In it for the money or to help clients

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Dec 14, 2006 7:51 pm

Curious if the truly successful have a desire to help clients first or are you focused on money.



Some small business owners including myself believe in the concept that if the client is happy money will come, but at the same time one cant be blind on the revenue.



I consider someone successful if they make it past 3 years. I say this thinking that even if you make 40k a year at least your still trying.



Dec 14, 2006 8:44 pm

If you deliver value, are smart about your expenses, and have enough sense in your pricing to not give away your expertise, the money to you has a way of working out....

Dec 15, 2006 2:08 pm

Absolutely I care about my clients.  Absolutely I try every day to do the very best for them.


Hey, it is a business.  And I want to be in it for the long run. 

Dec 15, 2006 2:57 pm

I'll venture a step further. In this business, it seems that if you do the right thing for the client, put the client first every time, and make a good effort - after a certain time in the business, money attracts money in an almost spiritual way.


I'm certain this is no different than almost any other small business. However, the "wealth management" business (which can include smaller client accounts) is unique in some special ways. It can be a very efficient business, since you are paid for assets under management, you can get to the point where you are not always trying to put out fires, or get the next customer in the door.


Well, that's obvious, that's why a lot of people want to be a financial advisor. What may be less apparent is, the scenario of getting established places a particular challenge on keeping good ethics aligned with good business, doing what is best for the client first.


 But a lot of that is debatable, since new advisors tend to literally go out and grab clients and say, "look, save some money here". A lot of times, when the client learns a little more about investing, they say, "hey, why did you put me in this loaded fund, or this permanent life insurance policy with a surrender charge". So that creates some real but also merely perceived conflicts of interest. The real test, I guess is: is the client better off for having followed the advisor's advice?


Given all of the competition for money - the mall, new cars, expanded cable sports packages, travel - it seems that most of the actions advisors take in getting clients invested, these actions have a net positive effect.


The spiritual aspect is: money is at the very core values of almost every person. It defines and motivates us in ways that most of us even dimly understand about ourselves. A great advisor helps us clarify and achieve "balance" with regard to what we have and what we feel we need to have. Great advisors find themselves caught up in helping the same clients over decades, and money does begin to attract money. I think that's really cool.

Dec 15, 2006 4:08 pm

"In it for the money or to help clients"


Boy, do I dislike the premise of the topic.  How about being "in it for the money AND to help clients."


My company, Anonymous Financial, is in business for one reason only.  It is the same reason why all for-profit businesses exist..to make as much money as possible.  However, I, Anonymous Planner, when in front of the client, always does what is in the clients' best interest regardless of commissions and/or fees that will end up in my pocket. 


These two interests very easily go hand-in-hand.  It's very simple.  Always do what's in the clients' best interest is self explanatory.   How is this done at maximum profitability?  Simple.  Call on people with money.  I choose to work with business owners rather than nuns even though the nuns are more worthy of help.

Dec 15, 2006 4:43 pm

Well put anonymous. Most of the apparent conflicts of interest arise with clients who don't have much money. And business owners understand and can take advantage more of the value added strategies.


I notice the big 4 wire houses are focusing on offer more unique, high margin products for higher net worth clients. Advisors more in the trenches with simpler products can still focus on people who have money - business owners are a good category.


What sort of business owners do you serve? It sounds like you are lwith an independent b/d.

Dec 16, 2006 4:52 am
planrcoach:



 But a lot of that is debatable, since new advisors tend to
literally go out and grab clients and say, "look, save some money
here". A lot of times, when the client learns a little more about
investing, they say, "hey, why did you put me in this loaded fund, or
this permanent life insurance policy with a surrender charge". So that
creates some real but also merely perceived conflicts of interest. The
real test, I guess is: is the client better off for having followed the
advisor's advice?





I would think the real test is, "Was the advice given, the best
possible advice for the client, based upon the advisors knowledge and
reasonable dilligence" And when ever the answer is no, then you know
what to do.



When clients get put into load funds or bad insurance contracts, there
is a reason for it. Long run, you don't build a good practice by
burning out customers.



A happy customer tells 2-3 other people, an angry customer tells 20.

Dec 16, 2006 7:48 am

"When clients get put into load funds..."


AllReit, please explain why is it bad for an advisor to put a client into a load fund?  

Dec 16, 2006 1:34 pm

Anonymous, the question was posted to get some comments. If I posted it with the "and" it wouild have had minimal response.



Like many have stated we are all in business for profit. I suspect corporate is even more focused on profit to maximize stock holder value.

Dec 16, 2006 2:43 pm
anonymous:

"When clients get put into load funds..."


AllReit, please explain why is it bad for an advisor to put a client into a load fund?  





Its not bad for the advisor , it's bad for the client, which is bad for the advisor in the long run.



There are usually no-load classes, equivalent funds with lower all-in
expenses, and ETFs. Losing 5.75% on the first day is a hard burden.

Dec 16, 2006 3:02 pm

How many of your clients are paying 5.75%?  If my client only pays a 2% load upfront, not sure how that is worse than an extra 1% fee for life.  Not saying managed money is bad - I just don't think you can claim that it is worse than an annual management fee for the client in all cases.  And if your client is paying 5.75% it means they have very little $$, so they wouldn't be in managed money anyway.  But usually if I have a client with small $$, I am doing something far better for them than what they were doing (or not doing) previously.  I don't think you can take any one class of investment or load or commission or fee and call it "bad" in a general sense.  Everything is suitable for someone (OK, with the exception of certain annuities I have come across through they years - but I doubt any of us our selling these).  As long as we are doing what is appropriate given the situation, it is not bad for the customer.  Sure, it would be great to put clients in no-loads and not charge a fee, but how would we get paid for the advice we are giving?  You can't claim an entire indutry is wrong.  And not everyone should be in managed money. 

Dec 16, 2006 4:42 pm

"Its not bad for the advisor , it's bad for the client, which is bad for the advisor in the long run."


Are you new to the business?  I'm guessing so because you have it very backwards.  For a buy and hold investor, paying a front end sales charge is the absolute cheapest way to invest.  The problem is that it sucks for the advisor because the advisor will go broke servicing "A" share accounts.  This ultimately means that the client will get no service.


Dec 16, 2006 7:03 pm
AllREIT:
anonymous:

"When clients get put into load funds..."


AllReit, please explain why is it bad for an advisor to put a client into a load fund?  





Its not bad for the advisor , it's bad for the client, which is bad for the advisor in the long run.



There are usually no-load classes, equivalent funds with lower all-in
expenses, and ETFs. Losing 5.75% on the first day is a hard burden.



If the advisor can't make a living he's not going to be there very long to help the client, you ignorant fool....

Dec 16, 2006 9:24 pm

For a buy and hold investor, paying a front end sales charge is the absolute cheapest way to invest.  The problem is that it sucks for the advisor because the advisor will go broke servicing "A" share accounts.  This ultimately means that the client will get no service.


Yes, although A shares just give one more choice, and flexibility. Of course, some of us might mix "A" and "C" shares, or use wrap or whatever, and we would be fairly paid as advisors over time, and we would indeed deliver excellent service on the whole package.

Dec 17, 2006 7:14 am

...except that you can't legitimately use C  shares or a wrap account for this type of investor.


You can only use C for a client if it is the cheapest way to invest.  It's tough to get a C through a compliance dept for a long term investment.


If you use a wrap account for this same type of investor, you'll be guilty of reverse churning.


The regulators have put us in a position that makes it more difficult to have our interests allign with our clients.

Dec 17, 2006 1:58 pm
anonymous:

...except that you can't legitimately use C shares or a wrap account for this type of investor.



You can only use C for a client if it is the cheapest way to invest. It's tough to get a C through a compliance dept for a long term investment.



If you use a wrap account for this same type of investor, you'll be guilty of reverse churning.



The regulators have put us in a position that makes it more difficult to have our interests allign with our clients.





I use C shares all the time for long term. I have an investment policy statement that my compliance department made and outlines when it's appropriate and why we are using C shares rather than A.



The wrap thing is very misunderstood, if these were advisory accounts then there would be no problem charging the fee and doing nothing (because your paying for advice) the problem is they are not advisory accounts they are fee in lieu of commission accounts (paying for the trade and the advice is incidental to the trade). Why don't the wirehouses offer advisory accounts you ask?   Good question. Because then they would have to be held to a fiduciary standard and they don't want to be fiduciaries.... So the regulators are not the ones making it tough it's your firm they just don't want to play by the rules and now that is coming back to haunt them.

Dec 17, 2006 3:49 pm
joedabrkr:
AllREIT:
anonymous:

"When clients get put into load funds..."


AllReit, please explain why is it bad for an advisor to put a client into a load fund?  




Its not bad for the advisor , it's bad for the client, which is bad for the advisor in the long run.

There are usually no-load classes, equivalent funds with lower all-in expenses, and ETFs. Losing 5.75% on the first day is a hard burden.



If the advisor can't make a living he's not going to be there very long to help the client, you ignorant fool....


First of all if a client is paying 5.75% that means they don't have enough for a breakpoint and they certainly don't have enough to warrant a wrap or fee account.  Since the regulators have frowned on B shares and also C shares what other suggestions do you have for the small investor?  ETFs? Closed End funds? Those trade on the exchanges and have commissions on the front and back end, again unless the client is in a wrap or fee account.


No one is going to put a client into a no load fund unless they are getting compensated some other way like a fee account.  Now, if you want to make an arguement, like Put Trader did ad nauseum, that who needs us? why doesn't everyone just pick up the phone and call Vanguard? go ahead. 


The clients pay a one time up front fee and have liquidity.  Some mutual funds especially a famous fund family that begins with A, have expenses that are comprable to some no load funds.  If the client is a long term investor, within 6 months to a year the intial fee has been recovered in many funds.  If they are paying an ongoing 1 to 1/5% wrap fee, they are continually losing money for as long as they hold the account.


Are you suggesting we place our clients in no load funds and not charge an annual fee?  I don't recall joining a charitable not for profit institution.

Dec 17, 2006 10:18 pm

Bankrep1, could you share the tone of your C-share investment policy. I

would like to incorporate more C-Share business, but not sure how to

frame it correctly.



Babbles, I agree with you. We need to get paid for what we do. Period.

We are not just here to enter trades.

Dec 17, 2006 10:30 pm

Basically it outlines the additional expenses and the reasons we use them. Freedom to move between fund families with no additional charges, no upfront fees, part of an asset allocation plan (few fund families offer all asset class funds and the ones who do aren't very good in some categories). The rest of the IPS outlines my relationship with the client and the philosophy we follow to manage the account.

Dec 17, 2006 10:39 pm
bankrep1:

Basically it outlines the additional expenses and the
reasons we use them. Freedom to move between fund families with no
additional charges, no upfront fees, part of an asset allocation plan
(few fund families offer all asset class funds and the ones who do
aren't very good in some categories). The rest of the IPS outlines my
relationship with the client and the philosophy we follow to manage the
account.





If PIMCO is on your platform you can make this argument easily, as they
have the best bond funds. IMHO a good advisor is going to make the best
possible choice for the client even if you have to fight for the
ability to do so.