The flamboyant personality has sold 400 advisors on his approach, which includes coaching and a passive investment strategy

October 13, 2010 — 4:24 AM UTC by Steve Garmhausen

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Name: Mark Matson
Location: Mason, Ohio, near Cincinnati
Years in Business: 19
Assets under management: $2.7 billion, for about 400 advisers

Mark Matson offers an interesting twist on the idea of branded investment advice. Whereas he has written books aimed at consumers, runs a blog complete with celebrity interviews and is a frequent – and flamboyant — guest himself on mainstream media, his target market is not consumers, it’s advisors.

Calling his company an investment coaching firm, Matson offers a package of services to advisors. The first part is consulting on their business model — he offers a three-day “Million Dollar Model Program” for $1,499. But for all the flash and sizzle, Matson is fundamentally conservative — delivering an investment strategy based on passive investing using mutual funds from Dimensional Fund Advisors of Santa Monica, Calif..

RIABiz contributor Steve Garmhausen spoke to Matson about his strategy. Also see: Mark Matson: Stand up to clients or else

What did you do before becoming an RIA?

My dad was an insurance agent and financial planner. I idolized him as I was growing up. I started as an advisor in 1987, but quickly got sick and tired of the way the broker-dealer was doing it, and I decided to get into fees. I started this company in 1991.

Your firm’s clients are not individual investors, but advisers, correct?

Yes. We work with about 400 advisers, half of them independent RIAs and half of them with broker-dealers. We have our own mutual fund complex, with three funds of funds—international, U.S. and fixed income. We manage those funds, and the advisers we work with charge their own RIA fees. I made the decision to serve advisers only in order to avoid what I decided was a conflict of interest. (More on that later).
I use Dimensional Fund Advisors as a subcomponent, and have negotiated fee breaks on DFA funds. See: Dimensional Fund Advisors still has low RIA acceptance rate and stunning growth
The fund-of-funds structure gives an amazing amount of diversity, even to investors who might only have $50k to invest.

In the wake of the crash, we’ve heard a lot about correlations converging. Has that changed your approach to managing money?

I’ve put out a lot of videos and other content on this idea that modern portfolio theory was dead. I don’t buy the idea that because you had one year where everything went down, that MPT failed or that correlations converged. Modern portfolio theory does not say that equities can’t go down at the same time. All equities to some extent are positively correlated.

Also, not all asset categories did go down. Look at our own fixed-income security portfolios—they were up 4% to 8%. And we had other asset categories that were positive that we could rebalance.

Then there’s this idea that we had a lost decade because diversifying doesn’t work. That’s only true if you were myopically allocated. (Matson cites indexes showing that several categories advanced over the decade ending Dec. 31, 2009: large value was up 2.47%; small value up 8.27%; emerging markets up 10.11%; emerging markets small up 10.97% and emerging markets value was up 12.5%. Matson’s own Aggressive Growth portfolio for the decade returned 5.26% annualized net of all fees, compared with the S&P 500’s return of -0.95%, the firm says.)

You’re pretty hard-core in terms of the importance of staying invested.

We acknowledge that not everyone can take the volatility of a 100%-equity portfolio. We coach investors to be realistic about risk—you might have only 10% to 15% in equities. Once you’ve built that portfolio, my job is to keep you in it for the next 30 years, so you’ve got to stay disciplined. (During the market meltdown) we resigned [from managing] 300 accounts as a result of orders we received to go to cash. We said, “That’s market timing, and we can’t be part of that dysfunctional process.”

When the market crashed, that was a real test of courage in terms of whether people were going to stay disciplined. Now, most advisers
think they get paid for getting returns, but we know you get paid for discipline and making it through hard times.

The last three years have been a big “aha!” moment. I used to think if you move from charging commissions to charging fees, you eliminate the conflict of interest. But even fee-based advisory services don’t eliminate that conflict. I’d see advisers panic and push their clients to go to cash. Their income was already down but they were looking at their own financial situation—they’d say “Wait a minute—this client has got $1 million, and it used to be $1.3 million—I’m going to lose $10,000 a year in income!” In effect they’d sell their client out for money, and then tell themselves the necessary lie that they’d be better off doing it with me than with someone else.

You’re a big believer in using social media to reach investors.

If I’m an adviser and I have 100 clients, and I’m meeting each one quarterly, all of a sudden I’ve got 800 hours of one-on-one client reviews. This is why at $40 million or $50 million of assets under management, guys stop dead—they can’t grow.

Our system actually calls for meeting more frequently with clients—have more contact and deal proactively with issues. Remember, clients get hammered every day with messages to switch managers and sectors. I have a philosophy that you have to communicate with clients every single day. The technology of social media affords you the ability to do that.

I have my own Internet TV show every Tuesday on LiveStream. Last Tuesday I interviewed Rep. John Boehner, spent half an hour looking at the economy, the Pledge to America. I also have guest advisers come on. It provides a format for investors to stay educated.

We also create daily messages for our advisers. I constantly provide material for them that they can then send out under their separate copy. For example, I was on Fox Business earlier today to talk about the mortgage crisis and new problems with foreclosures. I’ll post that to my Web site.

We augment all this with Twitter, Facebook, YouTube. We also show advisers how to build their own communities.

Whom do you look up to in the investment industry?

They include Rex Sinquefield and David Booth (co-chairmen of Dimensional Fund Advisors). A lot of them are academics—Eugene Fama, the father of Efficient Market Theory, and Ken French, who worked with Fama to develop the Three-Factor model. Adam Smith. The people I respect have a strong belief in free markets, in the idea that the market is the best information-processing system known to mankind.

Share your thoughts and opinions with the author or other readers.


Michele Free said:

August 15, 2012 — 3:36 PM UTC

Thanks for this great, impartial, interview. Mark Matson is a dynamic speaker, very inspiring, ad his message is simple. Don’t try to predict the future. Let the future happen (being part of it), and then rebalance. I never get tired of reading his stuff and watching his videos.

I work for Investor Coaches Jeff Mathies and Nick Naseman in Colorado, at Prestige Wealth Management:

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