AssetBuilder CEO Kennon Grose has an answer to $2.5B in new, daily retirement assets and it’s automated

[dropcap size=big]A[/dropcap]ssetBuilder can be considered one of the first asset managers to seriously engage with the Internet as a distribution model , setting off a trend of low-cost, investment advice delivered over the Internet. The Texas-based money management firm has provided long term portfolios to its clients using some of the most-trusted educational content around.

The firm’s Chief Investment Officer, Scott Burns had been a widely-read, nationally-syndicated personal finance columnist since 1981. As part of his writing, Burns devised the Couch Potato Portfolio— a super-easy-to-manage portfolio of equal amounts of low cost index funds. In 2006, Burns turned to Kennon Grose and the pair launched AssetBuilder.

Kennon Grose, CEO and President of AssetBuilder, joins Tradestreaming to talk about the genesis of his company, how it pioneered reality-tested low-cost portfolios before the term “roboadvisor” actually existed, and the big push his firm will be making in 2016 to address the asset management and financial needs of retirees with a novel, automated income solution.

What is AssetBuilder? What was your genesis story?

Kennon Grose, CEO of AssetBuilder
Kennon Grose, CEO of AssetBuilder

AssetBuilder is the money manager that offers a disciplined, low-cost, reality-tested approach to investing. Consider us an antidote to the ways of Wall Street. We started with a simple idea: give investors a more disciplined, lower cost, reality-tested approach. We said, let’s be transparent every step of the way, and clear away all the big fee firms that populate Wall Street. We believe that by combining the inherent advantages of DFA Funds with our use of mean variance optimization, we can add more value for a fraction of the cost.

AssetBuilder, a SEC-registered Investment Advisor, employs a long-term investment strategy. We are not market timers. Not surprisingly, we look at our relationship with our investors as long-term as well. We want to earn the trust of all we serve.

We employ a clear strategy of diversification, smart indexing and smart asset allocation to fit your reality. And although we apply science and proprietary algorithms to our portfolios, we also apply a deeply human and personal approach to everything we do. It’s a methodology that works, proven time and time again.

Here’s the creation story. Scott Burns has been a newspaper personal finance columnist since 1977, starting at the Boston Herald American. His column has been nationally syndicated since 1981. One of the most popular ideas advocated in his columns is the Couch Potato Portfolio— a portfolio anyone who can fog a mirror can manage by buying equal amounts of low cost index funds.

In August of 2006, on the night Scott committed to retiring from the Dallas Morning News, he had dinner with me, a friend and former Microsoft executive. I suggested that startingt an online RIA firm based on low cost index fund investing. Do-it-Yourself investing, he said, was a good idea for some, but most people would love to avoid the chores and responsibility, particularly if it could be done at low cost. Since its start in late 2006, AssetBuilder currently has $680 million in AUM, with 1230 clients in 46 states.

You have an impressive team — can you talk about who’s on the team, how that impacts your service offering, and how your clients benefit?

AssetBuilder is made up of people who are genuinely interested in helping their clients by putting their needs first. Unlike robo-advisors, which rely on algorithms and provide no human touch, we provide the benefit of a financial advisor to guide our clients through questions, concerns, and options. And unlike the big legacy firms, we don’t push products that our clients don’t need.

We also learned an interesting lesson along the way—people want to talk as much about the psychology of investing as they do the numbers. Something that requires a human touch.

As a fiduciary, we promote investment strategies that keep each client’s best interest at heart. That passion for serving others helps alleviate clients’ concerns about how their money is handled, so they can think about money less and enjoy living their lives more.

Because we are an organization with a no-nonsense approach not only in investing but also in how we operate, AssetBuilder is committed to a simpler way to invest. That means being up front with our clients, educating them on our strategies in ways they understand, and providing an easy and effective way to execute.

Our business was designed with the mission of advocating for everyday people who are planning for their futures–to come alongside them and provide for a better way to invest. The members of the AssetBuilder team are passionate about making sure people are treated fairly and not taken advantage of. We are here to simplify. We are here to do the right thing. We are here to help. The desire to advocate on behalf of everyday people and provide an alternative (and better) way to invest further distinguishes us from many others.

Can you talk about your portfolios (Lazy and Couch Potato, for example)? What are they and why are they different than other options out there?

If you’re a “do-it-yourselfer,” and you like the idea of engaging in the process of investing, then you may find the “Couch Potato” portfolios a great way to manage your own money, reduce management expenses, and avoid speculative thinking.

If on the other hand, you buy into the idea of index investing, but don’t want to do it by yourself, AssetBuilder is a very good option. AssetBuilder offers 8 risk-calibrated models ranging from capital preservation to aggressive growth.

AssetBuilder offers these preconstructed, risk-managed portfolios comprised of Dimensional Funds (DFA) mutual funds and cash investments. Clients select from a menu of Model Portfolios that AssetBuilder constructs using asset allocation. Asset allocation is the division of a portfolio’s investments among asset classes to balance expected risk and expected reward. These asset classes include small and large stocks, value and growth stocks, domestic and international securities, emerging market securities, real estate, commodities and government bonds.

AssetBuilder’s approach to asset allocation is influenced by the work of Nobel Prize laureates William Sharpe and Harry Markowitz, who shaped the role of financial science in investing through their development of Modern Portfolio Theory. Modern Portfolio Theory states that a portfolio diversified across asset classes offers the best opportunity for an investor to achieve the highest possible return for a given level of risk.

What’s it like building out an asset management firm from Texas? Buffett used to say that he appreciated being in Omaha vs. spending time in the NYC echo chamber. Is there a certain Texas flavor to your business?

When you reference a “Texas flavor”, the first thing that comes to mind is Main Street vs. Wall Street. People like working with people. They are not just a number! They have names. They have a story. They all have an investment experience. We work hard at listening to establish an authentic customer connection.

It looks like you put a lot of thought, time, and effort in your content and education.

We believe the credibility of our content is gifted to us by our audience. In our business, we have our customers and our clients. Customers are the people who visit and read our website content (about 29,000 people a month). Average time on site is 210 seconds as opposed to the industry average of 90 seconds. Clients are the people whose money we manage.  We have intentional strategies to service both of them.

We just made a recent change in our website. Shifting our vast content into a Knowledge Center. The search capabilities more user-centered. And we’re not kidding about “vast”— you’ve now got easy access to 20 years of Scott’s columns on every aspect of personal finance. Andrew Hallam—known as “The Millionaire Teacher”—and Dr. Amy Rogers are also helping build the Knowledge Center. They add different perspectives and address different concerns.  As we move forward, our Knowledge Center will be the foundation for future releases as we move toward predictive content tailored to an individual’s profile of interest.

In addition, with our new website, it represents Scott’s transition from providing content for our customers to being our Chief Investment Strategist for our clients and being part of the team creating a new and better way to learn, understand and invest.

How does the Internet play a role in your business?

The internet allows us to remove the geographical boundaries associated with the traditional Registered Investment Advisory model. We have built our company upon four pillars. These pillars are intentionally radiated through our internet presence:

  1. simplicity
  2. transparency
  3. integrity
  4. fiduciary

Who do you see yourself competing with?

Firms that charge high fees for their asset management services.

What’s next for AssetBuilder? New portfolios, services, etc?

10,000 people are turning 65 every day and the average investable balance is $250,000. That equates to $2.5 billion a day transitioning into the retirement market and this trend will continue for the next 17 years.

In addition to the sheer volume of retirees entering the market, we have our own clients asking us questions around the subject of retirement:

  • How do I convert my wealth into a monthly income?
  • How long will my money last?
  • Do I have enough to retire?
  • Am I going to be OK?

And behind them all—hiding in the dark—is the one question everyone fears most: “What if I run out of money?”

We have spent the last year developing a retirement solution which solves our client’s need and also represents a solution to the broader retirement market. It is designed to convert the wealth you have today into a steady and certain standard of living for retirement—monthly payout.

Our retirement solution has the following characteristics;

  • Unlike an annuity, doesn’t require the retiree to give up control
  • Personalized, dynamic, flexible and tailored to the retirees individual needs
  • Deliver current income for spending needs and addresses increased longevity risk
  • Instills confidence in retirement

We believe competition for our retirement solution will be annuities. Annuity sales in 2014 represented $236 billion in both fixed and variable annuities.

Our retirement solution is the automated investment service that takes the mystery out of retirement planning. And when the mystery is gone, you get a better return on life.

We expect to go live with this service in 2016.