Spaceman is right in that you can prospect anyway you want to at Jones as long as you are producing.   If you are "meeting or exceeding expectations" you are no longer on the radar and you are left alone.

Same thing with the investments. Although they did object to my positioning people into stocks that were not on the research list, such as some regional banks.  In fact they MADE one other rep in our region sell out positions that he had taken because they felt his book was too heavy in that one company. 

Most of the mutual funds sold were A shares with B shares being more and more frowned upon and C shares only for short time positions.  Maybe that has changed.  Don't know... haven't been there for a few years now.

Door knocking was OK.  I didn't mind it too much and it was a good way to introduce myself to people that otherwise I would not have met and who may not be persuaded by newspaper advertising.  I just gives a jump start to a new office or new IR.  But as Spaceman says, you don't HAVE to doorknock past your initial training.

I won't go over old ground, but I am very very happy that I am no longer at Jones.  It had its good points but they were more than outweighed by the bad.  For somebody else, it may be a good fit.  It wasn't for me.

Interesting how DCed first bashes the use of fee-based accounts and then says how great EDJ is for doing it the “right” way and offering the choice to clients.  So wrap fees are good, as long as you are getting it from EDJ?  In the past when a consumer “chose” a fee-based advisor over EDJ (ignoring that many advisors have offered both options) the company line was that they were getting screwed.  Now that EDJ can do the screwing its OK.  I wondered how EDJ was going to spin the fact that they have been saying that wrap fees are bad for the client for years.  It’ll be interesting to see what their fee schedule is.

I’ve been at Jones for a long time and I don’t ever remember hearing anyone say “wrap fees are bad, period.”  The line I’ve always heard is that wrap fees are not appopriate for all investors.  I have accounts in my office who I will call the day I have fee based and say we’re switching…because it makes sense for them.  I think the point Jones people try to make is that there are a lot of clients out there getting screwed because their brokers are either A) charging a fee and then not making any trades to justify the fee or B) charging the fee then churning the snot out of the account to make it look like they are doing something for the client.  I’m interested to hear if Jones can figure out a way to give us the ability to offer both and have us feel good about it.  We’ll see.

On our platform, wrap account fee justification looks like: meeting notes, model and actual portfolio data, buy sell hold recommendations, assumptions and rationale behind those recommendations. In other words, I really do meet with this client, look and think about their portfolio, making appropriate adjustments.

Try to understand Dceds post from the point of view of someone who is going through a lot of rapid change, like we all have. It seems like stress or ego makes us shut out our colleagues sometimes.

 I was at jones for over 12 years and the message was very clear-wrap fees are not in the clients best interest. To expensive!! Once a month for at least 5 years I would sent a wire to suggbox and ask why is it that Hartford stock fund at %1.5 exp was any more expensive than a %1 wrap with no loads!!! The silence was deafening!!! Glad to be gone . By the way I TOOK %94 OF MY ASSETS    

Spaceman- i actually do remember a GP standing in front of our region saying “we don’t like to screw our clients”. I will not name him but I bet you may know the name.  he used that exact phrase as he was talking about a discussion he had with someone who had left for Morgan Stanley I believe. I asked the question on numerous occasions why we did not have access to fee based accounts and was repeatedly told essentially “we don’t believe they are in the best interest of the client.” I am interested to see how they try to position their new stance on this matter.

[quote=Spaceman Spiff] I think the point Jones people try to make is that there are a lot of clients out there getting screwed because their brokers are either A) charging a fee and then not making any trades to justify the fee or B) charging the fee then churning the snot out of the account to make it look like they are doing something for the client.[/quote]

You hit the nail on the head.  It's not because fee-based programs are abusive, it's because some advisors will do anything to turn a buck.  Anyone can screw a client, whether they use fee-based products or not.  I'm glad the good Jones IRs have seperated themselves from this dolt.

Spiff,

I'm glad that you are open minded about fee-based business, but my experience was the same as FREE and Skolbrother.  Whenever the question was asked at a Regional event, the answer was always the same "wrap fees are not in our clients best interest".  There was also no distinction made between "wrap in leiu of commission" and a "fee-based advisory account".  I'll bet most Jones brokers don't know the difference (and to be fair, most advisors in general don't know). 

My personal belief was that EDJ thought that "wrap in leiu of commission" would face the same regulatory issues as C-shares on long term accounts, they never wanted the fiduciary responsibility of fee-based advisory accounts, and their business model needs high up front commission to survive.

Again, I commend you for your open mind. 

[quote=DCedjones]

1) with fee-based, the danger is COST-CUTTING...many (not all) fee-based folks are boosting their margins by putting clients in the lowest-cost(to the advisor) funds such as Vanguard and Fidelity ETFs, and are refusing to do any further management...why?...because additional transactions mean additional cost for the "fee-based" advisor...and that means less profit...with the dawn of the internet and online discount brokers it is ludicrous to me that I would pay 1-2% of my assets to a "fee-based" advisor who does nothing more than put me in a Vanguard ETF for the rest of my life...[/quote]

This makes absolutely zero sense to me.  Does anyone do fee-based business and use Vanguard and Fidelity ETFs?  If so, does it make their business more profitable?

Fee-based business involves a flat fee to the client, with the choice of hundreds of managers.  These managers typically do not include passive investment structures, such as mentioned.  If they do, then it is a matter of strategically allocating across sectors using niche ETFs, which is a service that deserves pay.  And even in that case, does the broker get to share in the "cost cutting?" No. They get their flat fee.

That was quite a diatribe from you.  Could you please address my criticisms of it.

I can definitely see how brokers who are operating a "fee-based" office would be reluctant to spend much time managing portfolios after they've been constructed.

It really goes against human nature to continue working as hard as you can on something when you've already been paid.

There are exceptions out there, but I've realized that most brokers are ready to get out of the office and onto the golf course ASAP.

[quote=Borker Boy]

I can definitely see how brokers who are

operating a “fee-based” office would be reluctant to spend much time

managing portfolios after they’ve been constructed.

It really goes against human nature to continue working as hard as you

can on something when you’ve already been paid.

There are exceptions out there, but I’ve realized that most brokers are

ready to get out of the office and onto the golf course ASAP.

[quote=Borker Boy]

I can definitely see how brokers who are operating a "fee-based" office would be reluctant to spend much time managing portfolios after they've been constructed.

It really goes against human nature to continue working as hard as you can on something when you've already been paid.

There are exceptions out there, but I've realized that most brokers are ready to get out of the office and onto the golf course ASAP.

[/quote]

Maybe we're talking two different things here.  When I referred to "fee-based advisory accounts" I was referring to advisory fees based on assets under management.  In this case their is no upfront charge,  the compensation is ongoing, and we are getting paid to ADVISE.  From my experience, I treat these accounts MUCH different than an account where I got paid an upfront commission.  I was also trying to differenciate this from "wrap in lieu of commission" where there is no responsibility to provide advise (and infact advise can only be incidental).  

For the "Fee-based" accounts that I think you are referring to  (where you charge to do a financial plan and/or asset allocation for a fee), if there is no ongoing compensation then I agree that there is no motivation to review the account until the next time the client schedules a paid review.    

I think the interesting part of this whole fee based vs commission vs wrap in lieu discussion is still the fact that we get paid for what we do.  You could argue that commission based is far cheaper for the client over the long term.  You could argue that the commission based broker won’t keep up with those clients over the long term because there’s nothing in it for him past the up front money. You could also argue that fee based is the way to go.  More money working up front, no worries of breakpoints, best of the best if you’re using funds, etc.  However over the long term they’re going to pay more.  I think the best biz to run, and the way I hope I can at Jones in the next 12 months, is to have the ability to give the client the option.  Put the numbers on the table for them, try to figure out their frequency of trading and go from there.   

[quote=Spaceman Spiff]I think the interesting part of this whole fee based vs commission vs wrap in lieu discussion is still the fact that we get paid for what we do.  You could argue that commission based is far cheaper for the client over the long term.  You could argue that the commission based broker won't keep up with those clients over the long term because there's nothing in it for him past the up front money. You could also argue that fee based is the way to go.  More money working up front, no worries of breakpoints, best of the best if you're using funds, etc.  However over the long term they're going to pay more.  I think the best biz to run, and the way I hope I can at Jones in the next 12 months, is to have the ability to give the client the option.  Put the numbers on the table for them, try to figure out their frequency of trading and go from there.    [/quote]

Spiff, it's much more complicatred than "commission is cheaper over the long run".  For example, HNW clients that I know have very few mutual funds.  (An educated investor knows that there are discrete, hidden fees in MFDs.)  With some funds, these fees can run nicely up to a couple of points.  That notwithstanding, for a client to pay 5 3/4% up front, then ongoing fees of say 150 or so bps clearly shows that the client would NEVER catch up to a wrap account charging, say, 125 bps.

What I'm saying is that it's clearly a case-by-case decision process.

[quote=Starka]

[quote=Spaceman Spiff]I think the interesting part of this whole fee based vs commission vs wrap in lieu discussion is still the fact that we get paid for what we do.  You could argue that commission based is far cheaper for the client over the long term.  You could argue that the commission based broker won't keep up with those clients over the long term because there's nothing in it for him past the up front money. You could also argue that fee based is the way to go.  More money working up front, no worries of breakpoints, best of the best if you're using funds, etc.  However over the long term they're going to pay more.  I think the best biz to run, and the way I hope I can at Jones in the next 12 months, is to have the ability to give the client the option.  Put the numbers on the table for them, try to figure out their frequency of trading and go from there.    [/quote]

Spiff, it's much more complicatred than "commission is cheaper over the long run".  For example, HNW clients that I know have very few mutual funds.  (An educated investor knows that there are discrete, hidden fees in MFDs.)  With some funds, these fees can run nicely up to a couple of points.  That notwithstanding, for a client to pay 5 3/4% up front, then ongoing fees of say 150 or so bps clearly shows that the client would NEVER catch up to a wrap account charging, say, 125 bps.

What I'm saying is that it's clearly a case-by-case decision process.

[/quote]

OK, agreed on the case by case.  Your math on the mutual fund side is technically correct, but if you are working with a HNW client and charging them 5.75 upfront on an A share you are doing them a disservice.   If you are using funds you should be able to hit the larger breakpoints and drop those charges down to say 3.5% or even 2.5%.  On our list of preferred funds we only have 6 funds that hit the 150 bps on expenses.  Most of the ones I use are under 125 bps, most of them under 100.  Using numbers like that your 125 bps will cost the clients more in the long run.  Hope you're a better stock picker than Saul or the folks at American, Franklin, or Goldman.

Spiff, you are correct.  Many people like to quote the "5.75%" upfront commission thing.  But I have very few clients that have so little money that they pay that much.  And often I will use a "B" to avoid that upfront.  At $250K, it is typically around 2.5%.  With the funds I use, the expenses are typically 50-95 BP(with some exceptions, but RARELY over 115BP).  So 2.5% upfront and about 75BP ongoing is pretty good for the average investor.  And it gets even cheaper at 500K and 750K (and zero at 1M).

I have never, nor would I ever, have a client pay 5.75 up front and ongoing expenses of 150BP as stated by Starka.

I typically use SMA's for clients with over $1M that have certain situational needs and taxable accounts (i.e. tax efficiency).  But they guy that retires with $1M in his 401K and no other assets - he is probably fine with a quality MFD porfolio. 

[quote=Borker Boy]

I can definitely see how brokers who are operating a "fee-based" office would be reluctant to spend much time managing portfolios after they've been constructed.

It really goes against human nature to continue working as hard as you can on something when you've already been paid.

There are exceptions out there, but I've realized that most brokers are ready to get out of the office and onto the golf course ASAP.

[/quote]

Congatulations, you've just made the case for fee-based business.  You have just described the problem with the Jones model. Put them in A shares, get a nice pop from the load, and then take a small .25 trail every year.  I agree that it is human nature to ignore those clients and to go looking for the next "pop" from new money.

With fee based, there is no "pop."  And, if I have two clients that each have $250K with me.  One pays me $625 gross/year (A shares), and the other pays me $2500 gross/year (1% fee-based), which one am I going to work harder to keep?

I still do primarily A share business, but I too remember Regional meetings where "fee-based is bad" was rammed down our throats.  I asked our visiting GP two summers ago why we didn't do fee-based, and he told me that it's bad for the client.  He said "Can you imagine if we could get 1% from our asset base?  That would be huge, but that wouldn't be right for the client."  I fell for it hook, line, and sinker.

I believe Jones does not like fee based because it will really hurt the amount of money going into preferred funds.  Thus, it will hurt revenue sharing.  If I'm building an A share portfolio, I really work to build an entire portfolio out of one fund family (within reason) which is probably preferred due to my limited exposure to other fund families when I was at Jones. However, with fee based, I will search out the best mid-cap, international, bond fund, etc. I can find regardless of whether it's preferred or not.

It's a lot easier to learn a fund, than to learn a fund family. Thus, the time cost to the broker to look into different funds when building a portfolio is less, thereby hurting the preferred's monopoly.

"Spiff, it's much more complicatred than "commission is cheaper over the long run".  For example, HNW clients that I know have very few mutual funds.  (An educated investor knows that there are discrete, hidden fees in MFDs.)  With some funds, these fees can run nicely up to a couple of points.  That notwithstanding, for a client to pay 5 3/4% up front, then ongoing fees of say 150 or so bps clearly shows that the client would NEVER catch up to a wrap account charging, say, 125 bps."

If fees were the only determinant this would be true.

But they're not.

(Before we go no further, lets agree that we're just talking about absolute performance, not embedded gains and losses and tax efficiency or any of the other supposed advantages/disadvantages of funds /mananager over the other)

When I was back as a wirehorse, I was at a small meeting with Alan Blake who was at the time a red hot growth manager. He had separate accounts and a mutual fund at Smith Barney (who have the AUDACITY to advertise "We don't have mutual funds so our brokers can give you independent advice!" as if they had never dirtied their hands in that arena). The question was asked of him why his Mutual Fund was doing so much better than his separate accounts (which was where most of the brokers in the room had put money with him).

He said that the reason was that he was constantly getting new money to put into the fund and the money that was in the separate account was static. If you had money in the separate account and the market took a correction, you took a correction. If the account was 1MM, and the manager's stocks that you owned corrected 15%, you were at .85MM, when the market came back, you were at 1MM again.

If you owned 1MM of the fund and it went down the same 15% and people other than youself bought shareson the dip, the manager bought more shares of the fallen angels and when the market came back you had 1.05MM (say, it was much more pronounced in the case of Blake's discussion but it was long ago and I wasn't a growth guy until August 1999!!! So I wasn't keyed into all his nums.).

Owning a fund CAN BE like dollar cost averaging into the market. 

Mr. A 

[quote=now_indy]I believe Jones does not like fee based because it will
really hurt the amount of money going into preferred funds.  Thus,
it will hurt revenue sharing.  If I’m building an A share
portfolio, I really work to build an entire portfolio out of one fund
family (within reason) which is probably preferred due to my limited
exposure to other fund families when I was at Jones. However, with fee
based, I will search out the best mid-cap, international, bond fund,
etc. I can find regardless of whether it’s preferred or not.[/quote]



The amount EDJ would make from charging a 1% fee would be so much more than whatever they get from revenue sharing.



The main reason I think Jones sticks to the A share model is that they
don’t want brokers managing money. That is something you have to do in
a fee based account.

The main reason I think Jones sticks to the A share model is that they don't want brokers managing money. That is something you have to do in a fee based account.

So I guess if they are not busy managing money, they have more time to gather it. I notice their branch system endeavours to use very stable local assistants,who often "outlive" the local registered rep. So when the rr leaves, clients still have a relationship with the local assistant, until the new rr gains traction. Along with A shares, this seems to be a very clever way to ensure up front $ to handle and reward asset gathering costs, yet provide long term trails, enhanced by revenue sharing. Got to hand it to the partners.