(1) Unlike investment products sold by brokers, we don’t have any hidden fee in our managed accounts. Every penny of our fees is disclosed in clients’ daily and monthly statements. On the other hands, broker-sold investment products can choose to disclose only the iceberg of their fees, with most of fees hidden beneath the surface. For example, see this post for investigations of 401k and 403b products by Bloomberg.
(2) Unlike other managed accounts where clients’ money are re-directed into mutual funds or other types of investment products, which in term have layers of hidden fees, we directly invest clients’ money in publicly traded individual stocks, which are the most cost effective ways to invest.
(3) Since we actively manage all portfolios, we use the lowest cost custodian, which is Interactive Brokers at the time of this writing, to save trading cost for clients. The trading cost that our clients pay to Interactive Brokers is so low that Interactive Brokers does not provide any soft dollar benefit to us. We have to pay for our own research subscriptions, software development, data feed subscriptions, conference costs, compliance costs, office rental and marketing costs. Since we don’t receive any soft dollars from Interactive Brokers, we have no incentive to continue using it if we can find any cheaper and better custodian for our clients.
(4) We limit the amount of assets for each portfolio so we can properly control trading slippage, which is one of the most important factors affecting portfolio performance. A $10 billion fund charging 1% fee is not necessarily cheaper than a $10 million fund charging $2% fee, even if they buy and sell exactly the same stocks.
(5) Unlike passively managed index funds that has near zero management effort by buying and holding a basket of stocks regardless how profitable the companies are, we actively manage all stocks in portfolios to make sure clients’ money are placed into properly selected stocks to maximize potential return.
Because there are so many factors to consider in order to do a fair comparison, we suggest investors to compare the net risk-adjusted return that portfolio managers deliver as shown in actual account statements, not merely compare fees shown in marketing materials.