Tag Archives: Registered Investment Advisors

The Trend: Fewer “Self-Directed” and More “Advisor-Reliant” Investors

According to Cerulli Associates more households rely on advisors than ever before.

Since 2010, the households classified as “self-directed” investors had shrunk from 45% to 33%, while households termed by Cerulli as “advisor-reliant” investors — regularly consulting with an advisor — had grown from 34% to 43%.  What drives this trend?

I can think of several reasons.  Two that come readily to mind are:

  • the increasing complexity of financial markets and
  • the number of dramatic financial shocks that people have experienced in the last 15 years.

I can remember a time, back in the 20th Century, when “investing” meant calling a well-know investment firm and buying a stock, like General Motors.  Well, good old GM went bankrupt a few years ago and since then about 25,000 mutual funds have appeared.  In addition there are options, derivatives, structured products, and – of course – ETFs (exchange traded funds).  And that’s just here in the good old USA.  But there’s a whole world out there that people can invest in: foreign stocks, foreign funds, world stock funds, emerging markets, commodities, to say nothing of foreign bonds and currencies.

Few people have the time to study all of these, so the rational thing to do is to find a financial advisor to help you make sense of it.

And then there are the financial disasters that decimated many self-direct portfolios.  In the year 2000 the dot-com bubble collapsed, devastating the portfolios of those riding the tech boom.  And who can forget the housing bubble that led to the financial crash of 2008, wiping out some of the major banks and investment firms and ending the dreams of a comfortable retirement for many people?  Professional advice should be concerned with risk control as their first objective, followed by getting a fair rate of return on your invested assets.

During all this time, financial advisors who were once employees of the major investment firms decided that they could best serve their clients by declaring their independence.  They set up their own firms, becoming Registered Investment Advisors (RIAs) offering fiduciary services.  That is another development that has helped to make financial advice more accessible to individuals and families, the mom and pops of the investment world.

If you’re one of the shrinking do-it-yourself crowd, check us out and see why you may be much more comfortable with us as your advisor.  And if you are one of those with an advisor but wonder if you could do better, feel free to get a second opinion.  We’re a family firm.  We deal with several generations of families that look to us for guidance.  We look forward to hearing from you.

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Breaking Away from the Big Box Store

A new independent RIA (Registered Investment Advisor) sat down for an interview recently about the reasons he left one of the major investment firms. We found most of his reasons familiar because they are the same reasons we set up our own independent firm five years ago.

Here are some of the things he said.

The financial world has changed ….

Besides working at [three different firms I have] more than 30 years in the business. Post–financial crisis, the world around us has dramatically changed. Over the past several years, I’ve seen former colleagues leave to start their own practices. They were doing so well that about two years ago I started seriously exploring my own options.

He likes the freedom of independence …

At [his last firm] I found their support a little cookie-cutter in nature. As part of an organization serving about 7,000 other advisors, I felt like my practice was being forced to manage our clients in a way that appealed to the lowest common denominator. … I still felt limited in what type of services I could offer my clients.

Simply helping business clients connect with bankers, lawyers and other professionals can prove very beneficial. At [Big Box Store], I had to make sure to refer outside businesses only if they met with the wirehouse’s approval. I found that somewhat limiting. … So being able to control my own referral network should create more opportunities to provide a broader network of value-added contacts to clients.

What else can you do that you have not been able to do before?

A big advantage of being independent is being able to advise clients with assets held at other institutions. But we’re also finding more freedom in other areas. For example, one of our clients owns a business that lends to farmers. He has asked me to help open a new line of credit worth about $30 million and shop for the best deal. With another client, we’re helping him interview investment bankers and begin a formal process to sell his software business, which we think is worth between $40 and $50 million.

At Korving & Company, a lot of what we do for our clients has nothing to do with investment management. Right now we are helping a recent widow gain control of her financial affairs. She asked us what we owe her for our services. As a client, there is no extra fee; it’s part of our holistic service model when we act in our fiduciary capacity.

If your financial advisor works for a major firm he is constrained – in many ways – by the limitations placed on him by his employer. Give us a call and see what independence can do for you.

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Four ways elite advisors select mutual funds

How do professionals select the people who will manage their money? That is the fundamental question that top-rated Registered Investment Advisors (RIAs) have to answer as they select the mutual funds that go into their portfolios.

What are the traits that are crucial for selecting a fund? At Korving & Company we believe that the number one consideration is clarity and consistency of investment philosophy. The fund should know what its role is and stick to it. If a fund begins to change – a term known as “style drift” – it loses our favor.

Following closely behind is risk-adjusted return. This is a fairly complex calculation. One observer defines it as

… a measure of the return on an investment relative to the risk of that investment, over a specific period.

A third criterion is the distinctiveness of strategy or expertise in the strategy. We create diversified portfolios. We choose funds that are distinctive and that are managed by individuals or teams that have exhibited extraordinary expertise in their particular investment strategy.

Fees are another consideration. Most funds offer several classes of the same fund, differing only in the expenses they charge. We have the ability to choose the least expensive version of the fund we wish to use.

By using the services of a professional RIA, all of these factors go into creating your portfolio. Call us for our guidance in choosing the best people to manage your money.



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What do younger investors want?

Schwab did a study about affluent investors aged 30 – 45.  The study wanted to determine what matters to this group, how they make decisions and their attitude toward investing.  That age group controls nearly $3.5 trillion in investable assets.  Schwab is interested because they are the top custodian for independent Registered Investment Advisors (RIAs) like Korving & Company and believe that RIAs are best able to service this group.

So what do these investors have in common?

  • The study revealed that they are anxious and insecure about the future because they have already experienced a couple of major economic crises, domestic terrorism, unemployment and several financial bubbles.
  • They don’t trust the industry, believing that they recite corporate talking points and don’t really care about them.
  • They are short-term focused and like to keep large amounts of cash as a safety net they can trust.
  • Success for them is “having the freedom to avoid hardship and to not be a burden to others.”

I should add that people in this age group are less likely to work for a company that offers a pension, making them more dependent on themselves for retirement.  Except for that, in many respects, this generation is not very different from preceding ones, except that they are more apt to rely on digital communication and the Internet, having grown up with computers.  Many in this group cannot differentiate between types of financial advisors, and do not understand the difference between the independent RIAs and the brokers that work for the “big box” stores.

Schwab’s conclusion:

“Our findings reveal that Generation Now investors want a trusted guide with expert knowledge who deeply understands them and their unique needs.  We believe independent advisors fit that need, but this generation just doesn’t know it yet.”

“Their ideal financial advisor relationship is with one whom they can build a trusted and transparent relationship, based on empathy and understanding of the whole person, not just their financial goals,” Schwab says.

“They want their advisor to provide planning and financial advice alongside expert advice in other related areas, such as tax or insurance.  Generation Now also expects to be heavily involved in decisions regarding their investment strategy.

“Advisor accessibility is important to this group.  They want to be able to communicate with advisors whenever, wherever, through a combination of in-person meetings as well as voice, text, e-mail and videoconferencing.”

It sounds as if this generation is looking for firms like ours.  Check out our new website.


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