For the third year in a row, Schwab Institutional is running a series of TV commercials in support of independent Registered Investment Advisor firms. That’s us! The commercials are an extension of Schwab’s long-running advertising campaign, focused on helping the public understand why terms like “independent,” “fiduciary,” and “Registered Investment Advisor” matter – or at least should matter – to anyone seeking solid financial advice.

You can see the TV ads now through mid-May on CNBC, Fox Business, Bloomberg TV and Golf Channel. They stand out to us for their emphasis on the right kinds of questions to ask when assessing a financial advisor. While most financial services advertising is aimed at products and sales, we’d say Schwab gets it right. Here’s our favorite:

Schwab’s ad campaign is hardly the reason we do business with them. But it’s one more way their thinking aligns with ours, as we turn to them for holding our own, and our clients’ personal investments.

Since our Take the Long View® strategy calls for a level-headed mindset and evidence-based rationale, I am disciplined about keeping emotions out of the mix. But sometimes, even I have to vent. For example, my outrage seems well-placed when it comes to exposing dark players who pose as financial “advisors” while they prey on those who can least afford it. When that happens, the real damage is done if we calmly ignore what’s going on.

We work in an industry with an insanely low bar to entry. As I covered in my book, Odds On, I’ve personally witnessed how many of the big-name brokerage firms prize their sales quotas over solid client care and education. In any industry, a convergence of greed and incompetence is ugly. In wealth management, it can be life-shattering.

That makes me mad. Through our own experiences and in speaking with investors, we see the damage done far more often than you’ll read about in the papers. Yes, regulators have been known to levy millions, if not billions of dollars in fines against the worst offenders, but is it working?

Consider this recent article from personal finance columnist Tara Siegel Bernard. It makes me sick to my stomach to read that a “sandwich generation” daughter had to discover her ailing mother’s broker was quietly extracting roughly 10% in annual commissions from Mom’s account (compared to an industry norm of closer to 1%). In financial speak, that’s known as “churning,” or buying and selling just to turn a profit at the investor’s expense.

Worse, at least when Bernard published her piece, the offending broker was still employed at the same firm. The firm’s response? Bernard reports: “In a statement, [it] said, ‘The client agreed to an appropriate resolution of this matter in June.’ The firm said it was committed to doing the right thing for its clients, and was ‘disappointed when any feel their expectations haven’t been met.’”

What a ridiculous response!

Through the years, I’ve heard from many in our industry with their own tales, which sync with my experiences. The common thread is selfish salesmanship. Today there are thousands of independent investment advisory firms, all of whom are held to a fiduciary standard. While even that can’t prevent a criminal bent on malfeasance, it’s a step in the right direction.

Things are getting better, but it’s time more investors start choosing true financial advocates, not just the family relation, nice neighbor or daughter’s affable softball coach. It’s time to fire the entrenched, big-name brokers who don’t have to (and often don’t) represent your highest financial interests. It’s time to lead with questions such as: Is our relationship always fiduciary?

If the answer is anything besides, “Yes, always,” or if the written version is accompanied by an asterisk and a bunch of fancy legal footwork, it’s time for you to say no. You deserve better.

PS: Check out our related press release about Hillfolio, and how we’re working hard to bring “better” to an even wider range of investors.

One of the things that differentiates Hill Investment Group (HIG) is the simple, transparent philosophy behind our investment strategy. As we like to remind clients, the data and evidence tell us that one of the best ways to pursue long-term financial goals is to essentially own the world and, of course, take the long view with our ownership – relying on the expected long-term gains of global capitalism to deliver growth.

This philosophy does NOT mean our portfolios operate on auto-pilot. In fact, we’re regularly reviewing the latest academic research and innovations in financial products to evaluate available options. Like other aspects of our investment process, we tackle this job through a rigorous, disciplined approach guided by our internal Investment Policy Committee (IPC), comprised of me (John Reagan), Rick Hill and Nell Schiffer.

Our IPC assesses the ongoing performance of our current holdings and occasionally adds new investment opportunities when they make sense within our evidence-based infrastructure. (Remember, as fiduciaries by choice and design, it’s our legal duty to make decisions that are in our clients’ best financial interests.) In addition, it may be even more important for us to assess and reject countless supposedly “new and improved” offerings when closer analysis reveals them as pointless distractions to our Take the Long View® strategies.

To accomplish these missions, our IPC follows a regular process that includes:

• Monthly reviews of our model portfolios and individual fund performance
• Quarterly IPC meetings and semi-annual meetings with financial product providers
• Regular communication with the rest of the firm through meeting minutes

Our processes are grounded in the following key principles that help the IPC perform due diligence and make recommendations.

• Factor-based investing beats traditional active management. Roughly 85% of active funds trail their benchmarks over periods of 15-20 years, compared to factors such as small size, value and momentum that have demonstrated long-term return premiums. For that reason, we won’t even consider traditional actively managed funds. We opt for evidence-based strategies, which helps weed out a lot of options that simply don’t fit with the way we serve our clients.
• Data and evidence drives decision making. Academics and practitioners are constantly producing new research into how markets work, and the IPC is committed to following these developments. We read academic and financial journals, attend conferences, and speak with experts to ensure that our investment options reflect what the evidence is telling us.
• We always seek to add value to portfolios. With fund companies continually developing new products – and sometimes changing the way they manage existing funds – the IPC must re-assess whether the funds we’ve chosen are the best possible options. We examine whether there are new fund variations that target established premiums in a better way, or if new factors could help boost returns, decrease volatility, or provide another distinct advantage.
• Costs matter. Because the fees charged by mutual fund companies directly affect our clients’ returns, we’re diligent about finding the best possible balance between cost and value in every fund we select.

As touched on above, thanks to our disciplines, the IPC only recommends changing our investment lineup when there’s a clear reason to do so. Changes don’t happen overnight either. If a new opportunity is sustainable, there’s no need to rush into it. If it’s not, it won’t be in our clients’ best interest to chase after it.

For example, our IPC recently recommended adding a new fund that targets evidence-based factors, using an investing strategy to hedge against scenarios when all asset classes decline at the same time, like in 2007-2008. A fund like this essentially didn’t exist then, but it does now, in what we deem to be a cost-effective vehicle. So we have added it to our lineup.

Again, more often, our IPC looks at new opportunities and decides not to make a change. For example, in 2017 we also examined a new kind of fund that claims to provide a hedge against widespread downturns by investing in an asset class with low correlation to the equity market. Upon careful review, the IPC found the fund to be incredibly complex – to the point that we couldn’t easily understand exactly how it would accomplish what it claimed to do. It was also extraordinarily expensive! When a product is this complicated and expensive, and we’re not clear on the benefit it would provide our clients, it’s just not right for us.

Putting the pieces in place

Besides establishing our investment lineup, the IPC has another important role: Creating the proper asset allocations for our model portfolios. This task involves understanding correlations between factors and asset classes, and analyzing expected returns/volatility, to develop portfolios that offer the highest potential returns for the amount of risk a client is comfortable taking. It’s akin to cooking a soup: You might have the same set of ingredients, but depending on how much you add of each one, the result is going to taste very different. The IPC uses our standard set of ingredients to develop different portfolio “recipes” to suit each client’s taste.

We hope you’ve enjoyed this close-up look at our long-view IPC, and the process and principles that guide our decisions. Our IPC plays a crucial role in our mission to do what’s right for our clients – period – while simplifying the otherwise complex world of investing. If you have any questions for us, feel free to reach out.