"A" share Accountant Anyone? Gen Forum

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Mar 27, 2007 7:29 pm

I am sick and tired of people pulling the "run a 20 yr hypo of A vs. C share (or fee based) and see which one wins" CRAP.


In 90% of situations "A" share is not in the clients best interest.


Bottom line is this. 


Unless a client has over 1 million investable assets you cannot afford to give them the service they deserve over that 20 yr period under the A share model.


1,000,000 times .025 = 2,500 x .4 = $1000 per year.


Less than that and you cannot offer them full service to their financial life and/or give them the attention they deserve. 


Try this analogy. 


What if you went to your accountant and he said I've got this great new plan.  Instead of paying me $300 per year, why don't you pay me $1,000 this year and I'll do your return for $50 per year forever. 


(Note:  Reading to this point this already sounds like a crappy idea as a client because you KNOW so many variables make paying fees for services years from now a stupid idea.  And this is before your accountant lays out the caveats.)


HOWEVER, you only get a once a year 30 min apt, with no real time fr research if you have new problems, and you can call me during the year if you have questions but I may or may not have time to call you back.  We just assume the same situation every year and it is your responsibility to be on top of any changes we need to make. 


On top of that if you change your filing status (i.e. mf) for marriage, divorce, new entity, or any other reason then you get to pay me another $1,000 in the year that in happens.


In addition if you decide next month that I am a crappy accountant you have no recourse.  Sorry.  (If you are unfamiliar with the person, you immediately think "this person probably is a crappy accountant who wants to get paid now because they know I likely won't use them again next year".) 


How many of you would like that deal from your accountant because it is now a CHEAPER method.


Is it somehow in your BEST INTEREST?


FINANCIAL ADVICE is an ONGOING need for our clients.  If you have more than a few hundred clients per advisor, then some of them are suffering from your lack of attention due to time constraints.

Mar 27, 2007 8:17 pm

You got that off our chest. Feel better now???

Mar 27, 2007 9:05 pm

  "FINANCIAL ADVICE is an ONGOING need for our clients."


Gad, your entire post misses the point.  "A" shares and "C" shares are all about sales charges.  You get paid to sell these shares.  You are not getting paid to give ongoing advice.  If your client wants ongoing advice and you want to get paid for giving the advice, don't use shares that pay sales charges.  Use a fee based account.

Mar 27, 2007 9:27 pm
anonymous:

  "FINANCIAL ADVICE is an ONGOING need for our clients."


Gad, your entire post misses the point.  "A" shares and "C" shares are all about sales charges.  You get paid to sell these shares.  You are not getting paid to give ongoing advice.  If your client wants ongoing advice and you want to get paid for giving the advice, don't use shares that pay sales charges.  Use a fee based account.



Anon, I understand this, I'm just trying to keep it simple, you are correct though, I should have just left the C share out for simplicity and put Ongoing Fees vs A Share. 


Fee vs Commission is not the argument I'm bringing up.  I'm talking about the "Better/Cheaper for client to pay one time sales charge" argument.

Mar 27, 2007 9:42 pm
gad12:

  "FINANCIAL ADVICE is an ONGOING need for our clients."

So gad12,are you getting ready to quit EDJ?

Mar 27, 2007 10:17 pm
anonymous:

  "FINANCIAL ADVICE is an ONGOING need for our clients."


Gad, your entire post misses the point.  "A" shares and "C" shares are all about sales charges.  You get paid to sell these shares.  You are not getting paid to give ongoing advice.  If your client wants ongoing advice and you want to get paid for giving the advice, don't use shares that pay sales charges.  Use a fee based account.



To gad's point, I think that almost every advisor who is selling A shares gives the client the impression that he will service this account for the next 20 years.  I know when explaining fees to the client, I always mentioned the 12b-1 fee and told the client that that is how the fund company pays me to service the account.


One of my best wholesaler lunches was when the wholesaler showed me how to set my minimum client size.  Here it is in a nutshell:


Figure out your gross goal for the year, and divide by 2000.  That is how much you need to gross per hour.  So, what is the minimum amount of time you think you will spend on a small client?  Let's say it's 3 hours/year.  So, if your goal is to gross $400,000 this year, you need to gross at least $200/hour.  So, your smallest account needs to generate at LEAST $600/year (200x3).  So, if you are putting the client in A shares, your minimum would be $240,000 (600/.0025). If you are using C shares, or a wrap account at 1%, your minimum can be as low as $60,000 (600/.01).


I can see spending 3 hours/year on a $60K client, but I can't see spending only 3 hours/year on a $240K client.


I hope that was helpful to someone, and I hope my math is right.

Mar 27, 2007 10:56 pm
AllREIT:
gad12:

  "FINANCIAL ADVICE is an ONGOING need for our clients."

So gad12,are you getting ready to quit EDJ?



Still a few months out, but I'm working towards it.

Mar 28, 2007 5:30 am

I'm talking about the "Better/Cheaper for client to pay one time sales charge" argument.


It is better/cheaper for the client to pay the up front sales charge...if they don't want the ongoing advice.


The problem as now_indy points out is that people sell "A" shares and then promise to give good service.  I used to be guilty of this.  I believe that for the most part, this lie is unintentional.  People sell "A" shares without realizing that they won't be able to afford to proactively service the accounts in the future.

Mar 28, 2007 8:37 am
anonymous:

"FINANCIAL ADVICE is an ONGOING need

for our clients."



Gad, your entire post misses the point. "A" shares and "C" shares are all

about sales charges. You get paid to sell these shares. You are not getting

paid to give ongoing advice. If your client wants ongoing advice and you

want to get paid for giving the advice, don't use shares that pay sales

charges. Use a fee based account.





Let me play the Devil's Advocate here, Anon.



If we're not expected to provide ongoing service and advice, why are we paid

trails? It's got to be one or the other.

Mar 28, 2007 9:23 am

 You can sell these funds because you have a Series 6 or 7.    One can't use the 6 and 7 to get paid for giving advice. 


The money that is paid in trails is a commission that is paid because the broker made a sale.  We're paid a trail to encourage us to sell the funds.  For instance, if a trail was not paid, would anyone ever sell a "C" share?  Would you sell an "A" share of the ABC Fund if they didn't pay a trail while other funds did?


The basic answer to your question is that a trail is paid because the funds wouldn't get sold without one.  With or without the trail, we still have an obligation to give service to the client.   In many cases, the rep simply can't afford to proactively give the service. 


That's why my small clients with "A" shares from the beginning of my practice don't get called.  If they call me, I'll gladly take the time to meet with them and handle on-going service.

Mar 28, 2007 10:02 am
anonymous:

I'm talking about the "Better/Cheaper for client to pay one time sales charge" argument.


It is better/cheaper for the client to pay the up front sales charge...if they don't want the ongoing advice.


The problem as now_indy points out is that people sell "A" shares and then promise to give good service.  I used to be guilty of this.  I believe that for the most part, this lie is unintentional.  People sell "A" shares without realizing that they won't be able to afford to proactively service the accounts in the future.



Agreed and Agreed.  However, do you believe that more than a rare client "picks" A shares with the understanding of no ongoing advice?  You already said no, and so moving on. 


The vast majority of our clients use "US" because they know they can't do it themselves and NEED continual help.  Those that get sold A shares and never get serviced aren't generally happy with the advisor because he/she is not helping the client with their needs, and therefore the client won't come back to you when they have future needs.  In the analogy this means ditching your accountant.  However, often the client will end up just never investing or buying an overhyped EIA and will never get their real needs adressed. 


Lose - Lose