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Why the Money Orchard Exists

I spent forty-four years in the financial services industry. I am not an outsider with a complaint. I was inside it.

I knew Richard A. Schilffarth personally — the man who created the wrap account. My knowledge of what it was, and what it was built to do, comes directly from him. I worked at IAS, the firm Schilffarth founded. I witnessed the machinery firsthand. My own supervisor left IAS after training at Wheat First, a regional broker-dealer. They hired him to run their wrap program, which he managed for years. That was the model: train people, send them to regional firms, and they become the architects of those firms' wrap programs.

So when I tell you what the wrap account was, I am not guessing or theorizing. I knew the creator. I was in the room.

Here is what it was. For most of the industry's history, an advisor was paid by commission — paid when the client bought or sold. That arrangement had a problem, but the problem was never the client's. It was Wall Street's. Commission income was unpredictable; it arrived only when something was traded. And it quietly punished the best advice an advisor could give. Advisors earned nothing from simply saying: buy good companies and hold them. A patient client was, to the firm, an unprofitable one.

The wrap account solved that. One annual fee — a percentage of everything the client held, charged whether the client traded or not. Income became smooth, predictable, and, because it rose with the markets, self-compounding. It was presented to clients as a breakthrough: an alignment of interests. We only do well when you do well. But its origin was not the client's problem. It was ours.

And there was a second reason, one I heard taught plainly. The wrap account placed a professional money manager between the broker and the client's money. That meant when the results disappointed — and given enough time, results always disappoint someone — the broker did not have to be the one who failed. He could replace the manager. Fire him, and keep the account.

Sit with that. A structure was built, in part, so that the person who sold you the plan would never have to answer for how it turned out.

Years later, Dick Schilffarth told me himself what he came to see as the mistake in the structure he had created. Because there was no trading cost — the manager's fees came from a flat percentage, not per transaction — managers had an incentive to over-trade. The trading costs fell on the client, but they were invisible. The very structure that was sold as aligned interests had created a hidden incentive for excessive trading that hurt returns.

I worked inside that system for forty-four years. And over that time, I noticed something I could not stop noticing. Every firm I was part of asked me the same question, year after year. Early on it was what is your commission? Later it became what are your assets under management? The question was always about what I produced for the firm.

Not once — not one time in forty-four years — did a firm ask me:

Those four questions are the only ones that matter.

That is why the Money Orchard exists. Not as an attack — most of the people I worked beside were good people inside a structure that simply asked the wrong questions. The Money Orchard is something quieter than an attack. It is what it looks like to start over from the other side of the table.

It begins with those four questions and refuses to set them down. It organizes a person's whole financial life — not into products to be sold, but into something that can be understood: trees that protect, trees that earn, trees that grow. An orchard, tended, so that a person's money finally matches the shape of the life they are actually living.

I spent forty-four years on the industry's side of the table.

That is the whole of it. That is why the Money Orchard exists. The orchard story explains how money works for the investor.

Dennis Zaderaka
The Money Orchard