Inside Business

CLIENT RELATIONSHIP SUMMARY

January 1st, 2021

Dorato Capital Management, LLC (Dorato) is a fee-only investment adviser – we charge a fee for our advice, and we do not make any money from selling securities or selling other investment products.  Fees and services provided by brokerages and investment advisory firms differ, and it is important for the retail investor to understand these differences.  Free and simple tools are available at Investor.gov/CRS to research firms and financial professionals.  The site also provides educational materials about broker-dealers, investment advisers, and investing.


What Investment Services and Advice Can You Provide Me?

Dorato provides investment management services to retail investors.  The specific service varies by client.  Some clients want to own individual stocks; some want to own index funds.  Some clients want only stocks; others want an allocation to stocks and bonds based upon their risk and return preferences.  Most of the accounts managed by Dorato own individual stocks, and use bond index funds for any part of the account invested in bonds.  Dorato is a value-based investor, which means that the price you pay for something is important.  This is in contrast to growth or momentum-style investors.


The investment management service includes monitoring and reporting.  We update accounts daily and review them at least monthly, and we provide reports and a newsletter quarterly.  Dorato has discretionary authority over the accounts it manages, which means that we make the decision regarding which assets to buy or sell.  Dorato uses an investment policy statement to provide guidelines for the use of its discretionary authority, so both Dorato and the client agree in advance on how the account should be managed.  Dorato has set an account minimum of $100,000 for retail investors.  However, Dorato does manage several accounts below that amount.  Dorato also provides financial planning.  To date, this financial planning has primarily been retirement planning, and not comprehensive financial planning.  Dorato also completes tax returns for some clients.


Given my financial situation, should I choose an investment advisory service?  Why or why not?  If you have the interest and the desire, you can manage your money yourself, especially if you use index funds.  If you feel you need some help, especially over an extended time, then we think you should choose a good investment adviser to help you.


How will you choose investments to recommend to me?  After some discussion, we and you will agree on a suitable allocation for you.  After that, we will make the decisions regarding specific investments.  We will not recommend each investment for your approval.


What is your relevant experience, including your licenses, education and other qualifications?  What do these qualifications mean?  Steve has the Chartered Financial Analysis, Certified Financial Planner, and Enrolled Agent designations.  These are professional designations for financial analysis, financial planning, and tax preparation.  For more information on Steve’s qualifications, please see our Form ADV.


Fees, Conflicts and Standard of Conduct

Dorato charges an asset-based management fee, as a percentage of assets under management.  For accounts with individual stocks, this fee is 0.40% per year.  The fee is calculated and paid at the beginning of each quarter (0.10%), based on the assets at the end of the prior quarter.  For all assets other than individual stocks, the fee is 0.20% per year (0.05% per quarter).  The fee is deducted directly from your account via the custodian (e.g. Charles Schwab), and you receive notification of the billed amount.  If we do not have an arrangement with your custodian, or if you prefer, you can be billed separately.  Dorato charges an asset-based fee at these levels because Dorato and you should both benefit when the account grows, and both see a reduction when the account falls in value.  This way our interests are aligned.  But the fee should be as small as possible because you pay it every quarter.  You will pay fees and costs whether you make or lose money on your investments.  Fees and costs will reduce any amount of money you make on your investments over time.  Please make sure you understand what fees and costs you are paying.


Because Dorato uses an asset-based fee, Dorato has an incentive to have as many assets as possible in the accounts.  The inherent conflict of interest is that Dorato encourages you to add assets to the account to make them larger, and to invest in individual stocks rather than index funds.  There are other fees that you can incur.  Trading commissions have dropped to zero for many transactions at Schwab, and Dorato pays the $4.95 commission fee at Shareholders Service Group, so you don’t incur costs from trading commissions.  But there are fees for wiring funds, for example, that vary based on the custodian.  Also, though you pay no trading commissions, there are indirect costs to trading, such as the difference between what you can buy a security for and what you can sell it for (the bid-ask spread).  For this reason, we attempt to trade infrequently.


Help me understand how these fees and costs might affect my investments.  If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?  For that amount, we would use index funds.  The entire $10,000 would go into your account and be invested according to guidelines.  If the account grew to $10,100 at the end of the quarter, the management fee would be $5.05, assuming you made the investment at the beginning of the quarter.  The index funds also charge a management fee, which is approximately $5 for the year.  There would be no other fees and costs.


What are your legal obligations to me when acting as my investment adviser?  How else does your firm make money and what conflicts of interest do you have?  When Dorato acts as your investment adviser, we have to act in your best interest and not put our interests ahead of yours.  At the same time, the way we make money creates some conflicts with your interests.  You should understand and ask us about these conflicts because they can affect the investment advice we provide you.  Here is an example to understand what this means: you have an account with Dorato and an account with another firm.  You need to take money from one of the accounts.  We would prefer if you took it from the account at the other firm.


How might your conflicts of interest affect me, and how would you address them?  Using the example of the two accounts above, we would encourage you to consider your entire financial situation and the fees you pay to help you determine which account to draw from.


How do your financial professionals make money?  We make money based on the assets we manage.


Disciplinary History

Do your financial professionals have legal or disciplinary history?  No


Additional Information

You can find additional information about Dorato at www.doratocapital.com, or by calling Dorato at (303)-733-4999.


Who is my primary contact person?  Is he or she a representative of an investment adviser or a broker-dealer?  Who can I talk to if I have concerns about how this person is treating me?  Steve TeSelle is your primary contact person.  He is a representative of an investment adviser.  Because Dorato is a state-registered investment adviser, we recommend that you contact the Colorado Division of Securities or the California Department of Business Oversight if you have concerns with how Steve treats you.