Banner Art: Five Hammers by Wayne Thiebaud, 197
WHAT IS PLANTINGFIELD? -OR- IF ALL YOU HAVE IS A HAMMER, EVERYTHING LOOKS LIKE A NAIL
I discussed why I founded Plantingfield Partners in the post On Founding Plantingfield: Start With Why. And while I believe that “Why?” is the most important question, it is quite meaningless without a what. So, what is Plantingfield, exactly? I’m glad you asked…
Plantingfield Partners is an performance-fee-only Registered Investment Adviser that manages an advanced, alternative equity strategy for clients in separate accounts.
That clears it up, right? Unfortunately, the language of finance is often vague, and the labels applied to companies and products to help better explain them can often create more confusion by lumping together some very different things. So let me me as specific as I can.
Plantingfield Partners is a Registered Investment Adviser. This is true because we are company that is registered as an RIA with the Securities Regulation Division of the State of California, and therefore meets its standards, is subject to regulation, and is held to a fiduciary standard (the legal obligation to work in the best interest of the clients). But this is where the similarities between us and the majority of RIAs, wealth managers and financial planners end, and the differences begin.
We manage an advanced, alternative equity strategy. Instead of thinking of us as an investment adviser, wealth manager, or financial planner, think of us as a single investment product or tool. And therefore, we do not take the place of your financial professional, rather we give you a different and better investment vehicle, a unique tool to add to your financial toolbox. We spent years creating and meticulously refining an alternative way to approach investing in US stocks that focuses on the relative value of peer companies, an absolute return strategy that compliments traditional investments by adding more consistent, uncorrelated returns. (Please see the post A Great Flood: Finding my Approach where I discuss the genesis of our method.) If traditional equity and fixed income investments are the primary tools to build a financial house, the hammers so to speak, then we are a very different, complimentary tool, that helps to build a bigger, better, stronger house.
Separate accounts. In that we are an investment product or tool, we are more like a mutual fund, ETF, or hedge fund than an investment adviser (though, like us, many fund managers are RIAs). But importantly, Plantingfield is very much not a fund, and therefore it would be disingenuous to call us a fund manager. By definition, a fund is an investment vehicle that pools its money together; we very deliberately keep our clients’ assets apart, in their own accounts, and controlled by only them. This structure reduces many structural risks for our clients, and provides them with full transparency and liquidity. Indeed, the combination of our strategy and structure can produce superior results for our clients, both in risk mitigation and performance.
Performance-Fee-Only If you want to know someone’s real job, ask how they get paid. In the old days, advisers received commissions, incentivizing them to churn client accounts and to pick certain, specific investment products (the higher paying ones) over others. Their investment “advice”, then, was rife with conflicts of interest, as they were paid based on what and how much they sold. Their real job was to sell products, the more the better. Thankfully, much of the industry has moved to a “fee-only” model, in which the adviser charges a flat management fee as a percentage of assets under management, and no commission (hence “fee-only”). By removing nefarious incentives, this management-fee-only model removes the conflict of interest from the services provided, and allows the adviser to better serve the client.
And it certainly is better, but it still has latent incentives that do not necessarily serve the client best. A management-fee-only adviser is paid based on the amount of assets they manage, therefore, their real job is to collect assets, not actually manage them. As long as they don’t upset the apple cart, they keep earning a management fee, year after year, till death do they part. While they have removed direct conflicts of interest, they have not aligned their own interests with those of their clients. They have no incentive to perform well, rather, they preach the impossibility of performing better than average (after accounting for fees), so they can keep on collecting their management fee while out on the road raising more assets upon which to charge a their fee. For passive investing, this makes sense, but don’t be fooled as to what these advisers real job is.
At Plantingfield, we believe that our real job is to make our clients money and to limit their risk. By charging clients only a performance fee (for those who qualify), we are compensated only if and when we do our job, and by how well we do it. We do not make a dime until our clients make forty cents. This fee structure not only removes conflict, but aligns our interests and goals with those of our clients.
Do not get me wrong, we strongly believe that a management-fee-only approach is progress, and appropriate for the majority of RIAs and wealth managers. Their job is different from ours, to advise on the client’s entire portfolio and be the architect of the entire financial house. But remember, they get paid no matter what kind of house you build, even if its a house built with nothing but hammers.