How are you compensated?
This should be the first question, in our opinion, in order to understand any potential conflicts of interest. If an advisor earns commissions on trades or from certain investment products, it can lead to a conflict of interest and higher costs to you, the client.
Blue River Capital Management is a fee-only advisor and a fiduciary. We do not receive any form of compensation besides the fees our clients pay us, which helps minimize potential conflicts of interest.
What is (or will be) my all-in fee drag?
Management fees charged by your advisor or by the investments within your portfolio (e.g. mutual fund expense ratios) eat directly into the returns you realize as an investor. Some advisors charge more than 1% per year on the assets they manage and then deploy client money in actively managed mutual funds or separately managed accounts (aka sub-advised accounts) with expense ratios of 0.50-1.00%, or higher, meaning your overall fee drag could be significantly higher than your advisors’ stated management fee.
At BRCM, our fees start at 0.85% and decrease for larger accounts. We aim to keep all clients’ total fee drag to around 1%, or lower.
Who selects investments for my accounts?
While there are many defensible approaches for building investment portfolios for clients, many advisors utilize portfolios designed by third parties. This can lead to suboptimal portfolios for the specific client, as well as less clarity on each investments’ contribution to the portfolio.
Our investment portfolios are designed entirely in-house, allowing us to tailor portfolios for clients’ individual needs. If you ever have questions about an investment in a BRCM account, you are a call away from speaking with someone who helped select it.
Do you utilize separately managed accounts?
Separately managed accounts (SMAs), also known as sub-advised accounts, can be a popular strategy for advisers who like to select and promote ‘best-in-class managers.’ Often, SMAs add a layer of fees and if multiple SMAs are used, you can encounter diversification issues, such as overdiversification (i.e. closet indexing) or concentrated positions.
In our effort to keep fees low and maximize the efficiency of portfolio risk, we avoid SMA strategies and do all of our investment selection in house. However, in certain circumstances (e.g. significant single stock concentration), we may utilize SMA strategies to help manage portfolio risk or achieve specific objectives.
How long do you plan to work? Do you have a succession plan?
According to JD Power, the average age of investment advisors in the US is 56 years old, with 20% of them indicating they are within five years of retiring. Additionally, US News reports 73% of advisors do not have a succession plan, potentially leaving their clients without an advisor.
BRCM’s co-founders are all in their 30s with many years of work ahead of them. We look forward to multi-decade partnerships with our clients to help them achieve their financial goals.
If you have any questions about this blog, or other questions about your finances, please contact Blue River Capital Management at 503.334.0963 or at info@brcm.co.
This information is intended to be educational and is not tailored to the investment needs of any specific investor. Investing involves risk, including risk of loss. Blue River Capital Management does not offer tax or legal advice. Results are not guaranteed. Always consult with a qualified tax professional about your situation.
