Syracuse, NY

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Apr 22, 2009 5:06 pm

I've got a friend who is convinced he wants to put his EJ office in the Syracuse NY or surrounding area.  Being a canadian, I'm not too familiar with central/upstate NY but I was always under the impression that it lacks the higher net worth clients to build a strong business on. 


Any information or suggestions on areas he could build a solid book would be appreciated.
 
Thanks
Apr 22, 2009 5:54 pm

That's why they invented A shares.

Apr 22, 2009 6:24 pm

He could build a solid book in Syracuse, NY or surrounding area.

 
What in the fool does "That's why they invented A shares." mean and how does it relate to Syracuse, NY?
Apr 22, 2009 10:16 pm

It was a facetious response to how someone would build a book buy acquiring non-high net worth clients.  Put 100 clients w/$50,000 in A shares and you've done a decent job closing biz in a 2 year period.  You now only have $12,500 of recurring trails w/that strategy, but its an idea w/medium value clients.  Disclaimer:  I hate A shares and think they're a fraud.

Apr 22, 2009 10:44 pm

But charging a point and a half on a MF wrap account is ok?

Apr 22, 2009 10:49 pm

I don't see why anyone would charge 1.5% on a mutual fund wrap account, especially when they would still be getting paid the .25% 12b-1 fee as well.

Apr 22, 2009 10:54 pm

My experience is, most MF wrap accounts use institutional shares that don't charge 12(b)-1's. 


 
Do you feel all funds are rip-offs, or just A shares? 
Apr 22, 2009 11:06 pm

I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.

 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.
Apr 23, 2009 9:11 am

Syracuse and the surrounding areas are a great fit for the Jones model. I have family there, lots of middle-class folks. I think it is as good a place as any, in fact better than a lot of places to open an office.

Apr 23, 2009 9:44 am
3rdyrp2:

I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.

 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.
 
So, it's not OK to limit the client's flexibility within a fund family, but it is OK to limit a client's flexibility (# of funds, rebalancing on YOUR schedule) based on your personal business choices.  Interesting.  So, the fee justifies the limitations, but the sales charge doesn't?
 
As to the OP's question.  One word.  GOLDMINE!  Jones has 1 FA in Syracuse.  And he's in East Syracuse.  We don't have anyone in Syracuse proper.  There are $15.8 BILLION investable dollars in the Syracuse zip codes according to our internal reports.  91,000 households.  If he just got a 1% market share for himself he'd have a great career.  He could spend 10 years talking to 25 households a day and only talk to everyone one time. 
 
Jones offices thrive in areas where the big boys, who only want to work with the clients with millions of dollars, don't.  Some of those guys wouldn't walk across the street for a $50,000 account like was mentioned before.  Most Jones folks will take those all day long. 
 
Tell your friend to jump on the opportunity before I do. 
 
Apr 23, 2009 10:56 am
Spaceman Spiff:
3rdyrp2:

I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.

 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.
 
So, it's not OK to limit the client's flexibility within a fund family, but it is OK to limit a client's flexibility (# of funds, rebalancing on YOUR schedule) based on your personal business choices.  Interesting.  So, the fee justifies the limitations, but the sales charge doesn't?

 
I, just like you, work for the purpose of getting paid and running a profitable business.  If I charge a client a % of assets for semi-annual portfolio restructuring, and they want to do it quarterly, wouldn't it be make good business sense to charge them more for the extra time I'm spending on them?  If you charge your clients $600 per year for 4 meetings, and they ask if they can meet with you on a bi-monthly basis, are you telling me you would keep the $600 price, or would you charge them your cost for 6 meetings a year?  My time is valuable to me, and I don't work for free.
 
Ask anyone here who works on a fee basis if they charge the same for someone who does once a year rebalancing vs. quarterly rebalancing, everything else being equal (same account size).
Apr 23, 2009 11:20 am

Yawn

Apr 23, 2009 11:45 am

I'm clarify a few thoughts for myself, not sure how much this has to do with upstate New York, or wherever that cold and beautiful city must be.

 
I think you're on the right track, 3rd. A shares are a good deal for some folks, too. I do wrap with ETFs, under 100k pays 1.5%, to 250k pays 1.25%, to 1m pays 1%, over 1m pays .75%. EB gets the same treatment.
 
A shares could be the best deal for the client, but this about having a long term, proactive, evolving relationship with the client. Since most mediocre manufacturers (as you pointed out, trying to beat the index has been shown to be pretty iffy at best) charge 12b1s, have selling arrangements with distributors, (even LPL in some cases, tell me if I'm wrong), AND:
 
Since the fee is totally visibile to the client in the wrap account ( 1% plus the "invisible" but direct two tenths of one percent fee on your Vanguard ETF) - it seems the fee arrangement is totally negotiable.
 
Personally, I don't "get" the idea of selling funds that have 12b1 fees in wrap accounts, or selling any 12b1 fee funds at all. In other words, if the minimum to open a wrap account at your firm is 25m, or 50m, or whatever, then invite your client to come back when they can meet the minimum.
 
I turned down the invitations for due diligence trips to Boston and SF this year, and the Oppenheimer dinners dowtown, and so on. Sent them all  packing. ETFs, or other low cost indexes without 12b1s, are absolutely the future, B shares and C shares are going away.
 
Of course, there are a few notable exceptions. I guess State Farm is the A#1 family (Forbes), Waddell and Reed have very, very good actively managed funds with 12b1s. What does this tell us? Reality is not absolute, it's okay to sell American A fund shares or whatever. It will be interesting to see how Jones survives the impending 12b1 wars, that's where I believe the "next" great battle is coming. At least, it's an opportunity to move money, and cut out the middle man, the partners, the selling arrangements, and generally clarify one's focus.
Apr 23, 2009 11:47 am

And by the fee arrangement being "negotiable", I mean, "take it or leave it, this is how I work". If we need to take a bunch of extra time, you can pay a separate, flat, hourly fee, but I'm going to get you lined out with more than just your investment portfolio for the wrap fee.

Apr 23, 2009 12:11 pm

Also, I've heard people say, " Why are you charging 1.25% a year to throw money in low cost indexes in a wrap account". Dude, if you can't provide value -  beyond the placement of investments - at this price - you don't belong in this business. Get some experience, get your CFP, help a few folks avoid making a few big mistakes - I'm the "cheapest" guy in town. Clients understand the idea of cutting out the middle man, and paying you. Sure, your b/d is making a nice admin fee (or you're not paying that expense category at RIA) - but everybody's clear about costs and value.

Apr 23, 2009 12:25 pm

Exactly.  I feel much more confident w/my clients paying me .75-1.25% to get full account service and access to many more options and much more value than throwing them in an Oppenheimer portfolio and doing a few exchanges every year.  Net fees to them almost equal an A share portfolio when taking into account roughly half the holdings are ETF's (.1-.2% expense), a quarter are institutional shares (low expense ratio and no 12b-1) and a quarter are A shares that I can't sell as institutional shares (.85-1% avg.), and no asset fee gets taken out for cash holdings.  All that without the hassle of explaining to them that "5.75% of your account is taken off the top and it may take a few years to make up the cost, but 10 years from now you'll be golden!  Lets just hope that Oppenheimer Strategic Income or Main Street doesn't blow up over the next decade."

Apr 23, 2009 1:05 pm

Lord Almighty. Oppenheimer Strategic Income, what a disappointment. At this point, danged if you did and danged if you don't (hoping it will come back with some liquidity in the bond markets, before I liquidate it for BND, BWX and so on.

 
"More confident" is well put. More focused. And things like the Vanguard Energy Index make great conversation right now (" What do you think is going to happen to the price of energy over the next few years").
 
Generally, I'm not in favor of liquidating "good" A share funds where a load was paid. On the other hand, you paid 5% to get in, and your costs remain about the same. You "bought" the idea that you were getting something for the 5% (you did) - some indexes are down 50%, the "Dow" can fluctuate 5% in one day. Let's get focused. Not a bad "story" right now, now a bad way to get paid for providing a service.
Apr 23, 2009 2:40 pm

I understand, agree with you to a certain extent, that the fee based relationship using ETFs is a great way to go.  But to just flat out say that A shares are fraud may be one of the most ludicrous statements I've ever read hear.  They are what they are.  I could say that you're a fraud because you're charging your clients a fee and you won't meet with them whenever THEY want.  I know you're the advisor, but last I checked it was still THEIR money.  THEY hired YOU to do a job for them.  Therefore, YOU WORK FOR THEM.  THEY ARE YOUR EMPLOYER.  I think this is one of the big disconnects in this business between the clients and the advisors.  Too many advisors think their stuff doesn't stink and they forget that the client is still in charge of the money.  Most of them don't look over our shoulders while we do what we do, but that doesn't mean we should do everything that is necessary to make sure we are doing the job they hired us to do. 

 
I have to chuckle at the timed rebalancing comment made before.  So, what that implies is that in your infinite wisdom, your client's portfolios are only out of balance twice a year?  Or four times a year?  Do you not have an investment policy statement that says went X asset class gets Y% out of sync with the original target percentages, you'll rebalance back to the original target? 
 
Far be it from me, the lowly EDJ FA, to question the logic in your statement, but those comments like "my time is valuable" and "if we need to take a bunch of extra time" lead me to believe that you two have forgotten who writes the checks in this business.  That your belief is that your clients are somehow subordinate to you and not the other way around.   
Apr 23, 2009 3:04 pm

You had me on board until the last paragraph.

 
Of course A shares are not fraud, unless they are abused. ( Like, collect the load, then forget the client.) You got paid up front.
 
This share class stuff, and how we get paid, IS a huge disconnect for the business.
 
"Rebalancing" is a small part of what we do. In fact, tactical asset allocation has recently been questioned (again).
 
In your final paragraph, you sound a little defensive. I respect you, I know the EDJ model, I have visited your HQ.
 
When I say, " I we need to tak a bunch of extra time", I mean this: according to the CFP Board Code of Ethics, the financial planning deliverable can be oral or written. If you want charts, what ifs and other software driven deliverables, it is going to cost you extra.
 
Please be critical Spaceman. At least part of the problem is that Jones has (or had? - tell me, do they still have) selling arrangements with certain vendors - from what I could tell, this money gets rebated directly back to the partners in St. Louis. That includes a big chunk of the load, and also the 12b1s. Given Jones' turnover and overall training status in the industry, I'd say a lot of clients are getting inexperienced advisors, or small accounts are getting minimal service (human nature and economics). Tell me all of that is not confusing to clients.
 
The only way this may reflect upon you is your overall choice of b/d affiliation and way of doing business. I have a few things I'm in the process of cleaning up myself. I'm just pointing to the writing on the wall.
 
As for A shares, with their loads and selling arrangements, per se, they could be better for the client in some situations. With regards to the advice business, I'd argue that they contribute to the dumbing down of mental clarity ( I've got a few people who won't sell one star "loaded" funds with high expense ratios they bought years ago, because someone sold them the "load" idea), and they don't deliver the kind of economics that keeps good advisors in business.
 
My dream is that some day, even the little guys that have to be hunted down for a sale will come to us ( and we'll get paid to help them). The mistrust created certain practices perpetuates the used car salesman image of advisors. I don't see how making fees completely visible hurts anybody. The load on A shares is visible, but I think 12b1s hurt us more than they help us.  
Apr 23, 2009 3:07 pm

My clients can meet with me whenever they want to.  I've never told a client, "I'm too busy, try next quarter", or "Ah ah ah, you only paid me for 3 meetings, I can't meet w/you till our next agreed time!".  However, most of any business that takes place can be done w/a 5 minute phone call.  If a client has a question or wants me to go over something with them, there's no reason I can't call them or they can't call me.  We don't need a 45 minute sit down meeting every time the client needs a question answered or wants a status update on their accounts.

 
You're misunderstanding (thanks to Roger Clemens for that piece of English language expertise) the rebalancing concept.  If I spent my career, especially the last 12 months, calling my clients and having them rebalance something every time a holding became disproportionate to the original allocation, I'd be trading their account every week.  Real Estate funds are up and down 10% per day now.  It is what it is.  I rebalance in the 2nd and 4th quarter.  I'm not, nor should you be, some stock jockey trading client accounts every 3 weeks.
 
I don't think my s*** doesn't stink.  My clients are well aware of how I work, and I'm well aware of the type of service and value they expect from me and together that builds great relationships. 
 
I understand that A shares are how you get paid.  I probably crossed the line when saying they were a fraud.  In most cases they are.  If I see one more portfolio of someone that has $75,000 split between 2 fund families I'm going to jump out the window.  But an $8,000 account?  Sure, throw them in Fidelity Advisor Freedom fund or something.  There's not really a whole lot else that you could do there, I guess.