Add assets but keep costs down by using model investment portfolios

At Financial Services Advisory Inc., the mantra for clients is, ”You win by not losing.”

The same holds true for the firm, founder David Petersen said. In nearly 30 years, the firm has never had a double-digit loss on any of its investment strategies.

And that has helped maintain assets. For example, the firm went from about $425 million in assets at the end of 2007 to about $400 million a year later — down about 6%, while the S&P 500 fell 38.5%, Mr. Petersen said.

FSA, based in Rockville, Md., and founded in 1982, manages $560 million with a tactical momentum strategy using mutual funds and ETFs, with protective stops to avoid major drawdowns.

Clients will miss out on some rallies, Mr. Petersen said, but they are cautioned about that. “If you don’t get all the downside, you don’t need all the upside,” he said.

The firm’s investment strategy keeps clients in place, Mr. Petersen said. And that keeps the firm’s fee revenue in place, as well.

The 12-person firm doesn’t disclose profits but has “experienced increased profitability as we’ve added clients,” Mr. Petersen said.

The key is being able to add assets without adding to costs. One way FSA achieves that is through the use of model portfolios, Mr. Petersen said.

“We don’t do individualized accounts; we do strategies and then customize accounts using our five strategies” with different risk levels, he said.

“There’s a ton of efficiency” in streamlining money management this way, he added. “That has been a lifesaving decision for us [and] a big key for profitability.”

Mr. Petersen also believes that using just one custodian — in his case Schwab Advisor Services — is critical for efficiency because his staff can learn one system really well.

As with many advisers, Mr. Petersen is becoming more efficient with the help of better technology.

“We use Advent as our portfolio software, which we’ve been able to customize, [and] Junxure as our [customer relationship management],” he said. “We just spent a ton of money to get them to talk together [so that with] a single entry, the data goes everywhere. That’s been huge.”

The firm spends $30,000 to $50,000 a year on software consultants.

But the true cost for technology is the training and learning curve needed to use it, Mr. Petersen said.

All of these efficiencies have allowed FSA to keep a relatively low account minimum of $200,000 and handle 600 clients.

The low minimum allows the firm to capture the children of existing clients, Mr. Petersen said.

One tip on handling lots of relationships: pare back on formal account reviews.

FSA advisers may start out with regular reviews, as often as monthly, but typically go to an annual or every-other-year schedule.

“The review process is [based on] what the client needs to feel comfortable,” Mr. Petersen said.

Most settle in quickly with the help of a long track record.

“We are able to show, because we have a 30-year track record now, that [we’re] managing the volatility and the losses,” Mr. Petersen said.

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