First Ascent Case Study (Part 1)

My last career saw insurance companies “carve out” (outsource) drug benefits to pharmacy benefit managers. Having a dedicated investment manager aside from an adviser busy with many other activities therefore makes a lot of sense to me.

I have [derivatives] expertise from my years of learning, backtesting, and trading [options]. I have also studied trading system development and critically analyzed many writings on the subject. I have discussed strategies with other traders and shaken up related concepts every which way to better understand them. I feel I approach the investment arena with something a bit more advanced (e.g. “alternative”) that has a good chance to outperform.

After learning about TPAMs and sub-advisers, my initial thought was that these are people/entitles like myself.

To explore this, consider First Ascent—a TPAM whose adviser perspectives I described in my last post. They charge a flat fee of $500 per account. This is 0.50% for a $100,000 account, 0.13% for a $250,000 account, 0.05% for a $1M account… dirt cheap, in other words! This level of compensation would be unacceptably low for me.

Viewing a video on the First Ascent website from CEO Scott MacKillop suggests some complicating factors. The end client still gets charged by the custodian, financial adviser, and any relevant mutual funds or ETFs. I don’t know whether the custodial fee comes through First Ascent or the adviser. The financial adviser fee is typically a percentage of AUM. Mutual funds charge multiple fees and ETFs have an expense ratio. All these different expenses coming from different places make it difficult to ensure an apples-to-apples comparison because the total fee schedule is highly variable and hard to completely identify.

MacKillop says:

     > If you ask me why other asset management firms haven’t done what
     > we’re doing, I’d tell you I have a pretty good guess but you’d have
     > to ask them. Each business is different and maybe they’d have
     > a good explanation. I’d love to hear what they have to say.

The First Ascent mission stresses doing what’s best for their clients, building the best portfolios, and investor education: “If we do all of that well then low fees and low expenses can really make a difference.”

While all this sounds like tough, persuasive talk, my impression is that the [vast?] majority of IAs could say pretty much the same thing. I doubt any of this is truly a marketable advantage.

If it’s nothing about the pitch then what allows First Ascent to charge such a low, flat fee?

I will explore this further next time.