Sorry I have not written lately but it is earning's season (when companies report their quarterly earnings and I have to go through about 50 companies) and also our year-end Audit. Boy, do I love January and February each year.
Back in the summer of 2014, I decided I was going to create a Private Client Division at High Rock. There were several reasons why I wanted to do so, but one important (and selfish) one was to manage the assets of my household, my parents and a couple of friends on a operationally efficient basis.
Up until 2015, I, like most people in the country, had my money with an Advisor (who is an old friend and a great guy). He really didn't offer advice or anything else but rather executed as I required him to. The operational obstacle was that I couldn't get corporate bonds into the various accounts I had discretion over (my household and my parents). In some cases, like investment grade corporate bonds, I could get them but the retail trader at the Bank would take 1-2% on the trade before offering me bonds. Being an Institutional Fixed Income Manager, and knowing where all these bonds trade in the Institutional market, I would never in a million years pay the "retail price" to buy those bonds. And High Yield corporate bonds were even worse! Think about losing 1-2% when you buy the bond and then another 1-2% when you want to sell the bond...that could be between 2-4% round-trip, and some of these bonds only yield 3%!!! Who the heck would knowingly do that?? Gotta love the Bank Model. So the bottom line was, I couldn't get corporate bonds into my accounts on a price-efficient basis.
Then in the fall of 2014, I talked to Scott and told him all about my plans to create this Private Client Division. It didn't take Scott long to figure out the many benefits and synergies of marrying our Institutional Portfolio Management company with our new Private Client Division.
In my opinion, we have many differentiators and value creators in our Private Client Division, but selfishly, the biggest one for me, is that I can get corporate bonds in my personal accounts with "on-the-screws pricing" whether is is a new issue or a secondary trade.
Two great examples of this came both Wednesday and today:
Now two more benefits to being a client of a Discretionary Institutional Portfolio Management company, like High Rock, are that:
Not once have I been asked "What is the single biggest advantage of High Rock's Private Client Division over the Bank/Dealer Advisor model?" Not once, but if I was, I would state, IMO (in my opinion) having access to the Over The Counter (OTC) traded corporate bond market would be right up there. To be sure, there are a lot more benefits I could highlight but, for me, this is up there because it is something that most people would not have access to anywhere else on as direct a basis. To get this kind of access to the corporate bond market, you would have to pay your Advisor a Management Fee and then he would take your money and buy funds managed by an Institutional Fixed Income Portfolio Manager (like High Rock) to manage a portfolio of bonds on your behalf. And I can assure you that the Institutional Portfolio Management company charges you a fee as well. These are called Management Expense Ratios (MER's). They are those hidden or embedded fees people have sort of heard about but really don't understand. Sound like you are paying 2x? You would be if that was the path you chose. And if you had 50% of your portfolio in Fixed Income, then you would be paying 2x on 50% of your portfolio...you do the math.
I have an old family friend who is an extremely successful, sophisticated investor and is also a client. One year ago, to the week I believe, we were sitting across the street in a coffee shop talking about how the market was getting hammered so badly and oil was hitting U$26/barrell. He said he was buying all kinds of oil and gas stocks to which I said, "Hey if you are buying the stocks which are quite risky, why not buy the bonds which are yielding 10-20%?" I told him I had access to all these bonds by virtue of the funds we manage for BNS. He listened, bought into the idea in about one hour, put money in a separate account and I purchased some select high yield bonds for him (this was a one-off, risky portfolio that was suitable for this individual but was not suitable for the average investor). He did well and I think if you asked him today, he would tell you that access to said bonds is a huge benefit to High Rock Private Client Division.