Pathway Flat-Fee Investment Management
We recognize that not everyone is a candidate for a full, comprehensive Wealth Management Planning engagement.
Often times, prospective Clients are looking for guidance and help in crafting a well though-out goals based investment program. Barry Capital built the Pathway Flat-Fee investment program for just this reason.
How We're Different
Pathway differs from many other investment programs offered by all the segments of the financial services industry, including banks, brokerage, insurance and even the independent RIA (Registered Investment Advisor) providers.
The first difference is in our commitment to our Clients.
- We believe that the pricing models for investment management are flawed, they lack transparency and are not Client Centric
- We believe that the current expense profile that exists today, costs Clients the best shot that they have at accumulating the money necessary to live their lives in the best possible way
- We believe that as constituted today, investment offerings from the rest of the profession are in large part, based on flawed or inaccurate assumptions
Briefly, let's take a look at each of these and see how Pathway removes the impediments to your progress.
Client Centric Pricing
Methods of charging for investment advice vary, but we can group them into a few key "buckets" of pricing models;
- Commission Based- when someone is paid on the basis of the products that they sell, there exists an inherent conflict of interest. While the character and values of the salesperson are an important consideration, the Client is left with a lingering question; "is what I just bought or what I own, what I actually should have, or, was compensation an overriding factor in the decision making..."
- Assets Under Management (AUM)- the AUM model has been around for quite some time and it remains the "bedrock" pricing structure of firms of all sizes who have abandoned (in whole or in part) the commission based approach. Firms are paid a percentage of the dollars of yours that they manage. In the U.S. today that fee is on average between 1.25% of assets to as high as 1.4% of assets. When the value of your account goes up; so does the firms compensation. That's problematic in this regard, [a] the firm has no more or less fiduciary duty to you if your account is worth $350,000 or $450,000, [b] if they've built a business to last, they're not doing any more work at $450,000 than they were at $350,000 and [c] if you simply deposit another $100,000 their fee increases based on the value of your deposit on the day you make it.
- Commissions + AUM- this is easy, combine the issues of both and you have two problems to deal with, and yes, this really does exist.
Expenses, Costs and Flawed Assumptions
In the investment selection process, many, many advisors opt for the use of "Actively Managed" mutual fund investments. These funds place a person or committee at the top of the investment process. Managers, be they individuals or groups, are paid for their services from investor funds in the form of expense ratios. Currently, expense ratios on the typical stock mutual fund are anywhere from 1.25% to 1.66% of assets depending on a variety of factors.
This money is debited each day and reflected in the value of your share price.
But there's more. Active managers, have to buy and sell securities in and out of their portfolios. This trading isn't done without a cost. No one, not even mutual fund managers trade for free on Wall Street. In the Summer of 2011, the Wall Street Journal estimated that at worst, undisclosed trading costs are about equal to the funds expense ratio. That being the case, an actively managed stock mutual fund might cost an investor as much as 2.50% to 3.32% of assets every year. And then, there's the problem of taxes.
The active manager story is an interesting and enticing tale of how expertise allows you to "win the losers game." Through research, talent, visionary thinking and wisdom, active managers are going to beat the market, allowing you to "one up" the rest of the investment world.
The reality is that this will practically never happen with any frequency that warrants the obscene level of fees that are skimmed from your net worth. Dimensional Fund Advisors looked at how frequently "active" management outperforms a passive strategy of simply buying an index fund.
Research shows that even when a manager does outperform, their ability to repeat that outcome with any regularity is highly suspect at best. Watch a video on the topic here.