“Every money manager has an investing philosophy that was built for good times, but that’s easy; a rising tide lifts every boat. Times like now are when advisors have to defend that philosophy, and sadly, many won’t be able to.”

– Jeremy Torgerson, nVest Advisors CEO | May 8, 2022

Because of the economic and market challenges we experienced in 2022, investors are understandably worried about the security of their portfolios at the start of 2023, and after a year of patience, many looking for a new financial advisor relationship. This is common during periods of economic and market turmoil, as many clients find that the strategies their advisors chose for them ultimately didn’t work, and as their account value dropped, they found out that their advisor had no clear answer of what to do.

As our account values fall for weeks or months, we’re often told by our advisor to “stay the course”, “keep our focus on our long-term goals”, reminded that, “it’s a marathon, not a sprint,” and assured that, “time in the market is better than timing the market.”

While partially true, these kinds of platitudes tend to gloss over real concerns you may have about the direction of your investments, how your money is positioned for broad changes in economic conditions, how this market decline will affect your long-term goals, and ultimately, how your money is being managed. Particularly if you are ten or fewer years until you retire or need the money for some secondary goal, suffering a 30-40% decline in asset values that may take years to fully recover, amounts to a lost decade of investment opportunity.

So after getting no concrete answers, many frustrated investors start shopping for a new advisor, only to find that most of them merely have different ways of telling you the same things, and are selling you the same strategy all over again.

We don’t mean to indict any individual financial professional. It’s not their fault, per se. It’s actually more of an indictment of our industry as a whole.

You see, the average financial advisor is hired by a major brokerage firm with deeply entrenched (and financially lucrative) relationships with a certain number of investment product purveyors. The advisor earns his or her pay largely through commissions and transaction charges.

As the CEO of nVest Advisors, I speak from experience, because like nearly every person in this industry, I started my career at one of these major firms. I can tell you with absolute certainty that we aren’t taught to manage money at these firms; we are trained to sell the investment products that require minimal oversight later and maximize revenue for our employers. Because those products commonly come with sizeable up-front commissions (often referred to as “loads”), regulators frown at advisors who make changes in a client’s portfolio too often, especially after the client has had to pay significant sales charges. So we must onboard you and then quickly move on to the next new client because we are all placed under significant production quotas in order to keep our jobs.

The reality is that when an advisor works on commission, every time they touch your account and make a strategy change, it’s very likely going to cost you more money, so the less we actually manage your account, the more ethical we actually are in the commission-paid part of the business.

This perverse system paints even strongly ethical advisors into a corner. There is enormous pressure for the advisor not to touch your account very often to avoid the appearance of churning (making investment changes in your account just to generate commissions, which is unlawful). Ironically, an advisor who works on commission could actually be considered unethical if he or she tried too hard to actively manage your account. At the same time, the advisor’s firm is always pushing for higher and higher revenue from each employee. The only solution for the advisor is to never stop selling new products to new clients, leaving little or no time to actively manage the assets of the clients they’ve already brought on board.

This paradox is why so many financial advisors employ a “buy and hold” investment strategy. It’s why you never see your money being actively managed for changing circumstances, and you’re always being told to “stay the course” when things go south.

Also, because most advisors work on commission, there is no way to avoid the inherent conflict of interest they have in recommending changes to your strategy because selling or buying anything always generates new revenue for the advisor and their firm. The industry typically steers around this by making sure you must first always give your explicit permission before any changes are made. This setup, where they are only technically making suggestions and you must approve each transaction, is called non-discretionary asset management. It protects the advisor and their firm from a lot of liability later because technically, you were the one making the actual investment decisions.

As a result of this outdated, commission-fueled setup, your account is set up using a mix of costly mutual funds that were generally suitable for someone your age and the advisor doesn’t have to monitor very closely. Then the strategy is left to weather the storms.

Frankly, that’s not money management or financial stewardship. It was a product sale. We knew there was a better way to do this, and that meant putting your interests first.

We rejected and completely broke away from this broken system back in 2011 when we became an independent advisory firm: scrapping commission compensation, removing ourselves from the production quota meat grinder, and working directly with, and exclusively for the benefit of, our clients.

We’ve further refined our asset management style over the years to become what we are today: a fully fiduciary, fee-only wealth management and financial planning firm that actively manages your money in real time based on world events.

So what makes us different and why do we think it’s infinitely better for most people? Let us count the ways:

1) We’re full legal fiduciaries.

Because we work for you and not some investment company, we voluntarily chose to assume a full, legal fiduciary role for all of our clients, from your first day here to your last. Because we assumed that responsibility for you, the law holds us to a much higher standard of care than a broker or advisor working on commission. Managing your money as a fiduciary means we must give it the same attention and care that we give our own.

2) We work on a discretionary basis.

Being a legal fiduciary means that we can act on your behalf and make changes to your strategy that are in your best interest, without you having to be hassled every time for approval. This is called discretionary trading authority, and nearly all of our clients employ this feature (though you do not have to).

Having discretion means we work with you at the beginning of our relationship to learn about your goals, risk preferences, and investing objectives, and create a set of ground rules to govern the trading activity in the account. (For instance, are taxes a concern for you? Are there any religious preferences in your investment choices? How much daily volatility can the account handle? When will money come and go from your account?) This rule-making process ultimately creates what is called an Investment Policy Statement (IPS).

Once those rules are established, you can rest comfortably knowing that your money can now be managed professionally in a fiduciary capacity, within the protective framework of your IPS. And your advisor is now able to adjust your investment strategy in real-time as conditions change (and we can make changes as often as needed because no commissions are being generated).

3) Your investments will respond to changing real-world conditions.

We don’t “buy and hold” here unless that’s specifically what you want (but then, we’d probably not be the right place for you, anyway). Just holding your hand through a significant bear market or an economic recession might be emotion management, but it sure isn’t money management.

Macro InvestingWorld events like major disasters, wars, problems with trade, and serious economic challenges can affect your investment returns for months or even years. Our process takes current world and national events into account when we create our investment models, and we systematically review and adjust those models on a regular basis as conditions change based not on our whim or a hunch, but on a set of governing rules we’ve established to guide our choices.

In fancy terms, this approach is called a data-dependent, tactical macroeconomic investment style, and it’s available for nearly all of the kinds of accounts we manage for individuals and families.

4) We use investment models to give every client the same amount of attention and care.

Most clients don’t have real specific investment preferences for their long-term assets. You just want to know if the strategy you’re using is appropriate for your goals and risk preferences and has a good chance of doing what you need it to do in the time you have.

Not being too preferential on what makes up your portfolio is also crucial to allow us to adapt the strategy to the world as it changes. For instance, we may typically not want a lot of cash or gold in an account seeking aggressive growth, but during specific periods of time, like a deep recession, those may be vitally important parts of an account’s defensive strategy.

Not every client is cut from the same cloth, however, so we build and maintain a number of investment models to fit your general risk tolerances, expected outcomes, and time horizons. As an nVest Advisors client, you’ll see some risk-based models (we call these our “Core+ Models”, but also some stylized models such as Faith-Based, Merit-Only, Green-Focused, Socially Speculative, and a 100% pure Macroeconomic model.

(Don’t worry – when you come aboard, we work through the selection process with you.)

Using models allows us greater scale – it allows us to manage a much larger number of client accounts because we are managing 10 or 12 models each day instead of 200-300 individual portfolios. It also lets us treat each client with the exact same level of priority: when we change a model, it changes all of the accounts of our clients who use that model at the same time. In our business, this is called providing “best execution”, but in simpler terms, it means we don’t favor bigger accounts over smaller ones when it’s time to make changes.

And if you still want a customized portfolio, built from scratch, don’t worry: for a slightly higher annual advisory fee, we’ll do that, too.

5) You’ll never have to come to our office to work with us.

We became a 100% virtual firm back in 2017 when we moved our company from Brownsville, TX to Colorado Springs, CO, so we’ve worked hard at perfecting a virtual experience for our clients. We’ve been using Zoom since before you even heard of it and long before Covid-19 made it a part of everyday business life. We use a paperless onboarding process, meet by phone or video, communicate with you in text messages and video emails, and more. We employ technology to enhance every part of your experience as a client.

The great thing we’ve learned is, using technology doesn’t dehumanize your experience as a client at all. In fact, because it saves us so much time and cost on all of our back-office operational activities, allowed us to bring on talented team members from across the world, and even improves our efficiency in our daily tasks, we’ve found that employing technology has given us more time to spend with you.

(However, if you really, really like driving to your advisor’s office and sipping coffee at a conference table, we can do that, too.)

We will be adding a new post each week about the nVest Client Experience. We hope, if you’re looking for an advisor for the first time or are shopping for a new relationship, that you may find a lot to like at nVest Advisors. Of course, a bunch of blog posts can never give you a full picture or be absolutely determinative that we’ll be a good fit for you, but we hope it will get you thinking that there are new and better ways to do this, and we’re working hard each day to make our clients’ experience better and better.

Ready to talk? Not sure?

For many of you seeking a new financial advisor, much of what we’ve described will sound very close to your current situation. If you are considering a change, we urge you to investigate a few options before deciding. Our advice, at a minimum, is to seek out an advisor who is a legal fiduciary, will provide you with a complete list of your costs in writing, and can clearly and simply explain their investment management style.

If you have questions or need to talk to an advisor right away about your situation, we’ll happily provide you a quick 30-Minute Q&A Session, totally free of charge, and with no sales pitch (we promise).  You need to get to know us, and we also need to get to know you, before we can decide together if we’d be a good fit. The first step is always to just talk and learn about each other. If we both feel good about moving forward, we can decide that together.

If you’re not yet ready to make a move, that’s okay, too. Trust takes time. We invite you to stay in touch with us and learn more in the coming weeks and months by subscribing to our mailing list. We’ll inform you whenever we add more to our blog. And when the time is right, we’ll be ready to meet you and learn how we can help.

And you can always follow us on Facebook, Twitter, and LinkedIn.

Whatever you choose, remember that it’s your future and your money. Your financial advisor should always keep those two facts in mind, and should always be working diligently on your behalf.

2023 may be a very challenging year for your finances. Don’t wait to change if you know in your heart that a change is needed.