Why Choose Independent Asset Management
An example from a Washington DC Asset Manager
|Written by Tom Yeung, CFA | CDFA|
Investment Advisor & Fund Manager, Jurnex Financial Advisors
You’ve heard for years that great professional asset managers can make an enormous difference. Not only do these asset managers help their clients diversify their savings, but they also save clients money by eliminating a layer of financial advisory fees.
Going with a professional asset management firm sounds like a great plan. But after researching which asset managers to go with, you feel overwhelmed. There are so many managers out there. How do you know which one to pick?
In this article, we’ll help you narrow that search. In fact, we’ll show you the importance of choosing a local, independent asset management firm rather than a larger franchised name. That’s because unlike larger mutual funds, smaller independent asset management firms consistently outperform the market. They’re also more able to work with individual investors than with large institutions.
What are asset management firms
Before we look at why you should choose a local independent firm, let’s define what an asset management firm is.
Put simply, an asset management firm helps people manage their assets.
What’s the difference between investment advisors and asset managers?
Licensed investment advisors help people plan and save for goals. They might help their clients set up 401(k)’s and plan for retirement, or tell the client “you should put $X in a savings fund”.
But how does that savings fund then get invested?
That’s the job of asset managers. Asset managers are experts at selecting investments and managing risk. It’s their role to invest these savings in a way to generate good risk-adjusted returns. Their investments can include stocks, bonds, real estate, commodities, and even collectibles.
Should you work directly with an asset manager?
For those with savings of $500,000 or above (which can also include the value of your home), it often makes sense to work directly with the asset manager rather than pay extra fees to an investment advisor.
That’s because many asset managers (like Jurnex) will often work directly with larger clients.
There are several benefits to working directly with an asset manager if you can.
- Lower fees. Working directly with asset management firms removes the by-the-hour fees charged by third-party investment advisors.
- Stay directly involved. Direct communication with the asset manager reduces the risk of miscommunicating your long-term goals and needs. It also helps you stay more involved in rebalancing your portfolio and updating it as life situations change.
- Single point of contact. Many asset managers are also licensed as investment advisors. Putting both services under one roof means you have a single person who can help you with all your financial needs.
Is investing with asset management firms safe?
One of the biggest perks of working with a licensed firm is their fiduciary duty. Firms that are registered with FINRA or the SEC must adhere to special rules. In particular, they must put client interests before their own.
These duties include:
- Duty of care
- Working in the client’s best interest
- Seeking best execution
- Loyalty to the client
Independent asset management firms registered with FINRA must also adhere to these rules. You can check if your asset manager is licensed with FINRA here. All licensed firms, including us at Jurnex, will carry a CRD number.
Your money is equally safe with independent asset management firms
Most independent asset management companies use major custodian firms to manage client money. These custodians include Fidelity, Charles Schwab, TD Ameritrade, among others. This creates a win-win scenario for all parties involved. The client gets SIPC insurance and maintains ultimate control over their assets. The independent asset manager gives asset control to the custodian, and can instead concentrate on selecting assets.
Jurnex, for example, uses Charles Schwab as the custodian for all client assets. This means that while we can help direct client investments, the client retains ultimate control as if they had put their money with Charles Schwab themselves.
Why should I use an independent asset management firm?
Asset management firms come in all shapes and sizes. The largest firms, such as BlackRock, Vanguard and Charles Schwab have trillions of assets under management. Smaller firms might have $50 million or less.
Here are the six reasons why choosing an INDEPENDENT asset management firm matters.
1. Better fit
There’s no substitute for face-to-face meetings when you’re looking to determine personal fit.
Choosing an independent asset manager gives you the option to engage directly with the firm. You will be amazed at how much information you can get from simply talking face-to-face with asset managers.
That’s because each asset management firm has its own philosophy. Some invest with a long-run horizon, while others speculate on shorter-term trends. There’s nothing inherently better with any single approach (although there are certainly some bad approaches.) But a simple chat with the asset manager will quickly help you understand whether the firm is the right fit for you.
This transfer of information also works the other way. By directly meeting clients, asset managers get a better sense of the right investments to make on your behalf. There’s no second-guessing “what would the client want?”
2. Easier to stay involved
When it comes to investing, you should always know how your money is invested. After all, it’s your future!
And staying engaged and involved with your investments becomes far easier when working with an independent, local firm. Rather than being a number among thousands of client accounts, you’re known to the people who are investing your money.
There’s a far higher chance you’ll end up knowing the asset managers personally. So if you ever have a question about your assets, you can simply pick up the phone and ask!
Staying engaged with your investments will off over the long run. That’s because your portfolio needs to get rebalanced. Over time, certain investments can start to take up more and more space in your investment portfolio. Rebalancing can help redistribute risk over your different investments.
3. Ability to use real estate for diversification
Independent, local asset managers can actually help you invest in local real estate. Their local expertise, combined with good financial analysis skills, can help you diversify your assets by investing in high-returning investment properties.
Real estate is an incredibly important part of any investment portfolio. In fact, the value of the investable real estate in the US is larger than the stock market. And primary residences are often a family’s largest single investment.
Yet most large asset management firms overlook real estate, choosing to go with stocks and bonds instead. That’s because they’re often unable to provide both localized knowledge and individualized attention.
4. No third-party sales
Independent asset managers aren’t required to sell third-party mutual funds. That’s important because they’re free to suggest the lowest cost funds for you.
You don’t have to be an expert in investing to know that fees add up over time. Mutual fund fees can range from 0.60% to 1.20%.
Franchised asset management firms are often required to sell their parent company’s mutual funds. A representative from Franklin Templeton, for example, might steer you towards buying Franklin Templeton mutual funds. The firm ends up charging you twice: once as an asset manager and a second time for the mutual fund manager. In the industry, this is known as layered fees.
Independent firms have no such incentive. Instead, they are free to suggest low-cost ETFs, where expense fees can drop as low as 0.03%.
5. Knowledge of local taxes
Independent asset management firms tend to have a better understanding of local tax laws.
Washington DC, for example, has zero capital gains tax at the state level. Neighboring Virginia and Maryland, however, has a steep 5.8% state tax.
A Washington DC asset manager will thus understand that their Virginia and Maryland clients would both benefit from deferring capital gains through longer-term holdings.
6. Better long-term outcome
As an investor, it’s important to “know thyself”.
Investing can seem scary to some, and individual investors tend to underperform the market because of poor market timing. People often get scared and sell during market downturns. In fact, this is often the worst time to sell since investors miss the rebound.
Having an asset manager can help improve long-term outcomes. Professional asset managers can help investors stay in the market during downturns, and to steer clients away from speculative investments during market bubbles.
Talk with a top asset manager
If this sounds like a lot of information to go through, don’t worry. The good news is that you don’t have to do it alone.
Working with an independent asset manager can help you navigate investing. That’s because independent asset management companies have survived all these years by staying true to their clients. Reputation is built on results and integrity, and independent asset managers have withstood the test of time.
Where to find more resources
If you’re looking to revamp your stock portfolio, there’s no better time than now. All it takes is a phone call.
That’s because I’ve invested client money for over a decade in the same old-fashioned way: seek out great companies in good industries, that can be purchased at a discount to their fair value. Sounds too simple to be true? Give me a call today and I’ll show you that it’s still possible after all these years.
At Jurnex, we have the securities backing of Charles Schwab. Yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
Want to learn more?