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Joe Bogdahn |
Scrutiny of conflicts of interest in the investment consulting industry may have intensified over the past 18 months, but Joe Bogdahn recognized the problem even before 2000 when he founded his independent consulting shop. Bogdahn started his career at Investment Monitoring Services, a consultant and retail brokerage, and while he said IMS didn’t do anything wrong, his time there gave him exposure to the potential for conflicts of interest. For instance, managers would offer to run trades through IMS in order to get on a list of approved managers the firm showed to clients. IMS rejected these proposals. A year after Bogdahn left IMS, its principals closed the firm to pursue other opportunities.
In the early days of his solo effort when cash was short and he was out on the road drumming up new business, Bogdahn would stay over at clients’ firehouses where he introduced himself to pension fund board members to cut back on travel expenses. “I was saving money to hire a good person or to get better software,” he said. “It was really nice because it gave me the opportunity to get to know the people who would be receiving the benefits.” As long as there wasn’t a fire, it was like being back in his college frat house.
Bogdahn admits it’s nice to not have that situation today. Six years later, his firm is advising $2 billion of clients’ assets, with over 100 Florida defined benefit plan clients. He also has a 15-member staff to help him provide the best advice for clients. “The broker/consultant model has too much potential for conflicts of interest,” he said. “This was a venue to avoid that.”
On Pay To Play
Bogdahn Consulting is based in Florida, but also has clients along the East Coast and in the Midwest. It charges a fixed fee so nothing is tied to the size of clients’ assets. Bogdahn said clients aren’t fully aware of the pay to play issue. “The whole idea is to remove yourself from temptation,” he said. “Clients know what my fee is. It is simply outlined in our agreements.” He sends out an annual letter inviting clients to ask their auditors to review his staff’s personal tax records and his firm as a whole. The firm also launched a Web site, www.stoppayinghiddenfees.com, to educate directors, plan sponsors and other fiduciaries about pay to play.
On Managers
Bogdahn Consulting’s policy is to never have any preconceived notion of a manager. Rather, it looks at a firm’s track record, investment philosophy and process, and people. The consultant maintains a database for every search, and Bogdahn said his team discusses with board members whether they want to include other managers that aren’t in the database. The firm also looks at external databases, but Bogdahn regards constantly conversing with managers as the most effective way to stay in the know. “It’s our job to provide the best candidates for the boards,” he said. “We ask ourselves, ‘Will this be the best fit for the board?’”
Performance isn’t the primary driver for manager terminations. Bogdahn Consulting regards a senior person leaving as a more serious issue than a bad quarter of performance. Style drift is also grounds for termination. One issue Bogdahn closely looks at is when a manager gains or loses a chunk of money. “Will their process continue to work?” he asks.
Bogdahn said he is always willing to hear from managers about strategies that could work for his clients. Keeping in touch with managers also provides him and his team with the opportunity to learn. “We don’t operate with the notion, ‘It’s our way or the highway,’” he said.
On The Firm’s Growth
Bogdahn has come a long way since starting his firm. He said most clients came in through referrals or the RFP process. He is a member of the Florida Public Pension Trustees Association, which has provided great opportunities for networking. Bogdahn targets pension funds with $400 million or less in assets under management because it is a fairly underserved market. “Our goal is to not be the biggest, but the best,” he said. His clients include the Fort Myers (Fla.) Firefighters’ Retirement System and the West Palm Beach (Fla.) Employees Retirement System. “We feel like we fill an important niche in the market by staying independent and not being absorbed,” he said. “Whether a client has $1 million or $100 million, we’re going to serve them the same way.”
Personal Background
Bogdahn graduated from the University of Mississippi in 1984 where he received his B.B.A. in Business and Economics. While at Mississippi, he was president of the Associated Student Body and of his fraternity, Alpha Tau Omega, a Delta Psi chapter. He lives in Winter Haven, Fla., with his wife, Heather, and three children, Isabella, Garrison and Miles. The family enjoys boating, going to the beach and pool parties. Bogdahn is also excited about finishing up his canoe, which he is building from scratch. “I’ve been working on this for too long,” he said.