Transitioning a book from A share to Managed

or Register to post new content in the forum

29 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
May 4, 2009 7:38 pm

Clearly every FA wants to build a practice with recurring revenues. From what I understand most firms will allow you to sell whatever you want if you are hitting your numbers. I think most newbies find it difficult to hit their numbers strictly using managed/wrap accounts. With that being the case, how can you ethically put someone in an A share today and  2, 4, 6 years later transition them to another product/plan ?

May 4, 2009 8:17 pm

Your question implies that you recomend investments based on commission structure as opposed to suitibility.  I don't think ethics has anything to do with that, feelings of guilt maybe, but not ethics.

May 4, 2009 8:29 pm

If you put somebody in A shares at 3.5 percent with the breakpoints and three years later move them to a fee based account it's pretty much the same as if you had put them in a fee based account to start.

May 4, 2009 8:33 pm

I appreciate your high horse commentary. Lets be realistic, firms and FA's everywhere are converting existing A share accounts into managed accounts. What is the argument for this and how are people positioning it ?

May 4, 2009 8:37 pm

buyandhold, sorry,my reply was to sam. I guess if I put a guy in say FrTemp 3 years ago at 3.5% breakpoint and now want to expand his choices I feel guilty about doing it because I truly believe that Fr Temp has enough choices for him to stay in for the long term.

May 4, 2009 8:48 pm
Ron 14:

buyandhold, sorry,my reply was to sam. I guess if I put a guy in say FrTemp 3 years ago at 3.5% breakpoint and now want to expand his choices I feel guilty about doing it because I truly believe that Fr Temp has enough choices for him to stay in for the long term.



I think clients are smart enough to figure out what's going on. You want to put them in a fee-based account to get paid for ongoing service. I think most of them would be fine with that. .... You can tell them about giving them more choices, or keeping their total cost lower by using ETFs or institutional shares, or even tell them that 'Now I can build my business around my clients and not be chasing for new clients all day' and those are good arguments, too, but I think it's best to let them know up front why you are doing it.
That's how I'm justifying it.
....
My feeling is that A shares will be history soon, anyway.


May 4, 2009 8:52 pm

You acquire clients by selling them a product and then developing a relationship.  A shares are products, advisory programs are relationship based.  Natural progression of life.

May 4, 2009 8:55 pm

Those are both good points. A lot of times you don't know exactly how good/bad a relationship with a client will be and as time goes on if you seem to be on the same page, transitioning them to a better product with more choices and better service makes sense.

May 4, 2009 10:11 pm

Edj doesn't have a mechanism in place to recognize annuitized business. I pressed the issue when I was there and they wouldn't say anything besides, just do whats right for the client. I'm now in a bank program and there isn't a mechanism in place either and with no salary it makes it tough.

May 4, 2009 11:11 pm

No, JPMC

May 5, 2009 5:38 pm

I hope to keep as many accounts as I can as transactional. But they have to be large trades and or accounts for it to make sense. If it's an account under $300k one cant effectively trade the account as the commissions become ridiculous. I'll wrap that account at 2.25. The more wholesalers I see come to our office the more I think that part of this industry is only around for one reason...to fleece the client. How could one ever justify selling a Tips fund for 5.25%? The only thing one is doing is paying for XYZ's "managed money" (an oxymoron from where I sit) funds / services meal ticket.


I feel that an account that has over $200k in it, beyond managed futures and certain UIT's, using outsourced "managed money" is minimizing the profit potential to the client.
 
BUT YES there is no doubt it's the easiest way to go. I think we as money managers should be more involved than our firms would like. The less you are proactive in an account the more teeth the firm has in it.
 
My very humble $0.02
May 6, 2009 5:14 pm

Gaddock, speaking of transactions, the NDX Jun 1025p was $2.05 bid today for a while. I just got a personal options account up and running, that was my first trade, total launch !

May 7, 2009 4:50 pm

AWESOME!!!!!!!!!!!!!!!!!!!!!!!!!

 
If you like I'll send you some output from my magic software. PM me with the setups you are looking for.
May 7, 2009 8:47 pm

Ron, I think the entire industry has to deal with this issue.  And there is no perfect solution until you are well-established and just adding additional fee-based revenue to an existing self-supporting book.  The industry has done an awful job of addressing the transition from newbie to established rep.  I think the wirehouses like Merrill have done the best by setting up their comp so that you can live for three years while building a large enough book to sustain yourself after the salary runs out.  Most other firms this is a problem.  And it is an inherent conflict of interest.  How many times have you heard someone say "you need a combination of revenue streams - commissions and fees, blah, blah".  But not because it's good for the client, but because it's good for the FA. 

 
However, it begs the larger question.  What is "best" for the client?  Is there any one solution best for ALL clients?  Probably not.  A shares, C shares, managed money, individual commissioned securities...it can all be good for some clients.  It just depends on what you want to do, and what the client wants to do.  I think our industry has to get a better grip on fees & commissions before we can be taken seriously as a profession.  There is such a blury line between "broker" and "advisor" sometimes.  Many of us (me included) have some true "advisory" clients that we do a lot of planning for, and some "brokerage" clients that we just process trades for.  I probably get overpaid on many of the brokerage clients and underpaid on the "advisory" clients (such as the client that has a basket of individual stocks you transfer in, that doesn't want to do anything with them, but wants all kinds of advice and planning).
 
But I truly believe if we were all forced to either decide what we "sell" (i.e. only commissioned products, or only advisory, or only RIA work, or fee-only financial planning, etc.), -OR- require a "menu" of prices that shows everything we can offer, with prices attached, it would make life simpler for everyone.  There are just too many compensation decisions out there to make an impartial recommendation.
 
I think there needs to be a more distinct line between RIA/IAR and RRep.  My opinion is that you should not be able to do both at a B/D.  This is where I think the RIA world will continue to rise, while B/D world will continue to crumble.
However, there will ALWAYS be a place for brokers.  As I said before, for some people, advisory work is overkill.  The guy that rolls over 100K from his 401K at retirement that jsut wants CD's and maybe some treasuries shoudl be able to buy those without paying $1,000 every year.
 
It's a tough issue, but one that needs to be resolved.
May 8, 2009 12:29 am

I guess we all want to grab a select number of households that we want to be advisor/planners for, but as we acquire that number we have to be brokers for the other clients in order to make a living.

May 8, 2009 8:52 am

Yeah, it's a tough battle.  But I think this is where the huge indy RIA firms and large wirehouse wealth planning teams have the edge.  They serve enough wealthy people that they don't really have to worry about cost/value and all that crap.  They say "here's our fee schedule for all of these services, take it or leave it".  They aren't explaining A shares and C shares and breakpoints and whether fees or commissions are better.  But in reality, 99% of advisors in the U.S. are not in those situations.  Most of us serve middle-America (whether we want to admit it or not).

May 8, 2009 9:13 am
iceco1d:

It can't be resolved.



 
It's such an issue, because in the eyes of the world our effectiveness is quantified by how much money we make clients.
 
The more we get paid, the less the client makes.  Therefore, the best setup for each client, is the setup that gets him the correct investments/insurance/plan/etc., at the lowest cost. 
 
So, you will ALWAYS have a conflict of interest, no matter what.
 
Commission = incentive to trade/churn/buy/sell.
 
Fees = incentive to keep assets invested.
 
Hourly = incentive to increase billables.
 
It doesn't matter how you slice it, there will always be conflicts that can only be resolved in the end with the morals of the FA. 
 
 
 
Don't you get the fee regardless of whether the account is in cash, stocks, bonds or what have you?
May 8, 2009 2:22 pm
Squash1:
iceco1d:

It can't be resolved.



 
It's such an issue, because in the eyes of the world our effectiveness is quantified by how much money we make clients.
 
The more we get paid, the less the client makes.  Therefore, the best setup for each client, is the setup that gets him the correct investments/insurance/plan/etc., at the lowest cost. 
 
So, you will ALWAYS have a conflict of interest, no matter what.
 
Commission = incentive to trade/churn/buy/sell.
 
Fees = incentive to keep assets invested.
 
Hourly = incentive to increase billables.
 
It doesn't matter how you slice it, there will always be conflicts that can only be resolved in the end with the morals of the FA. 
 
 
 
Don't you get the fee regardless of whether the account is in cash, stocks, bonds or what have you?
 
This is probably a topic for another thread, but this concept is CRAZY.  Charging 1%+ for CASH?!?!?!  Why, because we can find them a money market that can get them an extra .01%, then net -.99% from that deal??
May 8, 2009 3:30 pm

Don't want to bring this up again, but I think it is only appropriate to charge on cash if it is part of your investment portfolio, not your permanent "emergency fund" or "safe money" or whatever.  If you are a discretionary RIA, and you decide that you want to move clients into cash for some time to weather a storm, then that should remain under advisement.  I can tell you, if 18 months ago your RIA moved your portfolio into cash, you will be more than happy to be paying 1% to avoid losing 30% (or 20 or 40 or 50......).

May 8, 2009 3:37 pm

Nice job Ice...I went from adamantly against charging for cash to wanting to punch myself in the face for not charging for cash in about 5 seconds flat.