Chief Investment Strategist
Before I expand on the evolution of AssetBuilder, let me tell you about our Chief Investment Strategist – Scott Burns. Scott is an amazing person of knowledge and experience. He has been investing, researching and writing for 40 years. His first book on personal finance and investing was published in 1972. His most recent book was published by MIT Press in 2004 and was endorsed by 4 Nobel laureates. In fact, he has been dealing with personal finance and investing longer than many advisors have been alive.
Many of you also know Scott because you have been reading him all these many years. Scott has a unique gift in his ability to give time-stressed readers what they wanted – easy to read stories that didn’t sacrifice depth, context and meaning. You also know him from a personal perspective because he has shared many personal trials and tribulations through the years.
Couch Potato Investing
Couch potato investing started in 1987 when Scott wanted to create the idea of an “all weather portfolio” – a portfolio that would be less vulnerable to declines. The All Weather Portfolio morphed into the Couch Potato Portfolios. The basic drivers were (1) low cost index funds, (2) “naïve” asset allocation, and (3) smart indexing ala Fama/French.
Scott hoped the portfolios would be easy enough to implement that virtually anyone could do it on their own. In a recent article Scott outlines the results of the Couch Potato Portfolios.
The Birth of AssetBuilder
Scott and I share a mission – “Help the weary investor who has been taken advantage of by the legacy financial system”. We spend a considerable amount of time and effort constructing our portfolios to embody our investment strategy, which is also our vision – “Simple Investing, Smart Future”. The foundation started by putting into practice the basic investment principles Scott has been evangelizing since 1988 – low cost, index vs. managed funds, and diversification.
We provide value by constructing portfolios designed to provide the highest return given a measured level of risk. That doesn’t mean we are the only shop to give risk serious attention. It just means that most of the portfolios we see are poorly designed from a risk management perspective. We use a technique called mean variance optimization, which won its creator, Harry Markowitz, a Nobel Prize in 1990. If you want to understand your investment risk, use our portfolio review.
The reason we have such confidence in our models is we didn’t just optimize funds; we optimized the Fama/French research indexes. These research indexes provide us data we could make clear analytical decisions with – not influenced by anomalies; (REITs), survivor bias, etc… We then replaced funds with the indexes we optimized. Tweaked the models again with the actual funds, but were able to have the more complete historical impact beyond the length of the actual funds.
DFA funds are superior to Vanguard funds when you want the best vehicles to pursue the return benefits of small cap investing or value investing because they follow the Fama/French research rigorously. The Vanguard funds primarily follow market capitalization. Follow this link for a return benefit comparison.
We employ a disciplined investment strategy that is a process over time, not a decision for a moment in time. While many people “get it” when it comes to index investing, there are dozens of ways they could miss the boat for putting it to work. We put the idea to work. We make it happen. We take responsibility for all the details. Equally important, we know it will cost far less than the legacy financial system.
Our Business Model
There is the “do-it-yourself” decision versus the “let-the-staff-do-it” decision. Many people choose to manage their own portfolios simply because they don’t want to give up 100 to 200 basis points of annual return to traditional management firms. We think that’s a very reasonable choice. Scott has written about expense reduction for decades – it is the SINGLE most direct act we can take to increase our investment returns. We’ve built our business model with the goal of lowering the cost enough that the ONLY reason you would wander the do-it-yourself path was that you needed a time-consuming hobby. With a fee schedule that ranges from 50 basis points down to 25 basis points, this is half the average Registered Investment Advisor fee schedule of 100 basis points (1%).
Our business model has many in the industry calling us the “low-cost provider”. However, we view ourselves as customer advocates for your financial future. We believe it is possible to declare independence from the expensive legacy financial system, to embrace the idea of indexing, and to make a decision to have someone do it for you at a very reasonable cost. We’re that someone.
As a registered investment advisor we have a fiduciary standard of care for clients, placing their interests first. The standard of care we provide our clients is outlined in our Code of Ethics.
The typical payment scheme in the legacy financial system is based on commission. Commissions foster an “eat what you kill mentality” and is not customer friendly.
Unlike the legacy financial system, everyone at AssetBuilder is an owner in the company and no one is on commission. This makes all employees task and service oriented. We don’t see our customers as the basis for making our fortunes. We see our customers as a way for us to be useful human beings, and that’s a great satisfaction.
Impacting the Legacy Financial System
AssetBuilder is gaining traction. While we may be a start-up company we have very strong institutional connections. Schwab is the custodian for all assets and we are using Dimensional Fund Advisors for funds. With Schwab, our customers have access to all the tools and conveniences offered by Schwab. We think this is a very nice mix of brick and mortar offices and electronic convenience.
Thanks to you, our web exposure has also grown very rapidly. Six months ago our www.alexa.com rating was over 500,000. As of last week we are at 251,240. This is leagues ahead of similar registered investment advisors. We are also in the ballpark with the institutions of the legacy financial system.
Our low pricing dictates we have a lot of assets under management. We have already grown larger than the average registered investment advisor. The key is using the internet as a way to gain customers who are interested in our common sense approach to investing.