One of the biggest trends sweeping Wall Street today was predicted more than 10 years ago by a Leawood-based money manager
It began as a whisper, a ripple so quiet that most brokers didn’t hear it. Richard Romey, however, was listening.
This was more than a decade ago, when Romey worked at a big brokerage firm. He was troubled by both the investment recommendations he was receiving from the New York office, and the returns that clients were earning on their mutual funds. Around that same time, a relatively new type of investment vehicle called exchange-traded funds (ETFs) were just starting to gain traction. Romey believed ETFs could be used to build better portfolios. However, at that time, ETFs were primarily being utilized by big institutions, and few investors had even heard of them.
Rich’s wife, Debbie Romey, who had worked at the same brokerage firm, urged Rich to write a book about ETFs. That book, Strategic Index Investing: Unlocking the Power of Exchange-Traded Funds, was published in 2004. It was one of the first books written about ETFs, and explained how investors could use ETFs to build better, lower cost portfolios.
At the same time that he published his book, Rich and Debbie founded ETF Portfolio Partners, a Registered Investment Advisory firm in Leawood. Their mission is to provide investors with a better alternative to mutual fund-based investment management. The biggest obstacle they faced when starting their own firm was educating investors about the advantages offered by ETFs. Both the book, and Rich being such a passionate articulator on the superiority of ETF investing, convinced investors to join them. The portfolio returns and exceptional client service they receive has kept them there.
ETFs are hybrid investment vehicles, in that they combine the best characteristics of traditional mutual funds with the trading flexibility of common stocks. Like mutual funds, you’re purchasing shares of stocks that represent a large, diversified portfolio. Like common stocks, ETFs can be bought or sold throughout the day, which offers greater flexibility and liquidity than mutual funds. Because of the way they are structured, ETFs have lower internal fees than mutual funds, and are more tax-efficient. The lower fees associated with ETFs can have a profound effect on an investor’s portfolio.
“Investors are aware of the commissions and sales loads when they purchase mutual funds, but the bigger cost comes from the ongoing operating expenses,” says Rich. “Every mutual fund charges investors ongoing expenses than can be 1.5 percent to 2 percent every year. Over time, that expense can amount to hundreds of thousands of dollars. The average broad-based ETF has internal fees of 0.15 percent, which is 10 times less than an average mutual fund.”
ETF Portfolio Partners is one of only a handful of money management firms in the nation that builds and manages portfolios comprised entirely of ETFs. Rich created nine portfolio strategies to address his clients’ varying risk levels. No matter how conservative or aggressive an investor is, there is a portfolio to fit their goals.
The research and portfolio management at ETF Portfolio Partners is done in house. There is no middleman, which saves investors more money. ETFs are unmanaged index-based investments, creating much greater transparency, liquidity and flexibility over traditional mutual funds, which is why their popularity is growing exponentially.
What began as a whisper in the financial industry is now a roar. In the past decade, ETFs have grown so much in popularity that they are now serious competition for traditional mutual funds. There are currently over 2,000 different ETFs, with more than $2 trillion in assets. Based on their growth rate, they are the fastest growing investment product in the history of Wall Street.
ETF Portfolio Partners is growing as well. Thanks to a stable client base and the returns they have seen, referrals now account for much of the firm’s growth. ETF Portfolio Partners now has more than $126 million under management. Rich maintains consistent contact with his clients to help ensure transparency and a positive investing experience.
“Many investment vehicles are designed with intentional confusion, which makes it difficult for investors to know how they’re actually performing,” says Rich. “About 75 percent of mutual funds underperform the market each year. ETFs are index-based, which has proven to be a difficult strategy to beat. ETFs have simply revolutionized asset management.”
Just as Rich predicted it would, more than 10 years ago.