Case Studies




Brokerage Firm “Solution” Goes Awry

Stock Broker Pushes Separately Managed Account (SMA) Program

Problem: Ineffective and Expensive Brokerage Firm “Solution”

  • Opaque fee structure
  • Broker is a high priced delegater
  • Undetected style drift
  • Lack of proper portfolio re-balancing–creating undue risk
  • Investment decisions based on “yesterday’s winners”

Solution: Created a Cost and Tax Efficient Portfolio


Man questioning his financial futureA Much Needed Portfolio Check Up

At the suggestion of a client, Dr. Care scheduled a complimentary consultation with one of our investment advisors. At the time of his visit he was 60 years old and a partner in a multi-specialty medical group. The doctor was concerned about a lack of communication with his broker and an unclear investment strategy. His brokerage statement was very confusing with references to numerous money managers, hundreds of investments, lengthy footnotes and is printed on over fifty double sided pages.

The Separate Account Management “Solution”

Years earlier, a stock broker moved his sizable retirement and personal investments into a separate account management platform allowing him to “quarterback” the relationship. In essence, the broker would receive a rather large management fee for the privilege of outsourcing investments to external money managers. These external manager solutions, (including an illiquid limited partnership), came with significant management fees as well, though not obvious to the doctor, as they were embedded in the outsourced products.

The Reality of Separate Account Management Platforms

Dr. Care was paying a substantial amount of money to participate in the separate account management program. Whenever questioned, the broker would repeatedly preach his portfolio diversification mantra as justification for his actions. Here we agree in concept. However, instead of benefiting from proper diversification the portfolio was actually experiencing undetected style drift. The outsourced managers, independent of their mandate, were collectively chasing “yesterday’s” winners and effectively increasing portfolio risk, not lowering it. In addition to failing to properly “manage the managers” the advisor had failed to periodically rebalance the Doctor’s mix of stocks and bonds. Unfortunately for the doctor, portfolio risk was expanding on all fronts as his ability to accept risk was steadily declining. Had the broker carefully and fully explained the “all-in” fee structure of the relationship? Was the broker improperly incented to “push” certain product? Was there any attempt to maximize after-tax performance? Did the broker maintain a current profile on the client? Was the broker acting as a client fiduciary? We do not know for certain. Unlike a registered investment advisor, the broker was only bound by a suitability clause that did not legally require the advisor to act in the best interests of their client.

Engaging PWM, a Registered Investment Advisor

After terminating the broker relationship, the doctor engaged PWM’s services. Our first step was to move investment accounts to a preferred qualified custodian. Terminating the broker relationship produced an immediate cost savings. We also addressed the unsuitable asset mix that had manifested over time by reducing equity exposure and reallocating sale proceeds. Tax losses were “harvested” and inappropriate and tax-inefficient holdings were liquidated. Dr. Care’s new investment strategy reduced equity risk, without incurring a large tax liability, and positioned new bond purchases to compound on a pre-tax basis. These initial steps created a foundation of trust that has lead to a long and rewarding relationship.

Fast Forward

Dr. Care has comfortably retired from his medical group, but not from medicine. He is now the Medical Director for a not-for-profit healthcare facility dedicated to helping the underprivileged in his community. We are proud supporter of this organization. Working together, we helped Dr. Care achieve goals beyond those related to investments. We secured his future and in return he now works to secure the future of those less fortunate than us.


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Please note that the case study above was selected to demonstrate the type of analysis that we could perform for our clients. This is in no way an endorsement by an actual client.  Additionally the client is not endorsing our services and may or may not have a positive experience with our firm. Due to various factors, including changing market conditions and/or applicable laws, the presented material(s) may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in the presented material(s) serves as the receipt of, or as a substitute for, personalized investment advice from PWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.