Best Of 2016: How Meb Faber’s Robo Service Is Different

September 14, 2016

[Editor's Note: We are rerunning some of our best stories of 2016.]

Mebane Faber, the well-known quant and analyst heading Cambria Investment Management and a growing roster of ETFs, is now behind the latest robo advisor to enter the fray.

His goal is to provide investors with a part-robo, part-human offering that is truly globally diversified, product-issuer agnostic, managed by a team of investment professionals and low cost. Here he tells us why he thinks this is a solution the market needs, and how investors can benefit from it. What’s the back story behind your decision to launch a robo advisor?

Meb Faber: In general, adoption of the “pure” robos, such as Wealthfront and Betterment, has been relatively slow among advisors. Now, a lot of the ETF custodians, such as Vanguard and Schwab, have been moving into what you would call the robo space.

Vanguard's a hybrid with its advisor model, and Schwab is more of a robo allocator, with no real financial advice going on. But they have a very real structural advantage in that they can use their own funds, whereas a lot of the VC-backed ones, traditionally, don't have their own funds, so they're at a big disadvantage.

At Cambria, we've been managing money since '07. We started out with private funds, with separate accounts, but the barrier for separate accounts has always been, for us, logistical and operational. Now that the technology has caught up, we can offer the separate accounts to a wide audience, and it's operationally doable.

The big difference for us versus a lot of the other robos out there, is that, one, we're one of only four that are currently both an ETF provider and a global allocator: Vanguard, Schwab, Alpha Architect and us.

Alpha Architect did it uniquely on an interactive broker platform, but we partnered with Betterment because I thought it had, by far, the best technology and user experience. Eventually, we'll probably be multicustodian and partner with some of the other shops once they catch up. But I think Betterment is by far in the lead as far as the platform offering. Why should an investor come to Cambria instead of going directly to Betterment, or even any other robo?

Faber: We totally customize a portfolio. Betterment, and most of the traditional robo advisors, use modern portfolio theory, buy-and-hold investing. And that's fine. That's a reasonable solution. I just don't think it's the best solution. There're a lot of things they do that I think are suboptimal. But that's a more philosophical discussion. They don't tilt toward value and momentum, for the most part. They don't have trend-following exposure.

We did a white paper called "The Trinity Portfolio" that talks about the research behind the way we manage money in this offering, and how it’s different. Investors who are going to be allocating to us on Betterment will find there’re six portfolios ranged conservative to aggressive that are going to look a lot different than what all the other guys are doing.

If you look at Betterment, and Wealthfront, and the historical returns of their allocations, they're all the same; it doesn't really matter. And that’s fine—it’s a great offering, and they're low cost. But for people who want something different, and dabbling in active, as far as I know, we and Wesley Gray as well are the only ones that have the robo as well as the ETF platform that includes actively managed ETFs.

Another big difference is we like to talk to every investor before they start. That's important to get the expectations and everything else right. We call ourselves people-powered, where if you want to call us or come by the office any time, you can. It's less of just a set-it-and-forget-it running. It's like a traditional RIA, except that we're not charging a management fee, and there's no commission, so it's a very-low-cost offering. And we're also going to report performance. It's odd to me that none of the robos report the performance of their portfolios.


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