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[Guest Post] Polaris Portfolios – Innovative Investing Towards Financial Freedom

Gen Y Finance Guy General Information 8 Comments

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Today we have a gust post submission form Mike McDermott, cofounder of Polaris Portfolios. Mike reached out to me a few months ago to pick my brain about personal finance and roboadvisors. I admitted to him that I didn’t know much about roboadvisors and haven’t written anything due to my lack of experience putting any money to work with a roboadvisor. Shortly after connected on email, we jumped on a call. I shared my journey creating the blog and then he shared with me what he and his cofounder Evan had been up to over the last 18 months. Below is their story and a little bit about the new roboadvising firm they have created.

This is not a sponsored post, I just wanted to give Mike an opportunity to share his fascinating new venture with all of you guys. It would be a perfect opportunity for you to ask questions in the comments section below.

We started out complaining about our typical corporate jobs. Evan Kulak went to Bowdoin and was working at Merrill Edge in the associate program. I went to Bentley University and had been working in finance at an IT consulting firm. We both had what others considered good jobs and made decent money – so we shouldn’t have complained – but there was no inspiration.

The commute to and from work; the idle time wasted in between assignments and tasks; the repetitive menial work and emails; the dreaded cubicle and the uncomfortable chairs. That desk, which we saw as a symbol of our imprisonment – doomed to live out our days in an office for the next 40-something years. Even with good careers and jobs, neither of us felt much inspired about the life ahead of us. It just seemed so… predictable. We spent our days at work, our nights in the gym, repeated Monday through Friday week by week.


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Eventually our conversations lead into the topic of money and investing and different investment strategies. We discussed markets, and analysts, and the well-known gurus of investing like Buffett and Lynch. And throughout our conversations with each other we found ourselves the same conclusion at the end of each exchange – the average person does not know how to invest, but we felt that they should.

Their strategies, investment choices, attitudes, and even the mediums through which they consumed news about investment markets were all just plain wrong. Of course, there are the top investors on Wall Street who make it seem easy to the average person, but the barriers preventing that same “everyday investor” from breaking into the vast, complicated, complex, overwhelming, and often scary world of seemingly “risky” investing were ever-present and at the forefront of their minds, effectively keeping them out of the game.

The coalescence of these challenges, and the need for innovative information with which to combat them, creates a dynamic market for “advisors”; people who are knowledgeable about their field and who subsequently are able to charge a premium for their advice. And yet, we found there was one glaringly evident problem – many of the advisors currently providing this much-needed service knew only just enough to know more than their clients, and that usually is not nearly enough.

It seemed pretty straightforward to us – the most common problem we saw was that human error, and more importantly emotion, tends to get in the way of making significant returns. If emotion were taken out of the equation it seems that investors’ returns increased. So, we posed to ourselves, what if instead investors were advised to follow investment strategies that were rules based? If investment choices fit the prescribed rules, you buy, if not, you don’t. Rebalance accordingly, allocate correctly, and then monitor your performance.

Through all of this we arrived at the conclusion that, by integrating our thoughts about revised investment planning, along with our original complaints about the constraints of our “9-5” jobs, we could find a way to   make some decent money on the side. We thought it over and came up with a few soundly-reasoned assumptions:

  1. Most people are not too investment savvy.
  2. Most people could gain access to resources which would make them investment savvy, but few have the desire, interest, commitment, or time.
  3. Most people are smart enough to know that they should be investing their money because wages will make you a living, but profits can make you a fortune.
  4. Most people are willing to pay someone else to do hard work for them.

So, tired of the inaccessible culture of traditional investment advice in which most people find themselves, we decided to build a better way to invest. Evan and I created a subscription, web based service; where people can access our investment strategies which were created in a framework that is grounded in the teachings of Wall Street’s own best and most successful investors. Each of the portfolios included in our system incorporates the strategies employed by some of Wall Street’s most successful investors, such as: David Swensen, Warren Buffett, Joel Greenblatt, Peter Lynch, James O’Shaughnessy, Kenneth Fisher, Michael O’Higgins, and Amy Domini.

Our clients can subscribe to our site and be provided with the holdings lists for each of our portfolios. We do the research, and our members can chose from among the available lists and create their own portfolios. It seemed pretty straightforward to us, and most of all it made sense. After all, we knew that helping to make people’s lives easier is the best way to build a successful business and gain the trust of our clients.

We were doing most of the work for our members and all that was left was for them was to download a holdings list, invest, and manage their portfolios.

We thought about going further. We thought, what if we could just do it all for them? End to end – a full on advisor. “Choose. Invest. Relax.” That’s our concept; much in the same vein as an internet advisor, commonly referred to now as a “roboadvisor.” At first it seemed like an overwhelming task to take on.

There would need to be a lot more moving parts, and much more advanced technology. We explored all of our options, started making phone calls, and doing a lot of research. It would be hard, but we knew that we could do it. Once that decision was made we didn’t look back once. We invited our third partner, Grant White, to the team and we began to pick up even more momentum. Together we have overcome many challenges along the way that accompany creating an innovative start-up business like ours.

While building out our services and developing our software, we frequently considered the impact of raising capital, something most incorrectly view as a necessity in a successful business venture. Each time we realized that it should be our last option – we wanted to bootstrap our business the entire way. A lack of outside funding forces a company and its team to be resourceful, and our resourcefulness in turn is credited with much of the progress we have made.

Choosing to self-fund truly makes you think outside the box when facing new tasks and challenges; for over 18 months we worked to design a new, automated investment service focused on helping clients achieve their financial life-event goals. The result: Polaris Portfolios, an independent Registered Investment Adviser. So whether you’re saving for retirement, looking to purchase your first home, or just hoping to grow your wealth, Polaris Portfolios will help you get there with an investment plan tailored just for you.

We founded Polaris Portfolios with the vision that professional wealth management should be available and affordable to everyone. Each of us has learned a lot from inception to launch; to squeeze every minute out of each day, to perform the tasks of every type of company role, managing and negotiating contracts, cold calling and selling, pitching ideas and presentation, managing compensation, and creating financial models and planning.

It has definitely been an exciting and rewarding journey so far. We look forward to where the road ahead may take us. Now that we have launched, we are excited to continue development of our services and to further expand our offerings. A lot of our time is now spent on business development and future plans; and we have a lot of work ahead of us.

Polaris Portfolios is the result of our desire to make the lives of others better. Money may not buy happiness, but it can help to alleviate or solve many of life’s problems. Our goal is to help our clients reach their financial goals. Wealth should be the goal of investing, not the prerequisite. That’s our motto.

Our mission is to help our clients fund their life event goals through a transparent, enjoyable, and professional investment experience. Polaris is about empowering our clients; providing full visibility and support that are so often neglected in the financial world of advising. We want to give every person the chance to become an investor and put their money to work for them.

By maintaining our platform online, we are able to broaden our reach across the U.S. Our vision for the future is just as broad. Automated investing is only the beginning. We plan to expand into every facet of the financial world one area at a time. The details aren’t public yet, but I promise they will be exciting. The world of financial technology has been exploding and it is a great time to leverage all that we have access to. We look forward to new innovations both internally and externally. Our promise is to always keep our clients priorities above our own – if they win, we win.

Mike McDermott

www.PolarisPortfolios.com


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Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a 30-something C-Suite executive. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More

Comments 8

  1. Thanks Dom for the chance to share our story! I’m happy to answer any questions or feedback from other readers. Always looking for new connections!

    1. Post
      Author
    1. We agree. Fintech will allow more and more people to become involved in managing and growing their wealth. Most people will be able to take more responsibility for their financial situations and future goals.

  2. I’d like to know how your service compares to and differs from other services, such as http://www.betterment.com and http://www.wealthfront.com. Especially with Betterment’s fees being substantially less. Are you having people buy into index funds? Or are you using individual stocks/bonds? Do you do automated tax-loss harvesting? Those are just a few questions off the top of my head.

    1. Thanks for asking Kevin! I’m glad you are looking into multiple firms, the more you know the better. Right now we are not competing with firms like Wealthfront or Betterment on fees. Our fees are still well below the average for traditional advisors. The services we offer are more robust and personalized than our competitors. We’ve built our technology to get a much more detailed understanding of each client and their investment goals. We not only know our clients better, but unlike other roboavisors, we maintain the relationship with each client long after account opening.
      Our investment strategies are much more comprehensive as well. As you mentioned, most robos simply put clients into index funds based on time horizon. We do not use index funds. Instead, we created our own rules-based equity strategies modeled after some of Wall Street’s greatest investors, such as Warren Buffett and Peter Lynch. We do use index bond and REIT ETFs to complement our equity strategies and provide you with a personalized portfolio. Recommendations for each client based on their investor personality and specific investment goal. We do automate tax-lots to minimize capital gains tax.
      If you have more questions I’m happy to answer them! You can always find more info on our site too!
      Thanks, Mike

  3. Did you need to have complete certain certifications before being able to create a RIA firm? What were the regulatory hurdles and how did you overcome them?

    1. Hi John,

      We did have to become registered investment advisors. This allows us to operate, and had to be done before accepting any investments or providing any advice. We were able to get started on things such as the website and technology, phone calls to other firms and our custodian before becoming registered. We use a compliance firm and make sure to stay up to date on all regulations that impact our business. Having an outside firm working for us has helped a lot, but it’s also a matter of staying up to date with laws and relevant news on our own. Now we are looking ahead at potential future regulations and how we will have to adapt to make sure we are in compliance with them.

      Thanks!
      Mike

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