Dreamers & Doers: Hamilton Capital – “What’s often overlooked is that the practice is the engine that builds financial independence”

Q: To get started, could you please tell us about Hamilton Capital?

R. Matthew Hamilton, CFP® Chairman & CEO

MH: It’s a real pleasure to connect with you and your audience! Hamilton Capital is one of the largest independent RIAs, or Registered Investment Advisors, in the country in terms of the investment assets we manage. We’re headquartered in Columbus, Ohio, and serve a national clientele of individuals and institutional investors. And as part of our clientele, we’re proud to include a large number of dental professionals.

We serve only in a fiduciary capacity and have been providing both Wealth Management and Investment Management services for more than 22 years. Today, we have nearly 70 employees and manage greater than $2.7 billion of client assets. We’ve also been fortunate to be the recipient of many national recognitions, including membership in the Financial Times 300 for the sixth time this year. This annual list of the country’s top RIAs is described as America’s “elite.”

Q: You mentioned Hamilton Capital serves only in a fiduciary capacity. What does this mean?

MH: That’s a great question, and a really important one. Serving in a fiduciary capacity means that we always place our clients’ best interests ahead of our own. While this is good business, it’s also the legal standard under which we operate. What this means specifically is demonstrated in our business model. Our only source of compensation is the fees we receive from our clients. Furthermore, our fees are structured so that when our clients do better, we do better.

At Hamilton Capital, we don’t sell products or receive sales commissions. Too often, this can create a conflict of interest and advice gets clouded by compensation. Our goal, instead, is to minimize or eliminate conflicts even if this means we make less. I believe we’re in the minority when it comes to practicing at this level of care. The great majority of advisors are held to a more lenient standard, which often leads to self-serving recommendations that are far from optimal for the client.

Q: You aren’t the only firm out there that works as fiduciaries, but are there things that distinguish Hamilton Capital from other fiduciary firms?

MH: There are others, of course, but we believe we’ve earned our position in the industry due to 3 things. First, for the wisdom and experience of our team. Second, for our dynamic investment management process, which we believe has yielded very good long-term results for our clients. And third, a client-focused culture that seeks continuous improvement and encourages innovation. Across the board, our goal is to be outstanding at every level of the organization and to focus our collective expertise on achieving our clients’ financial goals. Our clients are always top of mind.

Q: You mentioned your team a little bit earlier. Can you tell me a little bit more about the people at Hamilton Capital?

MH: Our goal has always been to assemble and build a team of outstanding professionals who are experts in their fields. We look for thought leaders in our industry and masters of our craft. Each member has a deep calling to serve with distinction and we have an extensive professional development program that seeks to bring out the very best in each of them.

Our team is organized into practice groups. Our Wealth Management Group serves as a main point of contact for clients. This group builds financial plans, provides business advice, and serves as a liaison to our Investment Management Group. The team consists of 30 CFP® professionals or the equivalent. Some members are also lawyers, CPAs and have MBAs.

Our Investment Management Group is charged with the design and management of our clients’ investment portfolios. We carefully built this team to have the necessary expertise to implement our sophisticated dynamic investment process. The team’s eight full-time members all have master’s degrees from well-respected business schools, or have or are pursuing a CFA®, which is a graduate-level investment management certification.

Q: When you’re counseling dental clients, what are some of the insights that you hope to bring to them regarding their practices?

MH: I’d say it would be to be very clear about the purpose of their practice and what they can accomplish by building and maintaining a healthy practice. Ultimately, the practice allows them to serve patients with distinction, which is the source of a great deal of professional satisfaction. Their practice is also the source of income to meet lifestyle needs. Both of these purposes are obvious, but what’s often overlooked is that the practice is the engine that builds financial independence. It’s the source of funds to maximize retirement savings. Yet few dentists take full advantage of the retirement plan opportunities available to them. Further, it is also their largest investment and it can be quite valuable, if it is managed with an eye towards an eventual liquidity event.

Q: When you talk about financial independence, are you speaking about being able to retire?

MH: Yes, but not exactly. Many dentists retire yet constantly worry about outliving their assets. Real independence, however, is about being in a much more powerful financial position. At Hamilton Capital, we define financial independence as having the financial resources to be able to retire, whether you choose to or not without the worry of running out of financial resources.

To achieve this type of financial independence, you have to have built your financial assets to a level of critical mass. And this means 2 things: you have ever-increasing investment cash flows that keep up with inflation. And your investment principal grows throughout retirement. Said another way, you leave retirement with more financial assets than when you entered retirement. Financial independence is a very secure position that creates financial freedom, but also allows our clients to impact the people and causes they hold most dear.

Q: You speak about maximizing a practice’s value. Help me understand what you mean.

MH: What I’m talking about is a practice’s value as a financial asset. Too many dentists focus on the top line, on what they produce or bring in. But value comes from the bottom line. We call it EBOC, or Earnings Before Owner’s Compensation. EBOC is a measurement of your operating cash flow. It’s the bottom line. This is discretionary income you can spend and save. There is a big difference in value between a practice grossing $1 million and taking $500,000 to the bottom line and another one with the same production that only brings $300,000 to the bottom line.

Q: Earlier, you mentioned your management of investments, how does it contribute to financial independence?

MH: With investments, the goal is to build your assets to that level of critical mass I mentioned a few minutes ago. What matters are the cumulative investment returns you make over a lifetime. Consistency is very important because this allows you to build current returns upon past returns, so effective compounding occurs.

It’s also critical you earn high-quality absolute returns. An absolute return is the actual return you earn on capital you place at risk. It’s not about earning market returns. Financial markets should simply be viewed as opportunities. At times, they can provide very good returns, but they can also yield negative returns for very long periods. Generally, investing comes down to the fundamentals, being very clear on your investment criteria and knowing when you will put your hard-earned capital at risk.

Q: You mentioned effective compounding of returns. How do you do this?

MH: Many people have learned about the power of compound interest. Compound investment returns are similar, but with 2 key differences. One, returns are variable, and two, you can lose money—and if you are not careful, big money—from which it takes years to recover.

With our portfolios, we have two clear management objectives: We want to earn a high-quality absolute return on the capital we invest, taking into account today’s opportunities and risks. And we seek to minimize risk so losses are manageable, recovery comes quickly and future returns resume building on past returns. We focus on being consistent, disciplined, and paying attention to fundamentals in all our investment decisions.

Q: Earlier, you mentioned you were known for your dynamic investment management process. Tell me more.

MH: Industry studies have found that the mix of asset classes you own – such as U.S. large company stocks, U.S. investment grade bonds, foreign stocks, etc. – will have by far the greatest impact on investment returns and volatility. Traditionally, investment managers follow a static process where they fix their portfolio’s weightings to certain asset classes and maintain them through all investment environments – you may have heard of how an advisor “rebalances” a portfolio.

The difficulty with this approach is that the return and volatility associated with an asset class change with the economic cycle and as valuations become more or less expensive. Their performance has a great deal to do with how well these preset weightings match up with the actual investment environment they encounter.

Our dynamic process, on the other hand, is different in the sense that it treats asset classes as opportunities and not mandatory holdings with preset weightings. Our goal is to match the assets we own with the investment environment looking out 18-24 months. Therefore, we seek to overweight the most attractive opportunities, underweight the less compelling, and to avoid assets with unwanted risks. Today’s weightings could look quite different than tomorrow’s.

Through all of this our goal is to provide high-quality returns at lower levels of risk so compounding occurs and wealth is created and maintained.

Q: You mentioned a culture of continuous improvement. Are you working on any exciting new projects now? How do you think they will help people?

MH: Yes, we are and I’m very happy to share the details with you. We just launched a series of Collective Investment Funds (CIF) for Qualified Retirement Plans that we manage using our dynamic investment process. As I mentioned earlier, our approach seeks to consistently compound investment returns, which we believe is key to building meaningful retirement benefits.

Industry studies have found that individual investors dramatically underperform when charged with the management of their accounts. With our new funds, employees are relieved from the responsibility of managing their retirement accounts. Instead, these decisions are placed in the hands of investment professionals. By combining the resources of retirement plans with similar investment objectives, individuals gain increased efficiencies, including significantly lower investment costs. Lower costs can translate into higher investment returns.

Q: So, are there any other innovations on the horizon from Hamilton Capital?

MH: We’re putting the finishing touches on an interval fund that will invest in alternatives, such as private equity and hedge funds. This fund will be used to complement our strategies that primarily invest in the public markets. Over the last decade we have tended to steer away from alternatives because the public markets have generally provided more attractive returns. However, going forward, we believe alternatives will be attractive investments and an important component in most portfolios.

With alternatives, size and scale become really important. Most individuals simply don’t have the resources to meet the investment minimums of the more attractive offerings. These minimums can be in the millions of dollars and so these investments are mainly subscribed by institutions and very large family offices. We believe our interval fund will put our clients on a level playing field. Not only will they have access to these offerings, but the fund will allow them to maintain proper diversification among their investment holdings.

Q: Can you give any sort of final thoughts on why Hamilton Capital is a real good choice for dental professionals looking for a wealth management partner?

MH: There are 2 main reasons why Hamilton Capital is a good choice for dental professionals. Number 1, we’re very familiar and highly experienced with dental professionals. We have many clients who are either general dentists or specialists and we’ve been working with them for a long, long time.

The second thing is that no wealth management plan is really effective without high-quality investment returns that compound over time. There is quite a difference between projecting returns and realizing them. At Hamilton Capital, our goal is to deliver the quality returns needed to make your plan a reality.

Please Note: Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Hamilton Capital, LLC is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Hamilton Capital, LLC by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. For additional information, please visit https://hamiltoncapital.com/compliance-notice/