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Becoming The Cogent Advisor and Advocate for Fiduciary Advice

Part 2: Evidence-Based Inspiration

Hello, and welcome back! Last month, I shared some of the painful lessons I learned in the school of hard knocks. From 2000–2007, after suffering a significant loss from a mutual fund manager who ran amok with my and others’ hard-earned dollars, I had the duty and privilege of serving as lead plaintiff in a class action lawsuit. For seven years, we fought the unscrupulous company and its managers – suing its officers, board members and auditors.

This chapter in my life ended a little better than it began, as we managed to recover a significant portion of our lost assets. At the same time, long after I got over the shock and anger of what had happened, I still needed to manage the funds I extracted out of my lucrative career as a professional trader on the Chicago Mercantile Exchange (CME). I still had obligations to house my family, save for education expenses, and prepare for the day when I would not, or could not, continue to earn a living by trading on the exchange.

On Pains and Gains

One strength I have always relied on is learning from my own (and others’) mistakes, misfortunes and missteps. Investor and hedge fund manager Ray Dalio has a handy expression for this type of thinking: “Pain plus reflection equals progress.”

He got that right! We all experience pain and loss in our lives. But I believe in turning past missteps into learning moments by reflecting on how to avoid them moving forward.

So over time, I asked myself: What can I do differently in the future? How can I prevent this from happening again? How can I not only survive but thrive in spite of this?

From this came an action plan.  It began with learning more about how to handle my assets in an even more prudent and responsible manner. I began to read every book I could on efficient investing. Some of my earliest sources of inspiration included:

Book by Larry Swedroe: Winning Investment Strategy

Speaking of Benjamin Graham and one of his best-known protégés Warren Buffett, I also attended numerous Berkshire Hathaway shareholder meetings, and consumed Buffett’s annual shareholder letters, to soak up additional insights. In short, I immersed myself in every source of learning I could get my hands on. My intent was to ensure that my family and I would never again have to suffer avoidable financial pains and losses.  

That’s where it began, anyway. What I discovered felt really good. I would grant myself the freedom to know that my own actions are the only determinants that are truly within my control as an investor.

All this is now referred to as “evidence-based investing.”Back then, it was called “passive investing,” not because you sit back and let others mindlessly manage your money, but because you stop engaging in the fancy footwork associated with traditional active investing – chasing “high yield” without clearly understanding the costs and context involved. 

In evidence-based investing, you invest in a highly diversified portfolio of index or index-like funds that are expected to deliver what the markets return on a risk-adjusted basis, minus fees and tax consequences. Then you manage your portfolio to minimize those risks and costs involved.

Active Trader by Day, Passive Investor at Night

Now think of the irony here: By day, I was as an active professional trader on the CME, creating personal wealth by placing trades utilizing highly concentrated risk in extremely leveraged financial products – and coming out ahead for almost 20 years. In my free time, I was building a personal portfolio to preserve and grow my hard-won dollars. For this, I turned to a few highly diversified, but “boring” index funds, and a healthy allocation to high-grade municipal bond funds and government securities.

As my education advanced, so too did my investment approach. I stopped waking up early on Saturday mornings to chase down hot trading tips from Barron’s Roundtable. I cancelled my subscriptions to high-priced, stock-picking/market-timing newsletters. I fully embraced evidence-based (passive) investing, and vowed never to go back. My family and I already had paid too high a price, personally and financially.

So here’s what I did:

  • I adopted a written Investment Policy Statement articulating my goals and connecting them with detailed investment plan (to thwart temptations to chase trends).
  • I heeded the peer-reviewed evidence published by academics like Nobel Laureate Eugene Fama and others on how to increase my portfolio’s expected returns while maintaining similar levels of risk. (This involved leaning more toward certain equity asset classes, such as small-company and low-priced value company stocks.) 
  • In hiring fund managers for the job, I read all the fine print, and made sure I understood it; no more relying on only the glossy marketing materials.
  • I offset the tremendous risk I took each day in my professional life as a trader, more aggressively minimizing similar risks in my personal portfolio.

Spreading the Word

Suffice it to say, it was quite a shift for a trader at heart to go “passive.” But, again, it was also incredibly liberating. I found myself far more relaxed. Even during market mayhem, I could expect to advance by simply staying the course. My trading peers at first chided me about the mindset shift, but then seemed to notice the change in my demeanor as well. Gradually, they began to seek my advice on their own financial challenges.

As I discovered how fulfilling it was to share what I’d learned, I began to consider a career shift as well, so I could emancipate others in a similar vein.

One of my early volunteer initiatives on that front was to get involved in my home state’s 529 college savings program by lobbying, writing letters and offering ideas on how to improve Illinois parents’ saving and  investing opportunities. I submitted passive portfolios made up of low-cost indexed funds to demonstrate how much better off investors would be if these funds were added to the 529 Plan choices.

I’ve also been honored to mentor financial students at my alma mater, De Paul University – usually learning as much from these bright, young students as I hope they learn from me. Funding and mentoring the next generation is so important for our collective future!

Becoming The Cogent Advisor 

Over time, in conversations with friends and family, I continued to hear and see how they were successful in so many ways, but how they still struggled to confidently manage their money. With increasing clarity, I began to imagine what it would be like to transition away from trading, and toward a career in which I could help others align their wealth with their personal goals and ambitions. I still wanted to earn a fair living, but I wanted to do so by shifting my focus to be all about my clients instead of my next winning trade.

I warmed to the idea quickly and began to determine just how to proceed. First, for four years, I did my homework.

  • I interviewed dozens of industry executives, traveling across the country to identify best models and practices for serving my clients’ highest interests throughout our relationship.
  • I opened brokerage accounts at several Registered Investment Advisory firms, fully disclosing to their principals my motivation was to learn from them and their experience as I opened my own wealth management firm. (None objected; a few well-established firms even reached out to ask how they could help.)
  • I attended several national financial planning seminars and conferences, and read dozens of peer-reviewed investment management and financial planning publications.
  • l completed DePaul University’s Financial Planning Certificate Program to further learn how to prepare, assess and evaluate a client’s financial future.
  • I had long talks with respected friends and family to hear their insights about my plans.

During my due diligence, several themes emerged. To structure my business around serving our clients’ best interests, we needed to be fully transparent about costs and business practices. We needed to remain independent, unbeholden to any large umbrella organization or other potential conflicts of interest. We needed to structure everything we did toward ensuring that we would never, ever have to – or be tempted to – make decisions that would conflict with a family’s highest interests in achieving all that was important to them. In a word, we needed to be in a fiduciary relationship with our clients.

I’ll spare you details of the transition, but suffice it to say, after the planning and preparation was complete, I was able to leave on my own terms after a fortunate, lucrative, multi-decade career. In 2009, just shy of a decade after my October 2000 “school of hard knocks” learning began, The Cogent Advisor was born. After that, it wasn’t about me anymore; it was about my clients. And you know what? That felt great.

Back on the Homefront

You may be wondering how my own family factored in during the transition – my wife and our three young children (so quickly grown up!). What would the change mean to them?

My wife Colleen is my best friend and one of the most amazing people I know. Even so, I was asking a lot of her. I suggested we build a ladder of maturing CDs to provide three years of dependable income, while I invested significantly in creating a business built to last. I also committed to remaining available as a husband and father – coaching our kids’ sports teams, being home for dinner, taking time for family vacations and romantic outings. In short, in helping others plan for achieving their desired lifestyle, I wanted to lead by example, tending to my own personal goals as well.

For the opportunities I’ve had, I remain grateful every single day. My firm and the Cogent team now serves over 60 families; together, we work toward prioritizing and addressing their most pressing issues and complex wealth challenges. What’s next?

Next Up: An Advocate for Fiduciary Advice

While nobody knows what the future has in store, I do have a solid vision for me, my family and The Cogent Advisor. It’s a vision shaped by what I’ve learned, and focused on advocating for fiduciary financial advice for a growing community of investors.

Because, again, it’s not about me and my firm. There are so many good people out there. You’re probably one of them.  You’ve done the right things and taken the right steps to provide for yourself and your family. You’ve invested in yourself, in your education, and in being of value to others while making good money. You bust your butt daily, working hard to prepare for a better tomorrow.

It doesn’t seem right that all your amazing work can be undermined if you don’t know the prudent steps for aligning your earnings and financial infrastructure with your most important personal and professional goals.

This, then, is my mission: To spread the word about fiduciary, best interest advice that helps families capture their stellar earnings, build durable wealth and accomplish all that is important to them.

I know, I’m getting all fired up. I hope you’ve enjoyed reading how my own transformation has led me to where I stand today, united with a community of like-minded advisors who advocate against many of the “business as usual” travesties still found on Wall Street.

I happened to have launched The Cogent Advisor in 2009, during one of the deepest financial crises our generation has experienced. Markets have come a long way since then, but I believe we still have a long way to go. I’ve seen firsthand what can happen in the absence of best-interest, fiduciary advice. I’ve also seen the positive difference good advice can make in people’s lives, granting them both the time and substance they need to focus on the people they love and the activities they enjoy. 

Who could ask for more than that?

So if you are looking to work with a fiduciary advisor, or you are an advisor looking to find a home where you too can serve as a fiduciary advisor in a client-focused firm, I have to ask… Want to join us?