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Josh Brown: 'Standardize the Process, Personalize the Advice'

The Ritholtz Wealth Management CEO discusses his transition from broker to advisor and why client portfolios should have fewer assets, not more.

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Our guest on this week's episode of the Long View is none other than Josh Brown, CEO of Ritholtz Wealth Management. Brown's story is unique and inspiring. He began his career as a broker but grew disillusioned with the industry's skewed incentives and practices, eventually pursuing a career as an independent Registered Investment Advisor. Along the way, Brown managed to author an acclaimed book, Backstage Wall Street, and build an enormous following around his blog, "The Reformed Broker," as well as his twitter handle, @reformedbroker. Now he oversees Ritholtz's day-to-day operations in addition to his other duties, which include serving as a regular contributor on CNBC, as a member of fintech firm BrightScope's advisory board, and most recently as a technical advisor on the Showtime hedge fund drama Billions.

Introduction and Background

Origin Story "A personal crisis." Josh describes the epiphany he had in leaving the brokerage industry for the advice business after 10 years (1:20-3:41). "It worked immediately." How the Reformed Broker blog was born and led to a chance meeting with Barry Ritholtz, which gave rise to an RIA (3:42-5:21).

The Advice Business "If they haven't figured it out by now, they probably don't want to." Observations on how the advice business has changed (5:22-7:29).

"Brokerages in name only." Why wirehouse clients aren't necessarily being ill-served by the system (7:30-8:09).

Lending: The key difference between a fee-based account at a Wall Street wirehouse and a fee-based account at a traditional RIA (8:10-10:34).

How to Provide Financial Advice Telling the client "no." The difference between pushing product and offering advice (10:35-12:16).

"It's recreation; it's not a necessity." Helping clients to scratch an itch without putting their financial plans at risk (12:17-14:53).

"Financial planning is the highest calling within our profession." Ensuring clients get past the firm's public persona and truly buy into its plan and approach (14:54-16:46).

An ensemble approach to delivering advice to clients: The anti "eat what you kill." (16:47-18:58).

How to Build an Advice Firm "Barry and I don't spread out a map like Napoleon and start sticking thumb-tacks in it." How Brown thinks about strategically expanding the firm (19:04-20:45).

"If somebody comes to us in a rush, it's probably a bad situation, and we don't want anything to do with it." The advisor recruitment and weeding-out process (20:46-24:23).

Portfolio Construction and Asset Allocation "You're going to lose money. It's gonna happen. There's no way around it." The firm's approach to allocating assets and setting client expectations (24:24-27:33).

Tactical asset allocation's role in their process: "We don't believe in investment alpha using tactical." (27:34-29:33)

"What if you had a tactical model that almost never did anything?" How they built their tactical-asset-allocation overlay to help manage client behavior (29:34-33:13).

"I hope it underperforms, because most of our clients' money is not invested in tactical." (33:14-35:03).

"Every client is different, but their needs are not." Implementing a scalable asset allocation (35:04-37:08).

"You want to be wrong in such a way that it's not going to be catastrophic for the end client." How Ritholtz sets capital-markets expectations (37:09-38:41).

Managing Client Assets How Ritholtz approaches assets that clients bring in with them: "You've got a human being with their own issues." (38:42-40:58)

"The longer I'm doing this, the more stuff I want to take out, not add." Brown explains why they err on the side of excluding various types of investments from client portfolios (40:59-42:33).

"Our clients are here because they want us." Brown says fee pressure hasn't been an issue for the firm (42:34-44:22).

The Future of Advice "You're being judged on the portfolio, you should get paid on the portfolio you recommend." Brown is dubious of clients who aren't willing to pay for advice as a percentage of assets under advisement (44:23-46:50).

How a chocolatier's success reinforced the importance of consistency in client interactions: "Standardize the process, personalize the advice." (46:51-50:25).

About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.

About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research for Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.

To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com

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About the Authors

Christine Benz

Director
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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

Jeffrey Ptak

Chief Ratings Officer, Research
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Jeffrey Ptak, CFA, is chief ratings officer for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before assuming his current role, Ptak was head of global manager research. Previously, he was president and chief investment officer of Morningstar Investment Services, Inc., an investment unit that provides managed portfolio services through fee-based, independent financial advisors, for six years. Ptak joined Morningstar in 2002 as a senior mutual fund analyst and has also served as director of exchange-traded fund analysis, editor of Morningstar ETFInvestor, and an equity analyst. He briefly left Morningstar to become an investment products analyst for William Blair & Company, and earlier in his career, he was a manager for Arthur Andersen.

Ptak also co-hosts The Long View podcast with Morningstar's director of personal finance and retirement planning, Christine Benz. A full episode list is available here: https://www.morningstar.com/podcasts/the-long-view. You can find him on social media at syouth1 (X/fka 'Twitter') and he's also active on LinkedIn.

Ptak holds a bachelor’s degree in accounting from the University of Wisconsin and the Chartered Financial Analyst® designation.

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