Simply Different
By Chris Lafayette, CFA
It’s always fun speaking with prospective clients. Typically, people end up in our office for the first time because someone said they should talk to Trust Company of Vermont. One of the first questions out of their mouths is often, “What exactly do you all do?” This is when we list our services: Trust Administration, Estate Planning, Retirement Planning, and Investment Management, but the fun part is when we get to the fees, because we offer all of these services as part of one standard fee schedule. However, this focus on simplicity and fee reduction doesn’t end there, it’s a driving force in our investment process as well.
Depending on the prospective client, the discussion of our investment process can be high-level or incredibly nuanced. However, no matter how deep we dive into this discussion, the core tenets of our investment process remain the same: maximize after-tax returns for clients while minimizing detractors from this objective, namely fees and transaction costs.
The first way our portfolio managers accomplish this goal is by eliminating high-fee, volatile-return asset classes. Hedge Funds, Real Estate, and Commodities are asset classes with unique strategies and the potential for large returns through the use of derivatives, leverage, and concentration. However, the single most common feature of these types of investments is that their managers charge a significant additional fee, on top of an investment advisors fee. These fees add up, and over time, have led to the average fund in each category generating lower net returns than public stocks over the past decade.
Once we have explained to a potential client why we use a combination of public stocks and bonds in a portfolio, we focus on how we invest within these asset classes. At this level, our preference is to own individual stocks and bonds. Direct ownership of individual securities eliminates the second layer of fees inherent in funds and allows us to pick which securities to sell tax efficiently when distributions are needed. These positions are also viewed within the context of an estate plan, which incorporates the tax impact of the generational transfer of assets.
Our in-house estate planning attorneys work with both a client’s attorney and our portfolio managers, as we consider various types of trusts, gifting, and titling strategies all directed toward achieving the best outcome for our clients and their beneficiaries. This integrated model sounds complex, but when we explain the alternative of hiring service providers in each domain, and having them work together, the unified solution usually resonates with prospective clients.
Ultimately, it’s Trust Company of Vermont’s ability to demonstrate our expertise in these areas that determines if a prospective client chooses to work with us. We strive to explain a basic value proposition, and highlight that fragmentation is often synonymous with higher fees. As we turn the calendar onto our 25th year of existence, we appreciate that many of you have been clients for a significant amount of time and are far removed from that initial meeting. Thus, we’d welcome the opportunity to again explain how we work in your best interest and what differentiates us. If we have achieved our ambition, then our focus on simplifying the financial side of your house will have brought you the peace of mind that comes with knowing a trusted team is working on your behalf.