Bond funds or Individual (a be honest with yourself version)

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Jul 21, 2012 8:20 pm

Ok, one of the easiest ways to "steal" a client from another broker is to claim that he is getting raped by his current advisor holding bond funds in an advisory account. However, is he? Advisors always make the case for holding the equity portion in the managed account, and holding individual bonds in a regular brokerage account. However, are these advisors are being honest with themselves? An individual bond bought in a brokerage account has the commish baked right into the quote. So, the client doesn't see the extra they are paying. Also, if you've been around long enough, you'll admit that most brokers seek out the individual issues with the most handsome commish to boot. Sometimes 3 points or more. So my question is: in the end, does it really make more sense for the client? Or does it simply SOUND better? On the flip, I also see the damage in holding fixed income funds in advisory accounts...ie...charging an advisory fee on top of expense ratios which will literally bring the yield on said bond funds to zero.. I have no preference at this juncture....and I do realize that MANY variables factor in (how often the broker buys, sells, swaps the individual bonds and generates commish vs advisory fees charged and expense ratios). Knowing how advisors trade in transactional accounts (whether equity or fixed income), it seems to me that the better deal for the client would be to charge a regular advisory fee (1.5 or whatever the hell you're quoting) for the equity portion, and hold bond funds in a separate advisory account charging around 60 bps (assuming the account is large enough so your firm actually pays your ass). Of course, if Principal preservation is of the utmost concern, than individual bonds are clearly the answer. However, knowing that most of time, the higher commission bond will be sought after to pitch, as well as more "neat sounding" swap and trade to generate rev will be plotted, it doesn't sound entirely accurate to say its a better deal. Again, I'm sort of just thinking aloud...I truly have no preference, as I have both types of accounts..I'm just wondering if you guys think it's truly a better deal for the client? Or a nice, Mother Theresa sounding pitch?

Jul 21, 2012 9:41 pm

Let's be really honest. Do managers want their financial advisors to be managing portfolios of individual securities? I am sure some of them can do this but it this what their managers want them to do. I doubt it. I would think that most managers want their advisors to be spending most of their time bringing in new business and enhancing relationships

Mike
Http://www.series7examtutor.com
http://www.series65examtutor.com

Jul 22, 2012 1:30 am
mstudy:

Let's be really honest. Do managers want their financial advisors to be managing portfolios of individual securities? I am sure some of them can do this but it this what their managers want them to do. I doubt it. I would think that most managers want their advisors to be spending most of their time bringing in new business and enhancing relationships

Mike
Http://www.series7examtutor.com
http://www.series65examtutor.com

Another excellent reason to never work for 'a manager'.

To nopanties: You bring up good points, but I think 2 things that trump 'what's better' is the size of the account and simpy what the client prefers. The fees for diversification is almost always better for smaller accounts. For larger accounts, fees are silly, and many know this.. unless of course that's what they prefer. (If they have commission phobia)

Jul 22, 2012 11:32 am

On a ML MLPA managed account, the customer is not charged the expenses associated with mutual funds, only the advisory fee of 1-1.5%.

Jul 23, 2012 5:50 pm

Belem148, can you elaborate a little on this. Someone has to pay the fund fees. Fund expenses come out of the fund's NAV

Jul 23, 2012 6:14 pm

Many whoslesalers have agreements with ML to use their funds in certain platforms like MLPA where the customer will only pay the advisory fee of 1-1.5% against the total cululative assets in the account and will not incurr any additional charges associated with the funds. Not all vendors comply but a lot of them do. In the ML system, you look up the MF by symbol, and it will tell you which platforms the fund can be used in: MLPA, PIA, IRA, etc.

Jul 23, 2012 7:53 pm

You need some serious cash to build a diversified indiv bond portfolio.

Aug 17, 2012 4:03 pm

Belem148,

You're incorrect on this one. You'll get the institutional fee. So you've layered fees on top of fees. You should take a closer look. They're still paying the mutual fund fee on top of you're wrap account.

Aug 17, 2012 9:18 pm
Belem148:

Many whoslesalers have agreements with ML to use their funds in certain platforms like MLPA where the customer will only pay the advisory fee of 1-1.5% against the total cululative assets in the account and will not incurr any additional charges associated with the funds. Not all vendors comply but a lot of them do. In the ML system, you look up the MF by symbol, and it will tell you which platforms the fund can be used in: MLPA, PIA, IRA, etc.

are you fucking stupid? you're a registered advisor? jesus

Aug 20, 2012 8:26 am
Amber_M:

You need some serious cash to build a diversified indiv bond portfolio.

Bond fund holders are going to get murdered. Holding the indiv bond is much safer.

I can build a good bond portfolio with 100k.

Aug 20, 2012 8:27 am
Bonky:
Belem148:

Many whoslesalers have agreements with ML to use their funds in certain platforms like MLPA where the customer will only pay the advisory fee of 1-1.5% against the total cululative assets in the account and will not incurr any additional charges associated with the funds. Not all vendors comply but a lot of them do. In the ML system, you look up the MF by symbol, and it will tell you which platforms the fund can be used in: MLPA, PIA, IRA, etc.

are you fucking stupid? you're a registered advisor? jesus

Dude, why don't you just tell everyone you're gay and get it out in the open. You'd be a whole lot less angry and we all support your lifestyle. Come out of the closet into the warm embrace of your peers. We support you.