Fair price / fee

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Mar 7, 2006 11:38 am

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?



Thank you

Mar 7, 2006 12:00 pm
beramberger:

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?



Thank you



What's fair to pay depends completely on what services your broker is providing. From your letter I'm not sure exactly what those services are. Has a fee rate been presented to you yet? <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


As to "retrieving funds", that too depends. If your broker places you in proprietary investments it's possible that you wouldn't be able to move that investment to another firm should you decide to leave Merrill Lynch. You could be forced to liquidate it. That's a question to ask your broker whenever he proposes an investment idea to you, is it portable. If by "retrieve" you mean, could you be assured that you could liquidate an investment for no less than you paid for it at any point, well, no, most likely not.


Mar 7, 2006 12:41 pm
beramberger:

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?



Thank you



I would submit to you that if you have been lead to believe that an 800K account is "small" that you are most likley working with the wrong advisor.

This suggests to me a very undesirable attitude on the part of the advisor, and one which will likely lead to poor service and accountability to you the client.

Just my two cents worth.

Mar 7, 2006 1:09 pm

It had better be less then 1%


Good luck

Mar 7, 2006 1:51 pm
joedabrkr:
beramberger:

I would appreciate informed opinion on whaty is a fair but competitive rate for me to pay broker (ML) to manage our small account (800k). I am nearing retirement. My expectation is that the broker will provide us with recommendations from time to time based on our particular circumstances. i would not imagine that there would be heavy trading during the year. We have not yet finalized anything with broker and only ended up here because our daughter works there. We are generally conservative but realize need for growth since retirement period may extend out 30 years. I want to compensate broker fairly but not more than the market demands. Broketr has mentioned various reports from time to time that sound more like fluff than substance. Lastly, if we sign "client relationship agreement" with broker but want to change later on is it dificult to retrieve our funds?



Thank you




I would submit to you that if you have been lead to believe that an 800K account is "small" that you are most likley working with the wrong advisor.

This suggests to me a very undesirable attitude on the part of the advisor, and one which will likely lead to poor service and accountability to you the client.

Just my two cents worth.



If that's the impression the writer has based on a feeling he got from his broker, I agree with you completely, Joe.

Mar 7, 2006 2:26 pm

Fee mentioned was "about 1%" though nothing formally signed. Broker has mentioned "cash management account"(?)My "problem" is that this seems like a lot ($8,000) for an account that is stable; perhaps reviewed twice a year. I realize that this is better managed by a pro versus my scouring message boards for investment tips. Also realize that broker's job is not a cake-walk; many long hours; no loyalty from clients, etc.

Mar 7, 2006 3:12 pm
beramberger:

Fee mentioned was "about 1%" though nothing formally signed. Broker has mentioned "cash management account"(?)My "problem" is that this seems like a lot ($8,000) for an account that is stable; perhaps reviewed twice a year. I realize that this is better managed by a pro versus my scouring message boards for investment tips. Also realize that broker's job is not a cake-walk; many long hours; no loyalty from clients, etc.



If he's only going to take an account, already invested, and review it twice a year, yes, the fee is too high. (OTOH, if that's all he's doing he's not much of an advisor.) If that's what's planned, you might want to consider a commission account, rather than a fee based one if few transactions are planned. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


I'm sure Merrill's compliance department is like most and at the end of the first year will send you a letter telling you what you paid in fees and what you would have paid if you'd paid commissions on the same transactions. You'll have the chance to choose which better suits you.


One thing to consider while you think about fees, how small of a mistake would you  have to make (and presumably your broker would avoid) to cost yourself 1% or more of the account value?  IOW, the broker doesn’t really have to bring much value to the account to overcome that 1% fee if the alternative is you using internet chat boards for investment ideas and strategies.


Mar 7, 2006 4:06 pm

Thanks.. I'm definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn't anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me..but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.

Mar 7, 2006 4:13 pm
beramberger:

Thanks.. I'm definitely going with a broker instead of doing the investing myself. My idea is that the broker presents and explains a proposed portfolio; which may or may not be tweaked based on our risk tolerance, etc. once set up , the account would be reviewed at least twice a year for possible modification. I wouldn't anticipate that there would be numerous trades outside of those that may be made within some fund. I guess what I expect from the broker is that I should make more or lose less than the guy who uses dart boards, ouija boards or message boards for advice. !% for that would be OK with me..but 1% PLUS A HOST OF FUND MANAGEMENT FEES gives me pause.



You have a fair point or two in there. Personally I wouldn't use an account that includes a fee to own mutual funds (although having the loads waived and the lowest fee version of the shares is definitely worth something) which have their own, internal management fees. Others here might differ with me on that. I'd prefer a flat fee account that used individual stocks and bonds or ETFs.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Mar 8, 2006 2:32 pm

With an $800k portfolio, you have enough assets to use a core/satellite system.  If the advisor is only reviewing the accts twice a year, then you've got problems.  Good money managers have a system for monitoring the investments inside of the portfolios, not just the portfolios.


We use positions that most "self-investors" would never even consider.  Unless you're retired, we also have an extra 8hr/day to monitor economic and market news.  Not to mention experience levels,... and the ever bothersome "emotional" factor involved with a disciplined strategy.

Mar 8, 2006 3:01 pm

I'm sorry but I don't know what a core/satellite system is

Mar 8, 2006 3:29 pm

Think of it as using 2 different investment strategies.


The core portion usually will hold index ETFs, mutual funds, or other investments that will track the major markets.


The satellite portion will usually hold far fewer individual positions that the MM feels strongly about.  It is typically used to add alpha (or added performance.)  Think of it as your own personal mutual fund designed specifically for your risk tolerance and needs. 


In a proper mix you will have not only stocks & bonds, but also, international, small & mid caps, multiple duration bonds/CDs, emerging markets, country specific investments, real estate, growth & value, etc. 


Used properly the combination of the two can outperform the markets, which is every managers goal.


Hope this helps. 


Mar 8, 2006 3:58 pm

Thanks.. very helpful and tracks with what the ML fellow was telling me; something like put 600k in the core  more conservative , stable accounts and 50k each in 4 other accounts that might have more activity , taking advantage of current opportunities

Mar 10, 2006 8:32 am

In Charlotte North Carolina

Mar 17, 2006 9:42 am

With 800k, you can certainly be well diversified with individual stock holdings.  Your broker won't be tempted to churn your account, and has a long term interest in growing your account, as his fees increase with your account size.  You'll likely also pay the minimum ticket charges, so that the broker has no incentive not to sell when appropriate.  A 1% management fee is more than fair, I know some advisors who won't do it for less than 1.5%. 


Now, why are we giving free advice to a non-broker, particularly in the prospecting, marketing and selling department?


Ace

Mar 21, 2006 10:24 pm

beramberger -

PROCEED WITH UTMOST CAUTION!

Some Myths Exposed!



Before Proceeding Consider These Facts!



1. There is no such thing as professional money managers - only professional money gatherers.



2. There is no correlation whatsoever that past performance has anything to do with the future - none - ZERO! PAY NO ATTENTION TO BRAND NAMES OR PAST PERFORMANCE



3. Only 20% of mutual funds or active managers beat or match their benchmarks in any given year. Unfortunately there is only a 7% chance that one of those will beat or match their bench mark the 2nd year. Better off trying to catching snowflakes!



4. No evidence that market timing adds any value! AVOID



5. Asset Allocation is responsible for over 90% of performance.



Solution: Engage an advisor who will use a rule based reallocation system to run an ETF portfolio that covers the entire market (it will take 9 different US Equity ETFs and 2 non US ETFs), slightly weighted to the small and mid cap equity areas. with 70% of your assets. Take the other 30% and buy

Treasury Zeros with maturities of 2,3,4,5 & 6 years out. NEVER BUY BOND FUNDS!



Do NOT pay more than 0.50% this should include portfolio establishment, ongoing reporting and rebalancing. And someone willing to tell you the truth and share over 25 years of industry experience when you feel the need to   call!



This will result in superior returns, complete liquidity and no surrender charges.





DO NOT GET INTO MANAGED ACCOUNT PROGRAM

DO NOT PURCHASE AN ANNUITY

DO NOT PURCHASE AN ACTIVELY MANAGED MUTUAL FUND

All of these are schemes to skim money from you!



Good Luck!



Mar 22, 2006 7:55 am

1.25

Mar 22, 2006 8:53 am

Lance tells us;



PROCEED WITH UTMOST CAUTION!
Some Myths Exposed!

Before Proceeding Consider These Facts!

1. There is no such thing as professional money managers - only professional money gatherers.


Lance is obviously smarter than every major trust, endowment and retirement plan in the world, since they all believe there  is  such a thing as a professional money manager.



2. There is no correlation whatsoever that past performance has anything to do with the future - none - ZERO! PAY NO ATTENTION TO BRAND NAMES OR PAST PERFORMANCE


Mostly true, but then again, the same advice applies to everything he says below about "the" solution. The question you have to ask yourself is do you want a strategy that HAS past success or one that has NO past success.




3. Only 20% of mutual funds or active managers beat or match their benchmarks in any given year. Unfortunately there is only a 7% chance that one of those will beat or match their bench mark the 2nd year. Better off trying to catching snowflakes!


An oft-stated fiction that's based on comparing many mutual funds (not SMA managers) many that don't have beating the S&P 500 as a goal, against that same index. The fact is beating the S&P 500 IS a tough task for those that should be compared to that index. OTOH, the task is much easier, and it happens far more often when the correct index to measure against is the EAFE, and mid/small cap versions (which are probably going to be the majority of your account to begin with). Lance has simply overstated the case, as any trust, endowment or retirement plan trustee will tell you. They certainly aren't 100% indexers, not even close.



4. No evidence that market timing adds any value! AVOID


I would tend to agree, mostly. OTOH, so called "tactical" moves add great value. Ask yourself who would be better off the past few years, the guy that screamed "no timing" and bought his strategic model's standard percentage of 30 year bonds, or the guy who tactically avoided them.




5. Asset Allocation is responsible for over 90% of performance.


Agreed. OTOH, that doesn't mean his cookie cutter appraoch is the best way to impliment the wisdom gained by knowing AA is so critical.



Solution: Engage an advisor who will use a rule based reallocation system to run an ETF portfolio that covers the entire market (it will take 9 different US Equity ETFs and 2 non US ETFs), slightly weighted to the small and mid cap equity areas. with 70% of your assets.


Translated “I have the magic solution that works for (and I apply to) every single investor, regardless of their goals and situation. How lucky of you to have found me. Ignore the fact that smart money (that is pools of money larger than Lance will ever be allowed to touch as an advisor) largely ignore his pure indexing approach.


Take the other 30% and buy Treasury Zeros with maturities of 2,3,4,5 & 6 years out. NEVER BUY BOND FUNDS!


A flat recommendation to take every last fixed income dollar and buy non-income producing T zeros (in a rising interest rate environment?), and of relatively short maturities, ignoring every other category of fixed income is just silly. OTOH, like Lynch said, never, never, never, never buy a bond fund.




Do NOT pay more than 0.50% this should include portfolio establishment, ongoing reporting and rebalancing. And someone willing to tell you the truth and share over 25 years of industry experience when you feel the need to call!


Feel free to hire someone who obviously places little value on his time, will apply his cookie cutter to everyone who walks through the door and good luck ever reaching him again since he’ll have to have thousands of similar accounts in order to make a living.

This will result in superior returns, complete liquidity and no surrender charges.


OTOH, past performance has nothing to do with future returns and “complete liquidity” doesn’t mean you can get back what you started with.


DO NOT GET INTO MANAGED ACCOUNT PROGRAM


So "DO NOT" do what the largest pools of money in the world do. Strange advice there




DO NOT PURCHASE AN ANNUITY


IOW, I know nothing about you, but I already know an annuity could never be suitable for you. I also will, for a small fee, guess your weight and pick lotto numbers for you.




DO NOT PURCHASE AN ACTIVELY MANAGED MUTUAL FUND


Again, a blanket statement so broad as to be laughable.



All of these are schemes to skim money from you!


IOW, I’m the only honest person you’ll be meeting. Obviously Lance has confused HIS sole solution with ethical behavior. A dangerous mistake to make.

Good Luck!


You’ll need it if you run across someone as doctrinaire as Lance…

Mar 22, 2006 12:02 pm

Hey Mike<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Thanks for the thoughtful rebuttal.  Unfortunately there is no math to support your point of view.


The only thing certain is the fees that will accrue tomorrow against his assets!  There is no other certainty!  Fees drag the return – of this there is no doubt.


I know my approach is not for everyone, it should only appeal to investors fed up with the BS fed to them by the mutual funds, brokers, bank trust companies trying to make as much fees as possible without having assuming any risk themselves.   These institutions that you speak of are just good at creating money skimming products and services to systematically transfer assets from their client base pockets to the managers who run these institutions.  You are just a pawn in the whole scheme.


Of the approximately $1.2 billion we have in AUM comes from bank trust departments, actively managed mutual funds, wrap programs and investors frustrated with mislead and disappointed.  The people who believe in our approach have found it to:


Eliminate excessive fees, manager risk, style risk and conflict of interest issues from their broker or institution.


Reduction in their anxiety that comes with investing into a chaotic market.


Raises their chances that they will achieve market like returns.


Creates a simple, efficient and rational rule based process to construct and rebalance their portfolios


Look at a 10 year chart of the well known AMCAP fund. AMCAP benchmark is the S&P 500.  Notice that the benchmark produced TWICE the value as the fund over 10 years.  Meanwhile “Capital Guardian” (that name is a joke) took out (aka pillaged) over $500 million in “professional management” fees during this same period.  Also the brokers raked in over $300 million in 12b1 fees over this same period.  That money came right out of the investors pockets into the fund managers and brokerage companies.  But what a great fund!  How about Fidelity Magellan the S&P produced 4 Times the return in the same 10 year period.


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Mike, Unfortunately it is difficult for you to understand this because your paycheck depends on your not understanding.


Evidence; here are Some Big Pools of Very Smart Money:


ATT 401(k) plan going to all Index options (that is only $25 Billion so!)


US Govt Thrift Plan on all Index Option (that is another $35 billion)


I can go on if you would like.  I can keep producing facts and you can keep producing sales material.  As long as there is Mikes out there will be Lances picking up the pieces!  Keep up the great work Mike you make my job of gathering assets easier!


Have a great day!


 


Lance  


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Mar 22, 2006 1:39 pm

you dont have 1.2B in AUM.