While public firms answer to shareholders, private wealth advisors answer to their clients. Independent firms are betting that affluent clients want more than cookie-cutter portfolios − they want fiduciaries who can act with fewer conflicts.
As more high-net-worth investors grow disillusioned with large financial institutions, many are turning to private wealth firms. Steve Cassaday, CEO of Cassaday & Company, saw it coming three decades ago. “Most people asked, ‘What’s a fiduciary? What does “independent” mean?’” he recalls.
In the early 90s, he left the wirehouse world to start his own shop. “I felt like I could be independent and offer everything in a more customized, bespoke type of approach that I was unable to do working for large firms. Reducing conflicts of interest and providing objective advice were priorities for me.” Those principles drove organic growth, and Cassaday & Company became a $6.5 billion firm with 82 employees.
And for Cassaday, it’s not just about autonomy; it’s about being nimble. “If something happens in the industry where it makes sense to do things differently, we can do that quickly and without red tape,” he says.
As life expectancy rises, affluent clients are increasingly concerned about outliving their wealth, but Cassaday doesn’t sugarcoat the tradeoffs.
“You cannot have potentially sustainable withdrawals for three or four decades without taking risk,” he says. “There’s no way to earn, at least historically, the types of returns that you must have for a long, happy, worry-free retirement without a portfolio that has some volatility.”
To address that, Cassaday & Company built hundreds of portfolio models combining four core asset classes – stocks, bonds, cash, and hard assets – in various ways. They back-tested each one using inflation-adjusted withdrawals to determine which allocations had survived the longest. Although past performance is not a guarantee of future results, the study produced some useful data.
“No system of investment management works all the time, and most have extended periods with no or very low returns,” Cassaday explains. “Since timing has not been successful in navigating changing market environments, we advise our clients to remain fully invested in a portfolio that is broadly diversified across all asset classes and to accept returns that are pretty good most of the time.”
When it comes to withdrawals, Cassaday says, “What retirees need is cash flow not income. Cash flow is a distribution based on total return, not dividends and interest.”
“Our system harvests proceed every 90 days through portfolio rebalancing. We reinvest the dividends. We reinvest the interest and then we raise cash for distributions while rebalancing the portfolio,” he adds.
Their longevity models assume clients will live to 100, and that timeline is baked into withdrawal strategies. “Although not guaranteed, a 65-year-old with 35 years of withdrawals is probably okay taking six, six and a half percent,” Cassaday says.
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