Institutional Partnership

There have been a pair of interesting developments in the investment custody business in the past month, as you may have been reading in the news. While neither of them directly impacts you, they do point out some of the wonderful benefits you enjoy as a result of your decision to work with us. Plus, we just like to keep you informed.

First, several large brokerage firms announced that they were reducing their equity trading fees to zero. Such an announcement may appear unequivocally beneficial to investors, but a look beyond the headlines reveals a much more nuanced story. In order to make such a pronouncement, these firms typically also engage in the following, very much less-publicized, behaviors:

• Lowering the interest rate clients earn on cash in their accounts. In most situations, our custodian, Shareholders Service Group (SSG), currently pays clients more than one full percentage point higher than Schwab and TD Ameritrade. This practice of firms keeping most of the interest their clients earn in “sweep accounts” has long been employed by large banks as a way to quietly charge clients a stealth fee.
• Routing trades in order to receive payment for order flow. This is a tactic in which brokerage firms “shop” market orders received, among other considerations, to an exchange which pays them for sending them the business. SSG has never received payment for order flow, and continues to reaffirm its commitment to serving you and us as their clients without regard to profit motive in fairly executing trades on our behalf.
• Employing automated phone trees to route incoming calls. Anyone who’s ever worked as an advisor with accounts at a large brokerage firm can tell you, probably while gently pulling his or her hair, how painful it can be to spend considerable time on hold simply to be connected with someone who doesn’t know the answer to his or her question, only to be routed anew to another person. In contrast, each and every time we call SSG we are connected immediately to a real person, in San Diego, who nearly always is able to answer our questions – often quite cheerfully, frankly.

Then just in the past week, Schwab and TD Ameritrade announced that they are merging. This is causing consternation in the advisory community, and we feel, for good reason. Among advisors’ and clients’ concerns are the prospect of even poorer customer service, and required integration of the two firms’ technologies. According to research by Cerulli Associates, the combined firm would control approximately 51% of the industry.

Our custodian, SSG, has taken a more measured, balanced, long-term partnership approach. They have indeed lowered equity trading costs, to $4.95. This applies to the ETF’s (Exchange Traded Funds) which we buy or sell in your account. They have maintained the interest level which they pay on your cash balances. In fact, they pay you tiered interest rates based not on the cash you hold in your account, but based on the entire balance of your account, which is somewhat remarkable.

In our view, this combination of low trading costs and higher earned interest on deposits is the right solution. Much like subsidizing the cost of Coca-Cola to zero would not encourage healthy habits, encouraging trading for trading’s sake is known to be counter-productive to long-term wealth. It is highly likely that you will keep more of your money with SSG’s beneficial balance of costs and benefits than with these competitors’ headline-seeking strategies. Put another way, we’d have to do an awful lot of trading to tip the balance out of your favor, which we have no ambition to do.

Peggy and I met with SSG’s President this past month, and came away refreshed at the no-nonsense, honest demeanor which he and his firm embodies. When we all do well, they do well. We like that philosophy. In addition, they have re-committed to providing us answers to questions and implementation of requests in the same day, provided they are received before a certain hour.

What does this all mean to you? It reaffirms to us that we’ve chosen well in selecting Shareholders Service Group as the custodian of your accounts. And it means that their service offering to you and to us is being enhanced. We realize that the financial marketplace is ever-changing, and we will continue to be mindful of our duty to continue to seek the best solutions and experience for you. That said, recent developments make us feel very good about our choice so far in SSG as your custodian.

It is our pleasure and true honor to serve as your financial advisors. We are motivated by your futures to employ the best of our abilities to help guide you towards the fulfillment of your goals. As always, we welcome your questions and your communication.

Sincerely, Peggy and Bill