Morningstar Advisor - August/September 2011 - (Page 12)

Advisor Profile The Institutional Way By Kate Stalter As he did as a hedge-fund manager for Bear Stearns, Jim Dowd focuses on bringing low costs and diversification to his clients. Before setting up shop in 2008, Jim Dowd didn’t follow the traditional career path to becoming a financial advisor. But the former institutional investment advisor and money manager says that his experience gives him a unique perspective on the needs of retail clients. As he observed the asset-management choices available to individuals, particularly those whose net worth was less than $1 million, he concluded that there was a gap. “I believed there was a real need and a business opportunity to bring an institutional approach to retail investors,” he says. That approach starts with lowering costs and diversifying holdings. Frequently, Dowd says, clients will come to him with brokerage accounts containing stocks and mutual funds. He says that their average expense ratio runs about 1% to 1.5%. “If there is a broker, odds are good that they are not in regular contact with the client, which is why we’re in the picture,” he says. After examining a client’s investment objectives and risk constraints, he generally shifts most of the portfolio into passively managed funds, reducing the underlying expense ratio by 75% to 80%. Dowd also sees higher-income clients who haven’t contributed to IRA accounts in recent years, “because somewhere along the line they were told that they couldn’t.” He immediately sets up IRAs for those clients and often recommends Roth conversions. Home Office Dowd began his career in financial services in 1985 at the boutique investment bank Samuel Montagu Capital Markets (now a part of U.K.-based HSBC). Two years later, he decamped for Bankers Trust, where he spent nine years in New York, London, and Tokyo. Ready to bring his family back to the States, he spent a few years managing hedge funds. In 2003 he joined Bear Stearns, where he ran an institutional investment advisory and fund of funds business for the investment bank, until the firm’s infamous collapse in 2008. Seeing his chance to bring an institutional approach to retail investors, he then launched North Capital in San Francisco. Dowd initially worked from home, a situation he jokingly refers to as “not very institutional.” Today, the fee-only practice is headquartered in downtown San Francisco, and Dowd works with three colleagues who assist him in providing the firm’s planning and advisory services. The firm has about $50 million under management, $100 million if planning assets are added to the total. The firm charges planning clients $1,200 for a financial review, which includes an analysis and recommendations for asset allocations. For clients who want to manage their own assets, Dowd will also include an implementation plan using Vanguard funds. After the review is complete, the firm’s hourly rate for additional consulting is $350. For clients who retain the firm for discretionary portfolio management, North Capital’s fees are 0.5% on the first $1 million, 0.35% for additional balances up to $5 million, and 0.25% above the $5 million level. The firm uses Morningstar Office for research and reporting, and it even developed some of its own software to integrate Morningstar reporting into its own web portal. North Capital also uses Morningstar’s back-office services for daily account reconciliation. Investment Process Dowd engages his clients through a process he calls PRIM—which stands for Planning, Recommending, Implementing, and Monitoring. To allocate investments, he created four model portfolios: liquidity, fixed income, global equities, and diversifying strategies (the place for alternative investments). The model portfolios are combined in different proportions for each client, depending on objectives and risk profiles. For example, a client with a conservative risk profile might have only a 20% allocation to global equities, while a client with an aggressive profile might have an 80% allocation to that model. Underlying investments in the models are the same for each type 12 Morningstar Advisor August/September 2011

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011