Compensation Philosophy

Fee-only wealth management or what we call wealth directing is considered by most as beneficial over commission-based investing. Any representative who earns commissions receives most if not all of his compensation up front. This means he is paid more to get new clients than keep old ones. At Eddleman & Eddleman, LLC, our wealth directing is fee-only. This means maintaining relationships with our clients benefits us most and as those clients’ investments grow, so does our benefit. If investments perform poorly and the assets we manage are reduced, our resultant compensation goes down.1

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Regarding our reviews and recommendations or planning, this is also performed on a fee-basis. Most financial plans today are designed to assist a representative in selling product. We have no interest in selling you anything. You pay us to tell you “the way it is,” and what your options are. We don’t think salespeople are bad, but we believe a salesperson is not necessarily the best place to get unbiased, educated advice regarding your finances.

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Investment Philosophy

There are two basic forms of strategy for investing today. One school of thought is called active management. This philosophy is based on the idea that markets are inefficient and that given enough ability or knowledge, an individual can beat the market. Such active management utilizes three main tactics including stock picking, market timing and track record investing. Statistical evidence proves that such activities are not fruitful. In fact, they drive up costs making it even more difficult to obtain even market returns.

The second school of thought is based on passive management. This philosophy is based on the idea that markets are efficient, and that no one individual has a “crystal ball.” This is the basis for capitalism and free market enterprise. This is one of the founding principles of Adam Smith who is considered by many the founder of modern economics. He said, “Market forces of capitalism will produce the best results, economically and socially, if they are not tampered with.” Jonathan Clements said it like this June 17, 1997, in the Wall Street Journal: “Investors, as a group, can do no better than the market, because collectively they are the market. Most investors trail the market because they are burdened by commissions and fund expenses.”

Using Nobel Prize winning economics means that one doesn’t work to beat the market, but rather to achieve the maximized market return verses risk. This involves use of the Markowitz Efficient Frontier, Modern Portfolio Theory, the Three Factor Model and other statistically sound methods for results. These are the techniques used for investment recommendations at Eddleman & Eddleman, LLC. 2

Service Philosophy

Some people may not realize it, but when it comes to investing, the industry has two legal standards regarding the loyalty of a consultant’s advice. Financial consultants are either acting as fiduciaries or they are not! In the past, the industry has assumed that clients knew the difference. However, a new Securities and Exchange Commission (SEC) ruling, the "Merrill" Rule, now requires that broker-dealers who claim an exemption from the Investment Advisors Act and its fiduciary standards disclose that their interests may diverge from their clients.

(See Adrian Eddleman's published article on this topic)

Harold Evensky, a founding National Council of Financial Fiduciaries (NCFF) board member noted, "This new disclosure rule is a vital step towards reinforcing the sharp historic and legal difference between a SEC registered investment adviser and a NASD registered broker. The key difference is not compensation or the number of regulations in place. It's much more. A broker and an adviser have fundamentally different responsibilities and jobs, based in law. Brokers owe loyalty to their firm, and their job is selling investment products and executing transactions. An investment adviser, on the other hand, provides advice and, by law, must put his client's interests first. He owes his loyalty to his clients.” 3

 

Archetype Investment Philosophy

The investment methodology designed by Mr. Eddleman is typically implemented through the Archetype division of the firm. To learn more about this investment methodology click here.

 

1. As a firm our compensation for asset management is typically based on a percentage of total assets managed. Though performance may affect the total assets managed and thus our compensation, our compensation is not based directly on performance. Such fees are known as Fulcrum Fees and are deemed suitable only for certain investors. 2. As always, past performance of investments recommended by the firm should not be construed as an indication of future results, which will prove to be better or worse than past results. THE CLIENT’S INVESTMENTS WILL GO UP AND DOWN, DEPENDING ON MARKET CONDITIONS. The firm makes no promises, guarantees or warranties that any of its services will result in a profit to the client or protect the client from a loss. The client may rely on information furnished by the firm to be reasonably accurate and reliable. 3. The opinions of Harold Evensky do not necessarily reflect the opinions of the SEC, the NASD, or any state licensing board including the Tennessee Department of Commerce Securities Division.