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Stephen High
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It would be a significant understatement to say that RSM McGladrey Network member KraftCPAs PLLC was deliberate in its decision to enter the investment advisor industry. For more than seven years, Member Stephen High and his colleagues assessed various platforms including brokerage firms, wirehouses, and banks. Most were commission-based rather than fee-only, and “actively managed,” meaning they would seek to outperform the market by picking future winning stocks, or timing markets or sectors.
“We were uncomfortable with this approach to investing,” explained Stephen. “No one in the firm wanted to take the client phone call when the market dropped 150 points, and we had to explain why that strategy wasn’t working anymore. Plus, there was too much trading involved, with too many costs incurred.”
After learning about the passive investment approach through BAM Advisor Services, LLC, Stephen knew he had finally found an appropriate solution for their clients -- and an appropriate support provider for the firm. Kraft Asset Management, LLC (KAM) was formed.
With passive investing, based on the tenets of Modern Portfolio Theory, investors build and adhere to a disciplined portfolio of diversified passive asset class components. They learn the importance of lower costs, effective diversification, and creating a portfolio designed to provide the highest expected return for a chosen level of risk.
At the time, the majority of Kraft’s clients had never been exposed to Modern Portfolio Theory. For answers on how to invest wisely, many were reading personal investing magazines and watching television programs, all espousing the active approach, according to Stephen. Once they understood passive management, most of them were pleased with KAM’s client-oriented approach.
Establishing meaningful client relationships
Essentially, the more assistance KAM can provide to clients with a range of meaningful financial services, the better the advisor-client relationship becomes. “We recognize that, for those ideal high net worth clients, we are part of a core team -- the quarterback -- working with other professionals who are providing complementary services.”
Stephen explained that the goal is to stay focused on the firm’s clients. So early on, the firm decided that outsourcing their backoffice to BAM was the best way to proceed.
Stephen and his colleagues recognized the benefits of outsourcing their back-office functions would outweigh any downside. “We are able to focus on our clients and their needs. If we had those back-office functions in-house, they would take our attention away from what we want to do.”
A tremendous opportunity, weighing the risks
Stephen acknowledged that, as he has watched KAM grow and become profitable during what he referred to as “a gestation period,” he was aware that there were personal consequences associated with achieving his goals. While it was a tremendous opportunity for him, it was also a move from a secure position of experience, to one that was a new venture that involved a rapid learning curve. Would he do it all over again? Stephen confirms, then and now, it was the right move for him, for KAM and for the firm’s clients.
Excerpts reprinted with permission from Networks, 4th Quarter, 2006, a publication of The McGladrey Network.
