My 10-year journey from a BoA call center to establishing a solo $73-million AUM RIA
I established my own business two years ago with a pitch [and fee structure] so appealing I don't always finish it
Brooke’s Note: Here is a great tale of an advisor who parlayed a pink-collar job into a white-collar one in the advice business. But the best part is that along the way, James Osborne had to deal with shock over how his rates translated into hourly wages by somebody he knows well — himself. Osborne’s decision to unilaterally cap his fees at $4,500 per annum might have gotten him fired on Wall Street. At his solo RIA, it has worked out fine. He has gone from zero to $73 million in assets in two years.
In 2004, I was 21 years old, just out of college with a liberal arts bachelor’s degree and newly married.
I had no idea what I was going to do with my life.
We were living in the Denver suburbs and I knew that I needed a job if we were going to pay the rent. I applied for a job with Columbia Management Investment Advisers LLC — a mutual fund firm then owned by Bank of America — for their inbound call center in Aurora.
I knew close to nothing about investing but I found it very interesting. Something about the math and analytics involved with the markets just clicked for me. I got the job and spent six weeks crammed in a room with 30 other 20-somethings preparing for the Series 6 exam needed to discuss and/or sell mutual funds. See: How to ace the grueling Series 65 exam and keep your wits and your nerves intact in the process.
I passed the test and was shown to my desk on the floor. The call center job required no selling and allowed no advice. I read information off of a screen for people that they could have found for themselves. Fund prices. Account balances. Historical performance. I changed their mailing addresses and sent them checks. I placed the occasional fund exchange order. I was a glorified automated phone system. See: The documented RIA threat, 'phono-advisors’ and their nearly $300 billion of assets.
The job was not exciting, but it did open my eyes to the investment business. Co-workers talked about which funds had good performance and which ones looked terrible. Some of them loved to roll the dice on mid-caps and emerging markets and some had all of their 401(k) assets in an intermediate bond fund. We (ignorantly) felt privileged to be able to buy funds without the sales load and imagined that we knew which funds would do well in the future (the ones that had just done well, of course!) In reality it is frightening how little we collectively understood about investing in the markets. I am thankful that we were not in the advice business!
I quickly burned out at the call center due to overwhelming boredom from the repetitive days. I found a job working for a dually registered broker/advisor. It was a small office with five or six full-time staff and maybe $75 million under advisement. Initially I was a paperwork monkey. But at this office I passed the Series 7 and was now officially a “registered representative” in late 2005. See: What swayed me to the hybrid cause after an early indoctrination as a 'pure RIA’ disciple.
This office was a case study in What Not To Do. My boss sold expensive, illiquid and ultimately unprofitable non-traded REITs.
My boss at the time came up in the business from insurance sales, and he could sell. He pitched oil and gas drilling programs, rail car leasing partnerships and other private placements that paid a big commission and promised investors a big stream of income. He told retirees they could spend 6% to 7% of their portfolio every year and bought long-term BBB corporate bonds to get them enough yield to justify that figure (never mind portfolio risk or inflation). See: 10 investment ideas that STILL don’t work.
Investors were sold C share mutual funds and (as memory serves) charged advisory fees of 0.50% — 1% on top of them. Clients were sold permanent life insurance policies that carried huge commissions. I eventually became responsible for placing all client trades, and there was hell to pay if the weekly commission numbers weren’t sufficient to support my boss’s lifestyle. It didn’t take me too terribly long to realize this was not the type of business I wanted to be in. See: Why RIAs need to pay heed to a ruling that put a media star and advisor out of business — and out $300,000.
Brave new ethics
My penultimate move was to a large wealth management firm here in the Denver area in 2007, working with high-net-worth individuals and families. Ethically it was a world away from my previous employer. We focused on asset allocation, financial planning, tax planning, rebalancing, tax loss harvesting and many of the hallmarks of sound financial management.
I was primarily responsible for research and due diligence of mutual fund and managed account strategies for client portfolios. I poured over data, spoke with fund managers, performed on-site due diligence, talked about track records, strategy, philosophy, process and people and ultimately we as a committee made decisions to hire, keep and fire managers.
Collectively, our investment committee had many graduate degrees: CFPs, CIMAs, etc. And yet I was ultimately hard-pressed to find that this process was adding value for our clients, at least after all taxes and fees were accounted for, over investing in an index fund. I grew weary of explaining underperformance to clients and frustrated that our best attempts to find the “best” managers seemed left to chance.
It was during this time that I began to question the validity of asset-based fees for financial advice. Most clients had the same planning and service needs, but wealthier clients paid a multiple over the firm’s smaller clients — effectively subsidizing them. Eventually I became uncomfortable with the absolute dollar value larger clients paid to sit down for a formal meeting a few times a year and chat on the phone or e-mail once a month. See: What is the value proposition of a financial advisor — and how is a budding RIA culture upping the ante?.
I know some expensive lawyers in this town, and my hourly rate was blowing them out of the water. See: An X-ray of one affluent, educated and sophisticated investor’s portfolio shows how it was chewed up by fees.
'From scratch’ strategies
So I spent a year or so tinkering, thinking, planning and brainstorming for what eventually became Bason Asset Management. I knew that I wanted to give clients advice based on real evidence, not speculation. I wanted to give them the best chance at their future success, and I wanted to give them the advice I wanted to take myself. I wanted to be truly independent and not earn income from any source other than my clients. I wanted to sleep well at night knowing that I gave the best advice I could under a fee structure that made sense to me. In September 2012 I gave notice to my employer and filed the registration for Bason Asset Management in Lakewood, Colo. just outside of Denver. See: How exactly I started a specialized RIA for under $10,000.
I was walking away from a comfortable salary, a known environment where I was gaining seniority every day and the promise of ownership down the road. At the time we had a two-year old, and unbeknownst to us, we were about nine months from having another little girl. We knew a change was coming, and we spent about a year preparing for it: saving, budgeting, and mentally preparing for a few years of having little to no income. Thankfully I was lucky enough to have a wonderfully supportive wife through this entire transition.
This firm was founded, and remains, a sole proprietorship by design. Starting a firm from scratch takes work, there is no way around it. Initially, I had two strategies to grow: build an online presence through blogging and social media, and network locally with other professionals and centers of influence. I knew from past experience that for local networking to work, I needed something to offer. See: High costs, low value explain meager social media use by financial advisors, experts say.
My fee structure is radically different than the industry standard. We have built a retainer fee structure around the services that we provide with a cap at $4,500 per client. That policy, along with a passive investment philosophy, put me in the minority, and I was able to stand out from most other brokers and advisors looking for referrals from local professionals. I’ve been fortunate to have some great clients and after a little more than two years the firm now manages just over $73 million in AUM for about 40 clients.
I use Schwab Advisor Services as my custodian. For planning software I use MoneyTree. I use FinFolio for performance reporting and I am currently evaluating new CRM options. See: Braving setbacks, FinFolio wins a $1.6 billion RIA and dark-horses its way on to the software track.
Looking back, what stands out the most is how little I seemed to know about markets in the past compared to what I believe to know today. My definitions grow and expand. I become more certain of a few things and less certain about a great many things. I say “I don’t know” a lot more than I used to. I am much more willing to admit that most things are measured in shades of gray.
I have a few hills that I will die on — actually two: that managing costs and taxes are a huge part of growing long-term wealth and that index funds and ETFs are the most efficient way to invest. See: The basic ETF trading practices that can save your clients money.
Like you, I am a product of my environment and experiences. I learned over time to be wary of complex investments that are accompanied by 200-page offering documents. I’ve learned to doubt people who seem overconfident. I’ve learned that there is no additional return without risk in some fashion. I’ve learned that all decisions have an opportunity cost and that some things can be simple but not easy. I’ve learned that there is value in being skeptical but also optimistic. I’ve learned that in the future, what I know to be true will be different than what it is today.
Today I have no doubts about the viability and future success of my practice. At each measurement I find my growth has exceeded my projections (perhaps due to my conservative nature). Clients are happy with the business model and I am happy with the firm’s growth. I find I do little “selling” of my services of late — most prospective clients are comfortable with me and the business model before we finish our first conversation. Having an online presence and a few hundred blog posts where I can speak my mind creates a wonderful self-selection of prospective clients. I’m not here to build an empire, just a life for myself and to treat clients well along the way.
James Osborne is a Certified Financial Planner professional who has spent his career in the investment management industry helping clients manage their portfolios and plan for retirement, legacy and lifetime goals. In addition to the CFP professional designation, he has an MBA in Investment Management from the University of Colorado. James has previously instructed CPE courses for the Colorado Society of CPAs. His disillusionment with the standard practice of investment management firms led to the creation of Bason Asset Management in late 2012. Read his last contribution to RIABiz here: What one financial advisor discovered after plunking down $12 for Tony Robbins’ 'Money’ manifesto.
Famously and fiercely solo James Osborne somewhat sheepishly doubles headcount at Bason to two after the fatigue of saying 'no' wore on him
For seven years,RIA, flat-fee evangelist and blogger in Greenwood, Colo. doggedly stayed solo and got to $200 million but now he has McKenzie Ebbesen; and she shares his discomfort with 1% fees.
March 5, 2019 – 9:17 PM
Thanks for sharing your story, James. I’m in the process of registering my RIA with Virginia at this very moment and your story is encouraging. I look forward to reading more of your articles.
Great story, James. You are an inspiration in the industry. The idea that one should be paid for the work one does rather than a slice of a client’s net worth every year, unfortunately seems to be foreign to most in the industry. I live in Canada, where a company using a flat fee model does not yet exist. As soon as one does, that also follows evidence based investing, will find me lining up to be their first client.