Industry gurus preach that advisory firms providing only investment management are playing a loser’s
game. After all, we know few active managers actually deliver alpha, while cheap
beta vehicles are widespread, right?
The rise of robos using ETFs to
build portfolios online, rebalancing and
tax-loss harvesting along the way, are
removing those forms of ‘alpha’ from
the advisor-client relationship, correct?
If you’re a small advisory firm, how can
you compete with the scale and intellectual capital of the asset management
companies? Plus, if you’re focused on
investing, you’re not focused on serving
existing clients or finding new ones.
But Mark Vasquez and his partners at
Red Spruce Capital beg to differ with those
nostrums. Their Berwyn, Pennsylvania-based RIA firm is doing just fine, growing
its AUM and client base by researching
and then building custom portfolios for
clients based on their objectives and risk
tolerance. It provides detailed statements.
It charges a 1% AUM fee.
And Red Spruce doesn’t ask its clients for referrals — another prescription
from the gurus. You’ve heard about —
and maybe conduct — events to bring
your clients together for a wine tasting
or baseball game, asking clients to bring
along their friends?
Red Spruce would never do that,
says Vasquez, because “we never dis-
close who our clients are.” Clients, he
says, want their advisors to service them,
“not attract new clients.” So Red Spruce
focuses its efforts, he says, “on the clients
we have, not the ones we don’t have.”
The genesis of Red Spruce Capital
is similar to many independent firms.
Several professionals who had worked
with each other at the same companies
in an allied field — in their case, insti-
tutional money management — came to
believe that a certain need wasn’t being
met by existing advisory firms. They
thought they could do better.
That insight was prompted by
requests for assistance from friends
and family who were spooked by the
painful bear market of 2008–2009.
“Maybe they were getting bad advice,”
But he and soon-to-be partners Amish
Desai, Mark Kennedy and Rahul Shah
realized that the bigger issue was that
“from every angle, there’s a huge discon-
nect” between how institutional and indi-
vidual clients were being treated. “We
built the firm,” says Vasquez, to address
the unmet needs of the retail client.
They embraced their inner entrepre-
neurial spirit, quit their salaried jobs
and hung out their RIA shingle in 2011
on Philadelphia’s Main Line.
It was that focus on the individual
client that became the foundation of Red
Spruce’s business model. “Amish [Desai]
and I said, ‘We will be each other’s first
client’,” then explored what would be
most important to them. They realized
they were ‘hiring’ each other primarily
for their investment research and port-
folio management expertise. So, says
Vasquez, “we built the model to serve
clients like ourselves.”
But they also realized what they
wouldn’t provide to clients. “If you need
help gathering your finances together,
we’re not for you,” Vasquez says, so they
don’t provide financial planning.
What they do provide is research on
public companies that then informs the
bespoke portfolios they create out of
publicly traded stocks and bonds.
As the firm’s website puts it: Typical
advisors are middlemen. Not us. No
mutual funds. No insurance products. No
Each client, Vasquez says, has differ-
ent liquidity needs and tax issues, but
with investing, Red Spruce believes that
“the further away that capital is from
the investor,” the more layers, fees, com-
plexity and potential conflicts of interest
are added to the equation.
“We add value microscopically at
every stage” of the investment process,
he says, which adds up in aggregate
as Red Spruce’s portfolio managers are
the ones conducting the research and
buying and selling the investments on
behalf of each client.
Finally, Vasquez et al. believe that “if
we’re doing this right, we don’t have to
market; if our clients succeed, our reputation will precede us.”
James J. Green, a former editor of this magazine,
is editor of Jamie Green Reports, an advisor-focused writing, editing and shepherding service.
He can be reached at firstname.lastname@example.org.
Bucking the Perceived Trends
RIA Red Spruce Capital proudly offers investment management, and only
investment management, to its growing client base.
AHEAD OF THE CURVE
By James J. Green