In today's episode Nicholas Olesen, CFP®, CPWA® and Michael McDermott, CFP® talk about how they each invest their own money and also why their firm, Kathmere Capital, manages models versus custom portfolios for their clients.
- Why investors should ask their advisors how they manage accounts, is it custom or model based?
- Models allow all the best thinking to be used for all clients at the same time
- How volatile times shine a light on the downside of custom portfolios
- They both share they invest their own money and why they invest just like their clients
We hope this was a quick episode and the reasons we invest like we do was helpful for those that we are honored to serve but also those of you working with an advisor.
Please send us feedback and any topic or questions you would like us to cover. Email us at: email@example.com
How I Invest My Own Money
[00:00:00] Nicholas Olesen: [00:00:00] Hi, thanks for tuning into a wealth advice. My name is Nicholas Olesen, Director of Private Wealth. at Kathmere Capital.
[00:00:05] Michael McDermott: [00:00:05] And this is Michael McDermott, President of Kathmere Capital.
[00:00:08] Nicholas Olesen: [00:00:08] In today's podcast, Michael and I are going to talk about the way that we manage our own money, which comes up in conversations that we have with a lot of clients about when we talk about giving them recommendations and talking about what we do with investments and the why behind it.
[00:00:22] We just wanted to add some clarity to the fact that we're also eating our own cooking, or however else you want to talk about it, we're doing the exact same thing that our clients doing. But before we dive into exactly that, Michael, I want to talk about, you know, why do we use models and what does that look like for investing? Why, as an investment firm, do we think that other advisors, and if you're looking for advisors, why you should ask them about the way that they run models? And if they do so, Michael, can you shed some light into why we've chosen to? And why we found, that after years of working in the business, why we decided to take on it.
[00:00:55] Michael McDermott: [00:00:55] Yeah. Thanks Nick. And thanks everyone for joining. So the topic of model portfolios is really an interesting one. So, for many years, I've been doing this about 25 years now. And. for many years, there was a notion in my eyes. And I feel like in the public eyes that, a custom portfolio was really what you wanted.
[00:01:13] That was really the custom portfolio sounded really great. But if you really think about it, affirm, then that has whether it has 20 clients or 200 clients or more, the question really becomes how does anyone ever possibly manage. That many different individual and unique portfolios. And I think what clients and really what people realized over time is that.
[00:01:34]that's simply not really feasible. And so the portfolios really lacked the discipline and scientific construction, perhaps that the best thinking would, would bring. So the other side of the coin is a model portfolio. And for some you think, well, is that true cookie cutter? Is it too? Is it not customized to me?
[00:01:54] And we, we really sort of looked at it and say, it's the actually the opposite. in a sense of model portfolio is all your best thinking, always for every client. And if you think about even during COVID this year, I think that there was a great example. This year of the benefits of model portfolios, because in the rapid moving periods of March, basically most of March, we were in a position as a firm and, and certainly not unique to us.
[00:02:20] There are the very good firms that use model portfolios, but we were in a position to be able to act and respond in a fast moving market to our clients in a way that did not require. 300 different decisions based on 300 different client portfolios, which of course everyone listening can realize is completely not feasible to actually execute on.
[00:02:43] So we were able to, whether it's rebalancing, whether it was a tactical decision to increase or decrease asset class positions, we were able to across our client base make very, thoughtful and rapid changes to the portfolios. And so that's really the reason Nick is, you know, as we talk to clients all the time model portfolios, really are the best way in our opinion to proceed.
[00:03:06]as you know, it's not the only thing we do for clients. We have what we call our satellites strategies and that's where clients break apart. But I think it's important to understand that model portfolios have so many benefits, even though custom sounds great. in reality, it's almost impossible to actually implement it.
[00:03:22] Nicholas Olesen: [00:03:22] Yeah, no, I think that's spot on. I think the, you know, look, it, it always sounds better saying my guy gave me this, or my girl recommended this and it's it's for me. And it's, it's, you know, catered to me, but the reality is overseeing or managing that is not feasible. And how do you know you're getting the best ideas of every individual?
[00:03:40] Account is customized. So I think that's a great summary of, of why we do it. and, and let's talk then about you. And I like, what do we do with our investments? When I, I was talking to a client just the other week, you know, we're coming up, we're sitting right here. It's, it's, November 5th, we're still waiting on a decision on who the president is going to be based on vote counting, but I talked to a client on Monday and they said, you know, I, I'm kind of thinking, I, I need to just wipe out what's in, in the, in the stock part of the portfolio.
[00:04:06] I'm so I'm so nervous going into this. and they said, what are you doing? And I said, exactly what you're doing. You know, what your account is, what your model is, you and I roughly were in the same group, as far as our risk tolerance, as far as our age. And so I could, I could say with complete confidence, what your portfolio looks like right now, because we haven't done anything that you're commanding us, us to do or it, or telling us to do.
[00:04:27] Looks exactly the same as mine. so what, what do you think about that? Like why
[00:04:30] Michael McDermott: [00:04:30] are you positioned here? Yeah, so obviously it's a question. Clients look to us and, and, and we want to do what's in their best interest and they look to us and hope that we're doing that. And a question that has come up from time to time is, well, what do you do?
[00:04:43] And it is perhaps the most comforting answer to give them across the table is to say, well again, if they're my peer, if they have the same risk profile, To look back and say, I'm doing the exact same thing that I'm recommending you do. and the other thing, at least for me, and it's also comforting is for clients that may have a slightly [00:05:00] lower risk profile.
[00:05:01] And I make a recommendation, I also can look at them and say, you're doing exactly what my parents are doing. so, and I think many of us in our firm who are on the younger side can, can make similar comments. So I think that if you don't manage in a model portfolio, you can't actually say that. Right. In other words, if 300 clients have three to 300 different portfolios, then the advisor is actually picking, well, maybe I should invest like some of my clients, but not like all of my clients.
[00:05:28] Right. And then, you know, you can see the, the, the challenge there into a why don't, why does one client on something different than others? If they have the same time, horizon, risk spectrum, et cetera. So. you know, I think as a matter of practice, what we try to do is to be able to say that in our firm, now there are obviously some exceptions.
[00:05:48] There are obviously some times where that's not feasible. and as I mentioned before, we have model portfolios that form the foundation of our portfolios, of, of our allocations for clients. But we also have what we call our satellite strategies, which are, could be private equity. It could be a custom built product that we work with a global bank on building.
[00:06:06] It could be all kinds of things that we will do. and it's interesting. We did that, you know, as some of our clients would know, we had a unique product built for our firm back in March. And, that was really important to me that I participated in that personally because it's not all of our clients used it, not all of our clients did it necessarily makes sense for, but for some of them they did.
[00:06:27] And, and, you know, in line with that theme of. heat your own cooking. it was very important that I know I did. And several others in the firm participated, in the acquisition of a similar strategy as we stayed at Nick. It's not never, could it be a hundred percent of the time. We're not going to get involved in every single.
[00:06:45] Private equity offering or every single boutique strategy, fixed income manager that we might find perfectly suitable for some clients. But as a matter of practice, we do find it. something that is, is a great thing, to be able to talk to clients with conviction that way.
[00:07:00] Nicholas Olesen: [00:07:00] Yeah, no. And I think that's the big thing that I found in talking to clients is being able to say that that is we're taking all of our effort as a firm to look into this exact type of investment, this exact type of models.
[00:07:13] We have various models for obvious reasons, but being able to say that those are our best ideas for this type of client, for this type of risk tolerance versus picking and choosing which one are we going to give it to or not give it to it just, it doesn't seem right. Frankly, if you're a fiduciary and you're working for your clients to pick and choose which client is going to get, which idea.
[00:07:29] And I think you're right in that there are exemptions or exceptions to the rule. Like we have a 401k plan through work. We cannot make that exactly the way that we want our models to be. So we take the theory behind what we have is our models. And we then put that into our 401k plan, you know, similar to my kids' education account.
[00:07:45] I can't put that into our model. That's, that's its own fund that we have to invest in. So I think there are those one-off things. I was so clients through the, the, the other side of investing that's, that's different, but just the way that I think about it or my family thinks about it is like, Part of our investing every year is investing into vacations and doing things as a family that are going to create those memories and those lifelong things very different, but it is a form of investing in a way choosing where do I put my capital can be on an expense.
[00:08:09] It can be on a trip, it can be on a home. And so I think in theory, though, in, in, in the broad stroke of it, I wanted to bring you on to say, Hey, let's talk about how do we manage it? How do you manage your portfolio? and talk about why we think it's important.
[00:08:24] Michael McDermott: [00:08:24] I think it's a great for our clients. If you didn't realize this, I think it's a great thing to actually understand. we've talked about it with a lot of you and for non-clients of our firm that are listening to it. what a great thing to sort of, maybe open your eyes for a good question to ask your own advisors or, certainly come talk to us sometime if you wanna, if you want to learn more about if this sounds right to you, because we are proud, we think it's, we think models of the right way.
[00:08:48] We have a lot of conviction behind it. And I think as you can see, it does allow us to keep consistency and, and allow us to say clients, what you're experiencing, we're experiencing what we're deciding to do in your accounts. We're deciding to do it with our own accounts as well. So, I think it's a great message, Nick, and I think it's a good podcast you came up with.
[00:09:07] Nicholas Olesen: [00:09:07] Yeah. Well, thanks. Thanks for coming on. And everybody thanks for tuning in. we look forward to seeing you guys, we're putting them out just about every week now. So hopefully you guys will keep listening in and then if you have other ideas, please do reach out to us. Our email is in the show notes, and you can always reach out to us at firstname.lastname@example.org .
[00:09:21] Michael McDermott: [00:09:21] Thanks.