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ameichtry    |  1  | |
| Hi Cale, Thanks for your new website spokefunds.com. Here are a few thoughts I had that spokefunders may find useful. As far as getting 500 clients with 40k each, I am starting with the small fish. If I can get them good returns, they will recommend the medium fish, and when they are happy, they will recommend the big fish. There is some real wealth in this world, and wouldn't be surprised if one client wanted to invest 20mm. If anyone is interested in managing institutional money, they can register for free at alturacap.com. When studying, I loved the Securities Training Program (STC) Series 65 self study book and test. Was able to pass with 83% the first time. No reason spoke funds need to be value funds. If my tech growth stock portfolio takes off, I may start the first spoke growth fund. The main advantages of Spoke Funds are simplicity, low cost to advisers and clients. They can easily be set up by a one person RIA. A big difference between Spoke Funds and SMA's is that Spoke Funds have everyone's stocks percentage proportional, but SMA's can be customized. Spoke Funds are much easier to manage than a bunch of separate accounts. They are not inherently more ethical, because even a rip off artist scoundrel can set one up if they desired, and a manager does not even need to put any of his own money in a Folio model account. Even thought the RIA in a Box is the best way for most people, a creative cheapskate willing to put in the time, like myself can set up a full RIA service for less than $2,000 including creating my own website (sbinvesting.com), and business cards and promotional items from vistaprint.com. My marketing will consist of talking with people and handing out business cards. I'm taking my chances and starting as a sole proprietorship (but would recommend LLC for most people though). Success or failure of my business will be based on the track record of my portfolio compared to the S&P 500, and my marketing, chatting up and handing out business cards. For myself, the toughest part will be the marketing. Competing against well known mutual funds with giant advertising campaigns. Now is a great time to start because many people are pretty upset at losing lots of money and not getting any sympathy or care from the faceless institutions Thanks again for your site, and maybe some readers can get some useful ideas. Andrew Meichtry |
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kevino | 1 |
| Hi Andrew - Thanks for sharing your ideas. For others who are curious, I'll add that I bought a goofy book called Pass The 65 by Robert Walker, and it was more than enough to pass the Series 65 exam. I got it on eBay and I think I actually sold it for a profit when I was done. The exam is not hard, but there are certainly regulatory topics that you'd have no reason to know otherwise, so it requires some study effort. I wanted to comment on your assertion that spoke funds are not inherently more ethical than other models. I agree that rip off artists come in all shapes and sizes, and it's possible to find them anywhere. However - and I'm taking a liberty in speaking for Cale here - one of the key tenets of the spirit of the spoke fund is that the portfolio manager puts a significant amount of his or her own money into the fund. It's true that one needn't put any money into a managed model on the Folio platform, but Folio is obviously just a mechanism for implementing a spoke fund. At the risk of sounding cheesy and a bit pious, the golden rule is essentially baked into the spoke fund concept, and that is part of what makes it unique. Kevin O'Reilly |
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calesmith | 1 |
| You're quite welcome, Andrew, and thanks for the thoughts! I'd echo Kevin's comments re: the golden rule. And I think it's important to differentiate between an empty model, which as you correctly point out you can set up anytime at Folio, and one that is immediately funded with your own net worth and forms the core of a spoke fund. Perhaps the most relevant thought that pops to mind there is this: If you're ever going to attract institutional assets, or perhaps even larger retail investors, you're going to need to some day produce an independent audit or performance verification of your fund. And you just can't get one of those done on an empty model. Or, at least, not without (a) paying through the nose and (b) it being absolutely clear that it's entirely theoretical. That's the importance of the tracking account, as we discussed at the spoke fund workshop this spring. Also, having an independent third party verify the actual amounts you have invested in the fund is also an option you could pursue. And while I suppose there is certainly is the possibility that scam artists could start spoke funds, I think they'd be making a huge tactical mistake to think it's easy money. They can start a hedge fund for that, knowwhatImean? More seriously, I think the only real "scam" would be if the manager is marketing an unfunded model, as you point out. But my hunch is that kind of problem will take care of itself. Specifically... Your bigger prospects are likely going to want to know how much skin you've got in the game before they invest. If you can look them in the eye and convincingly lie to them about it, you're probably the kind of person who does that sort of thing habitually...and that kind of behavior will over time become clear to all. Any ads you do will also need to clearly disclaim and differentiate between a model and, well, real money. Lastly - and I concede this point is probably a bit too theoretical - I think the performance of your fund will suffer if you don't have any money in it. At least on a relative basis. Long-term, you'll either have trouble landing investors and/or keeping them. There is nothing quite like having your future at stake every day to motivate you to focus on your portfolio. And I maintain that becomes evident in your track record. Otherwise, there are some not inconsiderable checks along the way precluding scams...becoming an RIA, getting licensed, review and approval from Folio, being regulated by various states, compliance audits, and not to mention supplying a FORM ADV Part II to every investor. Again, I'd argue that it is significantly easier for a scamster to start a hedge fund than a spoke fund - the former being more lucrative, too. I certainly don't want to be in the business of policing how much money a spoke fund manager has in their fund, but I don't think I need to be, either. I suspect the market will take care of itself there. Great points about the SMA differences - and about growth funds as spoke funds, too. I have a clear value investing bias, but there is nothing to preclude anyone from launching a growth fund as a spoke fund, either. It's probably better to distinguish between "portfolio managers who trade a lot" and those that don't. I am guilty of associating growth guys with heavy trading. To be clear, you can trade all you want on Folio, and if you do it in windows, you'll pay nothing in commissions...so that's not the issue when it comes to trading. It's just that it's simpler on the back-end (and you can scale your business much easier) by making infrequent but meaningful tweaks to your spoke fund. I sort of view that as the "taking a couple of big swings a year at really fat pitches" aspect of value investing. But take that for whatever it's worth. And I couldn't agree more that marketing is the number one challenge for new portfolio managers of all kinds - spoke fund guys included. Full stop. That will be the subject of a lot of future thoughts here, too. So stay tuned... Thx again. Cale |
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