What Is the CLERIC Framework?
The CLERIC framework is a proprietary Dew Wealth investment evaluation system that assesses six critical dimensions before committing capital to any opportunity. CLERIC stands for Concentration, Liquidity, Experience, Risk, Investment Return, and Cost.
Entrepreneurs often evaluate investments using gut instinct or a single metric like projected return. Jim Dew, CFP and Registered Investment Advisor, developed the CLERIC framework in "Billionaire Wealth Strategies" (Chapter 10) to provide the systematic process that billionaires use instead. Each dimension receives an independent assessment, preventing a strong showing in one area from masking weaknesses in others.
The framework is especially relevant given the Securities and Exchange Commission (SEC) Regulation Best Interest rule, which requires broker-dealers to act in a client's interest when recommending securities. CLERIC goes further by equipping the entrepreneur with an independent evaluation process. The framework pairs with the Billionaire Investment Allocation model and its year-by-year glidepath for transitioning a traditional portfolio toward the billionaire model.
Investors should recognize that all investments carry risk, including the possible loss of principal. Past performance does not indicate future results.
What Are the Six Dimensions of CLERIC?
What Does Concentration Evaluate?
Concentration evaluation determines whether a new investment creates dangerous overexposure to a single asset class, sector, or geography. Every investment either concentrates or diversifies a portfolio.
Entrepreneurs face a unique concentration challenge because their business is often their largest asset. Under SEC and Financial Industry Regulatory Authority (FINRA) Rule 2111 on suitability, advisors must consider a client's entire portfolio when recommending investments. Adding positions in the same industry or correlated sectors compounds concentration risk.
The concentration assessment ensures that portfolio additions create genuine diversification rather than hidden correlation. However, diversification does not eliminate the risk of investment losses.
How Does CLERIC Assess Liquidity?
Liquidity evaluation measures lock-up periods, redemption terms, and secondary market availability for each investment. Many alternative investments and private equity opportunities require capital commitments of 7 to 10 years with limited or no early exit options.
Under SEC Regulation D, which governs private placements, many alternative investments are restricted securities with limited resale rights. Entrepreneurs must maintain sufficient liquidity to fund business operations, seize opportunities, and cover personal needs. An investment with strong projected returns but a 10-year lock-up may be inappropriate for an entrepreneur with unpredictable cash flow needs.
Illiquid investments may also present valuation challenges, as the absence of a public market makes it difficult to determine fair value at any given time.
What Does the Experience Dimension Examine?
The experience dimension evaluates the people behind the investment. Key criteria include multi-cycle track record, team stability, operational infrastructure, and alignment of interests between managers and investors.
The SEC requires registered investment advisors to file Form ADV, which discloses disciplinary history, fee structures, and conflicts of interest. CLERIC prioritizes reviewing this information alongside operational due diligence. A fund manager who performed well during a bull market may have no experience navigating downturns.
CLERIC prioritizes managers who have demonstrated performance across multiple market cycles and who invest their own capital alongside their clients. However, past performance by managers does not guarantee future results.
How Does CLERIC Evaluate Risk?
Standard risk measures like standard deviation and beta capture normal market conditions but miss tail risks. CLERIC goes deeper to evaluate operational risks, counterparty risks, regulatory risks, and scenario-specific vulnerabilities.
For entrepreneurs evaluating real estate, private equity, or other alternative strategies, understanding the true downside potential prevents catastrophic losses that standard metrics would not predict. FINRA and the SEC require broker-dealers to disclose material risks, but those disclosures may not capture all scenario-specific vulnerabilities relevant to the investor's particular situation.
Risk factors vary by asset class and investment structure. Investors should consider leverage ratios, geographic concentration, sector exposure, counterparty creditworthiness, and regulatory change risk before committing capital.
How Is Investment Return Calculated in CLERIC?
CLERIC calculates the true return after accounting for the entrepreneur's specific tax situation, all fees, and the risk premium required to justify the investment. Nominal returns are misleading without these adjustments.
Under IRC Section 1 (2025), the federal long-term capital gains rate ranges from 0% to 20% depending on taxable income, with an additional 3.8% Net Investment Income Tax (NIIT) under IRC Section 1411 for taxpayers above $200,000 in modified adjusted gross income (single filers) or $250,000 (married filing jointly).
A real estate investment yielding 8% pre-tax may net 5.5% after taxes and fees. A municipal bond yielding 4% tax-free may provide comparable after-tax returns with significantly less risk. CLERIC ensures entrepreneurs compare investments on an apples-to-apples, after-tax basis.
Return projections are estimates, not guarantees. Actual results may differ materially from projected returns.
What Does CLERIC's Cost Analysis Include?
CLERIC measures total cost, not just the headline fee. Many investment vehicles carry layered fee structures: management fees, performance fees (carried interest), transaction costs, fund administration costs, and tax drag.
A private equity fund charging "2 and 20" (2% management fee plus 20% of profits) may have an effective fee rate of 4% to 5% when all costs are included. The SEC requires advisors to disclose fees under the Investment Advisers Act of 1940, but total cost analysis requires going beyond the disclosed management fee.
Understanding total cost is essential for determining whether the manager's skill justifies the expense. High fees are not inherently problematic, but they raise the performance threshold required to deliver competitive net returns to investors.
How Does CLERIC Work in Practice?
An entrepreneur evaluating a private real estate fund would score it across all six CLERIC dimensions. Concentration: the fund adds real estate exposure, but the entrepreneur already owns commercial property, warranting caution. Liquidity: a 7-year lock-up with limited secondary market creates illiquidity risk. Experience: the manager has a 15-year track record across two market cycles, a strong indicator.
Risk assessment reveals a 60% leverage ratio and geographic concentration in one market, presenting moderate concern. Investment Return: projected 12% internal rate of return (IRR), approximately 8.5% after tax and fees, may be adequate depending on the risk premium required. Cost: a 1.5% management fee plus 15% carried interest is within the reasonable range for private real estate.
The systematic assessment reveals that while projected returns appear attractive, concentration and liquidity risks may make this a poor fit despite strong management. Projected returns are estimates and may not be achieved.
When Should Entrepreneurs Apply CLERIC?
CLERIC should be applied to every investment opportunity, from public market allocations to alternative investments and private deals. The framework is especially valuable for entrepreneurs who receive frequent pitch decks from private equity sponsors, real estate developers, and venture capitalists.
By running each opportunity through all six dimensions, entrepreneurs avoid the common trap of investing based on projected returns alone. The framework aligns with SEC suitability requirements and FINRA's obligation that recommendations be consistent with the investor's profile.
Investment decisions should be made in consultation with qualified financial, tax, and legal advisors. No evaluation framework eliminates investment risk or guarantees favorable outcomes.
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