NWP Monthly Digest | October 2024
Noble Wealth Partners turned 6 years old last week, celebrating our birthday on September 24th. It has been an incredible ride, with plenty of ups and a lot of downs along the way. Thankfully, more ups than downs. Starting a business is no easy task, but it is unbelievably rewarding.
As we move into the best and my most favorite time of the year (October to the end of the year), I always start to get nostalgic and reflecting back on the growth of our firm just enhances that feeling. I’ve been reading Josh Brown’s new book, You Weren’t Supposed to See That: Secrets Every Investor Should Know. Josh is the CEO of Ritholtz Wealth Management, a commentator on CNBC, and is about the same age as me. His career and his first book, Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments, inspired me to start my own financial planning practice, and now his new book has inspired me to write a bit of an origin story about myself, Grant, and Noble Wealth Partners and the experiences that we’ve had that motivated us to build a firm our own way.
I’ve spent a lot of time this year writing about the markets and behavior, which I’ll get back to in a couple of months. For now, however, feel free to let me tell you about how my career has unfolded with some important historical context that will explain a lot about how Noble Wealth Partners and our values were shaped.
So, let’s get to this. I originally went to the University of Colorado to become a journalist in the fall of 1995. Seriously. I loved sports and writing, and I idolized all of the great sports columnists of the day, especially people like Rick Reilly at Sports Illustrated and Mark Wolf of the Rocky Mountain News. Alas, after my first semester it became pretty clear to me that I lost any interest in pursuing that goal (thanks to one class and one professor, specifically). After a very brief stint as a computer science major (my mom always told me I should go into “computers”), I landed where I needed to be, at the Leeds School of Business. I finished my degree in accounting with an additional emphasis in entrepreneurship and was ready to enter the real world in the summer of 1999.
Back then, Denver was at the epicenter of the mutual fund universe. Janus Capital Group was the hottest name in investing and was raking in the cash. Sprinkle in a dash of Berger Funds, Founders Funds, Invesco, and little shop called Westcore Funds (which will become an important part of this story momentarily) and it’s easy to see where the “Wall Street in the Rocky Mountains” nickname came from. Articles were written at a staggering pace comparing the laid-back culture of these new, upstart portfolio managers that went skiing and hiking in their spare time to the usual suit-and-tie crew in New York and Boston.
"These guys are way too romantic for this business," says Lawrence Lieberman, president of Robert H. Wadsworth & Associates Inc., a New York firm that recruits fund managers. "What's next? Wear your gun to work?"
So many people in my classes were downright giddy to go work for one of the big accounting firms at the time to become auditors and public accountants, and I had absolutely no desire to go that route with my degree. Quite the contrary, a young portfolio manager from Janus, also a CU alum, spoke at one of my classes in 1998. His name was Scott Schoelzel, at the time one of the most famous portfolio managers in the world. Portfolio managers are the gals and guys who make all the decisions on how to invest the money in a certain mutual fund, and Scott was very, very good at doing it. He told us an amazing story of how he moved to Boston after graduating from college and lived in his car until he got his first “real” job as a mutual fund accountant at State Street Bank. I thought he was the coolest person in the world and decided that I was going to be him when I grew up.
That’s where that small outfit I mentioned earlier comes into play. The Westcore Funds, now run by SBH Mutual Funds, are a small group of actively managed mutual funds that started their existence out of the trust department of First Interstate Bank of Colorado, now Wells Fargo. An even smaller company in Denver called ALPS and with only 30 employees handled the back-office and operational work for the Westcore Funds, including their fund accounting. In August of 1999, I interviewed at ALPS to become a fund accountant and got the job as employee #31. Just like Scott Scholezel, I thought, I was on my way and about to start working my way up to becoming a portfolio manager.
HISTORICAL CONTEXT
I’ll add these tidbits to each part of the origin story and why I find it important to what was happening in the investment universe at the time. The most interesting thing about firms like Janus during the 1990s wasn’t just the fact that they were located in Colorado and producing eye-popping investment returns. More importantly, Janus was a pioneer on offering their funds direct to consumer, meaning that you didn’t have to talk to a financial advisor to invest in them. This was very rare, my friends. Before funds were offered direct, you would have to meet with a financial advisor (really, a stockbroker or insurance agent) and tell them you had a bunch of money to invest. They would sit down and create a portfolio for you by purchasing a bunch of mutual funds with your money, and you would pay the broker a hefty commission, also called a “sales load” which would run you anywhere from 4-8% up front just to buy the funds. The advisor was paid a “selling concession” from that sales load for your business, and the funds would also pay them a small, ongoing trailing commission to service the accounts. That was how the majority of the investment advice universe worked. A client needed help, the broker acted as the expert and middleman in the transaction and had a license to sell you that product. In the eyes of regulators, they were known as Registered Representatives and any advice given was incidental to the sale. Comprehensive advice was not allowed and usually none was given at all other than making sure “widows and orphans” were invested appropriately in very non-risky assets. A financial plan was even more rare than that. It was very transactional, and fraught with massive conflicts of interest.
ACCOUNTING WASN’T FOR ME
Much like my small foray into journalism, it didn’t take me long to recognize that I wasn’t a huge fan of accounting. In addition to fund accounting and administration services, ALPS also offered distribution expertise to some of their mutual fund clients. As we just discussed, most mutual funds had to be sold, not bought. And to be sold by a stockbroker, banker, or insurance agent, your funds needed to have distribution. Those licensed individuals (registered reps) that could sell their clients mutual funds needed to actually know about your funds and the performance of your funds to sell them. You needed marketing and sales to find shelf space with these reps just like any other product in any other business. So mutual fund companies employed armies of people that travelled around the country, dialed their phones like maniacs, and wined-and-dined advisors with generous expense accounts to get them to show certain funds to their clients first. These people are called wholesalers.
Distribution meant sales, and I was ready to get out of the cubicle and travel the country talking about the benefits of just about anything. I was 24 years old, about to get married, and I wanted to make more money. So, I interviewed for a job as an internal wholesaler at ALPS and started a new chapter of my career almost exactly two years from my original start date.
HISTORICAL CONTEXT
I think this might be the most surprising thing that people might not know about the industry of financial advice and investment management. There are advisors that still have a very transactional business even today. They get paid when they make trades or when you add more money to your account, and only then. In some cases, the relationship that the advisor has with their mutual fund wholesaler can dictate those moves. I worked on the distribution side of the investment management business for almost 15 years and while I’m certainly not saying that every single decision is made this way, I know for a fact that sometimes it does happen. And sometimes is way too often. It always made feel really gross to watch from a distance and it had me at odds with my own career for a long time. I probably have said this line over 500 times during the last six years, but I never want my clients to think the only reason we’re making an adjustment to their portfolio is that I have to figure out to pay my bills this month or because I felt obligated to help a wholesaler that took me out to a fancy dinner. The embedded conflict of interest from running a transactional business like that is astronomical and something that neither Grant nor I could stomach. Being Fee-Only, Fiduciary Financial Advisors was the only way we were going to build Noble Wealth. In plain English, the only fee our clients pay is to our firm for their ongoing financial planning and portfolio management. We don’t receive commissions or kickbacks to use certain products, and we don’t wear different hats when talking to our clients about different aspects of their plans. We are not compensated for transactions with commissions and we are obligated to work in our client’s best interest at all times. I wouldn’t have it any other way.
ACTIVE VS. PASSIVE MANAGEMENT AND THE NEW GAME IN TOWN
In 2004, I was blessed to receive an opportunity to be one of the first members of the institutional sales team for the Select Sector SPDRs, a small family of ETFs, or Exchange Traded Funds. The decade following the tech bubble of 2000-02 created a new battle ground and the war being fought was all about whether clients should pay for active investment management. Remember Scott Schoelzel from earlier? Well, portfolio managers like him were being paid substantial amounts of money to pick the best stocks or bonds for your mutual fund. And, as information became more readily accessible by everyone and the playing fields were leveled, picking the best stocks and bonds started to produce pretty mediocre returns. Into that space came the passively managed index fund.
The Vanguard Group started the first index fund in 1975, and today they are synonymous with passive investing (despite still having a pretty hefty lineup of actively managed products). Vanguard’s firebrand founder and chairman, Jack Bogle, was adamant that investing in the stock market was a zero-sum game, producing the same number of winning trades as losing trades, and that expertise in picking the best investments not only did not exist, but that it could not exist. Your best bet was to buy “all the stocks” and let the returns it provided come to you at lower costs and with a lower tax burden. You could do this by creating an index of all the stocks and then investing across the portfolio accordingly.
Also gaining popularity at the time was the notion that picking the best stocks and bonds had little to do with your portfolio’s performance over a long period of time. Allocating to different assets - whether that be stocks, bonds, cash, real estate, or commodities - was the true driver of the individual investor’s performance along with a heavy dose of good behavioral finance.
I had a front row seat during this incredible portion of investing history. I met Jack Bogle twice, and I once got into an argument with him in an online forum/interview he did for Vanguard. As much as Bogle was a staunch believer that indexing was the superior method for the average investor to build their portfolios, he was equally and adamantly against ETFs in the beginning because he felt they allowed clients to trade in and out of positions too easily. Quite frankly, this got him pretty sideways with the people at his own firm, too.
ETFs were simply mutual funds packaged in a slightly different way that allowed the entire portfolio to trade on an exchange throughout the day just like a stock, and it allowed the client to invest in a basket of stocks or bonds much easier and for a much lower cost than a traditional mutual fund, which only traded once per day when the market closed in addition to having a pretty heavy cost burden to operate.
When I started working for the Sector SPDRs in 2004, the total amount of assets invested in ETFs was less than $400 billion. Today, that number just crossed the $10 TRILLION mark. The ETF is a better mousetrap, and it was humbling and an honor to have the opportunity to travel around the country and talk to financial advisors and institutions about how they could invest their client’s money much more easily and efficiently with the products I was showing them.
In addition to Bogle, I was also blessed to meet and become acquaintances (friends?) with Ben Stein, famously of Ferris Bueller’s Day Off. Stein was also a speech writer and lawyer for Richard Nixon and Gerald Ford prior to becoming an actor as well as founding his own gameshow titled Win Ben Stein’s Money, amongst many other accolades. Stein and I don’t see eye to eye on a lot of things, but I talked to him at nearly every investment management convention for about ten years. We knew each other on a first name basis.
I had the opportunity to travel the country and even the chance to ring the opening bell at the New York Stock Exchange in 2012, an event I will never forget.
That same year, I also had the opportunity to meet a gentleman named Grant Glenn, who worked with one of our investment managers, Red Rocks Capital. Little did we know back then that we would start our own financial planning practice and RIA together less than a decade later.
HISTORICAL CONTEXT
The battle of passive vs. active is still being fought, but it’s largely late in the game. Total invested assets in passively managed vehicles (mutual funds and ETFs) accounts for more than 50% of all investment assets in the United States and growing at much faster clip. As I mentioned earlier, ETFs recently crossed the $10 trillion mark in total assets and have doubled in only 3.7 years, faster than their previous 2x movement.
Transactional business by financial advisors is a relic of a time long ago. Clients demanded a better experience, and many young financial advisors transitioned away from their captive brokerage or insurance firms so that they could deliver that experience. While there are still a few dinosaurs out there, you can generally avoid them by simply looking for an independently owned Registered Investment Advisor (RIA) firm to talk with.
Coming out of college, in addition to the position I eventually took with ALPS, I also interviewed with five different brokerage firms to become a financial advisor. During my interview process with a few of those firms, I was asked to write down the names of every family and friend I could think of and their approximate net worth. I asked why I needed to do this and it was because they wanted to know if my network had enough money to be worth their time to keep talking to me. One of the firms asked me why I was hoping to get into their business. I was young and naïve, I suppose, but I answered that I “really wanted to help people with their money.” Both of the senior advisors audibly laughed at me and said, “that’s not what we do here.”
My, how the world is changed.
It’s been a wonderful ride over the last 25 years and I am happy that, today, I sit in the exact seat I long hoped I would. I have had the benefit of an incredibly supportive wife and family, and the best business partner anyone could ask for, simultaneously challenging me and becoming a great friend along the way.
You, as a consumer of financial advice and investment management, dear reader, are in a much better position today than you were just two and half decades earlier. The world of financial advice continues to bend in favor of the consumer, and I hope it continues to do so.
Here’s to the next 10 years of Noble Wealth Partners and we hope you all have a wonderful end to your 2024. We have some exciting things we are planning for 2025 and we can’t wait to show you.
May you be extremely blessed and highly favored in all you choose to do.
Noble Wealth Pro Tip of the Month
Mortgage rates on their way down. As of this writing, the average 30-year mortgage rate is hovering around 6.2%, down from 8% less than a year ago. For those of you that have recently purchased a home and were waiting for the time to refinance, we’re starting to get very close. If you’re not sure if the time is right for you, reach out to us and let us review the opportunity you have for savings. We’re happy to run a simple mortgage calculation for you.
Remember, our general rule on mortgages still holds true. We prefer you avoid paying points to buy your rate down, and we like to look for ways to minimize closing costs so that you don’t have any “wasted” money should you have a chance to refinance again in the near future.
Things We’re Reading and Enjoying
You Weren’t Supposed To See That: Secrets Every Investor Should Know, by Josh Brown
No additional commentary is necessary for me. Josh Brown is a man that I would listen to on just about any subject. I gave you all the reasons he has been so inspiring to me over the years. This book won’t disappoint if you have any interest in the world of financial advice and it’s history.
There are secret ways of seeing the world of finance that every investor should know.
Overlooked things that tip the balance from failure to success.
Hidden truths that make the critical difference between understanding the world and being dangerously naive.
And surprising realities that determine whether or not you and your family are on the path to generational wealth.
In You Weren’t Supposed to See That, Downtown Josh Brown―the original Wall Street blogger, star of CNBC’s Halftime Report, and manager of billions of dollars as CEO of Ritholtz Wealth Management―collects and shares the most important of these secrets.
Drawing on 15 years of The Reformed Broker, the most-read financial blog in the world, Josh revisits, updates, and expands on the best of his wildly popular writing. As he does so, he helps you to discover all the most important, surprising, and sometimes painfully true secrets of finance, investing, and Wall Street that you need to know to thrive today.
“There is nothing noble about being superior to your fellow man. True nobility is being superior to your former self.” - Ernest Hemingway
