A nuts and bolts question

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Apr 10, 2007 10:20 am

I'm trying to get a better handle on precisely what role a FA, particularly a relatively new one, has in the management of a client's assets. Let's assume I've got 750,000 in a taxable retirement account that I want you to manage for me and I'm a moderately aggressive investor. I'll pay you 1%. The timeline is at least 20 years. Are you going to do the asset allocation? Have you even been trained in asset allocation? Are there suggested firm guidelines for asset allocation?


Where is the money going to go? An individual portfolio of stocks and bonds? Will these stock picks be a result of your firm's research, since there's no way I want a newbie making these individual calls.


Is the money going into etf's or mutual funds? Are you making the calls as to these picks? I'm in a high tax bracket, so are you aware of the different tax implications for certain types of mutual funds?


Or is the money going to be allocated to a certain number of private money mangers that your firm has access to? From what I can glean from this board, this seems to be the most common way of managing money under the AUM model. Am I mistaken?


By the way, this question is due in part on a converstion I had with a four year FA at a major wirehouse during  a review course for the cfp exam. I posed this basic question to her( I used a higher hypothetical amount) and she kind of got a horrified look on her face and  said "oh, we would put a bunch of different experts on this account." I never got to follow up with her exactly what she meant by that. I know this is a long post, but would appreciate any feedback.







Apr 10, 2007 10:37 am
Smorgan:

I'm trying to get a better handle on precisely what role a FA, particularly a relatively new one, has in the management of a client's assets. Let's assume I've got 750,000 in a taxable retirement account that I want you to manage for me and I'm a moderately aggressive investor. I'll pay you 1%. The timeline is at least 20 years. Are you going to do the asset allocation? Have you even been trained in asset allocation? Are there suggested firm guidelines for asset allocation?


Where is the money going to go? An individual portfolio of stocks and bonds? Will these stock picks be a result of your firm's research, since there's no way I want a newbie making these individual calls.


Is the money going into etf's or mutual funds? Are you making the calls as to these picks? I'm in a high tax bracket, so are you aware of the different tax implications for certain types of mutual funds?


Or is the money going to be allocated to a certain number of private money mangers that your firm has access to? From what I can glean from this board, this seems to be the most common way of managing money under the AUM model. Am I mistaken?


By the way, this question is due in part on a converstion I had with a four year FA at a major wirehouse during  a review course for the cfp exam. I posed this basic question to her( I used a higher hypothetical amount) and she kind of got a horrified look on her face and  said "oh, we would put a bunch of different experts on this account." I never got to follow up with her exactly what she meant by that. I know this is a long post, but would appreciate any feedback.










Sorry. This sight is for brokers only. We cannot communicate with the public through this medium. Good luck in your search.

Apr 10, 2007 11:11 am
Smorgan:

By the way, this question is due in part on a conversation I had with a four year FA at a major Wirehouse during  a review course for the cfp exam. I posed this basic question to her( I used a higher hypothetical amount) and she kind of got a horrified look on her face and  said "oh, we would put a bunch of different experts on this account." I never got to follow up with her exactly what she meant by that. I know this is a long post, but would appreciate any feedback.



I going to comment on the last one of your questions. You have stumbled on what I believe is a successful, BUT scary part of our business. You asked this person point blank a good question, because they work for a prestiges firm with a strong name (assuming). In your mind they would know a simple answer to what is a common question in our industry. (I love getting asked what would you do with this ____ amount of money). What you received is what lead me to take control of my life, my business.


Wirehouses want gathers, not managers. Most will pass it on to mutual fund managers or other types of private wealth managers. There is nothing wrong with this, but many people want to work with an individual who is in control of the ship, a crafsman. Your female acquaintance does not want control of the ship.

Apr 10, 2007 11:19 am

Good comments 2001, but aren't you working for Jones? Anyway, don't want this question to go down that trail. My annuity buddy over the hull would have jumped all over this one. 750, taxable account, 20 years.

Apr 10, 2007 11:27 am
Bamzor:

Good comments 2001, but aren't you working for Jones? Anyway, don't want this question to go down that trail. My annuity buddy over the hull would have jumped all over this one. 750, taxable account, 20 years.



Absolutely.

Apr 10, 2007 11:33 am
Bamzor:

Good comments 2001, but aren't you working for Jones? Anyway, don't want this question to go down that trail. My annuity buddy over the hull would have jumped all over this one. 750, taxable account, 20 years.



Bam, I do, but I am also not the RL/GP's brown nose list.

Apr 11, 2007 6:55 am
Smorgan:

I'm trying to get a better handle on precisely what role a FA, particularly a relatively new one, has in the management of a client's assets. Let's assume I've got 750,000 in a taxable retirement account that I want you to manage for me and I'm a moderately aggressive investor. I'll pay you 1%. The timeline is at least 20 years. Are you going to do the asset allocation? Have you even been trained in asset allocation? Are there suggested firm guidelines for asset allocation?


Where is the money going to go? An individual portfolio of stocks and bonds? Will these stock picks be a result of your firm's research, since there's no way I want a newbie making these individual calls.


Is the money going into etf's or mutual funds? Are you making the calls as to these picks? I'm in a high tax bracket, so are you aware of the different tax implications for certain types of mutual funds?


Or is the money going to be allocated to a certain number of private money mangers that your firm has access to? From what I can glean from this board, this seems to be the most common way of managing money under the AUM model. Am I mistaken?

By the way, this question is due in part on a converstion I had with a four year FA at a major wirehouse during  a review course for the cfp exam. I posed this basic question to her( I used a higher hypothetical amount) and she kind of got a horrified look on her face and  said "oh, we would put a bunch of different experts on this account." I never got to follow up with her exactly what she meant by that. I know this is a long post, but would appreciate any feedback.



The answers to your questions vary almost as much as the questions themselves.  Some brokers/advisors do have discretionary control over their clients assets.  They do all of the portfolio management themselves, but they still have to stay within the recommended guidelines of their firms.  A newbie would never have discretionary control.  It takes at least several years before any firm would allow a broker/advisor to have such control.

So, in the majority of cases in a wirehouse setting, your broker/advisor would gather all of your information (risk tolerance, net worth, liquid assets, tax bracket, goals, needs, etc.) and input them in an inhouse software program that would then spit out the firm's recommended asset allocation, as well as various strategies that could be used to achieve that allocation.  (for example, using Mutual Funds, SMAs, purchasing the firm's recommended stocks and bonds outright in a brokerage account, etc.)

My guess is that you would most likely end up in a SMA program.(having your funds allocated to several different outside money managers, each specializing in a specific area of the markets.)  So, your newbie advisor would not have anything to do with the actual daily management of your portfolio, however, he WOULD have everything to do with which managers your funds were placed with. It's his responsibility to look at all the approved managers and do the due diligence to decide which ones to use on your behalf.

Hope this helps.

Apr 12, 2007 2:45 pm
ManagedMoney:


My guess is that you would most likely end up
in a SMA program.(having your funds allocated to several different
outside money managers, each specializing in a specific area of the
markets.)  So, your newbie advisor would not have anything to do
with the actual daily management of your portfolio, however, he WOULD
have everything to do with which managers your funds were placed with.
It's his responsibility to look at all the approved managers and do the
due diligence to decide which ones to use on your behalf.

Hope this helps.





SMA's or else a recomendation into a big clot of A-shares. This why
more people with serious money and a little sense are going towards
RIA's or just managing the money themselves with a target date/risk
fund.

Apr 12, 2007 3:18 pm
AllREIT:
ManagedMoney:


My guess is that you would most likely end up in a SMA program.(having your funds allocated to several different outside money managers, each specializing in a specific area of the markets.)  So, your newbie advisor would not have anything to do with the actual daily management of your portfolio, however, he WOULD have everything to do with which managers your funds were placed with. It's his responsibility to look at all the approved managers and do the due diligence to decide which ones to use on your behalf.

Hope this helps.



SMA's or else a recomendation into a big clot of A-shares. This why more people with serious money and a little sense are going towards RIA's or just managing the money themselves with a target date/risk fund.



BTW, you realize that in SMAs the various managers ARE RIAs, right? The process allows investors to place money with a number of RIAs with distinctly different investing styles working in distinctly different investment categories (region or capitalization). It allows the to balance a portfolio across the various categories on a flexible basis and to hire/fire managers on a purely objective, cold blooded basis without having to move an account.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Along with finding recent home buyers in my area to be fine prospects, finding golf to be a great place to conduct business and find prospects, this is just another area where you and I seem to be from different worlds. I certainly haven’t seen any serious and intelligent money going into target funds or one-stop RIAs (or there ETF protfolios for that matter).


Apr 12, 2007 3:19 pm

Make that "three ETF portfolios".

Apr 13, 2007 8:03 am
AllREIT:
ManagedMoney:


My guess is that you would most likely end up
in a SMA program.(having your funds allocated to several different
outside money managers, each specializing in a specific area of the
markets.)  So, your newbie advisor would not have anything to do
with the actual daily management of your portfolio, however, he WOULD
have everything to do with which managers your funds were placed with.
It's his responsibility to look at all the approved managers and do the
due diligence to decide which ones to use on your behalf.

Hope this helps.





SMA's or else a recomendation into a big clot of A-shares. This why
more people with serious money and a little sense are going towards
RIA's or just managing the money themselves with a target date/risk
fund.



Huh?  Do you know how SMAs work?  Why would anyone with even "a little sense" hire just one money manager (RIA) when he could hire 6 or 8 or 10 of them to work on his behalf?  If you were running a business, wouldn't you want as many of the best and brightest working for you as possible?  It's called intellectual diversification.  No one can be an expert in every area of the market.  The beauty of SMAs is that the investor gets to have experts who specialize in different areas of the market working on their behalf.

By the way, most people with "serious money and a little sense" would never try to manage their money themselves.  They're smart enough to know that there is no way that they would outperform the best and brightest professional managers.  They're smart enough to know that it's a much wiser to hire these managers and have the managers work for them.