Meet Robert: Fed up with the noise, this adviser has a few secret weapons

As a first-generation Australian, and having grown up in a household that was not so fortunate financially, Robert keenly knows the importance of financial independence and wealth. 

It's what saw him study business at university, later applying for a job at NAB within its Private Wealth business. But after nine years with the bank, Robert realised that money doesn't buy happiness. 

"As an adviser at NAB, I would meet extremely wealthy families that were just miserable," he recalls. 

"From that experience, I have this fundamental belief that true wealth management is so much more than money and financial planning on its own. We want to understand people and what is meaningful to them. We want to connect clients' balance sheets to their lives."

In 2015, he launched his own practice, Baharian Wealth Management and, over time, has developed a love for quant-based investing and ETFs. 

While he uses active strategies for his clients' fixed income exposures (there just aren't short-dated floating-rate ETFs available yet, he says), Robert has given up on active investment management within equities - having sold out of his last active equities exposure - in the Magellan Global Fund - around 12 months ago. 

"For us, it's about putting the odds of success in our clients' favour. And we just don't think that's via picking stocks or via active management anymore," he says. 

In the second edition of our new series Meet the Adviser, Robert lays it all on the table and shares the ETFs that both he and his clients use for long-term success, as well as how the financial advice industry needs to change to better serve Australians. 

Financial adviser profile

• Name: Robert Baharian
• Age: 39
• Current firm: Baharian Wealth Management
• Years working as an adviser: 17
• Investment goals: I want to be able to provide for my family and children and give them the opportunity and autonomy to be able to do whatever it is that they want to do in life.
• Products used: I generally don’t think about investments as products. My portfolio is dominated by direct real estate, both passive and development. I’ve invested in land subdivisions in the past through property groups too. However, I haven’t invested in this space for a few years now. I’ve dabbled in some crypto. My liquid portfolio is made up of quantitative/factor-based strategies, primarily through ETFs and managed investments. I don’t invest in individual stocks. I also run three different companies which inherently have their own risk characteristics and profiles. So, balancing my overall balance sheet is really important.
• Biggest portfolio holding: Direct real estate investments. 

Why did you choose this profession and how did you get started as a financial adviser?

I’m a first-generation Australian and grew up in a household that was not so fortunate financially. 

My grandparents and parents arrived here from Turkey without much at all in the late 60s. It’s the classic migrant story. Ever since I can remember, I was fascinated by money. Probably because we didn’t really have much of it. 

I was about 10 years of age, and I distinctly remember sitting at McDonald’s with mum in Doncaster. It’s closed down now – the BMW Doncaster showroom sits there now. To this day I remember precisely where we were sitting, and I asked her, “Mum, which job makes the most amount of money?”

I went through high school studying business, economics, and commerce – I couldn’t get enough of it, I loved it. From here, I knew I wanted to be involved in investing. At university, I studied financial and risk management – a deep dive into financial academia. I loved it so much that I began my search for an entry-level job. I landed one at NAB working during the day and completing my studies at night school. I also started a business or two during this time.

It took me a long time to work this out, but to me, money is simply a means to an end. It’s a tool, an enabler that allows us to do things. 

And since this realisation, I feel like my job is not only to manage people’s money but to also help them articulate and gain clarity on the purpose of their money. What is it that they are really searching for? I feel like my job is far deeper than just the money. And this is what gives me great joy. 

What do you believe makes you different to other advisers in the industry? 

I believe our industry is really about relationships. Being genuine is super important. Yet being comfortable being yourself can be really hard. There are so many expectations of what someone in our industry needs to look like, how they should speak, act or just be. Ever since starting Baharian Wealth Management, I have never felt freer to speak my truth. I feel like I can be absolutely open, transparent, and truthful to people.

I think I look at relationships more deeply. I feel the process is more personal now - beyond the money. Sometimes this backfires, there are folk who don’t want this, and that’s ok too. 

I also have a hard time trying to sell an idea to a client if I genuinely can’t convince myself of it – I’m not a very good liar. I think people can sense your conviction when you truly believe something. 

I believe that if something is good for me, it should be good for clients, and vice versa. And this partnership/co-investment philosophy means we’re all in it together.

Can you share a bit about your process for building portfolios and selecting investment products?

It all starts with the purpose and intention. What is it that we are trying to achieve and why? Deciding whether we’re going to take the car, train, or plane without knowing where we are going is kind of pointless.

We then design the asset allocation to support these goals and priorities. How much risk can one tolerate? How much risk can they take? How much risk should they take? We spend a lot of time and undertake a lot of work to understand risk – tolerance, capacity, and risk required.

Finally, we use a systematic/quantitative-based approach to drive the asset allocation. We rely heavily on evidence. Ironically, our industry is one of the very few industries that more or less ignores all evidence when it comes to investing.

When it comes to equities exposures, we use ETFs and rules-based funds. I think of market-cap-weighted ETFs as momentum strategies - you are buying the companies that are going up, and selling those that are going down. I know people think that's "buy high, sell low", but there is a lot of evidence supporting the momentum factor as a persistent investment strategy. 

Currently, our fixed income exposure is slightly different. Our fixed income exposure used to be made up of index-based exposure, which in hindsight worked extremely well for us and our clients. 

We made a call about 18 months ago to switch this exposure given the duration risk we held through our investments. We wanted to shorten our duration and increase our credit exposure, and through this process, we weren't able to find any suitable investment solution that was able to do what we wanted whilst applying our rules-based methodology. 

As a result, we decided to use PIMCO as our manager of choice for our "core" fixed income exposure, both in Australia and globally. What we really liked about this was that it was a quasi index exposure with the ability to dial-up and down the duration, with certain limits - so it couldn't blow with the wrong call. I guess it was the rules we liked. 

We then complement this exposure with managers such as Realm, which manages our Australian credit, and Bentham, which manages our international credit. Further to this, in circumstances that allow, we further diversify in private real estate debt which is unlisted and provides a great source of income. I think this is an asset class that is very misunderstood by traditional equity and fixed income folk.

Managed Fund

PIMCO Australian Bond Fund

Australian Fixed Income

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Managed Fund

PIMCO Global Bond Fund

Global Fixed Income

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Managed Fund

Bentham Global Income Fund

Global Fixed Income

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Can you share two of your “go-to” funds with us? 

Vanguard MSCI Index International Shares ETF – (ASX: VGS)

This gives our portfolios an excellent starting point as a core exposure. We would typically allocate around 10-15% of our clients’ total portfolios to this ETF. A dirt-cheap, globally diversified portfolio of assets. The management fees on this ETF are 0.18% per annum.

ETF

Vanguard MSCI Index International Shares ETF

Global Shares

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BetaShares Global Quality Leaders ETF – (ASX: QLTY)

The days of having to pay a fund 2% to gain exposure to a global quant-based strategy are long gone. We can now access these strategies via a cheap, systematic, listed instrument. We have increasingly been allocating to this ETF over the past 12 months. The management fees on this ETF are 0.35% per annum.

ETF

BetaShares Global Quality Leaders ETF

Global Shares

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How do you discover new managers and investment opportunities in a market saturated with products and issuers? What makes a manager stand out?

This is part of the problem and challenge for investors. There is always so much going on. It’s like visiting a Las Vegas casino. Where the heck do you even look!? The colours, the bright lights, the noise, it’s enough to make you go nuts.

There are really only a handful of strategies that have stood the test of time. The rest is just noise. Did you know that over a 15 year period only about 45% of funds survive? In other words, 55% of funds close down within 15 years. Isn’t that crazy?

And for this reason, I think it is imperative that advisers and investors have a very clear investment philosophy and methodology. We have a very clear investment strategy, one that is based on evidence, which cuts out about 90% of the noise.

A pitch deck from a fund manager arrives in your inbox, what happens next?

To be brutally honest, not much. It depends on where it came from. If it's completely unsolicited, it’s generally deleted. If it's through a contact or my network, I’ll always look at it. I’ve never met a manager whose fund has underperformed their chosen benchmark. And so, I think it’s super important that we kick the tyres internally. We’ll run the fund through our internal software and give it a test. Generally speaking, there’s a lot of good marketing in our industry. My starting point is always a sceptical one, and so it takes a lot to convince me otherwise. I’ll always ask myself, 'Would I invest my personal money into this thing?' 

We also have clients bringing opportunities to us. We’ve invested in some PE and VC deals this way. There’s a lot of "who you know" that plays a key role in those asset classes, I think.

How would you describe your personal investment strategy?

Great question. I compartmentalise my portfolio to align with my personal goals - it’s very structured. I have real estate because I wanted it to satisfy a need. I didn’t have a view that real estate was going to outperform. 

I don’t hold any defensive assets. I’m too young. I don’t care what happens in the short term. I’d happily ride volatility and illiquidity. So, I’m all in for risk. The task for me, however, is how do I break down the risk within the risk. 

I touched on this earlier, but running businesses have a higher degree of risk, and so I have a portfolio of liquid investments that are made up of global listed investments that I believe are lower risk. 

I believe in compounding returns. I don’t hold much cash. I use leverage. I don’t pick stocks. And I like taking opportunities when they arise. 

I like testing the waters with things because I am a steward for people’s wealth, and so I take it on myself to put my money into something first before I put my clients into anything.

What are the top three holdings, in percentage terms, in your personal portfolio and can you tell me a bit about why you hold each of these positions?

Dimensional Australian Large Company Trust – 15%

It’s a clean, simple and cost-effective way to gain exposure to the Australian market with some factor tilts that have generated consistent alpha. This fund is an actively managed quant-based fund, which provides index-like returns, but with a little more alpha and without human bias.

Vanguard MSCI Index International Shares ETF (VGS) – 10%

It acts as my global anchor, and I can build exposure around this core holding.

ETF

Vanguard MSCI Index International Shares ETF

Global Shares

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iShares Global 100 ETF (IOO) – 9%

This sits alongside my VGS exposure and concentrates on the biggest and the best 100 companies around the world. I think this is one of the cheapest products in the market and a great momentum strategy.

ETF

iShares Global 100 ETF (AU)

Global Shares

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Could you tell me about your worst investment? How did you deal with this falling position or fund?

Will my wife see this? Where do I start? The RAMs IPO (acquired by Westpac in 2007), Murchison Metals (acquired in 2014), Zip Co (ASX: Z1P), the list goes on. I’ve lost hundreds of thousands of dollars in the past, taking the advice of brokers, picking the next winner, or just having FOMO. I’ve learnt a lot from these experiences, and I think it’s helped me become the investor I am today and a better adviser to clients. Although I bought Bitcoin in 2021 at, I think, precisely the top – ha!

What conversations are you most frequently having right now with clients? And what is your answer to these questions?

I’m quite proactive with our clients. I write to them weekly. This gives me an opportunity to provide a point of view on whatever is making headlines at the time. It means we generally address any market-related queries proactively without our clients wondering what this means for them. Having said this, the most topical questions we are receiving are:

Are we going to have a recession? Should I sell my investments?

My response: Of course, we will. Will it be in the next 12-18 months? Maybe, who knows. History tells us we have a recession, on average, about every 3-4 years. And they last around 18 months. Since WWII however, we've gone an average of about 5 years without a recession. The last one was less than 24 months ago, and the one before was almost 15 years ago. 

These things never play out on averages. In fact, the average return in the stock market is about 10% per annum. However, the stock market has returned 10% per annum in only a handful of years. You’re more likely to experience a double-digit loss in a given year than a return that’s close to the long-run average. And more than one-third of all years have seen a gain of 20% or more.

History says there's a 37% chance of a recession in the next 18 months. The real cause of the recession won't really be known until after the fact. Even then, well, we may never know what really caused it. Just like the stock market, averages are averages because that's what they are. We also know they don’t last forever. 

If 2020 taught us anything, it’s that trying to time the market is a very dangerous game to play. We’re going to ride it out. The portfolio was designed with this risk in mind. 

You’ve got cash to help fund expenses/You’ve got time on your side to see this through and you don’t need the funds.

The geopolitics in Russia and Ukraine are all over the news, should we be doing anything?

When we look at the data, we see that geopolitical events unfold all around the globe far more frequently than what is perhaps originally thought. What is obvious to me after seeing the data, is that the long-term impact on financial markets is almost non-existent. Here are some of the facts:

• The median duration of a sell-off during such events is 15 trading days.
• The median duration to recover to the level prior to the event is 16 trading days.
• The median drawdown is -5.7%.
• The median return 1 week from the bottom is 3.3%.
• The median return 1 month from the bottom is 6.7%.
• The median return 12 months from the bottom is 13%.

From this, we can deduce: 

• Over the short term, markets react to news.
• The market doesn't take too long before it recovers to its prior levels.
• Corporate earnings and revenue are the factors that influence share prices over the long term.

The challenge this time around for markets is that they were already trying to deal with inflation and higher interest rates coming off the back of a stellar few years in the market. Although some aspects of the data surprised me, others didn't. The obvious one is the market's ability to evolve, adapt, improve, and grow, even in the face of adversity. 

The challenge for us as investors is to look beyond the now. By the time you and I can react or respond to the news, the market has probably already priced in the information. It does it pretty quickly and pretty well.

What are the most common mistakes you see in the portfolios that you inherit and how do you go about fixing them?

Great question. The “mistake” is only my point of view of the situation. I’m sure there is always a good reason for certain holdings or the way the portfolio was designed. I would say the portfolio has just been managed differently. 

These differences include: 1) thinking they can consistently, and over long periods of time beat the market, 2) investing in high-cost funds that underperform, and 3) lack true diversity.

It’s an education process, and it takes time. Early on, as a young university student, I spent years looking at financial research, speaking to brokers, and losing hundreds of thousands of dollars betting it all on stocks. I remember when I was 23, a broker convinced me to invest in the RAMS Home Loans IPO. After the stock fell 80%, he called me and tried to convince me to buy more, because Westpac was taking the company over. That was the straw that broke the camel's back, so to say, and got me interested in a rules-based methodology.

I spend a lot of time going through facts, figures, and evidence. I try and present this data in a simplified way. Eventually, when clients see the data, they make decisions themselves. I think part of what I’m here to do is to empower people to make confident and thoughtful decisions with their money. 

I tell clients that instead of trying to beat the market, let’s make sure the market doesn’t beat you.

If you could change one thing about the industry so that it can better serve Australians, what would that be?

Wow. This is a tough one. Just one? I feel like our industry and profession is treated with little respect by regulators. I feel like advisers are like rag dolls being pulled in all sorts of directions. Rules come in, and rules get thrown out. More rules come in, then get thrown out. 

We have no stability, no certainty. We have over the top and impractical standards that are being set in how we must operate. And no one wants a bar of it. Insurance premiums are going through the roof, regulators imposing levy after levy, and business owners are left holding the bag. 

We need simplification, not more complexity. Rant over.

Can you share a personal passion or ambition you have for your future?

I run a company called The Good Company. It’s a profit for purpose food company. We use profits to help fight poverty and hunger around the world with our partnership with The Hunger Project Australia. I’d love to be able to contribute to human consciousness and global change, albeit in a very small way. It’s been running for around six months, we have some products in retailers around Melbourne. You can check it out here. 

I quit my corporate job to spend more time with my family, and ironically, have ended up starting two new companies afterwards. It’s really important for me to spend quality time with my family and explore new places during holidays. 

Robert and his family. Source: supplied.

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