We often find that clients and prospects compare our service to what the typical stockbroker may provide. While Kobren Insight Management and your local stockbroker may both be providing investment advice and management, there are some fundamental differences in the business approach, customer focus and perhaps most important, fee structure that should be taken into consideration in making such a comparison.

All For One ... Or Everyman For Himself
While brokerage firms may provide their brokers with some stock research, the typical broker is "on his own" and must wear many hats. He is salesperson, relationship manager, marketing director, analyst, and portfolio manager all rolled into one. While they may have good intentions and genuine talent, these conflicting demands may compromise a brokers ability to provide an optimal service, depending on what the client may require. In reality, brokers work for themselves, not their firm. In fact, brokers within the same brokerage office are actually in competition with one another. It's Every Man for himself.

At Kobren Insight Management (KIM), those varied responsibilities are split between our Account Management and Research and Portfolio Management teams. Our research team consisting of Eric Kobren and myself along with 8 analysts spends its time on money manager due diligence, portfolio construction, risk management, and asset allocation. This frees our account management team, headed by Eric Godes and Dick Veidenheimer, along with 7 account managers, to focus its energies on working with our clients to make sure we are properly meeting their needs. At KIM, although a client has an assigned account manager, everyone in the organization is working together. It's all for one - you the client.

Do You Know How Your Advisor Gets Paid?
Another important distinction is how stockbrokers and investment advisors get paid. While many brokers are now moving toward a fee-based model, many are still paid by receiving a commission whenever you make a transaction. Thus, all else being equal, these brokers have a very real incentive to encourage activity by clients, whether that benefits the client or not. In addition, certain products may carry higher commissions than others, giving brokers an incentive to sell those "higher pay out" products to their clients whether it is in the clients best interest or not. For example, in a practice that has recently come under legal action, brokerage firms paid higher commissions for selling their own "in-house" mutual funds. Even if their own firms are not engaging in this practice, many outside firms (wholesalers) can indirectly compensate a broker for using their funds.

At Kobren Insight Management, we do not accept payments from investment firms to use their funds, nor do we make any money from trading in your account. The only way we earn our money is from a fee based on a percentage of the assets we manage for you. We receive no other form of payment, period. If your assets grow, our income grows. If your assets shrink, our income shrinks. Our interests and your interests are exactly the same.

Unequal Protection Under The Law
Most investors don’t realize that legally, investment advisors, such as Kobren Insight Management, have a fiduciary responsibility to act in an investor’s best interest in all aspects of the financial relationship. This is a powerful safeguard.

On the other hand, "thanks" to a regulatory exemption called the "Merrill Lynch Rule," stockbrokers who offer fee-based financial advice DO NOT have a similar fiduciary responsibility to act in the investor’s best interest in all aspects of the financial relationship.This is a critical difference, especially in light of the differences in how they can get paid as we discussed above.

Long story short, stockbrokers are not subject to the same set of regulations that investment advisors are and as a result, clients get unequal levels of protection under the current law.

We believe that Congress should enact legislation for a uniform standard of investor protection. Not only will this create a level playing field for all investment professionals, but also more importantly it will be less confusing to investors as well as providing a higher level of assurance that the right thing is being done with their assets.

Philosophical Differences In How Money Should Be Managed
At Kobren Insight Management, the most important part of what we do is understand your financial condition and objectives, risk tolerance, time horizon and a host of other personal considerations. It is a two-way street in terms of continuously exchanging information to make sure we place our clients in the most appropriate asset allocation given their personal circumstances. Once that has accomplished, we make all the investment decisions so you don't have to. If your personal circumstances change, we can modify the over-all asset allocation if it is indeed the appropriate thing to do.

What we won’t do is buy or sell specific funds on a client's orders (unless there are clear restrictions established BEFORE we start managing the account) nor change asset allocations due to a client's views on market direction.

Instead, this is the type of service a stockbroker can provide. If his client wants to buy the best performing fund over the last three years, the broker will be only too happy to oblige. After all, he may make a nice commission on that purchase and it the fund subsequently goes in the tank, it won't hurt his bank account. In fact, that client will probably call him to sell that fund and buy the next hot performer making the broker even more in commissions!

Which Approach Is Right For You?
In the end, a client has to determine what kind of service that they want when they are working with an investment professional. If you like constant action, if you want the ability to pick up the phone and sell your funds because the market "looks shaky," if you like to get calls pitching you the latest "hot investment," the service of a traditional stockbroker may be the superior solution.

But if you desire someone working on your behalf day in and day out, using an unemotional, disciplined investment approach to make investment decisions with your only best interests at heart, then working with a registered investment advisor like Kobren Insight Management makes the most sense.