Meeting with XC (Part 1)

On August 22, 2017, I met with a financial adviser to share my story, to learn about his, and to hear any ideas or suggestions he might have about transitioning my career toward the IA domain.

Although I have removed/changed his name (initials), I would feel comfortable recommending XC to anyone looking for a financial adviser. Please e-mail me if that might be you.

I was shocked to realize our meeting had lasted 100 minutes. XC was very generous with his weekday time.

As part of their service, XC’s firm trades securities for clients and he believes their edge is 25-50 basis points. For smaller net-worth clients they use ETFs. For larger net-worth individuals they use individual equities. They do a fair bit of covered call writing as a mechanism to defer capital gains taxes. On two occasions he mentioned an example where someone with a large equity position and low cost basis would trigger heavy capital gains upon sale.

I am very curious to know more about their trading edge. Does he believe in CCs as a mechanism for outperformance? Where did they procure their trading expertise? How were they trained? Do they make consistent efforts to improve? If so then how? I believe it’s important to remain focused on realistic returns but I would also recommend any self-directed investor to aim higher than 50 basis points.

XC believes the money management industry is a highly competitive space with a low barrier to entry. He estimates a start-up cost of $50K to start an IA—much higher than I would have guessed!—and significantly less on an ongoing, annual basis.

He thinks my best chance for success is to find people interested in my particular type of trading and/or what I offer. I asked if he thinks the average investor is educated enough to understand what I do and he said no: the average investor doesn’t really care much about how the IA generates returns. This struck me as contradictory: why try to find people interested in my type of trading if they can’t understand what I tell them?

XC recommended I subscribe to LinkedIn professional as a way to find others who share my niche expertise and interest. His preferred approach to networking is finding someone else who knows the target and asking that person to refer me.

He also suggested I speak with the Ross School of Business (daughter’s alma mater) to find others working on related [option trading] projects.

I will continue next time.