David J. Huber, CFP® founded Huber Financial Advisors, LLC in 1988 and has seen the financial-services industry transform before his eyes over the last 35 years. He and I had a chance to talk about his perspective on the industry, financial advice and his company’s growth over the years. The following is an excerpt from our discussion, which took place in the company’s Lincolnshire, Illinois headquarters.
What did the advisory profession look like when you started out?
When I started out in this business back in the 80s, the advisory profession was almost exclusively offered through brokers. Not surprisingly, I got my start working on the brokerage side and my compensation was based on sales commissions. I wanted to sit on the same side of the table as my clients to provide solutions that were unbiased.
In the early 90s, a new practice model emerged where advisors charged a single fee for wealth management and financial planning. Huber Financial was one of the first firms in the Chicagoland area to join Schwab’s platform that supported independent advisors. This allowed me to sit on the same side of the table as my clients and Huber Financial, through Schwab, had the back-end systems to support its fee-only model.
Why did you choose a fee-based model for Huber Financial?
A little more than 20 years ago, we started to see more investment options for fee-only advisors. There were low-cost funds from several asset managers that didn’t pay commissions and had low underlying expenses. The industry was used to seeing mutual funds from other asset managers with high front-end loads and substantial underlying expenses.
We switched to a fee-based planning model at the right time and got in on the ground floor. Clients enthusiastically accepted it and thought it was a tremendous idea. Huber Financial has always used independent non-propriety funds and our investment philosophy evolved toward an evidence-based approach that is executed through lower-cost mutual funds and ETFs.
You can see the evidence is in our growth. We went from a nominal amount of assets under management in the early 90s when we originally joined forces with Schwab to over a billion dollars under management in 2016. Fee-only advice has obviously gained acceptance and now we’re seeing the rest of the financial-services industry trying to mimic and duplicate what we do, but they can’t because of their inherent conflict of interest. The advisors on the brokerage side (the Merrills and Goldmans) are being told that they need to sell a certain percentage of the company’s proprietary products. Frequently, clients don’t realize that they are getting double dipped on fees—paying a fee for the advice and additional high fees for the underlying mutual fund. It’s an expensive proposition for the client.
How have investors benefitted as the industry evolved?
Investors are in much better shape as costs have come down significantly. Back when I first started in the business, you could execute a transaction and the fees could be as high as three or four percent. Now you have a proliferation of index funds that charge less than one-tenth of one percent. Clients might not see it, but the fees they pay for the investments in their portfolio have a direct negative impact on their returns. The effect adds up considerably over long time periods. Today, there’s much better transparency. We’ve always been as transparent as possible, but unfortunately, we see a lot of investors who are not being served in a transparent manner and end up paying for it.
Do you think investors are better consumers today?
I read an article about the outflows from actively managed funds and almost all of it was going into index funds, so there’s no doubt that consumers are much more aware today about how markets work and how they are efficient. The cost savings you can get from using low-cost index funds and similar investments is significant. Compare that to 25 years ago when there were very few index funds and they weren’t very popular. Today, the industry has completely flipped around and I think that trend will continue.