The investing industry requires advisors to act on behalf of individual investing goals. But a pattern of underperformance begs the question—whose goals are the industry really serving?
01.
It’s natural to feel some degree of concern about your financial future. But industry professionals know that a client's worries gives them a certain amount of power. Instead of helping clients overcome their fears, investment advisors often take advantage of the misconception that the work they do is too difficult to understand. Like a doctors'. And, like a patient would, the public believes an investment manager’s job (as they understand it) guarantees trustworthy patterns of behavior. But it doesn’t.
02.
It’s very common for managers to consistently underperform market benchmarks, yet clients pay the steepest fees in the industry for the perceived benefit of a personal investment manager. The idea is that a "gifted" expert is skillfully working the market to your personal advantage. But what actually happens is much different. Clients pay the high fees for investment managers only to routinely miss out on market performance. We've watched it happen, and tracked the data. But clients don’t know what's happening (though sometimes they sense it, and then doubt themselves). And so the pattern keeps repeating itself.
Case Study
Regan Ervin was the chief operational officer at an investment management firm when he first felt the urge to address the industry-wide problem of poor portfolio performance.
Across the country, clients were paying a premium for a service that was failing them, he said, but it wasn’t because of the unpredictability of the stock market.
Studies by DALBAR, SPIVA and Morningstar all confirm that investment professionals underperform benchmarks.
And while the firm he worked for at the time held itself to fiduciary standards—the highest in the industry— even they couldn't avoid underperformance.
"It hit me one day in a staff meeting," Ervin said. "The traditional practices of investment management tend to cause underperformance, and are more about professional image than client outcomes."
"I looked around me and I knew there was a better way," he said.
01.
Investors can and should understand not just their investment options, but what's behind them. Once shareholders know more about investing and industry culture, they can hold our industry accountable. They'll see greater returns. And our industry will benefit because of it.
02.
Performance is the sole objective of investing, so it's fair to insist it should drive the industry. Two ways performance should be prioritized but isn't: factor-based investing (relies on data, not discretion) and exclusively fee-based services (no conflict of interest). Data overwhelmingly proves changes in both areas make a really big difference in portfolio growth.
03.
We believe we can prove that investors don't need a intuitive stock trader who works the market for them on a daily basis. But what they do need is someone to direct their wealth to accomplish their goals. Through the investment direction methodology and framework, clients and directors build a relationship and shared language for targeted and unique outcomes. Clients get a strategy informed by their personal interests, and they're free to enjoy the benefits.
Step 01
We get together and hear your story. What are your goals? What do you need help with? Where are your assets currently invested? After we meet, you decide if it's a fit.
Step 02
Once we look into your wealth management status, we educate you on our findings. Next, we simplify your financial tasks and get to work on future goals.
Step 03
Without commission-based products or any charges besides our asset-based annual fee, we’re free to work together indefinitely towards our mutual best interests.
Whole Life Insurance
A high-cost option for permanent life insurance that includes a death benefit and an additional saved amount to the covered person or their beneficiary at a guaranteed rate of growth.
Universal Life Insurance
A type of permanent life insurance. As permanent life insurance, it includes cash benefits to the covered person, but the amount of the benefit to the policyholder relies on market performance. The death beneficiary receives a set amount.
Permanent Life Insurance
A category of life insurance that doesn't expire. It also accrues cash value over time which the covered person may use at a later date.
Term Insurance
A type of life insurance that covers a person for a set period of time.
Annuity
An annuity is an insurance product that's used as an income stream for retirees.
Registered Investment Advisor
A registered investment advisor (or RIA) isn't a term for a professional—it's actually a term for a firm operating under fiduciary requirements. Employees of an RIA firm are called Registered Investment Advisor Representatives.
Investment Advisor
An investment advisor gives advice on investment decisions. There are different licenses advisors can hold, and some hold multiple licenses at once. The obligation advisors have towards clients varies by license.
Tax Loss Harvesting
Tax loss harvesting is a practice advisors and investors often employ to avoid excessive taxes on money made quickly in the stock market.
Initial Public Offering
An initial public offering (also called an IPO) is a transition a company makes when it becomes publicly owned via the stock market.
Ticker Symbol
A ticker symbol is a few letters and/or numbers that symbolize an individual stock. They can be abbreviations or acronyms, but are also sometimes randomly selected.
Compound Interest
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Diversification
Diversification refers to keeping your assets balanced, both across asset classes and within asset classes. A diverse portfolio means less risk.
Alternative Asset Class
Alternative asset classes are any asset class outside the four major classes (stocks, bonds, real estate, and cash).
Security and Exchange Commission
The SEC is the government organization that regulates the investing industry.
Fiduciary
A fiduciary is also an investment manager or investment advisor (RIA for short), but not all managers/advisors are fiduciaries. The term fiduciary communicates the advisor's formal obligations. A fiduciary is required to act only in the client's best interests.
Investment Manager
An investment manager is someone who is licensed to manage clients assets and advise them how to invest their capital.
Stock
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Return
A return is the amount of money you make from investing a particular asset or set of assets.
Risk
Investment risk is equivalent to how likely it is to achieve the outcome (or returns) that you're hoping for.
Asset Class
An asset class is a category of assets, such as stocks. There are four major asset classes and many more alternative asset classes.
Asset
Something that you purchase which you expect to have greater value in the future. Your investment portfolio is made up of individual assets.
Investing
Investing is the act of putting your time, effort or capital at risk, expecting that you'll get something of greater value in return.