What Makes A Modern Wealth Partner?

“A business is simply an idea to make other people’s lives better.” – Richard Branson

Let’s be clear.  The world doesn’t need another wealth management firm.  Today, there are nearly 6,000 registered investment advisory (RIA) firms in the US, with the number growing by about 700 per year.[i] So why did we start firm number 6,001, Flatrock Wealth Partners? 

Good question but first some background.  We’re two 25-year veterans of the institutional investing ecosystem, spanning multiple roles with leading global firms.  Our respective teams raised tens of billions of assets, developed new products and, along the way, we’ve collaborated with some of our industry’s brightest and most innovative minds. 

Both of us will readily acknowledge we have experienced blessed careers.  But, as we eyed the future, we felt like our next chapter needed to be about impact, not achievement.  How could we take everything we have learned from our institutional heritage over the past 25 years of and, quoting Sir Richard, make people’s lives materially better?  How can we turn the complexity of wealth and uncertainty of markets from a cause of stress into a source of confidence?  And, perhaps most importantly, why now?  

Drawing on our experience, we delved into these issues.  Conventional wealth management and business as usual approaches, some little changed from the 1990s, consistently fell short.  But what were the paths to meaningful improvement?  We kept coming back to three key pillars underpinning a Modern Wealth Partnership – Institutional Knowledge, Technology and Alignment.  Let’s explore. 

Institutional Knowledge – Many wealth management programs still rely, quoting legendary financial author Peter Bernstein, on “rules of thumb and folklore”, often related to short-term events or predictions.  Client inboxes are still filled with advisors’ annual economic forecasts or access to seemingly unique investment strategies with compelling recent returns.  Outside of interesting cocktail party chatter, we find precious little proof in our own experience or the literature that these are additive to long horizon success.

On the contrary, led by academics and leading institutional investors, the last thirty years witnessed an explosion in better understanding markets and dependable drivers of long horizon investment success.  Reliable studies[ii], over the past fifty years, are unequivocally clear: maintain an equity bias[iii], avoid unnecessary fees, defer taxes and diversify broadly.  Working with leading institutional investors and family offices, we’ve witnessed this “anecdotes to evidence” evolution first-hand.  It’s now time to put that know-how to work for affluent families via more efficient structures and institutional opportunities. 

Technology – Let’s face it.  Wealth is complex, a veritable maze of legal entities, accounts, products, securities and tax lots.  Throw in nonfinancial assets like private businesses and human capital (i.e. future wages and bonuses) and its mind numbing.  Affluent households often are unable to answer fundamental questions like:

How much money do I have and where is it invested?

What do I own after taxes?

How am I doing relative to my priorities and markets?

Technology enables us to answer these questions and synthesize the complexity of wealth.  We adopted a clean sheet that builds a practice around this technology to deliver a richer and more informed wealth experience.  

Even better, technology allows us to customize at scale.  No two wealthy families have the same resources, priorities, tax situations and personal values.  So why should they use funds that give everyone the same portfolio and no tax flexibility?  It’s the investment equivalent of running a business with a dial-up modem.  Today, technology enables core stock and bond exposures to be customized to the rest of your unique capital base at a fraction of mutual funds fee and tax bills.

Alignment – We developed Flatrock first as a service to our own families.  Further, both of us come from an institutional heritage, where acting as a fiduciary is table stakes.  Our duty of care and loyalty is always to our clients. 

But alignment, the notion that we’re all headed in the same direction, runs deeper.  Accordingly, we seek deep two-way partnerships with the Flatrock team of clients, employees, investment managers, and technology providers.  Great teams can accomplish far more than the sum of their parts via a shared mindset, common mission and focused collaboration.

Let’s be clear.  The world doesn’t need another wealth management firm…unless it is materially different.  A superior wealth experience requires Knowledge, Technology and Alignment.   Few firms excel in one area, let alone all three.  So we decided to start the 6001st firm with the explicit mission to provide the financial confidence to live your best life.    

[i] https://www.mckinsey.com/industries/financial-services/our-insights/registered-investment-advisors-how-us-banks-can-weigh-the-m-and-a-potential
[ii] Some notable but by no means authoritative selection of papers:

Jeffrey, Robert H., and Robert D. Arnott. 1993. “Is Your Alpha Big Enough to Cover Its Taxes?” Journal of Portfolio Management, vol. 19, no. 3 (Spring):15–25.

Carhart, Mark M., 1997. “On Persistence in Mutual Fund Performance” The Journal of Finance, vol. 52, No. 1 (Mar., 1997), pp. 57-82

Markowitz, H.M. 1959. Portfolio Selection: Efficient Diversification of Investments. John Wiley & Sons, New York.

Ibbotson, Roger M., and Sinquefield, Rex A., 1976. “Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns (1926-1974), The Journal of Business, Vol. 49, No. 1 (Jan., 1976), pp. 11-47
[iii] An equity bias is generally more tax efficient and protects better against long-term inflation.  Accordingly, we don’t strictly mean publicly traded stocks.  Real estate and private equity qualify as well. 

We experienced these frustrations firsthand. We desired a robust solution for us and our families. And then thought why not do this for others?