For our initial blog post, we interviewed our founders, Chase Weaver, CFA, AIF, and Maximillian Morgan, AIF. This is Part I of a two part introductory series. Answers below from Chase Weaver and Maximillian Morgan will be marked CW and MM, respectively.
- Please tell us about your background and education.
CW: I received my Bachelor’s of Science in Business Administration – Finance from the University of Nebraska and upon graduation began working within a financial advising office out of school. During that time, I began work towards my Master’s in Security Analysis and Portfolio Management at Creighton University as well as obtaining the Chartered Financial Analyst designation – completing both of those in 2012 and 2013, respectively.
During that time, I began work for a boutique investment advisor in Portland, OR where we opened up over 10 mutual fund products and secured distribution on the big custody platforms – TD Ameritrade, Pershing, Fidelity, Schwab – for those products. I served as a portfolio manager on many of those mutual fund products and while at the investment advisor had a great opportunity to work with many financial advisors and see how they operated and designed portfolio solutions for their clients.
When I left the investment advisor, I moved back to Omaha, NE and returned to the financial advisor side of the business – working with a firm to design, build out and run their Investment Committee which oversaw their model portfolio solutions. There, I developed a robust process and later linked up with Max Morgan, whom I worked with at the boutique investment advisor earlier.
We decided that we should take the process which was in place at the financial advisor firm and with their blessing began offering consulting services to other financial advisor groups around the country. Thus, Investment Design Management was born and has, from the very beginning, existed to serve financial advisors and help them implement quality investment processes and portfolio solutions for their clients.
MM: I received my Bachelor’s degree in Social Sciences from Eastern Oregon University. My first two years out of school were spent working in the mortgage business for an arm of Merrill Lynch, working with independent mortgage brokers to shape sub-prime solutions and packages. Post mortgage meltdown I interned at Nine Points Capital Partners, a small hedge fund and retail money manager focused on momentum within the domestic equity space. This was my first job in the business and taught me a great deal about how products and styles can represent different advisors and ultimately communities of clients.
After my experience at Nine Points Capital Partners, I worked for a private equity fund based in Lake Oswego. My experience in private equity gave me a better understanding of capital creation and structured products. I worked on a small sales team raising capital within institutional teams, RIAs, and family offices. This work led me to an opportunity with a boutique Investment Advisor here in Portland, and ultimately led to working with Chase at IDM. Our experience at the firm in Portland served as a great training ground for what we do now. We worked on every facet of the business, distribution, product creation and operations. We launched 10 mutual funds and saw them grow from $0 to over $1.5B in assets across various platforms, BDs, and practices.
“Investment Design Management was born and has, from the very beginning, existed to serve financial advisors.”
- What experiences and insights led you to create Investment Design Management (IDM)?
CW: As I mentioned above, Investment Design Management was born out of the experience gained in working with many financial advisor groups and seeing where their limitations or constraints were – and developing a solution for those problems. Obviously, there is the education and designation side of the experience – but there was also the experience of working with these financial advisors and seeing how many of them desired to offer the very best solutions they could to their clients but were not able to implement these solutions for one reason or another.
Many financial advisors want to offer a unique solution to their clients – a solution that cannot be fully implemented utilizing off-the-shelf solutions – or they lacked the underlying analytical tools or time / personnel in order to completely build out and monitor these things properly.
Through working with a variety of financial advisor groups across many custody platforms and broker dealers, we had seen a lot of the “real-world” constraints that present themselves related to how a financial advisor wants to build out their model solutions – such as ticket charges, ability to monitor many portfolio holdings, active versus passive management, platform constraints, obtaining analytical information needed to properly monitor managers, and how to critically view and analyze the decisions that the Investment Committee has made in the past.
We sought to build out a process and consulting service that would specifically address all of these items and allow financial advisors to truly state and prove that they are running their investment solutions in a fiduciary capacity.
MM: The experience we had growing our prior shop… the experience helping solve real world problems for advisors is what led to our current work. We faced a challenge distributing mutual funds with no track record, non-proven trading strategies and minimal distribution contracts. We got through those problems by education our client base, shedding light on how strategies fit into portfolios and how to model that over a period of time. We also helped shape how they were represented to end clients through the creation of marketing material, sales presentations, etc.
We ended up competing in the TAMP space to some degree, which helped us understand cost to the advisors and their business overall, what value they were, or weren’t getting for services. IDM was born out of a need we believe exists in the TAMP space and in the advising space as a whole.
- How has IDM developed and grown since its founding? Tell us about IDM’s new and innovative small account solution, too.
CW: Originally, we operated in a strict consulting capacity – where we would work with advisors or financial advisor groups to take what they had already built and feed it into a repeatable process they would be able to implement on a regular basis. We would handle all of the heavy lifting and analytical work, as well as research projects that presented themselves through the running of this process – such as investment option replacements, inclusion of new strategies such as alternative asset class exposures, or whatever the advisors were telling us they needed or we found to be a problem in the portfolios. We have had a great deal of success in this area and have built fantastic relationships with our clients.
However, we have noticed that there are many client accounts or financial advisors that were unable to fully implement the firms or their own processes – this is usually related to size of either financial advisor’s overall advisory book or the smaller size of the individual client’s account. The advisor may be working with us on the consulting side and together we have developed a great portfolio solution, but problems still existed for their smaller accounts.
Therefore, we decided to build out a solution built for these smaller accounts. Many of the custody platforms now have no-ticket charge ETF platforms – and this allowed us to use these robust lineups to create model portfolio solutions with these products and handle the trading and rebalancing for them. The process we use to build out these portfolios is the same high-quality work we do within our full consulting relationships but is focused specifically on the custodian’s no-transaction-fee platforms as the universe of products available within the models.
However, we still didn’t want this solution to be a closed system or black box – instead we still wanted to be able to offer the advisors using these solutions the ability to sit in on and take part in the Investment Committee meetings – the same as we would if we were working with them in a consulting capacity – so we allow advisors to take part in this process and provide feedback and vote on what we are doing in these smaller account solutions – it is sort of like an advisor co-op. Obviously, if an advisor group wants to build out a solution like this internally and hire us work with them on this process, we can still do this, but what we found is that solution is a nice middle ground as opposed to completely turning over all of the allocation work to a third party for this part of their book of business.
- Many financial planners and wealth managers create and maintain all portfolios in-house. Why should these RIAs outsource some, or all, of this work to IDM?
CW: Not all advisors should work with us. That is probably the simple answer. While we would like to work with all firms and think that we have something valuable to offer all, the fact is that some advisor groups do a really good job and have the scale necessary to complete all of this work on an ongoing basis.
This being said, more often than not we see that when advisor groups hire a “portfolio manager” or an “investment officer” to complete this work, that individual gets pulled in 10 different directions and ends up being more client facing than working on the portfolios full time. There, of course, is a cost element to hiring this work to be done internally, and Investment Design Management has specifically priced our services to come in under what it would cost to hire most of these individuals internally.
Now I say this not to try to convey that we are in competition with internally hired employees – we are not. In fact, we work with groups that have a full time “Chief Financial Officer,” and we are able to do all the grunt work and organization and end up interfacing with that internal person to take workload off their plate.
For advisor groups that have reached a point where they are considering outsourcing or hiring internally, I believe Investment Design Management has a lot of benefits. It costs a lot of money right out of the gate for the software we use to track the portfolio models – advisors can purchase this on their own, but it is costly. Also, we have a ton of experience in this area of designing portfolio solutions offered through financial advisors and will most likely help the advisor groups consider things they may not think about when completing this work themselves.
Bottom line is whether we would be a perfect match together is only clear once we have the opportunity to see where the advisor group is now and what they are hoping to accomplish. It is certainly worth a conversation to check us out, and we could end up providing higher quality work and a lower cost than if the advisor group built all of this out internally.
“Investment Design Management has specifically priced our services to come in under what it would cost to hire most of these individuals internally.”
MM: The easiest answer is efficiency. As an advisor, I’m doing a handful of different things to make sure I’m running business in a way that maximizes my clientele’s best interest, and at the same time constantly trying to improve the underlying operations of my practice. If you can leverage a solution that improves time management for the team, brings greater experience to the main income driver of my shop, all while creating a fixed cost for growth that’s a win for everyone. That’s what we aim to deliver to our partners.
- Advisors can access free model portfolios from other sources. Why shouldn’tthey use the free options?
CW: I am not really familiar with any “free” solutions. Take for example the applications marketplaces that now exist – most consumers would agree that “free” apps usually are not free when you consider advertising, data mining and back-end sales techniques. This being said, many asset managers will post their allocations of protype model portfolio online and this is accessible to financial advisors free of charge – and whether they implement this or they utilize the sub advised solutions – asset managers are usually recommending you place your allocations into their products. This is an inherent conflict of interest.
The other thing many advisors do not consider is what preliminary and ongoing research they need to conduct to evaluate the solution they implement. Investment Design Management is not a group of economists and we are not asset managers in the traditionally sense – therefore, we utilize many free options as well for input into the solutions we build out for our clients – and by the way many of our clients want to know what the research teams such as Fidelity, Goldman Sachs, First Trust, and Blackrock think and are recommending – our job is to aggregate these viewpoints an turn them into quantitative information that we can look at with the advisors and decide if we want to continue to follow these asset managers or if the advisor groups wants to deviate in their portfolio models from the “prescribed” weightings.
The important part is, if you choose any allocation strategy or investment product – that are you continuing to monitor and evaluate this option. This IS the work. It is a lot of work to continually go out and gather information and model it out and compare it against other options that are available.
MM: Cost vs. Value is a conversation advisors have with their clients most days. Objective advice is something that comes with a cost. Many of the free options are only free because the underlying products in the models are where the asset managers are making the money. In this instance, how objective is provider A going to be vs provider B when changes need to be made? My guess is they are less likely to provide the advice you need because of the direct conflict of interest that exists.
The value we provide is the ongoing work that’s completed on the behalf of the advisor teams we serve. Having a clear understanding of why certain products are represented in your portfolios, why changes are made and what kind of impact that “may” have moving forward makes it easier to communicate with your clients and improves outcomes and relationships as a result.
Look for Part II of the interview next week!