Much has been written and discussed as to whether investors should entrust their portfolios to a firm that manages assets directly - i.e., performing research and making "buy" and "sell" decisions on individual securities - or a firm that offers a so-called Open Architecture solution - i.e., performing research and making "hire" and "fire" decisions on external investment managers. Despite the impassioned sales pitches we hear on the subject, there is not a single correct answer. Either approach, or a blend of the two, can make sense depending on the circumstances. We believe that the correct solution is client-specific, and so have adopted what we call a "Custom Architecture" approach to investment management.
Traditional
Many clients continue to prefer a traditional portfolio of stocks and bonds, where they are familiar with the individual holdings or where a customized portfolio can be built around an existing concentrated or illiquid position. This approach is simple, easy to understand, cost efficient, and tax effective. Davidson has a long history and successful track record in traditional investment management.
Blend
Others want to complement a traditional portfolio with additional asset classes and managers. Although this adds some complexity and can add modestly to the cost of management, the investor should experience a reduction in the overall volatility of their portfolio and an increase in their risk-adjusted return. Davidson successfully manages many portfolios using this strategy.
Open
Still others prefer to separate the roles of wealth advisor and investment manager, and want a portfolio comprised completely of external managers. They feel that the wealth advisor is most independent and objective when there is no internal investment management. When this approach is taken, the wealth advisor concentrates solely on investment strategy, manager selection, and client reporting. Fully open architecture has the greatest amount of diversification and the opportunity to build a so-called "best of breed" portfolio. While it is the most costly approach for the client, when implemented successfully open architecture models boast exceptional risk-adjusted returns. Combining our years of investment experience with our affiliation with Fortigent LLC, Davidson has the ability to deliver a high-quality open architecture offering.
