Follow-Up from Webinar
Cale Smith
Some follow-up thoughts and clarifications from the webinar last week:
1 – The VA (virtual assistant) firm I use is www.MyAspirant.com. $10 an hour, can handle all sorts of things including HTML edits, highly recommended.
2 – Below is a video from my accountant, also highly recommended, who does everything remotely for me. That includes all entries in Quickbooks (I use Quickbooks Online) and all invoicing/receipts at the end of every month/quarter. You can reach Terry Santore directly at www.quicksilverbusinesssolutions.com or (910) 202 -3955.
Cannot tell you how nice it is to have someone responsive, competent and tech-savvy handling the books. I just email Terry quick notes whenever I move money into my business checking accounts from FOLIO, send her PDF copies of the billing reports that FOLIO creates for my clients so we can track who has paid what fees in QB, and then otherwise let her update it all. Also ping her on one-off things every so often. It all works real well.
Worked pretty closely with Terry for the first month or so, just getting her up to speed on my processes and all the nuance of things, but otherwise, now I just sit back. More importantly, I do not spend any time at all worrying about updating QBks. Which, again, is very nice. And if you get the old surprise compliance audit, you can bet your arse they’re gonna want to see your books. So, peace of mind there, too.
3 – The “GTD” I referred to on the webinar was “Getting Things Done” – a personal productivity philosophy of sorts that a friend in Silicon Valley recommended to me a few years back. Here is the book that started it all on Amazon, though there is a ton more online about GTD via Google. And here is the site. The good news is that while GTD can take a while to master (and I certainly have not), you can pick up the basics pretty quick, and even those can have an immediate impact on your business – and sanity, too.
4 – FOLIO charges my investors and I 30 bips, but has a $100 a year minimum fee, too…so the way the math shakes out is that for every account I have that is under $33,333, FOLIO charges them $100 a year, and anything over, they take the 30 bips. There are breakpoints at FOLIO, too, at $250k and $1M, so fees go down to 20 bips and then 10 bips. And using the windows at 11am and 2pm, all trades are free.
5 – That point in #4 also leads to the issue of subsidizing accounts. FOLIO is going to get paid no matter what. So if I bring on an investor with a $5,000 account, then as per the above, FOLIO will charge them $100 per year…which equates to annual fees of 2.0% – and I haven’t even gotten paid yet. On a $2,500 account, the investor is paying 4.0% to FOLIO right out of the gate, and so on.
So you may need to actually reimburse or subsidize a small client’s account with x dollars per quarter so the effective expense ratio they are paying is fair and/or reflects the terms of your Investment Advisory Contract with that investor. To be clear, everything and anything when it comes to fees is disclosed to the investor upfront – and subsequently every month in their statements from FOLIO – but just disclosing a 4.0% fee (to stay with the above example) is not enough to me. You’re a fiduciary, man. It’s your job to make sure your investors aren’t getting charged a single penny in excessive fees, regardless of whether or not it has been “properly disclosed.”
My point on the webinar was that it can sometimes make sense to take on a very small account because assets attract assets. For instance, if the world’s best tarpon fishing guide here in town wants to invest a little with me, and I know that he routinely guides for several billionaires, and that he likes to talk a lot, then I am going to subsidize that account every quarter with a smile on my face. That sort of thing.
And originally, I had a plan to service even those smaller accounts profitably, with no subsidy involved, which entailed lumping all of those smaller investors into an investment club I created just to invest in my Spoke Fund. (FOLIO can service accounts for investment clubs). Then I would become a member of that investment club, too. If I seeded that club with $33,333, then every other investor no matter how small I brought on would be profitable to me and require no subsidy…because all fees were assessed on the pool, not the individual club members.
But, I never went anywhere with that idea. It was going to cost me more to make sure I could do all that from a compliance perspective than I thought I’d make in fees from rolling all that out.
Better in my mind to know upfront just how much money you’re willing to put towards subsidizing small accounts, and having defined criteria for the investors you would do that for…and then sticking to that after you launch. I happen to have six accounts I subsidize, but each one has since referred other bigger investors that more than make up for that subsidy. My hunch is that others have similar experiences, too.
6 – And lastly, alas, I’ve got bupkus saved from that webinar. Not even any audio.
If there is interest, though, I’m happy to do a quick conference call to go over any pending Q&A from that slideshow.
Next week will be tough, but let me know and we can do something on a call the week after, eh?
Thanks!
Follow up question to point #4: Do the breakpoints from FOLIO spread to all your accounts or are they on an indvidual basis? Does FOLIO offer breakpoints to you/your clients based on your total AUM?
Breakpoints are applied on a per-account basis, and alas, no additional breakpoints based on total AUM.
And yes, would like to have the option of FOLIO applying them to my investors based on total AUM…would solve the whole subsidy issue…but they don’t offer that. Asked them about it a few years ago, and I believe the response was that there was an impediment on their side to doing that. It may have been compliance related, as opposed to a technical issue, but confess I don’t remember why they couldn’t do it…just that they couldn’t. I’ll ask them next time I call in, though, to see if there has been any progress there.I agree it would be huge deal if they could – especially when you’re starting out.
Also, if you’re starting your firm from scratch, the fees you are quoted by FOLIO could be significantly higher than what I’m outlining above for my firm.
And I am working on that, too…
Cale – I’d love to hear more how you use your VA. I am still trying to grasp how to best do it.
Hi John,
I use my VA to do the following:
- website and HTML changes
- simple graphic creation
- newsletter and email list management
- daily performance reporting (recording values from my tracking accounts after close every night)
- updating CRM
- updating sign-up forms
- researching various software tools
- all sorts of one-off tasks
I have found that the number of tasks I originally wanted help with expanded quite a bit once I found out how competent he was. Basically plug in him on any and every admin and IT related task I can. Doesn’t do anything client-facing or with data that is too sensitive…don’t want to have to get into that for ADV and/or IAC purposes…but otherwise have found there is very little he cannot handle.
Cale
Hi Cale,
Have a question for you I hope you won’t mind answering. I’m in the process of starting up my own RIA as well, using Folio Institutional as my custodian. I’m a huge fan of their window-trading process. I also currently have an individual Folio Investing account with them which I’ve been using to invest my own personal assets for a while now.
My question is, if my firm gets setup with me as the portfolio manager in a Folio Institutional account, which would essentially make myself a Spoke Fund as well, is there any reason for me to keep my current individual account with Folio Investing, assuming that I don’t invest any differently from how I invest my clients’ assets? Is the “hub” account with Folio Institutional basically a “free” Folio account that you personally trade from, which gets reflected to all your clients’ accounts? For some reason I thought their model-management system of managing client assets made it impossible to have the portfolio manager’s personal assets traded under the firm’s strategy as well unless the portfolio manager was essentially setup as a client in his own firm, in which case Folio would charge the 30bips expense to the portfolio manager’s assets as well.
Sorry for the long-windedness. Any comments and/or insights on the above issue would be greatly appreciated.
Regards,
Edwin
Hi Edwin,
The PM’s own account at FOLIO is treated just like any client…so, yes, that account is charged the same fees as everyone else. The idea of a separate “hub” account is strictly explanatory if by hub you mean a free account for the PM. No such thing. So, yeah, you’ll want to keep that individual account, too, and sync it to the model – assuming the intent is to market it as a Spoke Fund, meaning you’ve got most of your own money in it.
Whether or not you use that individual account as the official Tracking Account for performance measurement purposes is up to you, but you’re going to need one, so could be one in the same there, too…though probably easier to just fund a new separate account for tracking purposes and fund it with your minimum account amount.
Handful of different things in there, but does that make sense on your original questions?
Cale
Yup, thanks for the answer. One more question for whenever you have a moment. If one of your clients decides to deposit some “fresh” cash into their account, does that cash automatically get “swept” into the portfolio you manage? Or does the client have to make the conscious effort to add that fresh capital to whatever model portfolios you manage for them? Can you “see” how much fresh capital your clients have just sitting in their accounts and sweep that into your funds at any time?
New cash doesn’t automatically get invested in my portfolios – but I’m glad to have that control.
Once new cash hits an account, FOLIO sends me an email notifying me of that. Then it’s totally up to me (not the investor) to invest that new money in the portfolio…so I control the amount and timing. Some investors contribute money every month, and because they want to dollar cost average, I invest all of that contribution as soon as it shows up. I also have some clients, though, who, for instance, sent in money this month and just want me to invest it in Tarpon “whenever I think fear is highest in the market this summer,” in one example. So, couple of lines of thinking there. But yeah, they just add new money to their account (by check or electronically) and I put it to work at any time with just a few mouse clicks.And yes, I know how much fresh cash is sitting in any account at given time – either thanks to those emails from FOLIO, which I track, or just by looking, really. In the default listing of all client accounts that pops up when you first log in to FOLIO, it includes client name, account number, and assets…with cash specifically broken out, too, which is great. So you can scan quickly to see what is where at a high level – and you can also check each investor account specifically, too, of course.
Great. Thanks for taking the the time to answer these questions. Very much appreciated!
Follow-up question: When you say you’re able to control the amount of free client cash invested into your folios, does that mean you can invest X% of the free cash into a folio?
For example, if across your entire client base you see that there is $100,000 in free cash in aggregate just sitting among your client clients, can you tell Folio to invest just 50% of that aggregated free cash ($50,000) and it will calculate the amount of cash to invest in each clients’ account, based on the amount of cash they had sitting there, and invest it accordingly? Or can you only invest “all” or “none” at any one time?
I only ask ’cause I’d like to better understand how Folio lets you manage the cash in your clients account. If I have a rule where I invest just 25% of free cash across all clients’ accounts every week, is that possible? Or can I only invest 100% or 0% of the total cash at any one time?
Thanks again. Sorry if this question is too convoluted.
Regards,
Edwin
Hi Cale,
Hope your summer is enjoyable! Couple additional questions for you:
For smaller accounts (under the $33K mark where you have to subsidize to keep them at the same % fee as disclosed)… could a wording change to the agreement such as “1.25% (minimum of $100)” keep you from subsidizing past Folio’s fee?
Second, I think I’ve mentioned I envision at least one fund that is more aggressive than your own Funds, and there would be a higher turnover rate. Being mindful of taxes, what are your impressions of having two versions of a growth fund – a tax deferred model where only IRAs get added, and a non-qualified version where you can be slightly more mindful of the tax consequences of turnover?
Thanks,
Trond