12b-1

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Apr 19, 2007 12:20 pm

Long time in the business, new to the forum.


Any ideas how this will turn out?



http://www.investmentwires.com/common/article.asp?template=a rticle&storyID=14046&sectionID=1&wire=MFWire&amp ;wireID=2

Apr 19, 2007 12:32 pm

Who knows...why can't the industry just call the 12b-1 what it is...an advisor servicing fee.  If the label was thus, do you think we'd be having this controversy?

Apr 19, 2007 7:56 pm

They will just change the name, if they eliminate 12b-1 altogether no one will service accounts and there will be more churning of funds. The FPA is even against this and they are for every reform that hurts commission based advisors it seems.

Apr 19, 2007 8:02 pm

I'll take it a step further.  In addition to changing the name to "advisor servicing fee" itemize the fee in dollars and a percentage on the statement.  Once this is done, hopefully we can move forward and never bring up this hidden trail issue again.

Apr 19, 2007 8:49 pm

Very few actually service the accounts anyway. Let's face it; trails are paid so

brokers will keep the money in the fund family anyway. I say do away with

the service fees altogether, and cut the commisions to 2%. That would

seperate the wheat from the chaff.

Apr 19, 2007 8:58 pm

You are suggesting that on A shares they cut the commish down to 2%? Perhaps a one-time bump from 1 to 2% on C shares and then no ongoing trails could be another option....

Apr 19, 2007 9:01 pm

Yes, that's what I'm suggesting. Then do away with the "share classes".

Apr 19, 2007 9:11 pm
Philo Kvetch:

Yes, that's what I'm suggesting. Then do away with the "share classes".


I think commissions should be based on race classes of the clients and not share classes.


I couldn't help it.

Apr 19, 2007 9:13 pm

What, I wonder, would Don Imus say to that?

Apr 19, 2007 9:15 pm

I think there has to be more rules about when certain share classes are

used, not fewer share classes. If an advisor uses the share classes

appropriatley, they work. Honestly, I have a hard time charging someone

5.75% when they only have small amounts. I would rather take their little

IRA rollover and put it in a B-share. If they aren't planning on doing

anything with it soon, there's no issue with the CDSC. And I sure ain't

servicing a $20K account very often (thus a C-share is not really

appropriate). However, if I can hit major breakpoints with one family, and

I need another fund family for certain segments (i.e. growth or smallcaps

when AMF are my core value holdings), I will use a C-share for small

amounts in other families.



Plus, telling someone their only option is an A-share just isn't right.

Apr 19, 2007 9:24 pm

Why not? That's the only investment class in every other investment

category, save VAs.



Open ended mutual funds are a shuck anyway. They're OK for investors with

VERY limited resources, but few if any are worth the fees and expenses that

they charge. There's what, 15,000 funds in the US? None of them

consistently beat the indices. You can't use stops or limits or option them.

In fact, there was a time not too many years ago that the commissions were

8+%. (Now THAT was a great deal for brokers who didn't know what they

were doing!)

Apr 19, 2007 10:08 pm
Philo Kvetch:

Why not? That's the only investment class in every other investment
category, save VAs.

Open ended mutual funds are a shuck anyway. They're OK for investors with
VERY limited resources, but few if any are worth the fees and expenses that
they charge. There's what, 15,000 funds in the US? None of them
consistently beat the indices.


I respectfully disagree. I'm not the biggest mutual fund guy out there(I'd have to change my screen name if I was) but I consistantly find funds that are worth the time, effort and expense. And we put some very wealthy people into these funds.


My experience shows that seperate acct management to be the poorer performer. And I particularly dislike the slimmy marketing surrounding these accounts. Giving clients cookie cutter off the rack investment accounts when they're being told they're getting custom tailored portfolios is beyond my comfort level. A subject for another thread.


Apr 19, 2007 10:22 pm
BondGuy:
Philo Kvetch:

Why not? That's the only

investment class in every other investment category, save VAs. Open

ended mutual funds are a shuck anyway. They're OK for investors with

VERY limited resources, but few if any are worth the fees and expenses

that they charge. There's what, 15,000 funds in the US? None of them

consistently beat the indices.



I respectfully disagree. I'm not the biggest mutual fund guy out there

(I'd have to change my screen name if I was) but I consistantly find funds

that are worth the time, effort and expense. And we put some very

wealthy people into these funds.



My experience shows that seperate acct management to be the poorer

performer. And I particularly dislike the slimmy marketing surrounding

these accounts. Giving clients cookie cutter off the rack investment

accounts when they're being told they're getting custom tailored

portfolios is beyond my comfort level. A subject for another thread.







We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'

investment portfolios run through outside money managers. They're

generally little more than glorified mutual funds, albeit somewhat

cheaper. I maintain that the client is best served in house, provided that

he/she is philosophically aligned with the F/A insofar as investing is

concerned.

Apr 20, 2007 3:35 am
Broker24:

Plus, telling someone their only option is an A-share just isn't right.





Using A shares' isn't right either, nor B-shares with the 1% trailers and exit fee.



The B/d side is afraid to itemise charges, since then clients would know what they are paying for and not getting.



The move against 12b-1 fee's is yet another nail in coffin of the
traditional B/d model. IMHO 12b-1 fee's should be capped at 0.25% and
then all multi share class (other than Institutional shares) abolished.
Same thing for "revenue sharing" via cash payments.



At that point B/Ds that want to change comissions will do so openly, and not secretly via a kickback from the fund company.

Apr 20, 2007 3:39 am
Philo Kvetch:

We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'

investment portfolios run through outside money managers. They're

generally little more than glorified mutual funds, albeit somewhat

cheaper. I maintain that the client is best served in house, provided that

he/she is philosophically aligned with the F/A insofar as investing is

concerned.





It really depends. SMA's for bonds can make sense, mostly because its not worth my time (in a fee platform) to hustle bonds.



But for stocks, very dubious. Once the SMA's get down the the 60bp level, then it makes sense to talk.

Apr 20, 2007 6:18 am
AllREIT:
Philo Kvetch:

We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'

investment portfolios run through outside money managers. They're

generally little more than glorified mutual funds, albeit somewhat

cheaper. I maintain that the client is best served in house, provided that

he/she is philosophically aligned with the F/A insofar as investing is

concerned.





It really depends. SMA's for bonds can make sense, mostly because its not worth my time (in a fee platform) to hustle bonds.



But for stocks, very dubious. Once the SMA's get down the the 60bp level, then it makes sense to talk.



Only with clients who don't have enough money to buy a diversified bond portfolio would I put them into a bond fund (or an SMA)  For almost everyone else, I have them buy bonds outright in a standard brokerage account (no fees)

As for SMAs, where I work, none of them get more than 42bp, and most of them get 30bp.  The total expense is 50bp (the balance going to the firm)  Anything above that that the client is charged goes to the grid.

Apr 20, 2007 6:23 am
BondGuy:
Philo Kvetch:

Why not? That's the only investment class in every other investment
category, save VAs.

Open ended mutual funds are a shuck anyway. They're OK for investors with
VERY limited resources, but few if any are worth the fees and expenses that
they charge. There's what, 15,000 funds in the US? None of them
consistently beat the indices.


I respectfully disagree. I'm not the biggest mutual fund guy out there(I'd have to change my screen name if I was) but I consistantly find funds that are worth the time, effort and expense. And we put some very wealthy people into these funds.


My experience shows that seperate acct management to be the poorer performer. And I particularly dislike the slimmy marketing surrounding these accounts. Giving clients cookie cutter off the rack investment accounts when they're being told they're getting custom tailored portfolios is beyond my comfort level. A subject for another thread.




You're saying that you haven't found any SMA managers that net outperform mutual funds?

I think the customized part of SMAs comes in the asset allocation and manager selection.  It also comes from the fact that the client is not effected by the purchases and redemptions of everyone else who is in the same SMA.

Apr 20, 2007 6:28 am
Philo Kvetch:
BondGuy:
Philo Kvetch:

Why not? That's the only

investment class in every other investment category, save VAs. Open

ended mutual funds are a shuck anyway. They're OK for investors with

VERY limited resources, but few if any are worth the fees and expenses

that they charge. There's what, 15,000 funds in the US? None of them

consistently beat the indices.



I respectfully disagree. I'm not the biggest mutual fund guy out there

(I'd have to change my screen name if I was) but I consistantly find funds

that are worth the time, effort and expense. And we put some very

wealthy people into these funds.



My experience shows that seperate acct management to be the poorer

performer. And I particularly dislike the slimmy marketing surrounding

these accounts. Giving clients cookie cutter off the rack investment

accounts when they're being told they're getting custom tailored

portfolios is beyond my comfort level. A subject for another thread.







We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'

investment portfolios run through outside money managers. They're

generally little more than glorified mutual funds, albeit somewhat

cheaper. I maintain that the client is best served in house, provided that

he/she is philosophically aligned with the F/A insofar as investing is

concerned.



I'm on the other side of the ledger on this one.  If I was a client, I would want as many brilliant minds and specialists working on my behalf as possible.  I see it as intellectual diversification.

Apr 20, 2007 7:31 am

But towards what end, MM? You've heard these guys. They never agree on

anything. One says greatest bull market in history, the guy on the other side

says imminent depression. Diviersify between those two and you get no

gain at best.



No, I think the client is best served by buying best of breed and a spread

across several asset classes.

Apr 20, 2007 7:42 am
Philo Kvetch:

But towards what end, MM? You've heard these guys. They never agree on

anything. One says greatest bull market in history, the guy on the other side

says imminent depression. Diviersify between those two and you get no

gain at best.



No, I think the client is best served by buying best of breed and a spread

across several asset classes.



What do you mean by the term 'best of breed?'

By the way, I wasn't referring to intellectual diversification amongst bulls and bears.  I was referring to the intellectual diversification one gets by employing several different money managers, each one being the best (or among the best) in their style and asset class. (maybe that's what you mean by best of breed?)