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Jan 31, 2007 10:31 pm

I work for Jones, and as you can probably guess, I spend most of my time and energy selling (or trying to sell) mutual funds. However, I would really like to begin doing some taxable and muni bond business.


Any advice out there for overcoming some of the standard objections?

Jan 31, 2007 10:42 pm

What objections?

Feb 1, 2007 12:13 pm

1. I don't want to tie up my money for that long.


2. I won't be alive in 2035 when it comes due!


3. Is it insured? I've only bought FDIC insured CDs in the past.


I've had the training through Jones in countering these objections, but I just haven't had much luck in selling bonds.


Feb 1, 2007 12:54 pm

C'mon Borker Boy...give'm the old "hamburger"

Feb 1, 2007 1:29 pm

[quote=Borker Boy]

I work for Jones, and as you can probably guess, I spend most of my time and energy selling (or trying to sell) mutual funds. However, I would really like to begin doing some taxable and muni bond business.


Any advice out there for overcoming some of the standard objections?

This is exactly why I love to be in a competitive situation with a Jones or Ameriprise broker
Feb 1, 2007 3:08 pm

Borker-  EDJ gives you all that info. Why are you wasting you and our time?   But with that said....here goes...for old times sake.


-speaking to 75 year old retiree-


Well, daa, you're right Mr Prospect.  I had another client tell me, 'I don't even buy green bananas!'  Well heck I agree but the nice thing about these bonds is that you can sell them any business day of the week at their market price.  So I'm not expecting you to keep them for 40 years... yuk yuk yuk.  So anyway, what would be a better amount for you to own today...$25,000 or $50,000?  Oh, and by the way did you want those in you and your wifes name or just your name?    

Feb 1, 2007 6:14 pm

I personally don't feel that individual bonds, especially with maturities longer than 5 years are a good thing for the client at this time.  Rates are still low and we are in a flat or almost inverted interest rate curve situation. 


The new guys not understanding bonds and the economic ramifications of them, yet being encouraged to sell them,was something that really bothered me when I was at Jones.   I


f you go ahead and sell those 5.5 to 6% individual bonds with 15 to 30 year maturities, expect to see some very unhappy clients when interest rates rise.


Is the reason you want to sell bonds because your clients need fixed income?  If so, you might want to look at some of the closed end bond funds out there but be careful some are highly leveraged. Structured products or fixed income trusts that have a definite maturity date within the next 5 to 7 years.  Bond funds might be alright if they have short term focus.  I still like some reits for income as well.


Borker Boy:

1. I don't want to tie up my money for that long.  This is good thinking on your client's part.   You could build a bond ladder and overcome that objection by saying we will have X part of your money coming due or having the principle available to you every X years IF they have enough money to invest.


2. I won't be alive in 2035 when it comes due!  Ask what the clients are intending with the investment.  Are they concerned that it pass to their kids?  If so...who cares when it comes due. The bond doesn't die when they do. Ummm you might want to rephrase that when talking to your clients    I find that a lot of bond buyers like the death put aka: Estate Feature at Jones.


3. Is it insured? I've only bought FDIC insured CDs in the past. Nope... not insured by the FDIC, but you can offer bonds that do have insurance MIBA or that are guaranteed by the State or Federal Government.   You can also explain to your clients that they are actually losing money in a CD when you account for taxes and inflation so what seems to be safe is really a losing investment.


I've had the training through Jones in countering these objections, but I just haven't had much luck in selling bonds.


If you must sell bonds, you really need to explain in detail that the value of the bond can go up and down during the lifetime of the bond and be able to explain how bonds work in general (AAA vs BBB,  downgrages in credit (GMAC) YTM, YTC and how maturites and supply and demnd will affect pricing)  The worst thing is to sell a bond to someone who thinks they are getting a glorified CD and then they see a 10 to 20% drop in market value on their statement.  They will never trust you again.


Feb 1, 2007 6:49 pm
Borker Boy:
I don't want to tie up my money for that long.

2. I won't be alive in 2035 when it comes due!


3. Is it insured? I've only bought FDIC insured CDs in the past.


I've had the training through Jones in countering these objections, but I just haven't had much luck in selling bonds.


Really, I question the wisdom of selling a 30 year bond in this market.  I know that is a staple of Edward Jones pet recommendations, but I think you're asking for trouble when the long rates are so low.  When rates rise (and they will eventually), how much fun will it be to try and explain why that bond the client bought for $20,000 is now only worth $18,000, and to add insult to injury, it's only paying 5.5% when a five year CD is paying 6.5% and is insured, AND matures a heck of a lot sooner.  If I were you, I'd focus most of my bond business no further out than five years until we start seeing better rates on the long end.  You won't make as much money per trade, but your clients will be much happier with you and more likely to do repeat business in the future.


As an aside, I just wrapped up a takeover accounts from a local vet, and I'm not kidding...this lady was sold a 30 year CMO back in 1995 for 99 on the day the statement closed.  Value on the statement for the same day...93.75...TOUCHDOWN!!!


Gross concession for the $30,000 trade...looks to be a cool $1,575...or as much as a similar sized mutual fund trade.  The trade worked out OK for this client as the client continues to hold, but my question for those of you selling retail bonds in the mid-90's...were 5-point concessions common?  I think LPL caps me at 3 points, but I'd have to look to verify that...

Feb 1, 2007 7:02 pm

Didn't see Bab's post until I posted...looks like I duplicated a lot of her sound advice...

Feb 1, 2007 8:07 pm

C'mon, Babs.  You really think a Jones Newbie is going to understand, let alone sell, closed-ends or structured products?  You think selling a 30 year bond is bad - wait until Borker Boy goes back and picks the first closed-end he can find.  Talk about blowing up. 


You certainly didn't know what they were when you started.  Your suggestions are spot on.  But here's the deal...and I assume you know this having been with Jones.  They don't intend that you are selling 30 yr GE bonds for the next 20 years.  They have newbies do this to gain practice without hurting anyone.  Everyone has to start somewhere.  Why do you think they sell P&G, Pepsi, BAC, whatever?  These bonds may not bring much to the table, but they aren't going to hurt anyone, either (OK, within reason).


Seeing what I see come over from some firms (or some brokers), it would be wise for other firms to just sell 30 year bonds and P&G stock.  Start them out slow and go from there.  Unfortunately, some EDJ guys never move off that rock.  But I don't entirely blame Jones for that.  Individuals have to take some responsibility for learning the business after they start.


Indy, I've never heard of a 5-point bond at Jones, but I wasn't here in the 90's.  Babs may have been.

Feb 1, 2007 8:09 pm
Borker Boy:

I work for Jones, and as you can probably guess, I spend most of my time and energy selling (or trying to sell) mutual funds. However, I would really like to begin doing some taxable and muni bond business.


Any advice out there for overcoming some of the standard objections?



First things first. To be of value to your clients you have to know and understand bonds. You can't just pick something out of inventory and go for it. Well, you can, but that wouldn't say much for you as an advisor. Once you've educated yourself you'll know enough to be able to tell a really good bond from an also ran or worse. As a test, with the bonds you've been using, is there any question about those bonds that you can't answer? When you can answer all the questions about all the bonds it's time to move to the next step.


Next, you have to understand the markets and what drives them. We have an inverted yield curve right now. The yield curve is more or less flat in the muni market today. What does that mean? I'll throw you this one: Inverted yield curves are predictive of a slowing economy/recession. When the economy slows the Fed does what? Lowers rates. Bond investors are locking in today's yields at the longer end in anticipation of this event thus driving down those yields. Meanwhile, there may be bargains to be had on the short end, relatively speaking. What does your client need? Moving on...


Selling TF bonds is all about the TEY. That's taxable equivalent yield. TEY is a fuction of the bond's coupon, price, and the client's tax bracket. Most inexperienced brokers get all fouled up with this so i'll make it simple. When comparing a taxable investment with a tax free investment the investment that puts the most dollars in the client's pocket AFTER TAX is the winner. It's that simple. So you can do a TEY calculation or you can just subtract the client's highest (last income dollar) tax bracket percentage from the taxable investment's return. Which investment, the CD, or the bond leaves the client with more money in their pocket? It's really simple.


When selling TF bonds, yield sells. Or at least gets you in the door. I lead with the highest yielding thing I can find that i could live with if I had to. Most likely no one is going to by that bond from me, but you never know. It's a lost leader designed to get their attention. MR. JONES, I'M COMING TO YOU TODAY WITH A TAX FREE BOND THAT YIELDS THE SAME AS  A 7% cd. HOW MANY 7% cds DO YOU OWN? From there explain the TEY. Or, Mr. Jones I'm Calling you today with a TF bond yielding 4.5%, which in your tax bracket is the same as a CD yielding 7%. How many 7% CDs do you own? OK, you get the idea.


What you're really doing here is fishing. There is no way of knowing exactly what each prospect will want. Use the high yield bond as a conversation starter and take it from there. Zero in on ratings, maturities, likes and dislikes. Then come back with the perfect fit.


And of course you don't have to lead with a bond. You can call and tell the prospect you specialize in TF bonds and that you've been seeing bonds with equivalent yields as high a _% lately and would they be interested the next time you saw one. Or something like that


Handling the time objection. What's to handle. If they object ask them what time frame they feel more comfortable with and find a bond that fits. But, if you want to stand your ground tell'em about the inverted yield curve and how now is the time to lock in some higher LT rates.


FDIC vs a TF bond. All bonds are rated so as to tell us exactly the financial strength of the issuer and the issue. The rating agencies are thorough and impartial. It's a simple system that even the most conservative investors in the country put their faith in. Also, talk about the issuer. Of course to talk about the issuer you need to know something about them. It's the education thing again. Also, insurance. Insurance will step in to pay off should the issuer fail. Same as FDIC.


And speaking og FDIC does anyone here remember FSLIC? The Federal Savings and Loan Insurance Corporation? They too, were a quasi government corporation that insured investor's saving at S&Ls. They went belly up. They became insolvent during the 89 S&L crisis. Here's an interesting tid bit for all your I sleep at night with my FDIC insured CDs under my pillow types. FSLIC came this close(pictue old guy holding his thumb and index finger about a quarter inch apart) to not paying off it's depositors. It turns out that their primary funding source, the US government, is under no obligation to do so. And in this case they debated long and hard before stepping in. That this could happen is the scary part. And the part today's CD buyers need to consider. FDIC is in no better position. In a run on banks, is the money really safe? Hope we don't have to find out. The payoff is an implied obligation of the U.S. government, not a direct obligation. Not a legal obligation. TF bonds have the full taxing power of the issuer behind them and they are obligated to pay. So just tell them that last sentence. it's usually enough.


What's next?


Feb 1, 2007 8:31 pm
Indyone:
Borker Boy:
I don't want to tie up my money for that long.

2. I won't be alive in 2035 when it comes due!


3. Is it insured? I've only bought FDIC insured CDs in the past.


I've had the training through Jones in countering these objections, but I just haven't had much luck in selling bonds.


Really, I question the wisdom of selling a 30 year bond in this market.  I know that is a staple of Edward Jones pet recommendations, but I think you're asking for trouble when the long rates are so low.  When rates rise (and they will eventually), how much fun will it be to try and explain why that bond the client bought for $20,000 is now only worth $18,000, and to add insult to injury, it's only paying 5.5% when a five year CD is paying 6.5% and is insured, AND matures a heck of a lot sooner.  If I were you, I'd focus most of my bond business no further out than five years until we start seeing better rates on the long end.  You won't make as much money per trade, but your clients will be much happier with you and more likely to do repeat business in the future.


As an aside, I just wrapped up a takeover accounts from a local vet, and I'm not kidding...this lady was sold a 30 year CMO back in 1995 for 99 on the day the statement closed.  Value on the statement for the same day...93.75...TOUCHDOWN!!!


Gross concession for the $30,000 trade...looks to be a cool $1,575...or as much as a similar sized mutual fund trade.  The trade worked out OK for this client as the client continues to hold, but my question for those of you selling retail bonds in the mid-90's...were 5-point concessions common?  I think LPL caps me at 3 points, but I'd have to look to verify that...



3 points was charged by some of the AGE guys i knew. But that was the max. Usually, I was at 2 points or under on the front end and no more than 1 1/2 on the back end on a sell.


As for where to buy along the yield line(use to be a curve) I agree in theory with you, but try not to get too predictive. Seems to make sense to pick up some of the shorter stuff now because I don't see longer rates going much lower if lower at all. We'll have opportunity later to lock those yields if we so choose. Still, predicting interest rates is a dangerous game. I try not to do that with clients because it's important to have someplace to hide. Hey, mrs. Gadet, I have no idea where rates are going to go. Now my firm, they believe rates are going...      


As for waiting for higher rates, during the near quarter century span of my career rates have come down from 14%. Rates going up? Maybe? My advice is to buy when you have money to invest.

Feb 1, 2007 9:21 pm

Greats posts again Bond Guy.  Thank you.

Feb 2, 2007 9:23 am
Borker Boy:

1. I don't want to tie up my money for that long.


2. I won't be alive in 2035 when it comes due!


3. Is it insured? I've only bought FDIC insured CDs in the past.

I've had the training through Jones in countering these objections, but I just haven't had much luck in selling bonds.


You need to get a copy of spin selling and the spin selling workbook.


You don't sell people bonds, you sell people fixed income solutions.
If you keep getting these objections, then you are proposing the wrong
fixed income solution.


2) Objections mean


a) Your proposed solution doesn't fit the clients requirements. Thus your investigation phase was weak.


b) You haven't connected your offering to the clients explicit needs.

Feb 2, 2007 9:40 am
BondGuy:

It turns out that their primary funding source, the US
government, is under no obligation to do so. And in this case they
debated long and hard before stepping in. That this could happen is the
scary part. And the part today's CD buyers need to consider. FDIC is in
no better position. In a run on banks, is the money really safe? Hope
we don't have to find out. The payoff is an implied obligation of the
U.S. government, not a direct obligation. Not a legal obligation.





Ummmm, No.



http://www.fdic.gov/deposit/deposits/insuringdeposits/inde x.html



"FDIC insurance is backed by the full faith and credit
of the United States government.

"<br>



Exactly the same as treasury bond. The "Federal Deposit Insurance Act"
requires that banks post the FDIC sign, which itself states that
deposits are insured with the FF&C of the US government. Then in
1986 congressed passed a resolution reaffirming the sense of congress
that the FDIC's Deposit Insurance Fund is backed by the FF&C, and
futher there was an administrative lawsuit in which the judge concluded
that the DIF was backed by the FF&C, even if congress had not
explicitly appropriated money for it.



History of Deposit Insurance.



http://www.fdic.gov/bank/historical/brief/index.html


Feb 2, 2007 11:05 am
AllREIT:
BondGuy:

It turns out that their primary funding source, the US government, is under no obligation to do so. And in this case they debated long and hard before stepping in. That this could happen is the scary part. And the part today's CD buyers need to consider. FDIC is in no better position. In a run on banks, is the money really safe? Hope we don't have to find out. The payoff is an implied obligation of the U.S. government, not a direct obligation. Not a legal obligation.



Ummmm, No.

http://www.fdic.gov/deposit/deposits/insuringdeposits/inde x.html

"FDIC insurance is backed by the full faith and credit of the United States government. "

Exactly the same as treasury bond. The "Federal Deposit Insurance Act" requires that banks post the FDIC sign, which itself states that deposits are insured with the FF&C of the US government. Then in 1986 congressed passed a resolution reaffirming the sense of congress that the FDIC's Deposit Insurance Fund is backed by the FF&C, and futher there was an administrative lawsuit in which the judge concluded that the DIF was backed by the FF&C, even if congress had not explicitly appropriated money for it.

History of Deposit Insurance.

http://www.fdic.gov/bank/historical/brief/index.html


Yeah, I've seen the FDIC signs posted at my local bank. I'm aware of what they say. Good luck with that in the only scenerio in which it would become relevent, financial armageddon. The S&L fiaco gave clear insight into how things might play out. The option of shorting depositors was given due weight. Bureacratic career decisions were put ahead of clear thinking. As was politics. The problem with FEd ins standing behind your savings is that the U.S. tax payer stands behind that insurance. Losing taxpayers money is one sure way to buy a one way ticket out of DC. Once a decision was made on a course of action to resolve the problem it got ugly. The Feds starting seizing not only insolvent banks, but solvent ones too. Thus began one of the biggest fire sales in our nation's history, selling off the seized assets to reduce the hit to the tax payer. The lawsuits are still pending.  One bank that paid that price was the venerable PSFS, then trading as Meritor savings. Read up. It's a disgusting story of an illegal seizure to do nothing more than save a bureaucrat's job. So, thank you for the insight, but when it comes to the bureacrats running the FDIC and the Pols that control the purse strings, my original post stands.

Feb 2, 2007 1:23 pm
BondGuy:
Borker Boy:

I work for Jones, and as you can probably guess, I spend most of my time and energy selling (or trying to sell) mutual funds. However, I would really like to begin doing some taxable and muni bond business.


Any advice out there for overcoming some of the standard objections?



After rereading my orignal post I have to admit that the way I wrote it, it's clearly wrong. The words as written can only be read one way and that's not the intent of what i was trying to say.So for the record the retractions are in blue.


FDIC vs a TF bond. All bonds are rated so as to tell us exactly the financial strength of the issuer and the issue. The rating agencies are thorough and impartial. It's a simple system that even the most conservative investors in the country put their faith in. Also, talk about the issuer. Of course to talk about the issuer you need to know something about them. It's the education thing again. Also, insurance. Insurance will step in to pay off should the issuer fail. Same as FDIC.


And speaking og FDIC does anyone here remember FSLIC? The Federal Savings and Loan Insurance Corporation? They too, were a quasi government corporation that insured investor's saving at S&Ls. They went belly up. They became insolvent during the 89 S&L crisis. Here's an interesting tid bit for all your I sleep at night with my FDIC insured CDs under my pillow types. FSLIC came this close(pictue old guy holding his thumb and index finger about a quarter inch apart) to not paying off it's depositors. It turns out that their primary funding source, the US government, is under no obligation to do so. Actually, they are obligated to pay. The question is will they? As the FSLIC debacle showed, not an absolute, which is what i was trying to convey.And in this case they debated long and hard before stepping in. That this could happen is the scary part. And the part today's CD buyers need to consider. FDIC is in no better position. In a run on banks, is the money really safe? Hope we don't have to find out. The payoff is an implied obligation of the U.S. government, not a direct obligation. Here my meaning is that FDIC is funded by congress not by mandate. I'm not looking this up. If someone wants to verify this have at it. I'll stand corrected if I'm wrong. Not a legal obligation. Again, the gov is obligated to pay. Please note that i said " in a run on banks" This is the crux of what i'm saying here. No one thought FSLIC would become insolvent yet it happened. When it did there should have been no debate about whose interests comes first. Yet there was. Further, as a practical consideration, in a deficit financed gov't, where would the money come from to fund a pay off? TF bonds have the full taxing power of the issuer behind them and they are obligated to pay. So just tell them that last sentence. it's usually enough.


What's next?




My personal involvement with the PSFS seizure led me to a greater understanding as to the meaning of full faith and credit than I ever wanted to have. To be sure, if it comes down to your money or a bureaucrat's ass, your going to lose. Obligation or not. That's the FSLIC lesson.

Feb 2, 2007 7:40 pm

Another drawback with the FDIC and bank failure: If your bank fails, the FDIC only guarantees your principal, not the rate you're earning on the CD.


So, for example, if ACME Bank is paying you 10% on a 5-year CD and the bank fails; the FDIC will transfer the deposits to another bank. The new bank is under no obligation to pay you the 10%; but rather, will only pay you their regular, lower rate on 5-year CD's.


As mentioned earlier, the FDIC is only an insurance fund. And like all insurers, they're not equipped to handle a massive number of claims. Should massive bank failures occur, there's nothing in their bylaws that says they have to immediately make depositors whole. It could take 3, 6, 9, etc. months or more. 

Feb 2, 2007 7:58 pm

As mentioned earlier, the FDIC is only an insurance fund....


that's basically unfunded.

Feb 3, 2007 2:56 am
anonymous:

As mentioned earlier, the FDIC is only an insurance fund....


that's basically unfunded.





Jesus no, in fact they are overfunded, which is why they are shifting
to a new risk based assesment system and paying dividends out of the
DIF back to the banks.



Big banks like BAC, C, NCC, USB etc were paying excessively much into
the DIF compared to thier risk of loss and PML. Given that distressed
banks tend to be merged into healthy banks, the actuall number of bank
failures is very low and exposed losses to the DIF equally low.



http://www.fdic.gov/deposit/insurance/index.html



New Risk based assesment scheme.



http://www.fdic.gov/deposit/insurance/initiative/index.htm l







http://www.fdic.gov/deposit/insurance/strengthening/index. html