First Ascent’s portfolios generally feature a handful of funds with very low expense ratios — offerings from Vanguard feature prominently in the core allocations. Satellite holdings are added “only if we have a high conviction,” says MacKillop. All told, the Global Explorer Portfolios carry expense around 15 basis points.
“The expense ratios end up being around 50 to 60 basis points lower than what our competitors generally start out with,” MacKillop says, adding that the portfolios are rebalanced once a year. “Rebalancing has become an accepted part of what asset managers do, but we rarely stop to consider that we’re increasing the expenses within the portfolio without paying attention to whether we’re rebalancing at an optimal time. It’s hard to argue that frequent rebalancing adds value. When you start with few positions in low-cost funds that aren’t traded very often, and add on our low, flat-fees on top of that, we’re creating a 1.5 percent advantage over a lot of our competitors at the beginning of the year.”
The firm is also offering investor education via the web. First Ascent has launched a public YouTube channel that features short videos on the basics of investing.
“We’re trying to address financial literacy and create the course that we all should have had in school but never did,” MacKillop says. “These reinforce many of the basic messages that advisors are hopefully giving to their clients, and they do so without trying to sell anything. We don’t even really mention our firm.”
MacKillop says that First Ascent’s portfolios are ideal for the new breed of flat-fee or retainer-fee financial advisors, but will also attract traditional wealth managers.
The flat-fee approach is an educated gamble for a 40-year industry veteran like MacKillop, who acknowledges that his firm will need to bring upwards of $300 million in assets under management to reach the break-even point.
“The idea is to roll with this until it does make a profit,”MacKillop says. “I think we’re going to make it up in time. Our fees, our offerings make us different on day one.”
Currently, First Ascent is under contract to offer its portfolios on Envestnet’s platform, and is in discussions with other platform providers.