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Interview: Custom Portfolio Group Bucks Model Portfolio Trend

Amy Buttell

5 January 2012

As an environmental attorney for a large national law firm, David Twibell worked with and talked with his share of investment and financial advisors. And he didn’t like what he saw.

In all too many cases, investment advisors were out to sell him a product or their individual approach to investing. “As a client, I was continually frustrated by advisors approaching me trying to sell me something – an actual product – or trying to get me to buy into their particular approach,” he says. That didn’t cut it with him because not only had he majored in finance in college, but also because he had experience working at a broker’s office, which had given him definite ideas about how he wanted his money invested.

“I was always trying to find someone who would help me do what I do better,” he says. “From my experience, buying and holding stocks for a long time didn’t work – I’m not comfortable holding something that’s down 25 per cent. I’ve always been more interested in managing the downside risk. So I wanted to find someone who would help me invest better the way I wanted to. After all, it’s my money. But all I heard was that my fundamental process was dead wrong.”

From client to wealth manager

Years later, he had the chance to put his theories into practice as the manager of the wealth management practice of a large Colorado bank. Then, in March, Twibell took it one step further and founded his own firm, Custom Portfolio Group, an investment management firm in Englewood, CO. Along with an investment manager and a client services manager, Twibell’s fast-growing firm managed $100 million assets as of mid-December.

Twibell is aware he’s bucking the trend towards consolidating client assets into model portfolios to streamline the investment management process and provide efficiency and scalability for the wealth manager. But he doesn’t buy that it’s not better for the client or that it precludes efficiency in managing an investment practice.

“There are great business reasons why many wealth managers are moving towards this model, the model that shoehorns clients into several different models,” he says. “But we’ve developed an approach that we think is unique, that puts the client in control. The analogy we use is that of a caddy in a golf game – we have all the tools to help our clients manage their investments better, but the client is ultimately the decision-maker. We help design portfolios that will help them achieve the objectives they decide on in a better way.”

Custom Portfolio Group’s approach to investment management is a blend of client needs and wishes and the firm’s investment philosophy. Before agreeing with the client to move forward with CPG, Twibell spends several hours over the course of meetings to discern a client’s investment philosophy and decide whether the firm and potential client is a good fit. “It can take a few meetings for a potential client to be comfortable expressing what they want to accomplish in the relationship,” Twibell notes. “Many are intimidated and have had it pounded into their heads that they don’t know what they are doing with investing, even though they are savvy business people who have innate common sense.”

A labor-intensive model

While the firm’s approach to client relationships can seem counter-intuitive because it is very labor intensive, Twibell firmly believes that it is impossible to waste time talking about a client’s financial situation, approach to investing and other issues, because it is the best way to get the relationship off to a good footing. So his firm focuses on leveraging efficiency around its day-to-day operations, rather than cutting back on client time.

And by front-ending the process of communicating with clients, there is less work to do on an ongoing basis in terms of communication. “Once the relationship is established, we get far fewer phone calls during difficult market environments because our clients are involved in the process of creating their portfolios. We also maintain client relationships, which is much less expensive and time consuming than constantly having to acquire new clients through marketing.”

“Every minute we spend with a client is time well used whether it results in a specific deliverable or not,” he states. “We have to break down the barrier, show the client that we are a partner. We design a portfolio with them based on their specific needs. For example, for some clients, alternatives – arbitrage, long-short and master limited partnerships - are suitable, for others, they are not necessary at all.”

Most client portfolios feature some type of downside protection. “Honestly, our clients have made their money; they are very successful people, for the most part,” he says. “We don’t need to take a lot of unnecessary risk to increase their portfolios. It’s more important that we do our best to preserve what they have. Our job is to be good stewards of their wealth.”

Focus on taxes, costs

Two important features of Custom Portfolio Group’s investment management philosophy are controlling costs and promoting tax efficiency. “Part of our job is to ensure that our clients have not just returns but net returns and we can accomplish that by seeking out investment options with the lowest possible fees and track individual securities to harvest tax losses to offset gains when possible,” he says.

Taxes are an issue that too many investment and wealth managers ignore, Twibell believes. “Most of our clients are in high tax brackets and will be in higher tax brackets in the future so it’s essential to harvest tax losses and appropriately allocate investments between qualified and non-qualified accounts to place them in the most favorable tax position possible,” he added.

Though the firm is new – the doors opened on 1 March 2011 – assets under management are growing fast and have reached $100 million so far. Twibell believes that the company’s business model of investing heavily in client service, purchasing research from a variety of sources and keeping taxes and costs low for clients is a strong one that should continue to contribute to Custom Portfolio Group’s growth in years to come.