12b-1 fees

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Mar 30, 2009 10:14 am

Just read that the SEC review of 12b-1 fees has been tabled for now.  Guess they have bigger fish to fry for the time being. 

Mar 30, 2009 10:22 am

They should get rid of all 12b-1 fees.. there is no point to any of them..


If you want on-going pay, put it in a fee account.
 
If not take your up front and move on.
Mar 30, 2009 10:30 am
slimpickens:

They should get rid of all 12b-1 fees.. there is no point to any of them..


If you want on-going pay, put it in a fee account.
 
If not take your up front and move on.





 
While I agree with you, there IS client "maintenance" that needs to be done on each account.  Keeping suitability records on an ongoing basis, offering a rebalance of the portfolio, etc.
 
Even for the pure "broker" who is serving his commission-based clientele, I think there should be some kind of compensation for serving existing business.
 
Perhaps the 12b1 fee should be renamed & re-characterized as a client record-keeping and maintenance charge?
Mar 30, 2009 11:08 am
iceco1d:

I agree with Ominous 100% on this one. 

 
Slim, do you stop talking to/helping your A & B share clients after you make the sale?  Do they stop calling you?
 
Don't use them, so I don't run into that problem.
 
If advisors need the 12b-1 to service and update accounts, then they should decrease the upfront and add on the 12b-1(but label it for what it is)
Mar 30, 2009 11:10 am

They should redo it similar to annuities where the trails are dependent on how much you took up front..

Mar 30, 2009 2:26 pm

I agree.  They should be renamed "Service Fees" or whatever works.  And personally, I think there should be two share classes, A and C.  A's should only be used where you want to basically get one-time advice and buy some funds, and not need additional help.  There should be little or no 12b-1 for those.  I think C shares should be the standard model.  1% upfront with the 1% annual coming a year later and each year thereafter.  But they should not be called 12b-1 marketing /distribution/reimbursement whatever they are called, and split into two parts (25/75).  It should be 1% flat.  It would eliminate conflicts of interest.  C shares if you want service, A shares if you just want to buy the funds. 

Mar 30, 2009 2:32 pm
B24:

I agree.  They should be renamed "Service Fees" or whatever works.  And personally, I think there should be two share classes, A and C.  A's should only be used where you want to basically get one-time advice and buy some funds, and not need additional help.  There should be little or no 12b-1 for those.  I think C shares should be the standard model.  1% upfront with the 1% annual coming a year later and each year thereafter.  But they should not be called 12b-1 marketing /distribution/reimbursement whatever they are called, and split into two parts (25/75).  It should be 1% flat.  It would eliminate conflicts of interest.  C shares if you want service, A shares if you just want to buy the funds. 

 
This is why they should change it... If you want service, fee account.(C shares just mask the idea of a fee account, because they don't see the fee taken out, also advisors don't have a responsibility on C shares and they do on fee account(fiduciary..spelled that wrong).
 
I think people use C shares to mask the idea that their fee accounts sucks or they know clients will leave once they see the fee taken out..
 
There should be 2 classes... A and I..... A for upfront, no 12b-1... I for fee, no 12b-1..
 
 
Mar 30, 2009 4:03 pm

Slim, I generally agree. However, IMHO, there is a certain threshold below which advisory accounts have little value (and are more trouble than worth).  For example, someone starting out small, adding to their accounts doesn't necessarily need the complexity of an advisory account.  And they may need advice, but not necessarily "fiduciary" advice.  A 35 year-old with 20K in his ROTH, adding every month (although it may not be our ideal client...) probably needs an allocation fund (or two) and some ongoing advice.  I woudl rather it be C-shares than A-shares.  But I don't see the need for a full-blown advisory program account in this case.  Probably just symantics, I think we are both in agreement generally.

Mar 30, 2009 5:49 pm

I agree with both of you oddly enough..(Although I fail to see the difference between advisory and C shares except the compensation and lack of transparency)

 
I think if you have between $20-50K then you should buy vanguard index funds. you don't need an advisor.
 
But I think if someone doesn't want to do that, then I think they can pay people to do it.
 
I think C shares lack transparency and a lot of brokers sell them because it's "easier" and just as lucrative(more so on smaller accts) as putting them in a fee account
 
 
Mar 31, 2009 9:15 am

OK, OK, OK.  Maybe I didn't elaborate enough.  My point was that C shares should also have greater disclosures/transparency.  I think I said a 35 year-old could NEED help, but only have a small amount of funds to invest, so going through the advisory process is not necessary at that point (the investment policy, ADV, risk tolerance, etc.).

 
I think we are seriously talking symantics here, but in my case, deciding on investments for a 35 year-old with 25K takes all of about 8 seconds, and I would rather spend the time on insurance and planning, etc, rather than filling out all the advisory paperwork to allocate 25K among 9 funds.
 
I also am very clear with my clients about the commission structure, so I see less of a conflict than some others may see with C shares.  But I agree, I wish they had better disclosure.
 
Slim, the only major difference I see between C shares and Advisory (other than the fact that our advisory program offers a alot that C shares alone do not) is that C shares are quicker to implement.  I generally use them for everyone under 100K, even though I actually get paid less.  And full disclosure, our firm only allows advisory for 100K accounts and over, so I may feel differently if the bar was lower.
Mar 31, 2009 10:40 am
B24:

OK, OK, OK.  Maybe I didn't elaborate enough.  My point was that C shares should also have greater disclosures/transparency.  I think I said a 35 year-old could NEED help, but only have a small amount of funds to invest, so going through the advisory process is not necessary at that point (the investment policy, ADV, risk tolerance, etc.).

 
I think we are seriously talking symantics here, but in my case, deciding on investments for a 35 year-old with 25K takes all of about 8 seconds, and I would rather spend the time on insurance and planning, etc, rather than filling out all the advisory paperwork to allocate 25K among 9 funds.
 
I also am very clear with my clients about the commission structure, so I see less of a conflict than some others may see with C shares.  But I agree, I wish they had better disclosure.
 
Slim, the only major difference I see between C shares and Advisory (other than the fact that our advisory program offers a alot that C shares alone do not) is that C shares are quicker to implement.  I generally use them for everyone under 100K, even though I actually get paid less.  And full disclosure, our firm only allows advisory for 100K accounts and over, so I may feel differently if the bar was lower.
You were joking right... "No sir we don't do risk tolerance here, everybody gets growth and income, American Funds and Van Kampen C shares..."
 
I understand your point that smaller accounts are a pain in advisory(but weren't all accounts small once) but I think there is also a difference between Fee accounts and Jones Advisory. When i think fee(advisory) accounts, I think multiple investments(not just funds or ETFS like jones has) I understand there is no difference at jones between wrapping funds and charging a fee, and placing them in C shares.... But other places allow other assets(UITs,ETFs, Bonds,REITs, Gas&Oil, Funds, SAMs...etc.)
 
Mar 31, 2009 11:37 am
Squash1:
B24:

OK, OK, OK.  Maybe I didn't elaborate enough.  My point was that C shares should also have greater disclosures/transparency.  I think I said a 35 year-old could NEED help, but only have a small amount of funds to invest, so going through the advisory process is not necessary at that point (the investment policy, ADV, risk tolerance, etc.).

 
I think we are seriously talking symantics here, but in my case, deciding on investments for a 35 year-old with 25K takes all of about 8 seconds, and I would rather spend the time on insurance and planning, etc, rather than filling out all the advisory paperwork to allocate 25K among 9 funds.
 
I also am very clear with my clients about the commission structure, so I see less of a conflict than some others may see with C shares.  But I agree, I wish they had better disclosure.
 
Slim, the only major difference I see between C shares and Advisory (other than the fact that our advisory program offers a alot that C shares alone do not) is that C shares are quicker to implement.  I generally use them for everyone under 100K, even though I actually get paid less.  And full disclosure, our firm only allows advisory for 100K accounts and over, so I may feel differently if the bar was lower.
You were joking right... "No sir we don't do risk tolerance here, everybody gets growth and income, American Funds and Van Kampen C shares..."
 
I understand your point that smaller accounts are a pain in advisory(but weren't all accounts small once) but I think there is also a difference between Fee accounts and Jones Advisory. When i think fee(advisory) accounts, I think multiple investments(not just funds or ETFS like jones has) I understand there is no difference at jones between wrapping funds and charging a fee, and placing them in C shares.... But other places allow other assets(UITs,ETFs, Bonds,REITs, Gas&Oil, Funds, SAMs...etc.)
 
 
Squash, don't make assumptions about me based on your opinion of Jones.  First off, I use MAYBE 2 funds from AMF in my C-share accounts (usually 1), and I have never used VK (and I use very few Preferred funds).
And there IS a difference between using a C share account for one fund and using an advisory account.  Why would I want to put one balanced fund into an advisory program?
 
I am not talking about some big account that needs multiple asset-types.  Yes, if the client grows over time, we will adjust what we do for him.  But for 25k and maybe DCA'ing in every month, why all that?
 
I think maybe everyone is over-thinking this too much.
 
I agree ith ICE, people do need help.  But I think arguing whether it has to be C shares or an advisory account is sort of moot.  I am going to give them both help.
Mar 31, 2009 12:49 pm

What I am really saying is "What if they eliminate all 12b-1 fees"... would it be better to have someone in an advisory account now, then to call them up and say "Ummm I don't get paid on your account anymore, so we have to change it."


The VanKampen thing was a joke(I have a friend at jones who uses VK and AMF.. that's it).
Mar 31, 2009 12:57 pm

Sqaush, that is certainly a consideration.  However, I'm not going to plan my entire business around what "might" happen someday.  I only have under-100K clients in C shares, so I am not overly concerned about it.  Most of my average clients have over $1mm, so I use advisory for those.

Mar 31, 2009 1:04 pm
Squash1:

What I am really saying is "What if they eliminate all 12b-1 fees"... would it be better to have someone in an advisory account now, then to call them up and say "Ummm I don't get paid on your account anymore, so we have to change it."

 
You know...I have no problem telling a client that we have to change an account so I am compensated for managing it.  I would hope that, in general, we do a good job when opening an account to explain our fee structure and how we are compensated for our time.  If someone legislates away my compensation for an account, unless it's my mother's, it gets changed to something that pays me, or I am done taking care of it.  If a client doesn't understand my need for compensation, they won't be a client for long.