Frequently Asked Questions
Institutional Investing for Individual Portfolios
If you think your method (institutional investing for individual portfolios) is a better choice, then why have I never heard of it?
Would ETFs have been a bad idea 15 years ago just because no one had heard or thought of them? Not at all. Unfortunately for you (as an individual), the brokerage (now morphing into an ‘advisory’) industry does not give up revenue unless they absolutely have to. To us, the evolution of the traditional industry and marketplace hasn’t gotten to the point of forcing brokers or asset allocators into being investment departments – at least not as we know an investment department to be in institutional investing. Why? Because it costs money and takes additional fiduciary responsibility to have a functioning investment department. Therefore, the industry is focused on accumulating assets, but we are focused on managing assets. Institutional Investing can be found behind things such as pensions, mutual funds, and endowments. These products and companies hire a department of investment experts, possessing specialized knowledge. They then discharge their duties directly on behalf of the fund and their employer, which is why you haven’t heard of this method. That is where we come in, though. Ballast, with a background in institutional investing, alters the model by bringing this department directly to you.
What are the most significant differences between traditional retail investing and institutional investing for individual portfolios?
Traditional Retail Investing
|The main goal is to accumulate assets.||The main goal is to manage assets.|
|Retail investing typically involves asset allocation for diversification & growth. It means implementing the allocation through acquisition of funds.||Institutional investing involves evaluating the investment objective and constructing a portfolio that strives to achieve the objective through individual security selection.|
|Retail investing is a broad concept but may be thought of two ways: (1) the small individual investor acts on behalf of his or her own account or (2) the advisor uses off-the-shelf allocation software and investing through a suite of funds prescribed by their sponsor-clearing bank or broker.||In Institutional Investing, because of size, an institution can formalize the investment process by hiring a team of experts who focus on the investment function – rather than simply outsourcing to funds and relying on allocation software.|
|In both cases above, the retail investor tends to have size and skill disadvantage.||Institutional investing benefits from scale and expertise.|
|When investing through an asset allocation (portfolio funds), the objective of the underlying funds often does not align with your own.||Ballast is your very own investment team whose goal is to meet your financial objective.|
I am satisfied with my advisor. Why switch?
I am close to my financial advisor (family, friend, etc.) and they know me and my financial history/goals well. I don’t want to ruin my relationship with them. Why should I still switch to Ballast?
We want you to reflect on the hard work you put into building your “nest egg”. For us, our extended family and friends are very important, but immediate families are our first priority. We feel that we have worked too hard to not put ourselves in the best financial positions possible. We think that you also owe it to yourself and your family to be seeking the best financial advice, including having the best plan with least amount of risk. So, we ask you “Shouldn’t who you choose to be your personal Chief Investment Officer have the credentials and experience to hold that position?”. At Ballast, accounts are managed by experienced investment professionals who fully assess each position going into your portfolio. Whether or not you choose Ballast is a matter of what is best for you, but we encourage you to think hard about your current relationship and whether it is the right one.
What is the potential for risk with institutional investing for individual portfolios?
Risk management is of utmost importance at Ballast and a central function of institutional investing. We use the same techniques in constructing your portfolio as we did with multi-billion-dollar portfolios. Because the risk is a function of portfolio construction, we would consider our process to have more granular risk management than traditional methods. Why? The institutional framework involves Ballast monitoring your investment objectives, defining asset allocation, selecting investments, and sizing investments, all to keep your ship guided in the right direction. The process begins by Ballast working with you to define your investing objective, which charts your long-term investing route. These investments are selected and sized to your profile, and they will contribute to your portfolio’s advance while minimizing detraction from stormy (and risky) investment seas. There is possible risk, but our process will sail through the turbulence.
What would your ideal client portfolio look like?
Generally speaking, our ideal portfolio owns a combination of asset classes that serve 1 of 2 purposes. First, it will own securities that generate a stable return, and second, it will own securities that add growth to the portfolio. Our goal is to construct a portfolio of line items that will get you to a place that you can rely on cash flows (from the individual line items). We have found that the focus should be on cash flow and downside risk mitigation. This means not having to worry about whether the S&P or the Dow is up or down 20% during the year (which also means you can sleep better at night knowing you aren’t subject to market whims). Note: Investing, as with much of life, cannot be done with absolute certainty. The ideal portfolio depends upon where you are at in your life, as well as the goals you have for your savings.
What do you expect my portfolio to look like as it is transitioning from where it is now?
Because most portfolios that come to us are lacking emphasis on cash flow, invested in funds, and heavily weighted with equities, our transition process includes moving away from funds & equities and moving toward individual securities & fixed income. We find that constructing a portfolio with an emphasis on cash flow makes your portfolio more predictable and your end-goal more attainable. However, (since we are not simply placing your funds into an asset allocation) our individual selection of assets for your portfolio can make the transition a 1-3 year process. Patience in the process will be key, but we believe you will find the fruits of the harvest from your Ballast portfolio rewarding.
Who is your typical client?
Without getting into the demographics, our typical client is a good saver and an investor that wants their portfolio always moving forward. It is someone who wants an investment advisor that is a seasoned professional – with no ulterior motives, such as commissions, related party fees, and incentives. If this sounds like you, contact us here!
What is the smallest portfolio you will manage?
We will manage any size of portfolio and will work with anyone that would like to utilize an institutional investment strategy in their portfolio– even if they have not yet saved enough to have our minimum fee make sense. We make sure that the fee will make sense for the size of your account. (For more on fee structures, see the Fee Section of this FAQ page or visit http://ballast-advisors.com/how_we_work/flat-rate-fees/. )
Do you provide yearend tax reports?
Our custodian, RBC, produces year-end tax reports, which can be delivered with in the mail or by accessing your account online. Tax reports are prepared for alternative investments and will be delivered to you by their due dates.
Are your fees tax deductible?
Consult your tax advisor, but generally, yes, investment management fees are tax deductible. However, you only receive a deduction for the amount that exceeds 2% of your adjusted gross income. This amount, in addition to other itemized expenses, must exceed the standard deduction for any of it to add to your deductions on your tax return.
Investing with Ballast
How often will I get updated reports from you?
Our custodial partner, RBC, produces account statements monthly. You may access these and your account information at any time on RBC’s website.
How often will you meet with me?
We prefer to meet with you at least semi-annually in order to discuss your portfolio’s positions and overall progress. However, our process is catered to you, and you are welcome to communicate with us at any time. In the meantime, you can hear some of our investment ideas and our latest thoughts on market trends in our monthly newsletter, Tradewinds. (To subscribe, use the pop up on this site, or email firstname.lastname@example.org).
Do you guarantee a rate of return?
Unfortunately, guarantees are hard to come by and even harder to deliver on. Ballast does not guarantee a rate of return, but we feel confident that you will find our institutional approach to investment management, as well as our investment philosophy, to be the next best thing. We can guarantee a thoughtful selection of investments that are suited to meet your investment objectives.
How frequently can I expect to see returns in my portfolio?
It takes 1-3 years for us to build a portfolio to the point where you can expect to see a consistent, reliable stream of cash returns building up in your account. Cash flows will happen throughout the year, and you will receive monthly reports through our custodian, RBC. These reports will provide investment summaries and detailed information, including periodic returns. We must note that these monthly statements use current performance measures to summarize performance, and, in our institutional approach, this can be misleading in regards to the portfolio’s progress. Without getting too technical, we think in terms of book yield* and cash flow yield**, which change little between reporting periods. Therefore, a gain or loss reported on your monthly statement for a position does not provide an accurate picture of where you are on your financial journey. Although this makes return reporting less important between periods, Ballast aims to provide clients ‘Ballast View’ at your portfolio update meetings with Ballast.
*Book yield – the market yield at time of purchase, or the yield implied using the purchase price and purchase date. Investment account reports often provide the current market yield and fail to report the book yield. Yield is realized over a longer period of time. We think in terms of book yield when looking at fixed income.
**Cash flow yield – here we mean dividend yield, cash-on-cash yield, or current yield and generally we are referring to the yield known and assumed at time the investment was purchased, consistent with ‘book yield’. We think in terms of cash flow yield when looking at stocks, deeply discounted bonds, and alternatives.
What should I expect in the investment process?
Our process with you begins with understanding your objectives and investing needs in achieving those objectives. The Ballast process involves sourcing and vetting, and it is pretty conservative in its approach to selection. That is, we source ideas from the news, company filings, our professional network, brokers, and more. The vetting draws upon our extensive experience in investing for institutions, as well as much critical thought and evaluation. Our focus in this process is on the fundamentals. What are the assets and means that will provide the return and fulfill our investment objective? We always want to emphasize safe return of principal and cash flow generation, especially since we view cash flow as a mechanism for de-risking investments (it is money returned that is no longer at risk). In order to grasp likely and adverse scenarios, we will stress test projections. When we receive your portfolio, this is the process we follow. Initially, we invest the cash in short-term securities to keep your account productive and to keep it advancing toward your goal. As longer-term investment opportunities and opportunistic deals become available, your portfolio develops into a coupon-clipping and dividend-paying machine.
Getting Started with Ballast
Can I start by only transferring some funds to see how well your method works?
Yes, some clients have started with us in this manner. However, we do like to see clients’ entire portfolio so we can size positions appropriately, along with aligning risks and objectives.
Can I become a client even though I don’t live in or near Iowa?
Of course! In fact, many of our clients are individuals that don’t live in or near the Midwest.
What is the first step?
Initially, we would like to have a meeting to discuss where you are at today and where you want to get to, as well as an idea of time frame. Prior to the meeting, we will ask you to fill out a short questionnaire so we can get a better idea of all this. We would hope to review your current portfolio and go over why you have the line items (positions) you have today, as well as discuss how much you are adding to your portfolio on an annual basis. Once you decide to move your portfolio to Ballast, we can start the administrative process of getting your funds transferred to our custodian, RBC.
Do you act as a fiduciary? Why does this matter to me?
Ballast is a fiduciary and is independent, which means that you can expect us to work for you and in your best interest. In comparison, many may not be independent, which means that they may be compensated for the products they are recommending. Such a structure can create conflicted interest. It can mean that they (the advisor) have two masters – 1) you, the client (fee income) and 2) the products they are distributing (commission income). In this case, their personal best interest may come before yours. At Ballast, we can focus on you and your needs, while finding the right strategy and investments to achieve your investment objectives. Conflicted interest is minimized. It’s all about you.
What do you mean by “fee only” and Why does this matter to me?
It is always good to know how your advisor is being paid to invest your money. Ballast is a fee only firm, and our flat rate fee structure is pretty unique to the industry. “Fee only” can be defined as “one who is compensated solely by the client, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product”. In other words, our compensation is the same no matter what investment we make on your behalf. This keeps us on the same side of the table as you (the buy side). It also takes away any doubt surrounding whether the investment recommendations we make are for your sole benefit or not. If we recommend an idea or product, it does not change how we are compensated, and it gives you the comfort of knowing that we believe in the idea or product we are recommending for you.
What is your flat rate fee structure?
Having a flat rate structure allows you to keep more money as your portfolio grows. Our job is to continue this growth, but that does not mean that we need a cut of every dollar earned. We believe that charging you for purely having more money with us is an idea that is flawed. Therefore, we created the tiered flat rate structure you see below. Yes, as your assets grow, you will move up a tier, but that is based on the amount of time our team will spend on your portfolio. As your portfolio steps up a level, more time is spent on it, and more line items are available.