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Summit Trail Advisors is trying to show clients that smaller firms can have a wider investment reach.
Jack Petersen, New York-based co-founder and managing partner (pictured), says the ability of independent advisers to offer investment strategies and products that may be off limits to those at large financial institutions tends to be lost on investors who assume bigger is always better.
Brokers or advisers at large institutions tend to be restricted to recommending strategies or products from an approved list, he says. That was among the reasons Mr Petersen and five colleagues from Barclays Wealth Americas — which Mr Petersen previously headed for nearly two years — set up Summit Trail in July 2015.
The company has a fraction of the resources of larger peers that have hundreds of billions of dollars in client assets. But with 15 advisers in New York, Chicago and San Francisco, an internal research team of six and around $6.5bn in client assets, Mr Petersen insists Summit Trail can help clients access more investment opportunities.
Larger peers tend to endorse products managed by large asset managers, he says.
Many advisers prefer to stick with larger asset managers because of the confidence that their brands, resources and track records elicit among investors.
Proportion of Summit client assets that are allocated to ETFs — less than half the 21 per cent average among FT 300 advisers
Summit Trail prefers managers that have a strong conviction on a single investment strategy, as well as less liquid investments.
“Big managers and big funds are the enemy of good performance,” Mr Petersen says.
Big financial institutions, he adds, will not research investment ideas or products that clients want to consider if they are not already on the roster. Mr Petersen says: “If a client brings an idea to us, we may do a two- to three-page review, give an opinion and help the client make a decision.”
Around 90 per cent of Summit Trail’s clients are first-generation wealth creators. More than 60 per cent are entrepreneurs, about 20 per cent work on Wall Street or in financial services and about 15 per cent are professional athletes. The company’s average account size is around $15m per household.
In consultation with clients, Summit Trail decides how much to put in each of three portfolios: preservation, inflation and growth.
Nearly half of its client assets (45 per cent) are in separately managed accounts, typically invested in US equities, US tax-exempt municipal bonds and US taxable credit. An unusually high portion of client assets — about 30 per cent — are in alternatives. This compares with the FT 300 advisers’ average of 7 per cent.
“It is from those illiquid investments that we are generating a significant portion of our alpha; that excess return that has been adjusted for risk,” Mr Petersen says.
He also believes many advisers lean too heavily on passive funds. About 10 per cent of its client assets are allocated to ETFs — less than half of the 21 per cent average among FT 300 advisers.