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Portfolio > Portfolio Construction

Reformed Broker on New Ritholtz Firm: Our Blogging Is Research

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Two of the most hypercaffeinated commentators in the financial blogosphere, Barry Ritholtz and Josh Brown, are forming their own investment advisory firm, Ritholtz Wealth Management, but that won’t stop the blog-happy duo from blogging.

ThinkAdvisor asked Brown on Tuesday how their blogging busy-ness jibes with client portfolio management, and he said their absorption in financial news beats cold calling, seminars and similar activities by other financial professionals.

“We choose to spend our days being informed about policy. Blogging is part of our research. I write to find out what I think. I’m not writing ad copy. My clients know exactly what I think about every subject on the market,” he says.

Investors, financial professionals and financial news junkies have long turned to Ritholtz’s Big Picture blog and Brown’s Reformed Broker blog to get their fix of market news and commentary—when they’re not watching them on their frequent TV news appearances. Before giving their take on fast-moving financial markets, both typically offer a string of morning news links, doubtless causing many to wonder whether sleep is part of their daily routine.

Putting their ideas into financial planning practice is not new to Ritholtz (below) and Brown, who were already doing that at New York City-based Fusion Analytics.

Barry RitholtzRather, as is common in breakaway situations, the advisor-bloggers wanted to do things their way, according to Brown.

“I had a really good experience at Fusion for the last three years,” Brown says. “We started an advisory firm from scratch. We got many clients and many referrals. But it got to a point where it made more sense to be a standalone firm than a practice within a firm.”

Brown says having their own firm will enable him and his partner to add technological capabilities and new services to their advisory platform.

“When you don’t own your firm, and you’re a practice in your firm, it’s not up to you how your money gets spent.

“We want to bring on more CFPs who can work directly with our clients,” he continues. “We believe the true value for the client is having a personal relationship with their advisor, that the person you work with is intimately involved with your situation. We really feel we want to staff up.”

Ritholtz’ “day job,” according to his blog bio, involved “institutional strength number crunching,” so it is perhaps no surprise that the firm plans on beefing up its technology.

“On the tech side, what used to be acceptable was a client being allowed to log into his advisory account and getting a report quarterly—‘Here’s how you did compared to the S&P,’” Brown says. “But clients want to see their investable assets alongside the rest of their assets. They want context as to how they’re doing compared to every aspect of their life. We also want to have much deeper analytics for those clients of ours who are more sophisticated … that requires an investment in software, investment in education.”

Besides the planned service offering enhancements, Brown argues the timing is ripe for Ritholtz Wealth Management.

“I think the industry has grown fat and happy; household assets are 10% higher than in the 2007 market peak. Retirement plan assets are 75% higher than 2002 level 10 years ago. As a result of that growth there’s been some complacency.”

Specifically, Brown argues that his team can sift through what he sees as a proliferation of investment products that have grown needlessly complex.

“So many people we see have portfolios that are preparing them for the last war,” he says. “Their portfolios are weighted in with put options or a lot of precious metals or black swan funds. They’re a drag on performance and don’t offer as much protection as people think.”

The reformed broker says he and Ritholtz see five to 10 prospects’ portfolios a week, and commonly find them larded with private equity, hedge funds, managed futures.

“The data tell us they don’t diversify as much as [their promoters say] they do,” Brown says. “Over long stretches of time, you eliminate costs and you actually do better [by excluding them,” he says, adding that he would say the same about currently popular risk parity strategies involving bonds.

“They do not lower your volatility—not as bonds are exiting a 30-year bull market. What they’re really doing is compromising potential upside and adding layers of cost. So that’s the kind of conversation we’re trying to have with people,” Brown says.

“We’ve got to get out of the mindset that volatility is evil,” he adds, noting that investors’ time horizons are probably “longer than they think,” such that the overly conservative portfolios he and Ritholtz are seeing in prospects’ portfolios are undermining their future retirement security.

To effect their strategies, Ritholtz Wealth Management, which Brown refers to as “primarily an ETF shop,” will be focusing on forward expected returns.

“Valuation plays a big role in the types of tilts we bring to client portfolios. It’s where the puck will be as to where it has been,” he says.

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