In 2007, we set out to fix what we perceived to be a fundamental flaw in the financial industry: the ownership of risk.

At the time, there were two positions that had the opportunity to manage this risk.  The first was the financial advisor, responsible for knowing and understanding the client’s risks and needs.  The second was the portfolio manager, expert in understanding the risks within his investment universe.

At the time, Corey was hired as a consultant for a financial advisory firm, sitting in on portfolio manager interviews.  In one interview, he and the manager had been left alone for a short while.  In an effort to make small talk, Corey casually asked the manager his opinion on the current market.  Without hesitation, the manager said that he thought everything would be going down the drain, and soon.

While the brutal honesty was refreshing, it shocked Corey to ask how the manager would be changing his portfolio to adapt to this risk.

“I can’t do anything about it; by mandate I have to be 95% invested at all times.”

After the portfolio manager left, Corey spoke to the advisor he was consulting for, and asked him what he planned to do.

“Well, I am not an expert in that asset class, so I’ll leave it up to the portfolio manager.”

That was the moment Corey realized that the only two jobs in the industry that could manage client risk were pointing at each other as being the responsible party.  The manager claimed that the advisor had unique insight into the client’s risk tolerances, which is ultimately why he was bound to be 95% invested, and the advisor claimed that only the manager had the expert knowledge of the asset class.

Unfortunately, in 2008, we ultimately found was that neither of them managed client risk.

For as long as the industry has gone back, the mentality was that investors paid to have their money invested; nobody believed that investors would pay for a manager to sit on a cash position.

At Newfound Research, we took the stance early on, however, that retail investors would pay to have their risks managed.  If that meant that the portfolio manager or financial advisor had to sit on cash for a bit, so be it.

Since our incorporation in 2008, it has been our goal at Newfound Research to develop and deliver solutions for both the financial advisor and portfolio manager to help them take ownership of risk management, ultimately protecting client assets and allowing investors to worry less about the return of their capital and once again focus on the return on their capital.