A good 99% of Pinnacle’s assets under management come from our private wealth management business. However, we think this percentage is going to decline over time as a new kind of client is discovering Pinnacle Advisory Group. Institutional investors, including professional financial advisors who want to outsource their money management business, along with platform providers — those companies in the business of providing a variety of money managers to other institutional investors — are beginning to knock on our door. The interesting thing about this dynamic is that firms who are primarily in the business of providing investment services often have large and expensive sales forces whose job is to call on platform providers and “sell” the firm’s investment offerings. The Chief Investment Officers of platform providers spend their time trying to deflect the overwhelming amount of sales calls they get from investment companies. If you are in the business of making money by charging fees on assets under management, one of the best way to do it is to get your investment product offered on a platform where the provider essentially sells your services for you (and who often has a large number of investment advisors looking to them to do the due diligence on the investment managers). It’s a good system. Platform providers offer excellent money management firms to investment advisors and investment companies hire a sales force to get their product distributed on as many platforms as possible.
Of course, Pinnacle is not in the distribution business; our primary business has always been private wealth management. We have no outside sales force. Our assets under management grow when our current clients think to recommend us to their family, friends, associates, etc. We have never thought of ourselves as an investment company — indeed, the culture of the firm is anything but. We take great pride in our wealth managers whose sole objective is to help our clients find personalized solutions to a bewildering tangle of tax, estate, benefits, elder care, education, philanthropic, and other problems of today’s complicated financial world. Our investment services have been just one of the many services provided to our clients as part of the comprehensive wealth management relationship we offer, and while I’m proud to say that our investment service is pretty darn good, it wasn’t until recently that we began to see ourselves through the eyes of other institutional investors.
Recently we’ve been invited to be money managers on more than one institutional platform. It is flattering to have top investment pros find you and ask you to work with them. After all, they usually spend their time ducking sales calls from firms desperate to distribute their investment wares on their platforms, and now those same CIOs are calling us. As it turns out, platform providers find a great deal of value in Pinnacle’s investment methodology. Here are seven reasons why professional investors believe we are suitable to offer to their institutional clients:
- Pinnacle has a well-defined process for managing money. Anyone who reads the articles on this site knows that our approach is rule-based. First, we have two unbreakable investment rules: Be diversified and don’t buy overvalued assets. Then there are our three ways of defining value: market cycle, technical analysis, and traditional valuation metrics. And then, we have our two methods for making decisions: quantitative and qualitative. And of course, we also have three methods for outperforming: changing asset allocation, sector rotation, and investment selection. Our process has evolved over the years and we know how to apply these rules in difficult markets. Being able to clearly articulate your investment process is very important to professional institutional investors. They need to know that you’re not flying by the seat of your pants.
- October is our tenth anniversary of actively and tactically managing money. In the platform business, ten years is long enough to provide CIOs with a good understanding of how we manage money through complete market cycles.
- We have the same core investment analysts that we had ten years ago. Rick Vollaro, Carl Noble, and I have all been here longer than ten years. Sean Dillon has been here for six years, and Sauro Locatelli is the new guy on the block. Platform providers love the fact that our track record was earned by the same guys who still work here. Investment analysts are notorious for moving from firm to firm, so in many cases the analysts that earned the results are not the analysts that are currently at the firm.
- Pinnacle’s portfolios do not overlap each other in terms of risk. Our five offerings, Dynamic Conservative, Dynamic Conservative Growth, Dynamic Moderate Growth, Dynamic Appreciation, and Dynamic Ultra Appreciation, tend to stay in the correct order of risk taking. This is very important to platform providers who often use client suitability questionnaires to determine the appropriate money manager for any individual client. Our five strategies don’t drift from one risk category to another, and that means that the compliance guys on the platform don’t have to worry as much as they do when managers take a conservative portfolio and turn it into a growth portfolio.
- We are consistent in terms of how we earn our returns. A close look at our track record shows that we outperform more often than we underperform, and we tend to do both without too much excitement. If you were to take a similar look at other investment firms, you’d often find that their historical track record was made in one fantastic year. For example, a firm that moved to cash in the 2008-2009 bear market will have stellar total returns for years because of that one decision. That same firm may have missed the bull markets prior to, and following, that particular bear market. Platform managers want to find investment firms that consistently add value in a variety of market conditions. Pinnacle meets that criterion.
- Pinnacle is a new kind of “core holding,” meaning our investment strategies are suitable for the majority of a client’s assets. Institutional investors have been adding “satellite” investments like hedge funds, private equity, and managed futures, to traditional portfolios to try to hedge the risk of underperforming in the current secular bear market. Pinnacle’s solution, tactical asset allocation, is a different approach to the problem and platform providers are looking for tactical managers who are not all-in, all-out market timers. Unfortunately, there aren’t many firms that fit the description, and even fewer with a ten-year track record. Again, we meet both criteria.
- Our investment track record is Global Investment Performance Standards (GIPS) compliant. (OK… it will soon be GIPS verified if the auditor agrees that we’ve taken the proper steps to deal with the details.) The fact that we conform to GIPS standards is another reason that platform providers have a level of comfort with Pinnacle.
Since 1993 we have been offering comprehensive financial advice to affluent families, and I have absolutely no doubt that private wealth management will always be our core business. The senior partners of the firm came up as financial planners and we’re committed to the idea that giving sound, objective, fee-based advice to families who need it is both a wonderful calling and a great business model. We have to pinch ourselves sometimes when we count the 750 families who rely on us to help them reach their financial goals.
However, it’s also gratifying that our investment strategy — refined over the years to serve our wealth management clients — is now being recognized by the industry as state of the art. From a business perspective it costs us very little to leverage our expertise to work with platform providers and other financial advisors who find us in a crowded market place of investment managers. But from my perspective as the firm’s Chief Investment Officer, it’s nice to have other professionals confirm that the investment strategies we’re providing our clients are so valuable that they want them too.
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