In the typical financial advising relationship, a client opens an account with a large, nationally branded financial advisor. The client is often charged around 1.5% per year for the advisor’s services, but then a curious thing happens. The advisor typically puts the client’s assets into a broad assortment of mutual funds – perhaps around 20 – who themselves charge an annual fee, often in the 0.5% to 1% per year range. The client in this arrangement is now in a 2% or greater hole each year, just to own effectively the entire market (something they could obtain for themselves with a cheap index fund).

In this arrangement, the advisor is effectively outsourcing their job of investment selection to many mutual fund managers, rendering it somewhat unclear what they’re exactly being compensated for. What exactly is the advisor doing to earn their 1.5% fee if they just put all your money into mutual funds who are run by other people who themselves charge a fee for investment selection? These advisors are relationship managers, not investors. Why should they be entrusted to any decisions about your investments?

In contrast, we believe someone entrusted to someone’s investments should bring a deep knowledge-base to the endeavor and have a track record of performance. We spend all of our time researching possible investments for clients. We don’t own mutual funds, as buying a mutual fund is an admission that the investor or advisor doesn’t know how to evaluate individual investment opportunities. We instead seek to deploy capital into individual companies that a) we understand, b) we’ve researched in-depth, and c) that are selling at attractive prices in relation to their future prospects.

Lastly, while most advisors need clients in order to have an income, we would be doing the exact same thing whether we had clients or not. We have been personally investing our own accounts for 20 years, and managing outside money was an unintentional outgrowth from that. This is an activity we just love to do and would carry on this same investment journey whether we had clients or not. In our view this leads to a stronger alignment of incentives; whereas the typical advisor places their 150 clients into 20 mutual funds each and then checks back in once a year, we are financially incentivized to find highly attractive investments that we own right alongside our small client roster.