Disclaimers & Investment Risks

Customer Disclaimers And Investment Risks

Last updated August 22, 2023

An investment involves significant risk, including the risk of a complete loss of your investment as well as the economic failure of the companies through which, and the companies in which, you invest. Investments and investment vehicles carry various degrees of market, currency, economic, security, and other risks. As a result, certain investments are appropriate only if you are prepared to assume the risks associated with these investments. Clients should carefully review the risk factors and the other information provided by any third party through or in which you choose to invest. Furthermore, the risks described herein or disclosed by third parties are not the only risks Clients may face. Additional risks and uncertainties that we are unaware of or deem immaterial may also become important factors that adversely impact a client’s investments.

Disclaimers

Investment Performance

Firreo does not guarantee the results of any investment advice given to clients. All investing involves risk, and Firreo makes no assurances that the investment objectives of the core investment strategy will be achieved. Although Firreo offers diversified investment recommendations, there is no guarantee that any particular asset allocation or mix of investments will provide a specified return or meet clients’ investment objectives.

Furthermore, Firreo bases its investment advice on information self-reported by clients. Firreo’s services are highly dependent on receiving accurate information from clients, and Firreo does not independently verify the accuracy or completeness of provided information. If clients provide Firreo with inaccurate information or fail to promptly update information provided to Firreo when it changes, the quality and applicability of Firreo’s advisory services could be adversely impacted.

The investment recommendations produced by Firreo are provided with the goal of financial independence. Accordingly, these investment recommendations may be considered more aggressive compared to investments with more conservative goals.  

Investment advice provided by Firreo is intended for Clients who are individuals investing on their own behalf. In accepting Firreo’s services (the “Services”), each Client represents and warrants that such Client is seeking investment advice for such Client’s own account for investment purposes.

Any projections or other estimates provided in support of a particular investment vehicle, and/or  relied upon by Firreo in making recommendations, including estimates of returns or performance, are forward-looking statements and are based upon certain assumptions. Other events, which were not taken into account, may occur and may significantly affect performance. Any assumptions should not be construed to be indicative of the actual events that will occur. Actual events are difficult to predict and may depend upon factors that are beyond the control of Firreo or any third party selling securities or other investments recommended by Firreo (each a “Selling Party”). Certain assumptions have been made to simplify the presentation and, accordingly, actual results will differ, and may differ significantly, from those presented. Some important factors which could cause actual results to differ materially from those projected or estimated in any forward-looking statements include, without limitation, changes in interest rates and financial, market, economic or legal conditions, as more particularly discussed in the “Risks” section below. In addition, the degree of risk may be increased as a result of the management of certain funds or other investment vehicles. Accordingly, there can be no assurance that targeted returns or projections can be realized. Such targeted returns and projections should be viewed as hypothetical and do not represent the actual returns that may be achieved by a Client. Clients should conduct their own analysis, using such assumptions as they deem appropriate, and should fully consider other available information pertaining to an applicable investment in making an investment decision.

In considering the prior performance information provided to Clients by Firreo, a Selling Party, or any other party, pertaining to any particular investment, Clients should bear in mind that past performance is not necessarily indicative of future results and there can be no assurance that any particular investment will achieve future results comparable to past performance.

No Representations or Warranties

Firreo makes no representations or warranties as to, Firreo makes no representation or warranty as to: (i) the accuracy or reliability of any third party information relied upon by Firreo in making investment recommendations; (ii) the accuracy or reliability of any opinion, advice, or statement made by any party other than Firreo; (iii) the suitability, reliability, timeliness, or accuracy of the services provided by any Selling Party; (iv) the integrity, responsibility or actions of any Selling Party or other third party; (v) the accuracy, adequacy or completeness of the information, content and materials provided by any Selling Party or any other third party to Firreo or an Client; or (vi) the suitability of Firreo’s services for any Client. Firreo further makes no representations or warranties and expressly disclaims any and all liability concerning any treatment, action by, or effect on any Client or other person following the information offered or provided by Firreo.

Firreo makes no representations or assurances regarding the tax treatment your investment will receive. Clients are urged to consult their own tax professionals for guidance concerning the effect an investment in a Partnership will have on their personal federal and state income taxes.

Investment Risks

THE FOREGOING RISKS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF ALL OF THE RISKS OF USING FIRREO’S SERVICES, OR MAKING ANY PARTICULAR RECOMMENDED INVESTMENT. CLIENTS ARE URGED TO READ ALL OF THE DOCUMENTS PROVIDED PERTAINING TO A PARTICULAR INVESTMENT, AND MAKE INQUIRIES OF THE SELLING PARTIES BEFORE MAKING A DETERMINATION WHETHER TO INVEST IN THE COMPANY.

Market Risk

Client investments and Firreo’s investment advisory services are directly impacted by market conditions that are outside of Firreo’s control, such as economic and political conditions, changes and volatility in financial markets, volatility of particular investments, changes in markets in which such transactions are processed, interest rates, inflation rates, regulatory changes, and other broad political, social, and economic trends. These changes can arise suddenly and the full impact of market changes on investments can remain uncertain. Market risk includes:

• Market Decline Risk: Market declines, such as a recession or other prolonged downturns in investment markets, may adversely affect clients’ investment performance. Significant downturns in general economic or political conditions may also cause clients to be reluctant to make additional investments.
• Asset Concentration Risk: If a client has a high allocation to a particular asset class or classes, to the extent those asset classes underperform relative to other assets in the market, the client’s overall performance may be adversely affected. Conversely, if a client has a low allocation to a particular asset class or classes that outperform the market over a particular period, the client’s investments may underperform relative to the overall market.
• Volatility Risk: Firreo’s advisory services are based in part upon assumptions derived from historical returns, expected returns, and past price volatility. Past performance is no guarantee of future results, and any historical returns, expected returns, or probability projections may not reflect actual future performance.
• Correlation Risk: While Firreo strives to recommend diversified portfolio strategies, it is possible that different or unrelated asset classes may exhibit similar price changes in similar directions, which may adversely affect a client’s investments and may become more acute in times of market upheaval or high volatility.
• Liquidity Risk: Illiquid markets for an investment may prevent clients from selling their investments at all, or at an advantageous time or price. Investment in exchange traded funds (ETFs) mitigates liquidity risk because ETFs tend to be very liquid, but this risk cannot be completely eliminated.
• Inflation, Currency, and Interest Rate Risk: Asset prices and portfolio returns will likely vary in response to changes in inflation and interest rates. Inflation causes the value of future dollars to decline and may reduce the purchasing power of an investor’s future earnings. Inflation also generally leads to higher interest rates, which may cause the value of many types of investments to decline.

Software and Algorithm Risk

Firreo provides investment advisory services over the Internet only. Clients input information about themselves and their financial data in Firreo’s online interface and our software generates recommendations based on information provided. Firreo does not use all financial information collected from a client to make investment recommendations, but rather only uses select investment balances (referred to on our website as “core investments”) and bank account balances. These select investment balances provide sufficient information for Firreo to make suitable investment recommendations to help a client achieve financial independence. Firreo assesses a client’s “core investment” balances to assess a client’s progress in achieving financial independence and a client’s bank account balances to determine whether the client has a sufficient “emergency fund” in place (emergency fund being short-term funds reserved for emergency purposes). All other financial information provided by the client is saved for client tracking and monitoring purposes only.

Although Firreo has standards governing the design, development, and testing of software before launching software into production, there is a risk that software may not perform as intended or as disclosed. Firreo’s algorithms are designed to consider current market conditions and to assist clients in achieving Firreo’s optimal portfolio diversification. The algorithms may not perform as intended for a variety of reasons, including but not limited to, incorrect assumptions, changes in the market, available liquidity, and/or changes to data inputs. Additionally, the assumptions in the algorithms are limited by the quality of financial information input by the client (as described under “Investment Advice Risk” above).

Firreo periodically modifies its algorithms, or a computer system’s code or underlying assumptions, and these changes may have unintended consequences. Firreo conducts testing designed to ensure that our algorithms continue to function as intended when new code is introduced and existing code is updated. Although such testing is intended to ensure that code changes do not create unintended consequences, clients should understand that testing, no matter how comprehensive, cannot guarantee the absence of code-related issues with our algorithms.

Security Risk

As technology has become more common in financial services, client accounts have become potentially more susceptible to operational, information security, and related risks through breaches in cybersecurity. While Firreo strives to maintain reasonable and appropriate safeguards to ensure the security of its systems and software, a cyber incident may result from either intentional attacks or unintentional events and include, but are not limited to, gaining unauthorized access to login credentials or to digital systems, misappropriating sensitive information, causing a client account to lose proprietary information, corrupting data, or causing operational disruption, including denial-of-service attacks on websites. Firreo has established policies and procedures reasonably designed to reduce the risks associated with cyber incidents, including the risk that federal securities laws are broken due to a cyber incident. However, there can be no assurance that these policies and procedures will prevent cyber incidents.

Regulatory Risk

Investment performance may directly or indirectly be affected by government legislation or regulation, which may include, but is not limited to: changes in investment adviser or securities trading regulation; change in the US government’s guarantee of ultimate payment of principal and interest on certain government securities; and changes in the tax code that could affect interest income, income characterization and/or tax reporting obligations.

Alternative Investment Risks

Alternative investments are financial assets that do not fall under conventional asset classes such as stocks, bonds, and cash. This umbrella term is quite broad, encompassing private equity, venture capital, hedge funds, managed futures, commodities, real estate and collectibles like art and antiques.

Alternative assets are often more complex than traditional investment products. That complexity can be associated with higher risks. Because alternative assets have a low correlation to traditional markets, the risks accompanying them are also different. While alternative assets can provide higher returns and lower volatility due to portfolio diversification, it is important for investors to understand the risks of investing.

Alternative assets cover a wide array of investment products, all of which will carry slightly different types and levels of risk, but there are some commonalities. Below are some of the most common risks associated with all types of alternative assets.

Low Liquidity: Because many alternative assets are not publicly traded, it may be difficult to buy or sell these investments. Many hedge funds and private equity funds tend to have lockup periods that commit investors to a defined investment period during which redemptions can be impossible. Additionally, alternative assets such as collectibles (physical objects that hold value over a long period) are long-term investments, meaning their value appreciates slowly over time and is not dictated by market movement. This means most collectors have to hold these investments longer in order to see a return. Some alternative assets do trade on public markets or private secondary markets. This can help to alleviate some of the pain of illiquid investments (i.e. investments that hold value but can be difficult to sell), but they still will be less liquid than stocks.

Difficulty in Valuation: Traditional investments like equities and fixed income have an official market price, while most alternative assets do not. Traders in the equity market have multiple benchmarks by which to value their portfolios. These centralized and regulated benchmarks do not exist for most types of alternative assets. In the absence of a market price, it can be challenging to determine the value of alternative assets. Valuations, especially for hard assets such as contemporary art or classic cars, may vary widely depending on the appraiser. These valuations are more vulnerable to subjectivity.

High Minimum Investments: Alternative assets have historically not been structured with the average individual investor in mind, so minimum investment requirements can often be very high. In the past, alternative assets had been restricted to accredited investors due to the risks associated, allowing them to create high initial minimum investments and charge higher fees. This is becoming less and less the case as more alternative investment platforms are available and the rise of fractionalized shares continues. Still, compared to the near nonexistent minimum for investing in mutual funds or ETFs, the minimum can be prohibitory.

While some alternative investments can carry very high minimum investment amounts, Firreo recommends alternative investments that only require minimum investments of $5,000 or less.

More Complexity: Alternative assets, by nature of not being correlated with traditional markets, tend to have more complex valuation and return metrics. These investment instruments are often complicated and may require a higher level of due diligence before investing. Hedge funds, for example, may invest in a wide variety of assets and can utilize investment strategies such as short selling which heightens risk. The complex nature of alternative investment strategies is partly why alternative assets historically were only available to institutional investors. To best understand the complexity of these investment opportunities, investors often work with a financial advisor like Firreo. Advisors can assist in making investment decisions, general asset allocation, and helping investors reach their goals.

Lower Transparency & Regulation: Not all alternative investments are registered with the U.S. Securities and Exchange Commission (SEC) and therefore are not regulated the same as traditional asset classes. Alternative investments do fall under the purview of the Dodd-Frank Act and therefore, their practices may be reviewed by the SEC, but there is little to no registration requirement for many alternative investments purchased outright. Registration with the SEC provides an array of information for investors regarding the investment including deal sheets and information regarding historical performance. This information is likely unavailable for potential investors if an investment is not registered. However, alternative investments that are purchased through alternative investment platforms or through indices are more regulated than purchasing alternative investments outright. These platforms offer a higher level of transparency, information, and safety for investors. For alternative investment funds, risk factors include management risk. The performance of hedge funds, real estate investment trusts (“REITs”), funds of funds and more are often linked specifically to the performance of the fund manager.

Investors can overcome the risks of alternative investments. Because the performance of alternative investments has a low correlation with traditional financial markets, they typically help provide diversification across different markets, investment strategies, investment managers, and styles. Portfolio diversification can help to reduce overall volatility associated with market risk. In addition to portfolio management benefits, alternative investments provide the potential for increased returns. Like any investment, the rate of return for alternative investments is never guaranteed.

Alternative investments have gained a lot of traction and popularity since the 2008 financial crash. When interest rates are rising, inflation is high, and/or the stock market is volatile, some investors may look beyond stocks and bonds for other options to invest their money. To understand why investors would take on these risks to invest in alternative assets, it is important to understand what potential upsides these investments provide.

The bottom line is that alternative investments have low correlation with the stock and bond market, and offer diversification and potentially higher returns when compared to equity investments. On the other hand, most alternative assets are relatively illiquid and complex, meaning they are difficult to sell quickly and often have higher risks than traditional investments.

Adding alternative assets to an investment portfolio is easier now than it has ever been in the past. High-yield alternative assets have historically been available only to investors with a significant net worth; however, with the rise of online investment platforms and fractionalization of shares, most average investors can now access private markets.

Other Risks

There are additional risks and uncertainties an investor should consider, including but not limited to: credit risk, emerging market risk, operational risk, and brand and reputational risk.

There also may be risks that Firreo may be unaware of or that Firreo currently sees as immaterial but may impact a client’s investment. Clients should read Firreo’s Form ADV Brochure, available here, as well as other materials that may be provided by Firreo when deciding whether to use Firreo’s services.

In the future, Firreo may construct additional investment strategies to provide more investment options to clients. More information about Firreo’s investment strategy is available in Firreo’s publicly available disclosures.