Fund-picking strategies plus concern for clients and staff help Brouwer & Janachowski shine.

It takes a good bit of confidence to bill yourselves as "fund masters," but after more than two decades of building their $600 million-plus advisory shop, Kurt Brouwer and Stephen Janachowski wear the moniker like a second skin. In fact, the name is part of their Tiburon, Calif.-based firm's e-mail address, and a nod to the fact that investment management is the leading service the firm offers its 200 clients.
If the title seems a bit over-the-top, and you're expecting to hear about market timers with a gimmicky investment scheme, you've come to the wrong story. In fact, the fund master title belies the fact that these are two thoughtful and pretty low-key guys who have spent the past 20 years building an investment strategy that is the antithesis of momentum investing. This duo's self-proclaimed fund mastery relies instead on finding great and sometimes undiscovered fund managers and sticking with them through all types of markets. In the process the partners have also figured out how to build a firm that improves the quality of life not only for clients, but for its staff and principles as well.
Clients, many of whom have been with Brouwer & Janachowski for years, talk in glowing terms about the duo's investment program and service. "It's the consistency of what they do that we like so much," says Mike Tiret, who as the managing partner of Tiret & Company CPAs, San Bruno, Calif., invests $70 million in client and company retirement plan assets with the firm. After a 20-year relationship with Brouwer & Janachowski, Tiret says there may be other fee-only advisors who can produce good returns, "but it's the consistency of those returns and the client service that this firm provides that is so critical."
That endorsement is a tribute to the careful way Brouwer and Janachowski have built their firm in the past two decades. Fund master moniker aside, these are not investment pros who spend their days swinging for the fences with client money. More than 50% of the fund's assets come from institutional clients and the rest from small business owners, executives and wealthy families.
To keep them happy, the partners, who have many second-generation and some third-generation clients, have devised an investment and service system that not only is effective but efficient. So much so that the partners and employees get to work from home regularly, sometimes for long periods of time, even when that home is in Hawaii or Hong Kong. That the firm does what it does so well with a total of only 11 staff also makes it highly profitable.
That profitability and flexibility were only a pipe dream for the partners, who met as young Merrill Lynch brokers back in 1982. They found themselves talking about what life could be like if they built a fee-only shop of their own. "Typically we were the only ones in the office after 3:00 p.m. or 4:00 p.m.," says Brouwer, who as president and CEO handles strategic planning and operations at the firm. "So we started talking and doing some joint seminars. We decided to form our own firm in 1985."
They had no clients, no track record and no one could spell the firm's name. "But we were persistent," says Janachowski. "I can remember at age 29 cold-calling the San Francisco Chronicle about money management for their retirement plan. We thought it would be great to have some big name clients. The chief financial officer at the time asked why we thought they should hire us. I told him he'd get the principals on the phone any time he called, even on Saturdays and Sundays, and that we'd get him solutions immediately. That wouldn't be the case at other firms, where he'd be working with reps, not owners."
They won the Chronicle's business in 1986 and kept it for 16 years, until the paper was bought by the Hearst Corp. Landing such clients was a tribute to the partners' diligent, hands-on approach. Frankly, it was also critical to the survival of the firm. " We had no alternative but survival. We opened our shop in downtown San Francisco just before the crash of 1987," Janachowski says. "Very few clients wanted to spin off from the brokerage house with us. It was hard, but in retrospect it was a good time, because investors were getting hammered. It made new clients open to talking to us."
The partners spent the next years building their firm client by hard-won client, but the salad days they now enjoy were still a ways off. You see, their dream of a fee-only utopia might have been clear in their heads and hearts as they hung out their shingle, but the brokerage and fund industries were a few steps behind them. In fact, there was no investment management model that didn't involve acres of paper. "People can't imagine this today because of all the platforms you have to choose from, but to sell funds required us to write individual letters that clients had to sign," Brouwer says. "The funds would then send any and all checks back to the client. To reinvest, we'd have to start all over, getting checks from clients and getting them to sign new letters."  Building and rebalancing portfolios was an ungodly task, involving filling in applications for each client and each fund by hand. But their no-load, fee-only model required it. "When Schwab came along with their first advisor-friendly platform (in 1987) it was a true step forward for us," Brouwer says.
Since that time, the pair has been perfecting the firm's investment and service models. At the core of their success is their no-load, fee-only fund mastery, which they encapsulated in their 1997 book, Mutual Fund Mastery: Wealth-Building Secrets From America's Investment Pros (Random House). The forward is by Charles Schwab (interviewed later in the book), who says that he has known Brouwer and Janachowski for years and believes their use of no-load funds and long-term consistency are integral to investment success. Of course, they're the tenets of Schwab's model and success, too, so it's interesting that they found each other decades ago. The book is being revised by the partners, who plan to self-publish it later this year.
So how does the firm deliver its consistent returns which, by the way, have beaten the S&P for years now? "What we look for is a select group of managers in the fund universe who are the top performers in their respective categories," says Janachowski, the firm's chief investment officer. "What we're looking for is undiscovered funds in their early stages, before they hit all the publications. The reason is they don't have a track record yet. But often, we know the managers and their track records because they've managed at another fund company or for separate accounts or a partnership."
The firm's method of finding managers is all-encompassing and often relies on being in the right place at the right time. "If you're using Morningstar, you're not going to find the kinds of funds we're looking for," he says. "This is really a word-of-mouth process. Once we find a fund that interests us, we contact the manager and start investigating and looking at performance."
David Winters, the veteran value-based manager who launched his world stock Wintergreen Fund in September, 2005, after leaving Mutual Series, is a good example of a fund manager with a new fund that hit the firm's radar. "We knew Dave for years at Mutual Series," says Janachowski. "When I found out about the fund, I picked up the phone and called David and asked if I could come meet him. We got in early."   
Winters has returned more than 19%, by investing in stocks all over the world. The fund's charter gives Winters the freedom to sell stocks short, invest in bonds, convertible securities and distressed securities-and decide whether or not to hedge his exposure to foreign currencies. He also engages in merger arbitrage-betting that already announced takeovers will be completed.
Other new funds to catch the investment team at Brouwer & Janachowski's eye? The three Primecap Odyssey funds, launched at the end of 2004 by the same team that has provided Vanguard's winning value-based Primecap management for years. "Vanguard's funds are closed and even though we've been using them for years, we couldn't get new clients invested," Janachowski says.
At the same time, the sheer size of the Vanguard funds forced them away from mid-cap and smaller large-cap companies and into the megacap arena, which the firm thought was less advantageous to performance. "When Primecap started their own three funds, we thought this would get them back to their roots, smaller companies," Janachowski says. "Since the funds have been launched, they've had phenomenal performance."
Indeed, Primecap Odyssey Aggressive Growth has an annualized return of 18.8% since it was launched on December 31, 2004, handily beating the S&P by nearly 5.75%. PrimeCap's Odyssey Growth and Stock Fund have outperformed the S&P by nearly 4% and 3%, respectively in the same time period.
The firm also has great staying power, when it finds fund managers it likes. The investment team started buying Selected American Shares back in 1994. It's held on ever since, making the fund a core holding in client portfolios. The fund is huge now, but Janachowski says that doesn't mean the managers, Chris Davis and Ken Feinberg, aren't still great.
No-load funds are still the investment vehicle of choice even though the fund has contemplated starting its own pooled separate account. The reason, Janachowski says, is simple: If you ask most managers, they'll tell you their funds are identical or almost identical to their separate accounts.
That reverse snobbery sets Brouwer & Janachowski apart in other ways, as well. "Our model is different than most firms," Janachowski says. "The typical financial planner uses asset allocation that looks like a pie, with a slice of this and a slice of that. We don't do that. We're not tactical asset allocators or market timers. If you ask us if we're exiting small value, the answer is yes only if we can't find a manager to do the job. I'm not interested in allocating based on where I think things are going. We want great minds who have a proven ability to make money in almost all environments."
The firm's unique mindset has rewarded its tax-exempt investors with an annualized 9.3% return over the past five years, compared with the S&P's 6.2% return. "To cut a fund, we have to find a better fund," says Rita Lee, vice president of investments at the firm. "And, yes, some of the funds we use are early rather than late to the game." At the same time, Lee explains, the firm likes to keep approximately 50% of its portfolio in value-oriented funds and 50% in growth funds.
While a few clients have asked about hedge funds, when it got right down to it "investors did not like the lack of transparency or the exorbitant costs and neither did we," Lee says. "Instead, we look for funds that have the expertise, quality and ability to act like a hedge fund." The Wintergreen fund is one such find, she adds.
With the help of technology and a great staff, Brouwer & Janachowski is able to provide seamless service to its clients and a meaningful quality of life to its employees and principles. Lee says she is a case in point. A few years back, the former Hong Kong resident ran into a quagmire with her visa and had to return to her country for months. At another company that might have meant the end of a meaningful career. But this firm used Lee's problem as an opportunity to purchase dial-in computer service, technology and Blackberries in order to allow her and other folks at the firm to work remotely. "I could dial into Tiburon, Calif., from Hong Kong," says Lee. "Now that's flexibility. That's enabling your workers to perform for you. That says a lot about the company and its partners," says Lee.
Lee's visa challenge, long since resolved, gave the company and especially the partners the catalyst they needed to start thinking long term about how to make their lives more meaningful. The result is today Kurt Brouwer works from home in Hawaii three weeks out of the month (with one week spent at the office in Tiburon). The day we spoke to him, he was getting ready to pick his two sons up at school and take them to baseball practice. The time difference between California and Hawaii allows him to start his workday at 6am and gives him afternoons with his sons on the baseball mound, kayaking or sailing. "We wanted a slower pace for our sons and ourselves and we found that in Hawaii," says Brouwer, who spoke to us from his hillside home office overlooking the ocean.
Janachowski also takes advantage of the technology to work from home a day or two a week. So does the firm's other vice president, Suzanne Williamson, who has helmed operations, administration and compliance for the firm for nine years, after working for Charles Schwab for nearly a decade. The flexibility allows her to work a four-day work week, so she can spend time with her children. "I think our holistic approach to helping clients achieve their financial goals translates into the way we run the firm," says Williamson, who has been responsible for bringing on much of the technology that has given staff their workplace flexibility and allows all 11 members of the firm to operate as a team.
"We've figured things out over time, and one key is to hire people we really like," says Brouwer, who predicts the firm's annual 20% growth rate will bring it to the $1 billion mark in the next three years.