Review of Freestone Capital Management

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Updated on Wednesday, April 29, 2020

Freestone Capital Management is a registered investment advisory firm headquartered in Seattle, with additional offices in San Francisco, Santa Barbara, Calif. Sunnyvale, Calif. and Portland, Ore. With over $5.4 billion in assets under management (AUM), Freestone provides both investment advisory and wealth management services to its client base of largely high net worth individuals.

In addition to traditional investment strategies, Freestone believes in diversifying client portfolios even further, and employs a number of private funds covering investments such as manufactured homes and affordable housing.

All information included in this profile is accurate as of April 29 2020. For more information, please consult Freestone Capital Management’s website.

Assets under management: $5,401,931,749
Minimum investment: No required minimum, though generally $500,000 or $1 million preferred
Fee structure: Typically a percentage of AUM; commissions; performance-based fees
Headquarters:701 Fifth Avenue
74th Floor
Seattle, Washington 98104
https://www.freestonecapital.com/
(800) 990-3001

Overview of Freestone Capital Management

Freestone Capital Management was founded in Seattle in 1999 by Gary Furukawa, a former broker at E.F. Hutton and Smith Barney. The firm is named after a freestone river, considered an auspicious spot for fly fishing, a hobby of Furukawa’s.

Furukawa started the firm because he wanted to provide holistic financial planning to his clients and go outside traditional asset management. The timing of the firm’s founding coincided with Seattle’s tech boom, and many of the firm’s clients were drawn from that industry.

Today, Furukawa and his wife Della own between 25% and 50% of the firm through Freestone Capital Holdings, and employees of the firm own the remaining amount. Freestone has 67 employees, 26 of whom serve in investment advisory and research roles.

What types of clients does Freestone Capital Management serve?

Freestone’s clients are largely high net worth individuals and individual investors. (For reference, the SEC defines high net worth individuals as those with at least $750,000 under management or a net worth of at least $1.5 million.) In addition, Freestone provides investment advisory services to pensions and profit-sharing plans, pooled investment vehicles, charitable organizations and corporations.

While Freestone doesn’t have a hard minimum account requirement, the firm does believe that given its investment strategy of alternative asset classes, it’s best suited for those who are able to invest at least $1 million (or $500,000 for clients who are referred through Schwab Advisor Network, a client referral program that Freestone participates in). The firm prefers to work with clients on a discretionary basis, meaning Freestone is allowed to make trades in their portfolio without getting prior approval each time, but can work on a non-discretionary basis in some circumstances, notably with managed accounts.

Services offered by Freestone Capital Management

Freestone Capital Management’s offerings center around investment advisory and wealth management services.

Through its asset management services, the firm combines its expertise in traditional and alternative asset classes with third-party expertise in domestic and global equity, domestic and global fixed income and alternative investments. Based on an understanding of a client’s financial goals and objectives, risk tolerance, time horizon and liquidity needs, Freestone develops a personalized investment plan.

In addition, Freestone offers wealth management and financial planning services to its advisory clients, usually at no additional cost. The level of service offered may depend on the amount of assets the firm manages for the client as well as how complex the client’s situation is, but may extend to areas such as tax planning, estate and trust planning and philanthropy. The firm also may recommend outside professionals to provide additional services.

Here is a complete list of services that Freestone Capital Management offers:

  • Asset management
  • Wealth management and financial planning
    • Retirement and benefit plan solutions
    • Credit and risk analysis
    • Insurance planning
    • College planning
    • Corporate benefits, including advice on stock options
    • Business valuation
    • Tax planning
    • Estate and trust planning
    • Philanthropy

How Freestone Capital Management invests your money

To invest its clients’ assets, Freestone Capital Management uses a combination of internally managed model portfolios; model portfolios developed by outside firms and managed either by Freestone or outside firms; and alternative investments, including private and third-party funds.

In addition to upside performance, Freestone also focuses on downside risk based on what the firm calls a “Stay Wealthy” approach. Freestone touts a belief in broad diversification, well beyond the traditional asset classes of equities, fixed income and cash. To achieve that level of diversification, the firm has a series of private funds investing in alternative asset classes through its affiliates. Among the alternative investment strategies Freestone uses are:

  • Long and short equity strategies
  • Distressed investing or arbitrage strategies
  • Private placements and other restricted securities
  • Interests of a single private fund issuer sold in the secondary market
  • A multi-manager and fund-of-funds investment approach
  • Real estate investments
  • Fund of funds or multi-manager funds
  • Private equity investments
  • Privately originated corporate loans or cleared and over-the-counter financial instruments

Freestone largely manages client assets on a discretionary basis, meaning that it does not run investing decisions by clients prior to executing them. The firm allows clients to place “reasonable restrictions” on the types of investments purchased, using the example of prohibiting tobacco stocks. However, Freestone reserves the sole discretion to determine what constitutes a “reasonable restriction,” and might refuse to carry out these requests if they interfere too much with an investment strategy.

Fees Freestone Capital Management charges for its services

Asset-based fees: Typically, Freestone charges clients based on a percentage of assets under management. This fee covers both investment advisory services and wealth management and financial planning services. While rates vary, they will not exceed 1.50% of the value of a client’s assets.

Minimum annual fee amounts vary depending on whether the client was referred through the Schwab Advisor Network. New advisory clients who are referred by the program must pay a minimum of $4,000 per year, while new clients who are not referred through Schwab will owe a minimum annual fee of $6,000.

However, these minimums may be waived at Freestone’s discretion. Additionally, these fees might be lower depending on client type, account size, anticipated increase in the client’s account and preexisting relationships. Sometimes, household account amounts are combined for the purposes of receiving a lower rate.

In addition to Freestone’s asset-based management fee, clients may also pay an investment advisory fee charged by third-party subadvisors that Freestone might engage; those fees are disclosed in the investment management agreement. Additionally, clients will be responsible for any custodial fees, brokerage commissions, fund fees or trading costs incurred.

Performance-based fees: Freestone also charges performance-based fees on some of its private fund investments. Performance-based fees are only charged to “qualified clients,” who are defined by the SEC as having a net worth of at least $2.1 million. Freestone negotiates the terms of these fees on a case-by-case basis and includes the terms of the fees in the investment management agreement.

Private fund fees: Freestone manages a number of private funds to carry out its alternative investment mandate. These funds typically have a 1% annual management fee, a performance-based fee and an asset-based fee of 0.10%. Clients are not charged operating expenses and other costs on top of the fees charged by Freestone’s private funds. However, when clients assets are invested in private funds managed by a third party, they may be charged two levels of fees.

Commissions: For non-discretionary accounts, Freestone may recommend and sell life and disability insurance as some of its advisors also have the ability to sell insurance. If those recommendations result in a sale, Freestone may receive a commission.

Freestone Capital Management’s highlights

  • Unique investment style: With its emphasis on alternative investments, Freestone Capital Management veers into nontraditional areas in order to create highly diversified portfolios with investments in directly owned real estate. Freestone has carved out a name for itself by investing in mobile homes and affordable housing.
  • Attention to downside risk: Freestone pays a lot of attention to downside risk, not just capturing upside returns. While that may hamper portfolios during market upswings, it might protect them from suffering the same severe losses as the market in general.
  • Awards and accolades: The Freestone Capital Management team regularly lands on lists of top advisors. Barron’s ranked senior partner Erik Morgan No. 12 out of the 100 best advisors in the United States overall in 2019, and that same year Financial Advisor Magazine ranked the firm at No. 57 in its rankings of the top RIAs.

Freestone Capital Management’s downsides

  • High maximum rate: Freestone Capital Management’s maximum rate of 1.50% for its investment advisory services is well above the industry average of 1.02% for accounts of $1 million in assets, according to a study by AdvisoryHQ.
  • Charges performance-based fees: Freestone also charges performance-based fees to clients who participate in the firm’s private funds. Though these fees can sometimes be charged in lieu of asset-based fees, performance-based can still create an incentive for advisors to take investment risks in an attempt to achieve outsized returns. Additionally, this fee arrangement could pose a conflict of interest, as advisors may be incentivized to recommend private funds over other types of investments due to the higher potential returns.
  • Sells insurance: Freestone can earn a one-time commission for recommending the purchase of life and disability insurance products to its non-discretionary clients, and this financial incentive could pose a potential conflict of interest. To mitigate this issue, the firm discloses this conflict in writing prior to the sale and maintains that clients are free to take the recommendation and make their insurance purchase elsewhere.
  • Potential conflicts related to brokerage selection: Clients of Freestone must maintain a brokerage account at Charles Schwab. Because Freestone participates in a client referral program at Schwab, the firm has a financial incentive to use Schwab in order to get these referrals. In addition, Freestone uses soft dollar arrangements, which are credits or rebates from a brokerage firm on commissions that a client pays for trades executed in a firm’s client accounts. This might lead a firm to favor the brokerages that participate in soft dollar arrangements instead of the brokerage that offers the best trade execution. Freestone insists that it uses its rebates to purchase research that benefits all client accounts, even those that aren’t subject to soft dollar arrangements.

Freestone Capital Management disciplinary disclosures

Freestone Capital Management does not have any disciplinary disclosures listed in its Form ADV.

SEC-registered firms are required to provide prompt disclosures of any legal or disciplinary actions in their Form ADV to help current and prospective clients evaluate the firm. The type of legal and disciplinary events that must be disclosed include criminal and civil actions, administrative proceedings before a federal regulatory agency and proceedings before a self-regulatory organization.

Freestone Capital Management onboarding process

To find out more about working with Freestone Capital Management, call (800) 990-3001 or reach out to one of the offices directly using the contact information listed on the firm’s website. Alternatively, you can fill out this form on Freestone’s website to start working with a client advisor.

When clients sign on with Freestone, they are assigned a team consisting of a client advisor and one or more client service associates to oversee the day-to-day responsibilities. When appropriate, Freestone advisors will work with a client’s other financial professionals to create a holistic money management strategy.

Is Freestone Capital Management right for you?

Freestone Capital Management brings a unique investment style that’s aimed at helping clients withstand economic downturns with its cadre of private funds. The firm works to unify investment advisory services with wealth management for a holistic client experience.

Though the firm doesn’t have a hard minimum, it generally prefers to work with those who can invest at least $1 million (or $500,000 for those who come through the Schwab referral program). Its roster of clients is mostly high net worth, though it does serve a number of individuals without high net worths as well. And with five West Coast offices, Freestone will likely be most accessible to investors in that region.

However, Freestone Wealth Management’s myriad financial arrangements with outside entities might give investors pause. The firm has a number of potential conflicts of interest that could call into question whether recommendations are made in the client’s best interest or due to financial incentives. As is the case with vetting any financial service or product, you’ll want to make sure you ask questions and understand all costs involved beforehand.