to gather exact data on the total client breakdown. However, out of the $3b AUM, 75% are individuals <1m, 15% high net worth >1m, 10% charities, endowments and retirement plans. Client retention in our program exceeds 95% over the past 5 years.
Fees
17) Pleasestateyour“all-in” managementfees including advisoryand hypotheticalmanagerexpenses basedon therecommendedinvestmentstrategy.
Our management fee is as follows:
30bps (0.30%) for advisors with $0-$25 mm in AUM
25 bps (0.25%) for advisors with $25-$50 mm in AUM
20 bps (0.20%) for advisors with $50-$75 mm in AUM
17 bps (0.17%) for advisors with $75-$100 mm in AUM
14 bps (0.14%) for advisors with $100-$150 mm in AUM
13 bps (0.13%) for advisors with $150-$200 mm in AUM
12 bps (0.12%) for advisors with $200-$300 mm in AUM
11 bps (0.11%) for advisors with $300-$400 mm in AUM
10 bps (0.10%) for advisors with $400-$500 mm in AUM
9 bps (0.09%) for advisors with $500-$1,000 mm in AUM
8 bps (0.08%) for advisors with $1000+ in AUM
Portfolio Theme / Internal Expense Ratio / Benchmark / Ticket Charges with Full RebalanceFocused / 0.43 / 0.92 / $253
Benchmark / 0.16 / 0.92 / $134
Benchmark TE / 0.20 / 0.93 / $132
Income / 0.50 / 0.92 / $294
Income TE / 0.47 / 0.93 / $313
Strategic / 0.47 / 0.92 / $261
Tactical / 0.67 / 0.92 / $316
Select / 0.72 / 0.92 / $0
Select TE / 0.66 / 0.93 / $0
Prestige / 0.49 / 0.92 / $304
Prestige TE / 0.49 / 0.93 / $285
SRI / 0.56 / 0.92 / $276
Diversified Income / 0.74 / 1.18 / $372
We are committed to finding managers that focus on keeping fund expense ratios below the industry average and refuse to participate in revenue sharing arrangements. We utilize the lowest cost share class whenever possible.
18) Ifhired,willyour firmreceive anyotherformofcompensation,includingsoftdollars,from workingwith this accountthathasnotyet beenrevealed?Ifso,whatis theform of compensation?
We take pride in not receiving any “soft dollar,” compensation in the form of commissions or kickbacks.
Process
19) Pleasedescribeyourfirm’s investmentphilosophy, process andhowyou obtainor developyour research.Alsoincludeyourfirm’s viewon portfoliorebalancingand timing,and thedegreeandfrequency withwhichyouimplementtactical allocationadjustments.
We believe that identifying truly skilled managers is a highly intensive process which requires a great deal of skill, experience and judgment. Many academic studies have shown that the average active manager will underperform his or her benchmark as a result of expenses and transaction costs. However, we don’t have to use the average active manger. Our goal is to identify a small number of managers who offer the potential to outperform their peers and their respective benchmark over a long period of time. If there is a segment of the market with an absence of active mangers that offer the potential benchmark, we will use an index or index alternative instead. Rapidly rotating through managers on a short-term basis is a “loser’s game.” Our intention is to identify managers that offer a sustainable competitive advantage that we can invest with over the long term. We believe rebalancing is always a better solution than market timing. The portfolio will likely be over weighted in equities after a big rally and under-weighted after a significant decline. This usually results in buying high and selling low. However, rebalancing after big market moves reallocates the major asset classes in the portfolio back to the original target weightings. We believe this is an important risk reduction strategy to keep the portfolio in balance over the long term. We don’t state that rebalancing always occurs quarterly or bi-annually because if the target weightings are still largely on track then over-rebalancing can result in unnecessary transaction costs. We are not market timers. It’s virtually impossible to guess when the stock market will change direction. We focus on factors we can control: investment quality, portfolio diversification and eliminating knee jerk response that emotions can cause when maintaining a long-term perspective.
20) Describeindetail the process you usetoconductmanager searches,as wellas monitor theirperformanceandadherencetospecificmandates.Includethepoliciesinplace to promoteobjectivityin theselection of managers.
Our research process begins with an initial proprietary screening process we call CornerstoneSelect. If a manager passes our performance screens and looks promising on a quantitative basis, the next step is to interview representatives from the company. The interview (audit) focuses on the following areas/characteristics:
Parent (independent, employee-owned, longevity, history of excellence, investment vs marketing Culture, focus on investment results)
People (analysts and portfolio managers have incentives that are properly aligned, team-based, collaborative judgment, broad and deep resources, experienced)
Process (long-term perspective, consistency, bottom-up fundamental research, rigorous due diligence, risk-aware, disciplined approach to valuation, checks and balances, diversification, repeatable process)
Performance (proven track record, long-term consistent results, efforts to protect capital)
No investment will have each of these characteristics, but it is our intention to focus on those managers where most of these characteristics are present. Simply stated, we are looking for managers with an identifiable edge that we believe can be maintained over many market cycles.
If, after the interview, we have built strong confidence in the manager’s investment process and discipline in executing that process, the investment will be considered for one of our portfolios.
21) When is an investment sold?
Investments are monitored continuously. Changes to portfolios are made for the following reasons: To improve performance potential, lower risk, increase diversification or lower expenses. There is not a mechanical approach to buying and selling. If, in our judgment, a manager needs to be replaced
22) Are these trades, and the rationale behind these trades promptly communicated to advisors?
Yes
23) What is your goal for portfolio turnover on an annual basis?
We take a long-term approach to investment management. However, rebalancing, portfolio manager changes, and other factors require that we make occasional adjustments. It is our goal to keep portfolio turnover in a range of 10-20 percent annually.
24) Howsoonaftermonthend aremonthlystatementsandperformancereportsavailable?
Performance reports are available in print and online no later than the 5th day of every month. Reports are generated using LPL’s platform and Client View software. We have the ability to produce more detailed analysis using Morningstar. These reports are provided on our website MWPhub.com.
25) Whatdoyoubelievesetsyour performance andother services apartfrom the competition?
Alan Skrainka has brought an investment strategy crafted over a 35-year career of Principle Based Investing. Our portfolios are low-cost, broadly diversified and fully invested. Unlike many other managers, we do not engage in large tactical shifts or rotating into and out of different sectors. We place our emphasis on selecting managers who have a history of superior performance, then holding those managers for the long-term. We believe managers often have unique styles, and many of our competitors buy and sell after a style has moved into or out of favor. By understanding and carefully measuring style “cycles”, we believe we can avoid this risk, which offers the potential to give us a significant edge. We also believe humility, diversity of opinion, and a commitment to time-tested investment principles are important keys to investment management.