Variable Rate Demand Note Prospecting

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Dec 8, 2006 4:47 pm

Does anyone do any prospecting or lead ins with CPAs using VRDMs?


I just got off the phone with a CPA of a high net worth client of mine who didn't even know what a VRDM is.  He was trying to tell his client, "my client," that they were taxable.  In fact I have insured tax free VRDMs with a weekly or monthly put feature.  At about 3.65% tax free that is pretty good.


My thought is most people don't know about them because they pay virtually no commission. So brokers don't talk about them.  My business is mature and I don't have to worry about where my next buck is coming from anymore so I am thinking I might make some calls to CPAs to let them know about these investments.  Minimum investment is $100k or $250k ususally and for high income high net worth people who want liquidity and no measurable risk this stuff is great to generate relations with.   


Has anyone used VRDMs to generate new relations?  If so, how?


Thanks

Dec 9, 2006 1:27 pm

If you are speaking of VRDO's (Variable Rate Demand Obligations), then yes I use them when calling on cash management. Small business owners who may have 800K at say Bank of America in their money market fund have never heard of these. I ask them if they would like to have a yield 50-75 BPS over their current rates with weekly liquidity and all but the idiots ultimately end up taking the meeting.


These instruments are a great lead-in.....


Dec 9, 2006 4:46 pm

I agree.  I usually offer MARS (Municipal Auction Rate Securities) for business cash management solutions.  Very similar and it's hard to argue against better returns for similar risk with weekly liquidity with double tax exempt rates at or around the 3.65% (the last rate I remeber seeing).  I have never offered it to individuals or CPAs yet, but CPAs would be great ways to get the word out to both HNW individuals and businesses.


Speaking of CPAs, does anyone offer any type of referral program where CPAs/Attorneys/Regional Banks recieve a percentage of the fees charged for asset management when they refer clients to you?  I am trying to build up my referrals that way, but nobody seems all that interested.  Any advice would be helpful.

Dec 9, 2006 5:28 pm
wlooney:

I agree.  I usually offer MARS (Municipal Auction Rate Securities) for business cash management solutions.  Very similar and it's hard to argue against better returns for similar risk with weekly liquidity with double tax exempt rates at or around the 3.65% (the last rate I remeber seeing).  I have never offered it to individuals or CPAs yet, but CPAs would be great ways to get the word out to both HNW individuals and businesses.


Speaking of CPAs, does anyone offer any type of referral program where CPAs/Attorneys/Regional Banks recieve a percentage of the fees charged for asset management when they refer clients to you?  I am trying to build up my referrals that way, but nobody seems all that interested.  Any advice would be helpful.



Paying kickback or incentive fees for referrals is illegal. 

Dec 9, 2006 7:10 pm
mktsystms:
wlooney:

I agree.  I usually offer MARS (Municipal Auction Rate Securities) for business cash management solutions.  Very similar and it's hard to argue against better returns for similar risk with weekly liquidity with double tax exempt rates at or around the 3.65% (the last rate I remeber seeing).  I have never offered it to individuals or CPAs yet, but CPAs would be great ways to get the word out to both HNW individuals and businesses.


Speaking of CPAs, does anyone offer any type of referral program where CPAs/Attorneys/Regional Banks recieve a percentage of the fees charged for asset management when they refer clients to you?  I am trying to build up my referrals that way, but nobody seems all that interested.  Any advice would be helpful.



Paying kickback or incentive fees for referrals is illegal. 



There are certain programs at certain firms that allow it mktsystems.  Most of them actually require the CPA to get a series 66, and only involve the sharing of payment from fee-based programs.

I have had frank conversations with many CPA's about this, and many of them feel the extra money isn't worth the hassle of taking the exam, providing clients with all the additional disclosure, the risk to the accounting relationship if the market hits the sh*tter and the client blames them, and last but not least the fact that it can create a perception on the client's part of a conflict of interest.

Dec 10, 2006 12:25 am

That's what I've been getting joedabrkr.  Understandable ofcourse, but I come with a 10 year background in accounting and thought it would be a lot easier for myself than most.  With my background I am ofcourse pushing a holistic approach, explaining that I would be more than happy to work side by side with attorney, CPA and client, but as you mentioned there is no guarantee that if the market dips they don't blame the referring party. 


Anyone can share fees if they are licensed.  My firm on the other hand allows it without licensing IF it is allowed by the states laws.  Lucky for me I reside in a state in which CPAs AND attorneys (not all states allow attorneys) can participate without any securities licensing.


Dec 10, 2006 2:06 am
wlooney:

That's what I've been getting joedabrkr.  Understandable ofcourse, but I come with a 10 year background in accounting and thought it would be a lot easier for myself than most.  With my background I am ofcourse pushing a holistic approach, explaining that I would be more than happy to work side by side with attorney, CPA and client, but as you mentioned there is no guarantee that if the market dips they don't blame the referring party. 


Anyone can share fees if they are licensed.  My firm on the other hand allows it without licensing IF it is allowed by the states laws.  Lucky for me I reside in a state in which CPAs AND attorneys (not all states allow attorneys) can participate without any securities licensing.




Interesting to hear that you're getting the same thing even though you have a background on that side of the biz and I would guess that this is an area of focus for you.....

I would suggest you let it go, and work on building relationships with the CPA's and suggest to them that you perhaps may not formalize the relationship with a fee sharing relationship but you will at least do your damn level best to make them look good with referrals and also send some new friends their way, and see how it goes from there......