VISIONARY INVESTMENT MANAGEMENT
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  • 1. The McHenry Group S p o t l i g h t o n E x c e l l e n c e VISIONARY INVESTMENT MANAGEMENT The next wave – a partnership solution using separate account management I n our travels, McHenry staffers occasionally encounter individuals or companies that have taken a traditional, well- established practice to the next level. Recently, we witnessed the value of a collaborative partnership that addresses a common question from the investment advisory marketplace: how do successful professionals and entrepreneurs manage their investments? Many overachievers realize that they became successful not by managing their own investments, but by doing that which they do best. And invariably, a few are self-directed investors. More often, however, we see that successful individuals have a demand for professional investment advice. We found one such individual and his investment management team. THE CLIENT Randy Komisar, legendary business leader and ‘virtual CEO,’ has supported some of the most notable technology innovators in Silicon Valley. In addition, he is the author of a best selling business book, “The Monk and The Riddle,” as well as numerous articles on entrepre- neurship. As an investor, he sought professional advice to meet his needs for comprehensive investment management services. This leaves him time to help client companies grow and prosper through his business expertise. It also frees him up to pursue other personal interests. THE ADVISOR Michael Howard and Frank Marinaro of Emery & Howard Portfolio Management serve clients like Randy Komisar efficiently, effectively and ethically through the use of institutional quality decision making and asset management tools. As a result, they can bring added value to “I know a little bit about investing, but that’s more clients more quickly, in partnership with a state of the art separately not what I do best. I prefer a collaborative managed account solution from Advisor Partners, LLC. relationship with an investment professional. And given the opportunity, I would rather THE SOLUTION PARTNER mentor an exciting new business or pursue Advisor Partners, LLC adds value to both the independent advisor and his other personal interests.” client by providing investment management solutions traditionally avail- –Randy Komisar able only to institutions or the wealthiest investors. There are a number of separate account vendors in the marketplace, but few, if any, provide Advisor Partners’ level of customization and active tax management. SELF SERVICE INVESTMENT MANAGEMENT? Not for this Silicon Valley Pioneer. If ever there were a knowledgeable candidate for the status of ‘master do it yourselfer’ it would be Randy Komisar. He has all the elements of a qualified investor – skills, tools and market access – to make his own investment decisions. Over a 25 year career in business, he has accumulated all the requisite resources to ‘find his own way’ without the aid of advisory professionals. Randy chose a different path. Randy could be the prototype for a fully realized professional/entrepreneur. He knows quite a lot about risk and return. Perhaps, more importantly, he is known best for his views on the integration of personal passion in the creative process of starting and growing successful businesses.
  • 2. THE DECISION Randy serves firms as either a ‘virtual CEO’ or as an advisor and active member of the management team. This non- traditional career path has enabled him to reclaim some of the satisfaction of his early career. With a more flexible schedule, he has time for other things. Randy is on the adjunct faculty of Stanford University and manages a range of interests and passions. These include cooking, reading, traveling, writing and riding his motorcycle. So how does an experienced finance and business professional manage his own investments? How can he (or she) generate optimal risk adjusted returns on not only his capital, but also his time and peace of mind? The first prerequisite for Randy was to find a professional investment advisor that could not only do that which he could do for himself, but do it better than he could himself. This would provide him with the freedom to do what he wanted with his time and energy and provide peace of mind as well. Randy sought out the counsel of other Silicon Valley entrepreneurs that “The equity markets are highly efficient, so he knew and trusted. Twelve years ago this led him to the offices of spending time and money seeking above- Michael Howard of Emery & Howard Portfolio Management, a fee market returns can be counter-productive based investment advisor that manages over $450 million in client assets. to a long term investment plan.” – Michael Howard THE ADVISOR Michael Howard has been a portfolio manager for over fifteen years, starting his career with Bechtel Investments. Supported by Portfolio Manager Frank Marinaro, Emery & Howard offers investment planning and management with a focus on asset allocation and tax efficiency. Emery & Howard adds value by helping clients attain their invest- ment goals using proven concepts that reduce risk and expense, while actively managing the tax impact of their investment decisions. The aftermath of the bubble years and the resultant ‘who do you trust’ environment today has reinforced the firm’s commitment to their core investment philosophy. The principals of Emery & Howard are committed to quality services and are very particular in selecting solution providers from the financial services industry. Reputation and relationships are primary issues in their due diligence review of products, services and people. Several Northern California solution firms “passed the test” to become members of their client service team: Schwab Institutional is a division of Charles Schwab & Co., Inc. With over $200 billion held for clients of independent advisors, Schwab Institutional is Emery & Howard’s preferred custodian for its clients. Advisor Partners, LLC is a San Francisco-based money management firm that provides highly customized and actively tax-managed separate account solutions to a select group of financial advisors. Both Schwab Institutional and Advisor Partners Emery & Howard chose Advisor Partners to serve as a sub-advisor to are based in San Francisco. their clients, specifically to create and manage the core equity portion of client portfolios. Emery & Howard uses services from both firms to help manage client accounts.
  • 3. T h e M c H e n r y G r o u p , L L C – S p o t l i g h t o n E x c e l l e n c e THE SEPARATE ACCOUNT SOLUTION Over the last ten years, separately managed investment accounts have become very popular with sophisticated investors and the financial professionals who serve them. Separate accounts, as they are called, provide the benefits of other professionally managed investment vehicles like mutual funds, but without some of the drawbacks inherent in such products. Although entirely suitable for the small retail investor, mutual funds have features that are now considered unacceptable for high net worth investors: • Non-negotiable fund management fees – whether the shareholder has thousands or millions of dollars invested in the fund. • A host of hidden costs, such as transfer agent, audit, compliance, recordkeeping and marketing fees. • Limited tax efficiency, and no active tax management. • Mutual funds are “pooled” investments. Shareholders are thus subject to actions taken by other shareholders in the pool which can affect investment return or capital gains liability. • The inability to customize by excluding, limiting or adding exposure to a stock, industry or sector. Advisor Partners’ separate account overcomes these limitations. Their separate account product combines the latest in technology with an investment philosophy embraced by many industry leaders, and is on the cutting edge of the trend in separate account management. A TEAM EFFORT Through Advisor Partners, Emery & Howard clients actually have access to services from a number of leading investment technology firms. Barra, Inc. and ASI both contribute important elements of Advisor Partners’ separate account solution. Advisor Partners makes it possible for Emery & Howard to create custom portfolios of stocks with a robust risk analysis and investment/tax planning process. Once a plan is developed, the professionals at Advisor Partners use specialized technology to automate and simplify an investment management process that rivals those of any institutional asset manager. Emery & Howard clients benefit through appropriate and efficient risk adjusted returns. HOW IT WORKS Step One – Emery & Howard conducts extensive discovery about client needs, current investment positions, tax constraints and other issues regarding their goals and objectives. Results are used to cre- ate an investor profile that highlights ‘gaps’ between the client’s pro- file and their existing portfolio. Step Two – Proposed asset allocation of client portfolios are ana- lyzed to understand risk and return metrics. Step Three – Advisor Partners designs and constructs a benchmarked portfolio that is customized to a client’s circumstances, taking into consideration issues such as low-basis stock holdings or exposure to a sector due to employment or employee stock options. Advisor Partners’ SMA replaces traditional Step Four – The new benchmarked core is then complemented with allocations to multiple style boxes with a satellite strategies for a complete asset allocation. single, tax-managed separate account for Step Five – Ongoing tax management provides the opportunity to clients’ core equity portfolio. pro-actively deliver superior after-tax returns.
  • 4. T h e M c H e n r y G r o u p , L L C – S p o t l i g h t o n E x c e l l e n c e ROBUST SUPPORT Working with Advisor Partners in developing this customized separate account solution, Emery & Howard is able to customize the client portfolio to account for Randy Komisar’s tax situation and exposure to areas of the market already borne by his professional endeavors. Additionally, Advisor Partners’ process controls risk through smart diversification, while minimizing expenses tied to portfolio turnover, management fees and taxes. SOME FINAL THOUGHTS Advisor Partners’ managers know quite a bit about financial services. Its co-founder, Andrew Rudd is also the founder and chairman of Barra, Inc. Advisor Partners’ CEO and co- founder, Dennis Clark spent ten years with Charles Schwab & Co. as a member of that firm’s management team. Advisor Partners serves the professional advisor exclusively, often as a sub-advisor, allowing the advisor to put their ‘brand’ front and center. With its separate account services, Advisor Partners seems to Frank Marinaro and Michael Howard at the firm be having a very positive effect on the success of independent headquarters in Burlingame, CA. advisors and the clients they serve. From McHenry’s perspective, the clients most likely to benefit from this service are corporate executives with significant positions in employer stock or stock options. In addition, the client portfolios must be at least $1 million to enjoy the substantial efficiencies and investment flexibility. We are taken with this concept and look forward to seeing how the increased scrutiny of mutual fund fees and ethical oversight may drive even more sophisticated clients to advisors like Emery & Howard and solutions like those of Advisor Partners. Advisor Partners, LLC principals (from left) Jim Blachman, CFA, Chief Investment Officer; Dennis Clark, Chief Executive Officer; and Andrew Rudd, PhD., Chairman To learn more about the subjects of this Spotlight, visit: www.emeryandhoward.com www.advisorpartners.com For more information about the authors, visit: www.mchenrygroup.com The McHenry Group ©2004 The McHenry Group. All rights reserved. This is one of a series of sponsored articles featuring solution providers in the financial services industry. These case studies are based upon the unique circumstances of the firms profiled. This content should not be the basis for action by our readers, in the absence of legal and professional counsel. The McHenry Group may have received direct or indirect compensation in support of the development or distribution of this content. We may be reached at 1-800-638-8121 or by email at media@mchenrygroup.com.