Frequently Asked Questions
What are the differences between a broker and a RIA Representative?
The differences are so numerous they could fill a book. The biggest is that an RIA must hold all clients to a fiduciary standard (please refer to the RIA Advantage tab). All clients must be treated equally and fairly. Any conflicts of interest must be disclosed. And finally, the RIA firm must never benefit from a client making a trade. Please refer to the articles below:
Why use Interactive Brokers for custody?
We chose Interactive Brokers because we believe they provide the best value and service proposition for our clients. Stock commissions are zero and we have found the bond trading desk at Interactive Brokers to be exceptional. The bond desk charges a fixed commission on bond purchases and sales, as opposed to marking them up on purchase and marking them down on sale. This insidious and often hidden fee is prevalent at many other discount broker platforms, and as fiduciaries we are very focused on minimizing those costs for our clients.
Interactive Brokers, as a broker-dealer, has the same SIPC account coverage levels as its peers.
What is your investment style?
Our investment style can be generally characterized as focusing on contrarian value and special situations. And what exactly does that mean? In many cases we look for securities that are out of favor for some reason. We generally avoid securities that we think the marketplace has overvalued. That is not to say that we do not buy or hold stocks that have gone up dramatically. In those cases we just may feel that they should have gone up more. Special situations arise when companies are going through a transformative period like a merger, divestiture or some significant transformation. We do all of our own research and we are equally comfortable with stocks and fixed income instruments (bonds, preferred stocks, etc.)
Do you receive compensation from any other source?
We receive no compensation from Interactive Brokers for using them as our custodian/broker-dealer.
How often do you see or speak to your clients?
We see and speak to each of our clients based on their individual needs. Although we are required to speak with clients at least once per year, there is no set schedule for client conversations. We speak to our clients as often as necessary.
What if my financial needs change?
Our client's financial needs are constantly changing and we are accessible to those clients at all times. We maintain portfolios that are very liquid and we have the capability to change the investment profile of a client very quickly at their request. All RIAs are required to communicate with their clients a minimum of one time per year. We are as available as necessary to each of our clients.
Do the products you invest in have additional layers of fees?
Fees can add up and much has been written about the fact that fees are one of the largest drivers of return over a long period of time. Recognizing this we look to minimize fees wherever possible. We use Interactive Brokers, a custodian that charges no commissions on stock transactions and minimal bond commissions. We minimize the use of mutual funds, which add an additional layer of fees on top of our own. For example, were a client to pay their RIA firm 1% to manage a portfolio of actively managed mutual funds (the mutual fund having an additional management fee of 1.25%) this individual would end up paying 2.25% due to the aggregation of fees. Over time, this would result in a significant decrease in the performance of that portfolio.
Do you consider an individual's tax bracket when investing?
Absolutely! We take the time to understand people's tax situation and we continuously take additional time to monitor changes in their situation. We are security researchers and selectors and we buy securities with the expectation of their value increasing over a period of greater than one year to have gains taxed as long-term capital gains. There are, of course, exceptions. Sometimes our opinion of a security changes or sometimes value is recognized by the marketplace very quickly and we take profits earlier than expected. But we take the tax consequences of every transaction we do into account on an individualized basis. We manage money for some entities where long term and short term capital gains are taxed the same way, we identify clients with tax loss carry forwards, and we have clients that are in extraordinarily low tax brackets. One of the drawbacks with investing in mutual funds is that the fund manager may take profits that may not coincide with the optimal time for the individual to recognize the gain.