Fee based accounts for income investor

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Jan 30, 2010 1:33 pm

So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differently

Jan 30, 2010 1:39 pm
skbroker:

So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differently



What other option would you think to do?  Commission?  Flat fee?

Also, how do you value your services?  Are you going to help him manage withdrawals?  Help him make decisions about moving money?  Answer his bone-headed questions when he calls?

You should charge him 1.25% for being under $1 million. 

Keep in mind that you get paid to advise him.

Jan 30, 2010 3:00 pm
mlgone:
Moraen:
skbroker:

So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differently

What other option would you think to do?  Commission?  Flat fee?Also, how do you value your services?  Are you going to help him manage withdrawals?  Help him make decisions about moving money?  Answer his bone-headed questions when he calls?You should charge him 1.25% for being under $1 million.  Keep in mind that you get paid to advise him.



This quote is right on. I see so many advisors that are scared of showing the fee (not saying you are). I am 99% fee based. And I tell them the value I provide for my fee. Many advisors hide in C shares. Don't be scared to tell them what they are paying for. Your worth it

 
How do you go about explaining this ?
 
Jan 30, 2010 3:23 pm

Would you also charge 1 percent on million dollar laddered muni portfolio? It's not always black and white

Jan 30, 2010 3:59 pm
skbroker:

Would you also charge 1 percent on million dollar laddered muni portfolio? It's not always black and white



Yes.

It has to be black and white, or you might run into compliance issues.

Jan 30, 2010 6:15 pm

Your clients must really value your service if they are ok with paying 1 percent on a muni ladder

Jan 30, 2010 6:20 pm

Why don't you divide the money into 3 "buckets"

A SPIA to pay him for the next 8-12 years

A deferred, index, or variable annuity to replenish the first bucket when it runs out

A third "wrap" bucket with a 15+ year time horizon in a moderate-aggressive mix

It sounds foolish to me to setup something that he will be immediately accessing in anything that is not guaranteed.

Jan 30, 2010 6:29 pm

Berkshire. Just curious. U with ameriprise?

Jan 30, 2010 6:32 pm
skbroker:

Your clients must really value your service if they are ok with paying 1 percent on a muni ladder



You are either worth it or you're not.  If you're not, they can go somewhere else.  If you are, then they should pay it.

Full disclosure:  That situation has never arisen for me.  The most I have is someone who has $300k in munis, and no, they don't care.  Why would they, when they are getting stellar returns in other parts of their portfolio?

Not to mention  your situation wasn't even talking about munis. You said income etfs and mutual funds.

Jan 30, 2010 6:51 pm

skbroker,

Not sure why all the talk about a muni portfolio in a qualified account.  May be hard to get past compliance although right now munis are better than taxable bonds and if you are selling the client on that piece of advice you are right on and worth every penny.  I too have looked at ETFs for income investors and shyed away from the fees, but then I realized that it will probably have about a third of it in growth and like other posters have said getting great advice from an advisor is worth every penny. 
 
I did also like the bucket theory mentioned here too.  Buckets of Money by Lucia.
Jan 30, 2010 9:01 pm
skbroker:

Berkshire. Just curious. U with ameriprise?



No, why do you ask?

Jan 30, 2010 9:31 pm

Because I have a friend that works for ameriprise he also talks about this bucket thing

Jan 30, 2010 9:39 pm
skbroker:

Because I have a friend that works for ameriprise he also talks about this bucket thing

 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.
Jan 30, 2010 9:43 pm

Yeah. That's it. The three buckets. Lol

Jan 30, 2010 9:59 pm
roxie- nobody is talking about muni's in a qualified account. He was talking about two different issues. 
 
 
3rdyrp2:
skbroker:

Because I have a friend that works for ameriprise he also talks about this bucket thing


 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.  
The 3 buckets thing is not tax free, pre tax, taxable. Some dude Ray Lucia has written a book about dividing funds into three buckets. Time frame is what separates the buckets, not taxes.
Jan 30, 2010 10:53 pm
3rdyrp2:
skbroker:

Because I have a friend that works for ameriprise he also talks about this bucket thing

 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.



What's the strategy here?  Is there a story that goes with it?

My buckets were time horizon, curious what the tax-status bucket philosophy is.

Jan 31, 2010 9:00 am

I joined a team that uses an yield focus discretionary account (always look at total return never yield / income) that is fee based.  income investing should not just be static, you can tacticaly allocate to the asset class now with ETF's & funds.

for example next 12 months will proably still be good for high yield and intrest rate sensitive investments and then look at shifting to floating rate and tips.

just because you invest for income does not mean set it and forget it. 

Jan 31, 2010 11:33 am

Why do these stupid retarded advisors always makes doctor analogies? I guess when you pass series 7 you can compare yourselves to heart surgeon. What a douchebag

Jan 31, 2010 11:43 am

While I don't think the Series 7 is the equivalent of an M.D. or board certification in cardio-thoracic medicine, you also aren't getting paid what that heart surgeon is.  Not to mention there are very few  heart surgeons doing anything new.  Most of it is learned.

Do you think that heart surgeon could perform arterial surgery on battlefield victim where people are shooting at him?  Unlikely.  Yet that heart surgeon has an M.D., and the guy performing that battlefield surgery may just be a medic.  Who gets paid more?  Who has more rare skills?

sk - either you charge or you don't.  I don't take my ability for granted, and so my clients don't.  Starts with you.




Jan 31, 2010 12:13 pm

You have a probem with reading comprehension. Go back and slowly read the thread again you retard