How Wenzel Analytics is Different
Trusting an individual rather than an institution.
As a solo practitioner I attract investors who are wild animals. Wild animals are entrepreneurs and often self-employed. Domestic animals like a regular paycheck.
A boutique in a commoditized industry.
Each account is individually managed and quarterly reports individually written.
Specialty is preferred stocks and variable high dividends.
Frequently I only manage a client's fixed income allocation.
A money manager more than a financial advisor.
My focus is investments. (See below.)
Focus is on results.
While relationships are valued, the business is about returns.
Not an asset-gatherer
The primary task of most financial advisors is to gather assets. Money management is done by someone else in the back room. I'm not a sales person.
How we work together
We choose each other
There are three topics for our get-acquainted meeting. You share with me your goals and how you expect me to fit into your financial picture. I share with you some of my background, how I work, expected results and fees. If we decide to proceed, we then review the steps to getting started such as the written agreement between us, how to set up account(s) with Interactive Brokers and how to transfer funds.
Too many people choose a financial advisor for reasons other than financial returns, and too many advisors report meaningless data without a proper context for evaluating performance.
How managed separate accounts work
You open one or more accounts at Interactive Brokers after I have them send you a link. I buy and sell securities in your account according to the allocation we have agreed upon. Interactive Brokers has custody, meaning that I can trade your account but not make withdrawals beyond prescribed fees. Either of us can have Interactive Brokers periodically or regularly send you checks or deposit funds in your banking account. At the end of each quarter I mail you a report with charts, tables and descriptions of results for each allocation category. The Interactive Brokers reports are are available but typically found to be overwhelming with detail. Where desired, I meet with clients, usually over lunch, to review the reports and any other matters of concern. The three parties to this arrangement each have their own responsibilities and relationships with the other two.
Fees
Each household is charged a quarterly fee of one hundred fifty dollars ($150) plus twenty-five dollars ($25) per account. In addition, the quarterly management fee is 0.15% (15 basis points) of the valuation at the end of the quarter. If a household has multiple accounts, the household fee is prorated between accounts.
This fee schedule works out to 1% annually for accounts of $160,000 and 1.6% for accounts of $100,000. I think fees should not exceed 1%. For a single account of a million dollars the annual fee comes to 0.67% (67 basis points).
The combination of a flat fee and a percentage fee enables me to competitively manage both smaller and larger accounts. The total management fee is a larger percentage for the smaller accounts, but still enables the smaller investor to benefit from our high return strategies.
Fees are prorated to take account of significant additions or withdrawals during a quarter. Asset management fees are invoiced at the end of each quarter. There are no initial or advance fees, or fee income based on selling products or funds.
Management fees are withdrawn from your account. This provides convenience, and for IRA accounts, an easy way to pay the fee with pre-tax dollars. Interactive Brokers, the custodian, limits the amount and frequency of fee withdrawals. Interactive Brokers has a Stock Yield Enhancement Program of compensating clients 50% of the profits from stocks sold short to other customers. This no-risk program sometimes pays enough to cover for my management fees.
The fee is generally less and more transparent than arrangements where there is an asset management fee plus the advisor having commission income from funds purchased in your account.
A money manager more than a financial advisor.
While I need to be licensed by the Minnesota Department of Commerce as a Registered Investment Advisor, I'm not hired to advise but to manage your investments. I don't ask you before buying or selling a security in your account. While we may discuss or I may flag items beyond investing such as related to tax implications, estate planning, or projecting the sufficiency of assets and income for years into the future, that is not what I consider myself hired to do or know.
Most financial advisors are more expert in a broad range of financial management complexities and products, and are less focused and expert on picking specific securities. I'm a money manager. My competitors are fund managers. Most of my clients do most of their own financial management and delegate some or all of their investments to my management.
Our written agreement
To get started, each of us needs to sign this two page Agreement. The agreement calls for you to acknowledge access to these three additional documents prepared for government compliance:
1. ADV 2. IARD Brochure 3. Policy Manual
Should You Trust Wenzel Analytics?
Financial advisers often deal with trusts and trustees. (I prefer an LLC over a trust for inheritance purposes. Ask me why.) Here I want to talk about you trusting me. Most of us have been hurt by trusting someone or more often some organization who in some way was untrustworthy. Therefore, you should be careful and cautious before entering a relationship, especially one having to do with important matters such as money.
Who is Lee Wenzel? The Story
Trust is built on getting to know another person – their style, credentials and history. While formal credentials are important, we often decide to trust people based on their personal style, compatibility and life experiences that relate to our situation.
The decision to work with Wenzel Analytics, Inc. is really a decision to trust me, Lee Wenzel, President (and everything else) for Wenzel Analytics, Inc.
Formative Years
I grew up the oldest child in a rural parsonage in the Red River Valley of eastern North Dakota. At age eleven I began working for a neighboring farmer. The next summer I lived with my Dad's parents and Grandpa told me about buying two quarters of land, a tractor and four-bottom plow in 1932 and had it paid for two years later. At harvest time I was put on a new combine, the largest made. I say all that because it illustrates how and what I learned about money and investing, and the experience of being responsible for things of importance.
I learned to be diligent, to take the world and myself very seriously, which is probably why I responded to JFK as a sophomore in college, joined the Peace Corps and became an ag extension agent riding an Arabian horse through Colombian coffee bushes to help build gardens and rabbit hutches. It is probably why in my 80's I'm rebuilding a website with no plans to retire.
Early Career
After a valuable year in a Chicago seminary at my Dad's encouragement, I was looking for an alternative other than going to Viet Nam, a cause I did not endorse. We moved to Lincoln, Jan's home town, and I did a two-year Master's in Social Group Work. I became a social worker at a family service agency in Omaha, and then Executive Director of a start-up agency in Council Bluffs while still in my 20's.
We came to the Twin Cities in 1974, bought our current house in Eden Prairie, and I worked for the family service agency in Minneapolis. The executive wisely assessed that I'm not by nature a therapist, and made me the financial counselor and also put me to developing employee assistance programs.
The Next Chapter
I left to create Process Dynamics, a company that grew to provide employee assistance programs (EAP's) to about fifty companies. In response to an issue of making chemical dependency referrals and having the medical plan deny claims, The Toro Company gave me a budget and bank account and I became the case manager and purchaser.
Underlying that issue is the fact that behavioral health (and most chronic healthcare) is not an insurable risk. It is not a specific loss event, it is goal oriented and not measurable as a loss or insurance claim. Chronic health conditions have moral hazard. We can manage most but not all of what makes us healthy.
Honeywell later hired me as a corporate manager to sell and manage similar programs which I did in MA, FL, NM and CA. After five years at Honeywell, I consulted nationally for ten years on the same theme, speaking at conferences, writing articles in trade magazines (see above) and academic journals, and waiting for the phone to ring. I was (and am) a man with a cause. Profit is a precondition, not the purpose.
Origins of Wenzel Analytics
The consulting business waned as Reagan promoted drug testing and terminations instead of employee assistance programs, and as corporations took less responsibility for reframing healthcare.
I decided to do a Ph.D. program in healthcare finance, which is still an interest. I completed the course work and orals, but stymied at the dissertation. I wanted to demonstrate that acute care is served more adequately than chronic care because it is an insurable risk. I couldn't find data on adequacy of care by diagnosis. And I realized that I wasn't comfortable in the academic setting and there is little interest in redesigning the foundation of healthcare strategy. What I learned about research methodology and statistics has been valuable as an investor.
I had written software to administer the extended case management programs. From a contact in a small group of vertical software entrepreneurs, I went to work as a business analyst for data warehouse development and worked on other IT consulting projects. Not having a formal background in computer infrastructure, that worked until the collapse of IT in 2000. I was 58, too old to get a job and too young to retire. I had managed my mother's investments since 1991 when my father died, and decided to manage other people's money (OPM).
I became a Registered Investment Advisor January 1, 2002. The first year was slow. I paid $40,000 for a website development franchise where I would do the sales and design while partners in India would write the code overnight. Then the market picked up, clients came to Wenzel Analytics, and I walked away from the franchise investment. Instrumental was when I became President of the Twin Cities Chapter of the American Association of Individual Investors (AAII). I was president for thirteen years, securing national speakers for six presentations a year. (See picture below. Click to expand.)
Early Wenzel Analytics Methodology
The early years focused exclusively on equities rather than debt. Rather than diversifying allocation on dimensions such as large cap vs small cap or growth vs value, I primarily diversified based on three methodologies used for selecting securities.
Strong Rationale. Most investors pick stocks based on a good story comprised of an array of convictions as to why this is a good stock. We live by stories, and a good story is hard to resist. The problem is that story-pickers rarely beat the index funds over time. Stocks such as Tesla become priced far in excess of what future earnings can justify.
Trusted Expert. Instead of going with the story, we go with the story teller. We develop cultlike attachments not only in politics and religion, but to newsletter writers and finance personalities in media.
Yet, finding experts with consistent returns over multiple time spans is a worthy endeavor. I currently use Mida Morwa of High Dividend Opportunities for buying and selling REITS, Closed End Funds and Business Development Corporations.
Statistically Predictive. For years I used a data mining software called KnowledgeSEEKER to search for predictive criteria. I would assemble a database of maybe a million rows in Excel with maybe 80 variables or columns. The tool would create hierarchies of what combinations of variables at what range values had high levels of statistical significance. If the market had annual returns of 8%, I could get 18%. That is, until about 2009. I think larger computers and AI took away the arbitrage opportunities.
Recent Years
In recent years I have increasingly turned from equities to debt.
Preferred stocks with their fixed income returns of 10% or so outweighs the uncertainties of market volatility. All investments return either price gains (and losses) or income. It is a challenge to have clients look at the income ---what an investment will do --- rather than what it might be hypothetically sold for today. But we are not selling it today and don't know what it will sell for in the future.
About 50% of what I manage is now in preferred stocks. Over the 30 clients, I have about 1,100 positions in about 120 different preferred stocks. From the beginning of Wenzel Analytics, I've always focused on portfolios of stocks more than the individual stock.
About another 25% of what I manage is in high dividends averaging well over 10% but the dividends can be changed by the board any quarter.
Preferred stocks are microcap debt. The returns are high because the trading volume does not permit larger institutional investors. Based on the same dynamics, I've turned to microcap equities for those clients where I manage all of their investments and they are open to short-term volatility and comfortable with some losers assuming the overall returns are strong. For example, a Vardy newsletter portfolio begun ten months ago is up more than double the average of the market (measured by the 1,000 largest stocks; 49% compared to 21%).
Overlaying the Story
One result of moving from equities to debt investments is that I sleep better and spend less time reading about market projections, since they matter little. Falling prices just means we buy new positions for less but with the same dollar income. My work has become more administrative, keeping a buy list current and reinvesting dividends.
I am an analytical person—easy-going, deliberate, thorough, questioning and goal-oriented. I do my research, get organized, and then act. I am comfortable teaching, explaining and advising—with you asking questions and making decisions. However, I know that you wouldn’t be hiring me if you had the time to learn everything you are expecting from me.
Please ask if you are interested in further detail, especially about my investing experience and philosophy. There are a lot of things I am not, including an accountant, lawyer or certified financial planner.
My business motivation is to deserve your trust and respect, to see consistent and high returns for you. I thoroughly enjoy investing and the relationships this business creates.
Criteria for Trust
Trust is a credibility decision.
Since being trustworthy is so important and at the heart of the relationship I want to have with clients, I will spell out some of my personal work standards. [This was written for my first website in 2002 and I decided to keep it.]
Trust is built on 4 Cs of caring, competence, context and continuity.
Caring means that you matter to me. I'm not just managing money, I'm managing your money.
Competence means that I can do what I say I will do.
Context means putting big and little things into a proper context for forming appropriate perspectives to make decisions. We don’t want a bunch of pieces but rather an integrated whole. Our logo is about context, how one thing fits within another, and that within another.
And continuity means to reliably be there in the future and keep commitments.
Prospects are often hesitant to work with a solo practitioner is his 80's. If I become incompetent, you will probably be the first to know. If I should become disabled or die, I have a succession agreement with another money management firm that would immediately offer their services. If that should happen, your account would stay with Interactive Brokers and you could go several months collecting dividends. If you are a prospect, you would be at the same place as you are now.
My parents had several siblings who became centenarians. Vanguard sent a brochure saying many people live forty years beyond retirement. I'm counting on that.
The following questions form my personal standards for being trustworthy:
Caring
* Do I listen such that you are understood and know it?
* Do I make decisions appropriate to your specific situation?
* Am I relating in a way that we can enjoy working together?
If these things are not happening, are we able talk about it?
Competence
* Do I have both the knowledge and skills necessary to deliver what you are asking for?
* Do I have the appropriate tools, along with methodical ways of doing business and reaching decisions, to ensure accuracy and good use of our time?
Context
* Do we have the priorities right? Since finances are about juggling competing options for where the money might come from or go, am I able to give perspective so that things fit together?
* Are questions being asked at the appropriate level of depth to assure me that major implications are not being overlooked?
* How will our creation grow and adapt in the future?
Continuity
* What degree of business organization is necessary for me to reliably fulfill client commitments?
* Is my personal life being managed so that it does not intrude on my ability to be here for my clients?
* How do I guard against becoming over-extended or in other ways burn out?
How can I maintain a viable business so that I can keep long-term commitments to you?
* If something should happen to me, what succession plans are in place?
Trust Selectively – Especially Regarding Money
So even if I hold these standards, can you trust me? To answer that, you will gather data and make judgments about me. The level of trust will change over time. But even in our relationship, trust is appropriate in some areas and not others. I may be able to think and work on your behalf in most areas, which is part of being professional, while in other areas we may have a conflict of interests. For example, a higher fee might be in my interest and not yours. If the lower fee would put me out of business and you would lose a resource you value, the lower fee would not be in your interest.
My experience in corporate purchasing of counseling services was that if the vendor is financially driven, it is important to closely watch contract performance (if indeed they are the best vendor). If the vendor is service driven, it was sometimes necessary to raise compensation in order to maintain viable vendors. Interestingly, people on many different selection teams always agreed on whether the vendor was financially driven or service driven. I believe this is a service-driven practice. I have no intention of becoming a business with additional staff and growth beyond what I can do personally.
Creating a Trustworthy Relationship
How do you decide that you can trust me to work for your best interest when I am also in it for my own interest? In addition to the four Cs, I suggest the following criteria:
Trust works when:
* We have clearly defined expectations and responsibilities.
* Each party is capable of fulfilling those responsibilities.
* There is a history, plus other reasons, to believe that each party not only can, but will keep their end of the bargain.
* There are minimal reasons or incentives built into the situation, causing the other person to not fully cooperate for our best interest.
* Good data on performance and events are reviewed closely, and we share in decisions as much as possible.
* We can talk about the relationship.
Contracts
I believe the primary purpose of every contract, whether spoken or written, is to create a more trustworthy relationship.
Written agreements are helpful to clarify expectations, although too much attention to detailed written agreements makes me suspicious.
An important part of new relationships is having trust in how we say good-by. When it comes time to part, I value clients who can maintain a personal relationship while ending a business relationship.
It's about us
I am honored by the trust clients have placed in me. In becoming a client you are making very important decisions about who to trust, how far, and with how much.
I am aware that in choosing an independent practitioner you are choosing personal credibility over that of a large financial institution.
I will do my best to be worthy of your trust.