My Greatest Satisfaction, and Biggest Regret, as an Advisor

One of the most important duties of a small-business owner is to closely watch the bottom line

When I look back at my time as an independent advisor, there are some things I would have done differently, and other things I wouldn't change. In this post, I'll share both.

One of the most important duties of a small-business owner is to closely watch the bottom line, especially when you’re growing and income is rising. Obviously, you must be careful about how you allocate resources.

One of my "worst" decisions occurred in the middle of 2010. I was contacted by a fairly new company who had developed a product to measure diversification. The reason I was excited is that I had been working on the same theory myself. Here's what I mean.

Take a portfolio with three holdings, which we'll call A, B and C. All three holdings rise and fall. Simply put, if they all rise and fall at exactly the same time, then you have not achieved diversification. However, if A rises while B falls (or remains level), and C reacts very differently than A and B, then you have achieved a strong level of diversification. And, as long as each holding provides good 3- to 5-year returns, then the portfolio should grow (with modest fluctuations).

Although this concept has been recognized by our industry for years, quantifying it is rather elusive; that is, until Gravity Investments developed GSphere. After much discussion, I agreed to a three-year lease. That was my mistake. Nothing wrong with the product per se. Rather, after I had been in the agreement for about 5 months, they decided not to distribute their software, but instead opted to become a subadvisor. In other words, they would develop portfolios and create models for a fee. And their fee was rather substantial in my view. I declined their offer.

Although I believe the product has credibility, without adequate training, your benefit will be limited. To complicate matters, they contracted with a leasing company, to which I am bound to pay, as they received their money up front. The moral of the story? Never commit to a long-term agreement with a startup company. My mistake.

But it’s not all bad. The greatest satisfaction of my career stemmed from my decision to go independent. If you are contemplating the move, why wait? As long as you have a reasonable amount of discipline to manage your time, you'll find the rewards are plentiful.

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