How We Differentiate Ourselves
Written by David Fabian, April 14th, 2015
A prospective client of our firm recently asked how we differ from his current relationship with an advisory program at a well-known discount broker. He stated that he is paying 0.70% in annual management fees and has been unimpressed with the portfolio makeup in his and his wife’s IRAs.
Frankly, we are accustomed to reviewing portfolios from the wealth management arms of discount brokers. These services have been around for decades and have cherry picked from the pool of self-directed accounts on their platforms.
We offered some of the following differentiating factors to aid in his decision making process.
The typical onboarding process at a big wealth management firm will involve a lengthy set of questions to determine your goals, risk tolerance, and investment objectives. All of those factors will be used to determine the model portfolio that they will put your money into.
While this is a sound practice for each individual, it rarely results in any kind of custom strategy or active participation in risk management. They are essentially profiling you to determine the buckets that they will ship your money off to on day one.
As an independent advisor, we have more flexibility to determine how we want to construct an asset allocation strategy to meet your needs. This may include blending in holdings that you have owned for quite some time or determining the risk parameters for individual positions as we transition you into our investment mix.
We like to make changes methodically, rather than dumping everything you own right away and moving it all in to our asset mix immediately.
The typical portfolio make up of these shops is an overwhelming mix of mutual funds that have been selected by a team of experts to provide maximum confusability. Often times these include multiple funds in the same genre with overlapping holdings and high fees. Built in conflicts of interests from the fund marketing fees and other income paid to the broker are another concern as well.
Charles Schwab, to their credit, is now offering a “robo-advisor” service that includes low-cost ETFs and no advisory fees. I think this is a strong step in the right direction for investors that need a little extra help with their asset allocation structure through a buy-and-hold portfolio model.
Our asset management services are different because we use a mix of ultra-low cost ETFs and/or no-load mutual funds. We typically build our portfolios with 10-15 total positions to make them easy to follow with complete transparency. We then actively manage the portfolio on an ongoing basis and make changes based on the risks and opportunities within the growth or income universe.
We also offer comprehensive monthly performance reporting, daily portfolio monitoring, risk management, and monthly or quarterly client reviews. Each month we write a client memo, which is a dedicated publication that details our current watch list, portfolio changes in the preceding month, and future opportunities or concerns we have with the capital markets.
Fees vary widely among each service and will likely be determined by a combination of assets under management, investment mix, and additional services rendered. The more hands off “robo-advisors” are typically the cheapest, but will also provide the minimum level of human contact. Automation is the game in order to keep fees low.
More full service investment practices will likely offer quarterly contact and the ability to service your account when questions arise or transactions are needed. This usually entails a higher asset management fee to for professionals to act on your behalf as fiduciaries.
At our firm, we have developed a fee schedule that we feel offers reasonable compensation for the boutique research, portfolio construction, and ongoing management that we provide. We also have the flexibility to meet or beat similar fee arrangements from competitors.
Deep Bench of Professionals
One of the selling points among wealth management firms is the deep bench of professionals ready to serve you. These may include well-respected economists, market gurus, financial planning aficionados, insurance experts, and other associated staff. While that may seem impressive, it’s highly unlikely you will ever speak with anyone higher than a client services representative or their direct superior.
Because we are a smaller investment shop, you speak directly with a principal and decision maker on your account when you call our offices. There are no middle-men or representatives to reduce the friction between our services and your money.
The Bottom Line
Paying high fees for a closet buy-and-hold investment strategy is a pitfall that investors should be wary about. With the availability of free asset allocation and low-cost ETFs, you can easily construct a well-balanced portfolio for long-term growth without the need for ongoing management.
However, if you desire a more hands-on approach to steward your nest egg through the markets fickle swings, you may be better served with an independent fee-only investment advisor. At FMD Capital Management, we are focused on building strong client relationships and fostering steady growth in any environment.