We often say that we eat our own cooking, and I think everyone understands what we mean: we personally invest in the same strategies and products that we recommend to our clients.
As fiduciaries, we’re already required to put our clients’ interests ahead of our own. Technically, I suppose it’s possible to meet that obligation while investing differently ourselves, but it wouldn’t make much sense.
What we’re really saying is that our interests are aligned with our clients.
We’ve put something meaningful on the line—our own money—to show it. We share in the ups and downs, the risks, and the over- and under-performance, right alongside the people we serve
Thanks to our new portfolio management system, I was able to take a deeper look at our clients in the aggregate and our employees in the aggregate to see just how much of our own cooking we eat—and the answers were fascinating.
Before I dive in, a few caveats (of course):
- This is a single-point snapshot, based on last Friday.
- It reflects our Private Client assets, not Acropolis Retirement Plan Solutions (ARPS), which runs on a different system.
- Some “employee” assets aren’t exactly employees—for example, my relatives’ accounts are included because I’m the trustee on one of their trusts, and compliance has to monitor those.
- I excluded Donor-Advised Fund (DAF) assets.
The first thing to note is that employee accounts amount to about 2.5 percent of Private Client assets.
As I noted, there are some non-employees in there, and I didn’t look at individual details—I don’t want employees thinking I’m snooping (that’s Compliance’s job!). And, a few Acropolis 401(k) plan participants, including me, are included in Private Client as well.
Still, I think it’s impressive. I always read about private-equity firms that commit something like one percent of their balance sheet to a new fund to demonstrate alignment, and we easily exceed that hurdle.
The second thing I found was that the allocation to stocks across clients and employees was shockingly similar—67.7 percent for clients and 68.0 percent for employees. Wow. I don’t think we could get any closer if we tried.
Of course, just like our clients, employees vary in their allocations based on familiar factors: financial needs, risk tolerance, and market outlook (hopefully in that order). If we could include more 401(k) balances, that might shift things slightly, but it’s still remarkable.
Lastly, I looked at the top 25 holdings of both clients and employees, and about two-thirds were identical. The very top holding was the same for both groups, and the top dozen employee holdings all appeared in the top 25 client holdings.
When I look at the mismatches, they make sense. Two mutual funds show up in the employee list but not in the client list—both have very low cost bases, and because the employee pool is smaller, they appear as a higher percentage. All clients have some legacy positions that we can’t sell for tax reasons, but a few rise to the top of our total assets under management.
Other differences are funds we’ve owned in the past—different (and now less efficient) S&P 500 ETFs, or money-market funds held by clients, but aren’t in the top 25 holdings.
Most of the differences are related to the employee holdings being a much smaller sample size than the client holdings. Some are due to the fact that we’ve been doing this for almost 25 years. There is also a little variation by Portfolio Manager when two approaches are nearly identical; there is no proof that one is better than the other, and the PM prefers one approach while another likes another. That’s perfectly legitimate.
But it’s also a good reminder that employee accounts have idiosyncrasies just like client accounts. I wish I could easily tally all client holdings, but there are thousands of securities. Obviously, no single person, client, or employee will hold every single one.
I’ve also been clear that I own a number of alternative investments—mostly to learn how they work. Believe me, you haven’t missed much, but the education has been valuable, and we have a white paper coming out on alternatives partly informed by my experiences. I like to say that my account is like the test kitchen, and if the recipes are good enough, we’ll serve them.
That’s another phrase we used to say more often: when it makes sense to make a change, we’ll lead with our own money. Looking at the holdings data, I can see we’ve done exactly that.
I love having this data because it truly supports that we eat our own cooking—even if it doesn’t mean that every employee owns every security that every client owns. That would be impossible.
What matters is that we’re living by the same discipline, day by day, side by side, with our clients.
