Transparency, Simplicity And Peace Of Mind T M

Is This What Clients Really Value ?

When we founded Fiduciary Wealth Partners, we trademarked, TransparencySimplicity and Peace of Mind. Our partners hire us to manage investments, but afterworking with us, they often tell us that what they value the most is the transparency,simplicity and peace of mind we bring to them.

Our approach and philosophy are centered around our belief that keep-it-simplestrategies often win. Reflecting on this prompted us to re-post a blog a founder ofFiduciary Wealth, Preston McSwain, wrote last year on the SJM Fiduciary Advisorswebsite.

BY PRESTON D. MCSWAINMANAGING PARTNER AND FOUNDER - FIDUCIARY WEALTH PARTNERS

We hope you enjoy it. If you have different thoughts, let us know. We learn a greatdeal from those who take the opposite side of an idea.

Are We Spending Too Much Time Selling Alpha? - SJM Blog (April 2014)

A recent article in the NY Times titled “The Oracle of Omaha, Lately Looking aBit Ordinary”, has prompted me to write a new blog.

The NY Times piece, by Jeff Sommer, highlights research by Salil Mehta, on hisblog Statistical Ideas, about the virtues of index investing. It is yet anotherpiece that discusses how hard it is to find managers that can consistentlyoutperform index funds.

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At SJM Fiduciary, we use active managers for some asset classes such asemerging market equities and ESG / SRI mandates and, prior to starting my ownfirm, I spent the better part of 25 years successfully selling active management(I was a Managing Director at firms that largely promoted active strategies).

In addition, I previously posted my thoughts on how investors might find amanager who adds alpha using Active Share screens titled, “A Way toOutperform Over Time?”.

Across the vast majority of equity asset classes, however, I actively encourageand implement investment plans with index funds.

Beyond consistently outperforming many active funds (some research suggeststhe majority), having low fees, being transparent (easy for clients to understandwhat they are investing in), completely liquid and tax efficient, I think indexstrategies add value in other ways.

I have come to feel that the wealth and investing business spends too much timeand money promising and selling the ability to pick a manager or strategy thatcan outperform an index. Considering how hard it is to deliver on thesepromises and how many resources (firm time and client fees) are spent inpursuit of something that research indicates is very elusive, I feel we should befocusing more on other things.

3/29/15Transparency, Simplicity and Peace of Mind – Fiduciary Wealth Partners

Versus trying so hard to find and sell alpha, maybe the industry should bespending more time trying to understanding clients’ feelings about risk andreward (not presenting output from questionnaires or Monte Carlo simulations),giving full transparency (openly discussing both sides of a trade, fully disclosingall terms, potential biases and conflicts), and, importantly, making investorscomfortable with their investments, so they have a greater likelihood of stickingto their plans.

Investing should not be a competition, it should be a tool that allows an investorto reach specific goals (a means to an end).

If more advisors used index funds, it might reduce what could be relativelyunproductive competitions to find and sell alpha.

3/29/15Transparency, Simplicity and Peace of Mind – Fiduciary Wealth Partners

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If more advisors used index funds, it might reduce what could be relativelyunproductive competitions to find and sell alpha.

Even Warren Buffet seems to have feelings that tilt this way. The NY Timesarticle I mentioned above reports that Buffet has given instructions for a familytrust to, “Put 10% of the cash in short-term government bonds and 90% in a verylow-cost S&P 500 index fund.”

Humans are inherently competitive, and index funds are not for everyone (somewant to pursue the “New New Thing”), but I find that the aggressive pursuit ofalpha at the potential expense of greater simplicity, transparency and, in manycases, better performance, should be more openly discussed.

Rather than simply selling alpha, relative performance and relative risk metrics(Sharpe ratio comparisons, etc.), let’s spend more time openly discussing bothsides of topics, such as active vs. index funds, listening to what clients want toachieve and implementing strategies that increase comfort and peace of mind.

If we spent more time offering transparency and peace of mind, I think it wouldincrease trust in our industry as a whole and help us form more lastingpartnerships with clients.

Preston D. McSwain

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