‘Human Nature is Undefeated,’ So We Doesn’t Fight it, Says Jon Robinson

Jon Robinson, CEO and Co-Founder of Blueprint Investment Partners, an asset manager and pioneer in the creation of systematic, process-driven, and transparent investment strategies for financial advisors, appeared on RCM Alternatives’ The Derivative podcast with Jeff Malec. The pair discussed the history of Blueprint Investment Partners, as well as how the firm leverages systematic investing and behavioral finance principles to support financial advisors in building successful advisory practices.

Below are some excerpts from the full interview.

An Aha Moment for Systematic Investing

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Robinson: “I, in equity research, started to see the disconnect between fundamental analysis and actual stock prices. So, I just started to ask the question of, ‘OK, wait a minute, what’s going on here?’ You know, first of all. ‘Why is the market ignoring what we’re saying, where the stock price should be? What are the drivers behind that?’ And probably, more importantly, ‘What are the most successful investors in the world doing?’ So, probably as a lot of stories go, I ended up stumbling upon ‘Market Wizards’ and a lot of Jack Schwager’s writing. And I was really, I see it as, you know, a Damascus-road-type moment where the scales fell off my eyes and you know, I can sort of see clearly. And for me it was, the things I started to see clearly were being systematic and employing a trend-following process, really ignoring the fundamentals or just assuming that they’re baked in and following price. So, we started designing, specifically designing trend following systems. And then in 2006, I moved back to North Carolina and we started Robinson Langley, which was a CTA.”

Disciplined Execution is the Power Behind Systematic Investing Rules 

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Robinson: “I’d always had an interest in markets. You know, my family is very entrepreneurial. You know, not to some, no one’s going public. But they’ve always run their own businesses. I saw that and just thought it was normal, you know. And so I always knew, at least I thought I knew, that I wanted to be an entrepreneur. The market interest sort of evolved over time. And then you know, Ed Seykota has this thing about, you know, finding a system that you’re emotionally compatible with. And so when I found systematic and something that was rules based and really, you know, once you have the rules – and they, you know, they evolve over time as well – and really the discipline to stick with the process over time, that that resonated with me the most.”

Star of the Show is the Financial Advisor, Not Asset Manager

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Robinson: “For us, what we realized was how much investor behavior really mattered for the end client. And so what we really focused on from the get-go at Blueprint is trying to make and preserve and enhance the relationship between the advisor and their client. Because as an asset manager, you know, we see the advisor and the client are the star of the show. And we are infrastructure to help them get to where they want to go to. And that’s either the advisor’s business and/or where the client wants to get to from a goal perspective. So we don’t have any, you know, preconceived notions or hubris about, you know, we’re the star because they can pick any asset manager. They don’t have to pick Blueprint, nobody has to pick Blueprint. So we wanted to win more on the basis of, OK, let’s design systems and therefore deliver strategies that keep the investors in their seats during the hard times. And for us that means avoiding those periods where their bad behavior is likely to show up the most and that’s in large drawdowns.”

Building Client-Friendly, Behavioral-Finance-Friendly Portfolios

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Robinson: “In our portfolios we don’t really use anything that’s esoteric. You know, we try to keep the portfolio simple. We try to keep it pretty commonsensical by thinking about that interaction between the advisor and the client. So what is, you know, it’s like using the inversion principle. We don’t say, you know, ‘What could enhance that relationship?’ We say, ‘What could kill that relationship?’ Right? And tough conversations about costs, tough conversations about taxes, about turnover, you know, all those things make for a tough conversation for the advisor and the client. So we tried to design things to just avoid those.”

Lessons from David Swenson of Yale Endowment

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Robinson: “We took the stance of, ‘OK, or first principle is to use to use trend following not only for a potential risk reducer by avoiding large drops but also, you know, one that allows us to shift our allocation systematically.’ So from that point, the portfolios pretty much evolved from let’s say 30 to 40 ETFs down to about 15. And we started to do some research on, ‘OK what are these endowments like Yale, for example, when David Swensen was running Yale. They have unlimited resources, virtually unlimited resources. So what do they do?’ You know, just asking these questions, trying to think laterally and look laterally. And after reading a lot of their research, and David Swenson’s books, we realized that, you know, he set up a trust that effectively invests in the eight major asset classes in low cost ETFs.”

Malec: “Are you saying, what do they do personally? Versus for the university?”

Robinson: “Yeah. Because I want to know. What they do personally is probably what they really believe and then everything else is PR.”

Malec: “And/or what they can access with less than $1 billion.”

Consciously Deciding to Reduce Complexity

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Robinson: “When you compare what we do now to what we did then, I mean, it’s night and day difference. Yes, it’s based on trend-following principles, but the implementation is nowhere near as complex now as it was then. So we have spent 15 years simplifying. Confidence. You know, all the physicists that say keep things simple, they’re actually right.”

Malec: “It’s crazy to think all these billion-dollar shops are getting more complex, more quantity, right? They’re adding more AI and machine learning, all this stuff. You’re like, hey timeout. Let’s take it the other way and build a business, which is super cool. 

How Blueprint Portfolios Allow Advisors to Customize for Each Client

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Robinson: “What we’ve done is we’ve designed a spectrum of strategies. And we are pretty agnostic to where they go on that spectrum. Now we do stuff off the spectrum, one offs, occasionally – particularly for larger relationships, you know, institutional relationships – we’ll change some things up. But by and large, we have three different vectors, you know, to access the strategies. We call them Strategic, Dynamic, and Tactical. And basically the portfolio’s look nearly identical. The speed in which the trend following shifts asset allocation is exactly the same. It’s only the degree of how much trend following has over the allocation that changes. So that, by its name, trend following has more influence over the Tactical strategies than the Strategic strategies, for example. Because you know, our stance is, the advisor has the relationship with the client. And there’s, you know, we’ll help them develop suitability to try to get at a more accurate reading of where they should be on that continuum. But at the end of the day, we allow the advisor to choose where they need to go on that spectrum.”

The Trend Toward Outsourcing Asset Management

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Malec: “What percent do you think of RIAs are the golf plus investment advice versus the golf and investment’s separate with the investment committee?”

Robinson: “There are a lot fewer firms now that put their ability to pick stocks at the forefront. Ten years ago it was probably 50/50, and now it’s maybe 10-15%. And you’re seeing that in the data around outsourcing the investment piece. I think one thing that a lot of people are paying attention to, a lot of advisors are paying attention to, is the fact that a lot of the data shows those that outsource the most grow the most in the advisory world. So you know, you just think about that on a day to day. An advisor practically doesn’t get paid any more or less for picking stocks, or you know, on a fee basis. It’s the preservation of the relationship. It’s the service, it’s anything from a surprise-and-delight gift, or round a golf, or a pie.”

Malec: “That’s some Southern stuff there. I’ve never had an advisor give me a pie.”

Robinson: “Well, I know some advisors that that would absolutely show up at your door with a pie around Thanksgiving.”