Commons Capital exists because I didn't want to run a model portfolio shop. At my prior firm, the path of least resistance was always the same: take in the client's assets, drop them into a managed account built from mutual funds and ETFs, charge an advisory fee on top, and call that wealth management. It scales. Compliance loves it. The client gets a quarterly statement that looks reassuring. Almost nobody asks the questions that would unwind the whole thing.
Three of those questions, in particular, settled it for me.
The first is what diversification actually means.
I have looked at plenty of portfolios — assembled by reasonable people at brand-name firms — that hold five funds and look diversified on the cover page. Open them up and the top ten holdings are nearly identical. The same megacap names show up in the large-cap fund, the growth fund, the "core" fund, the international fund's ADR sleeve, and the so-called alternative fund. The client thinks they own twenty distinct positions. They own four or five, repeated. When that handful of names corrects, "diversification" doesn't help — because there wasn't any.
The second is what taxes actually do to you inside a fund.
This one is sharpest for mutual funds. When you hold a mutual fund, you don't decide when gains are realized. The portfolio manager does. They sell a winner in October to fund redemptions, and you — the shareholder who bought in September and didn't sell anything — get a capital gains distribution in December. You owe tax on a transaction you didn't make, in a fund that may be down on the year. Try explaining that to a client who just funded their account with a $2M wire and is being told to be patient.
ETFs handle this specific issue better — their creation/redemption mechanism largely avoids those phantom distributions. Fair point, and a real one. But ETFs share the broader limitation: the manager decides what's in the basket, not us. Individual securities work differently. We harvest losses on purpose, on the lots we choose, against the gains the client actually has. We build deliberately around the concentrations clients already carry from elsewhere. A fund — mutual fund or ETF — cannot do this. It is structurally incapable of it.
The third is what fees actually look like when you stack them.
Advisory fee on top of fund expense ratio on top of trading costs the client never sees. At a representative HNW tier, that's roughly 0.75% advisory plus another 0.7% in fund expenses plus a sliver of internal trading drag — call it 1.55% all-in versus 0.75% for a single-layer advisory fee. That gap doesn't sound dramatic until you compound it. Over thirty years on a $5M portfolio at a 7% gross return, the difference is on the order of $6.9M. I have never met a client who was told that math at the wirehouse, in those terms, on the way in.
And one more thing — not about the funds themselves, but about how they ended up in your portfolio in the first place. At wirehouses and retail RIAs, your advisor isn't choosing funds from the open market. They're choosing from an approved list, and that list is shaped by fund wholesalers competing for shelf space — through marketing budgets, sponsored conferences, "education" trips, and yes, golf outings and expensive dinners. FINRA Rule 3220 caps direct gifts at $100 per advisor per year, but the practice has long since migrated into firm-paid arrangements that don't trigger the rule. The result: the fund in your portfolio may not be the one that's best for you. It may simply be the one whose wholesale team has the biggest marketing budget and the deepest relationships at your firm. The advisor isn't really managing the portfolio. They're distributing products, with a relationship attached.
Then there are the situations where funds are not just inefficient but actively wrong. The executive sitting on a 60% concentrated position in employer megacap tech — and being sold a large-cap fund that holds more of the same name. The retiree who needs predictable income and is sold a bond fund whose NAV will swing with rates instead of a bond ladder maturing on schedule. The client with a complex tax picture being slotted into a model that ignores it.
I wanted to build a firm that did not require any of those compromises. Commons Capital builds portfolios from individual securities — individual stocks, individual bonds (Treasuries, municipals, corporates), preferred stocks, REITs, select alternatives, hard assets, and cash equivalents — chosen for the client in front of us. Tax lots are ours to manage. Concentration risk is ours to build around. Income is built bond by bond, not approximated by a fund's average maturity. The advisory fee is the only fee. Nothing compounds underneath it.
We use mutual funds and ETFs rarely — only when an asset class is genuinely uninvestable any other way at the client's scale. That is not a slogan. It is the consequence of taking the questions above seriously.
Most of the industry chose the model that scales. We chose the one that fits.
This material is educational and reflects how Commons Capital approaches portfolio construction. It is not a recommendation regarding any specific security, fund, or tax strategy. Tax outcomes depend on individual circumstances; consult your tax advisor.
