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Jul 7, 2006 5:08 pm

True-- in a year or three the investment recouped, but for over a thousand days, that client was worried that it would not.

we look at 3 years differently than the 60-something who just took a 40% "correction"

Jul 7, 2006 5:11 pm

I might be jaded since I'm a relative newbie in this industry.   To me, the last big downturn five years ago seemed pretty bad.

With the conservative investors here is what I found:

When I ran the actual performance as if I had known them then,    their portfolios would have dropped a total of around 10% from the highs in 2000 to the lows in 2003.

I explain this was pretty darn bad downturn and ask them if they would be ok with this bad scenario over a two year period or so.

Most say yes.

Is it possible it could be worse going forward, of course.

scrim  

Jul 7, 2006 5:13 pm

[quote=scrim67]

Plus my clients in bonds are in short or intermediate maturities which will not erode.

I have my most conservative/skittish clients in about 60% cash as the returns on cash are very similar to bonds right now without the fluctuation.

scrim

[/quote]

Scrim,

For your clients in cashand fixed income...do you invest in cash and fixed income INSIDE your wrap account?  If so, you are as guilty as anyone of "being costly" as you are charging a fee for not doing anything.

It costs nothing to manage cash, and bond funds are the biggest rip off of all (especially in this environment).

Jul 7, 2006 5:20 pm

[quote=BankFC][quote=scrim67]

Plus my clients in bonds are in short or intermediate maturities which will not erode.

I have my most conservative/skittish clients in about 60% cash as the returns on cash are very similar to bonds right now without the fluctuation.

scrim

[/quote]

Scrim,

For your clients in cashand fixed income...do you invest in cash and fixed income INSIDE your wrap account?  If so, you are as guilty as anyone of "being costly" as you are charging a fee for not doing anything.

It costs nothing to manage cash, and bond funds are the biggest rip off of all (especially in this environment).

[/quote]

Obviously they are paying the wrap fee.    I need to get paid for my services like we all do but that's another thread.   Yes, I agree they could manage their own financial affairs and save ALOT of money but my clients are willing to pay for my advice.       I have no sales assistants so i'm doing some other things which justifies the fee they are paying me in most cases.    I never lock up assets so they are free to leave if they don't find value in my services.

Money markets are inexpensive as well all know but they are not free.

scrim

Jul 7, 2006 5:37 pm

[quote=babbling looney]

I know that the DJIA is not representative of the market or even of a real person's portfolio. DOH! I wanted to give him some historical perspective when he is sure that there is no event that would wipe out someone's life savings.  I agree that there wouldn't be a wipe in a properly diversifed portfolio...but there could sure be some pain.  The point is that scrim seems to be cavalier and academic about the possibility of fluctuation a client's life savings and thinks that diversification is "the" way to protect a client. It is "a" way.  He doesn't want to consider that there could be value in other (and yes) costly methods.

And as bad as that downturn was, for those clients who stayed the course and remained invested, they did see a nice recovery.  However, many clients would and did panic at that point and pull their investments and those clients who needed access to their money THEN not in years to come were shell shocked. 

As advisors we can look dispassionately at these ups and downs in the market, but we need to look at it from the client's emotional viewpoint. 

[/quote]

I'm not disagreeing with everything you've said, just pointing out that talking about a short-term dump in the DJIA and addressing this as if it's a pronouncement on AA just isn't fair. It simply isn’t a diversified portfolio, it ignores the fact that as the DJIA tanked the bond or mid-cap or small-cap or international percentage of the portfolio probably strengthened and it’s shown over a ridiculously short time horizon. If someone’s retirement plans have to be postponed because of a 45% downturn in the DJIA two or three years prior to the planned retirement date, that’s not a hit on AA, that’s a hit on the advisor that talked about AA but didn’t implement it.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Yes, clients get emotional, but I always thought that part of our job was to prepare them for possible bumps in the road and then to protect them from harming themselves because of their emotions when those bumps come. I just don’t see him as being cavalier.

I explain to clients that if they’re 60 when they begin drawing off this money they need to have a long (30 years or more) time horizon because they’re probably going to live longer than they thought and they shouldn’t care less if “the market” (as defined by the DJIA or the S&P 500 alone)  tanks during some short term timeframe. No one properly diversified in 1987 cared about that downturn in 1991, etc.. However, if they just can’t live with that “uncertainty” we can use an annuity, which imho is an unnecessary expense, but I one I won’t object to if that’s the only thing that will allow them to sleep at night.

Jul 7, 2006 5:39 pm

[quote=TexasRep]

True-- in a year or three the investment recouped, but for over a thousand days, that client was worried that it would not.

we look at 3 years differently than the 60-something who just took a 40% "correction"

[/quote]

What retiree client really took a "40% "correction""?

Jul 7, 2006 5:52 pm

[quote=mikebutler222][quote=TexasRep]

True-- in a year or three the investment recouped, but for over a thousand days, that client was worried that it would not.

we look at 3 years differently than the 60-something who just took a 40% "correction"

[/quote]

What retiree client really took a "40% "correction""?

[/quote]

The accounts that I'm ACATing took a 50% hit.  These retirees were 100% Large Cap Growth and over weighted on Telecommunications.

Jul 7, 2006 6:02 pm

[quote=Mike Damone][quote=mikebutler222][quote=TexasRep]

True-- in a year or three the investment recouped, but for over a thousand days, that client was worried that it would not.

we look at 3 years differently than the 60-something who just took a 40% "correction"

[/quote]

What retiree client really took a "40% "correction""?

[/quote]

The accounts that I'm ACATing took a 50% hit.  These retirees were 100% Large Cap Growth and over weighted on Telecommunications.

[/quote]

That's my point, that's not a diversified portfolio by any standard.

Jul 7, 2006 6:27 pm

[quote=scrim67][quote=BankFC][quote=scrim67]

Plus my clients in bonds are in short or intermediate maturities which will not erode.

I have my most conservative/skittish clients in about 60% cash as the returns on cash are very similar to bonds right now without the fluctuation.

scrim

[/quote]

Scrim,

For your clients in cashand fixed income...do you invest in cash and fixed income INSIDE your wrap account?  If so, you are as guilty as anyone of "being costly" as you are charging a fee for not doing anything.

It costs nothing to manage cash, and bond funds are the biggest rip off of all (especially in this environment).

[/quote]

Obviously they are paying the wrap fee.    I need to get paid for my services like we all do but that's another thread.   Yes, I agree they could manage their own financial affairs and save ALOT of money but my clients are willing to pay for my advice.       I have no sales assistants so i'm doing some other things which justifies the fee they are paying me in most cases.    I never lock up assets so they are free to leave if they don't find value in my services.

Money markets are inexpensive as well all know but they are not free.

scrim

[/quote]

Scrim,

Don't you see the slippery slope you are on?  You could get paid on the equity portion, and leave the cash and fixed income outside the wrap. 

That would be the BEST solution for the client who wants advice.

But you say you want to be paid, so you charge a wrap fee for cash and bonds...so why exactly are you here to say what's right and what's wrong????  If you really have conservative clients in 50% cash and bonds, you could save them alot in wrap fees, but you don't.

Jul 7, 2006 7:12 pm

[quote=mikebutler222][quote=Mike Damone][quote=mikebutler222][quote=TexasRep]

True-- in a year or three the investment recouped, but for over a thousand days, that client was worried that it would not.

we look at 3 years differently than the 60-something who just took a 40% "correction"

[/quote]

What retiree client really took a "40% "correction""?

[/quote]

The accounts that I'm ACATing took a 50% hit.  These retirees were 100% Large Cap Growth and over weighted on Telecommunications.

[/quote]

That's my point, that's not a diversified portfolio by any standard.

[/quote]

Ahhh, gotcha.  I say we never ever bring up the VA inside of an IRA subject ever again.

Jul 7, 2006 7:34 pm

[quote=Mike Damone]

Ahhh, gotcha.  I say we never ever bring up the VA inside of an IRA subject ever again.

[/quote]

How about muni bonds in an IRA, isn't that a great way to turn tax free interest into ordinary income?

That would be desireable, no?

Jul 7, 2006 7:45 pm

You are a retard.

Jul 7, 2006 8:17 pm

C'mon guys.  The benefit of having a VA inside of an IRA is the clients piece of mind.  Will it outperform MF's?  No way to tell until it's already happened.  Is it more expensive than a MF?  Some are, some aren't.  Is the tax deferral aspect of the VA worthless in this scenario?  It sure is.  If it makes the client more comfortable for a portion of their retirement assets to have the protections included in a VA than I say go for it.

Every product and investment has its time and place, and it's important for a client to have diversity in their portfolios.  The problem are advisors/reps who believe that the right client is the one sitting in front of them and the right product/investment is the only one they know how to sell. 

Jul 7, 2006 8:19 pm

"I say we never ever bring up the VA inside of an IRA subject ever again."

I know what you're saying...we end up just going in circles.  I'd still like for someone to intelligently debate why qualified annuities are in and of themselves, bad.  I'm not arguing that they are not the cheapest alternative, and I'm not arguing that a tax-deferred vehicle inside a tax-deferred account is a good thing, but if that is the vehicle that keeps them in the market, provides a necessary inflation hedge, makes the highest return among acceptable customer options, and guarantees a minimum level of income higher than other acceptable alternatives, where is the problem? Regulation at it's finest...gaaaaaaaaaahhh!!!

Jul 7, 2006 8:27 pm

[quote=NASD Newbie]How about muni bonds in an IRA, isn’t that a great way to turn tax free interest into ordinary income?

That would be desireable, no?[/quote]

There's a rather large and obvious difference between tax-free and tax-deferred.  The IRA does not adversly recharacterize the taxability of VA withdrawals, as it does the tax-free income of muni bonds in your scenario.  It's simply unnecessary, but at the same time, not why anybody with any sense uses a VA inside of an IRA.

You've been in the business too long for me to assume that you're doing anything other than yanking our collective chains...

Jul 7, 2006 8:53 pm

[quote=Indyone]

You've been in the business too long for me to assume that you're doing anything other than yanking our collective chains...

[/quote]

Think so?

Jul 7, 2006 10:20 pm

I saw something last week that made me sick!  A 23 year old with an annuity inside a Roth IRA!

Jul 7, 2006 10:26 pm

[quote=iconsult100]

I saw something last week that made me sick!  A 23 year old with an annuity inside a Roth IRA!

[/quote]

Consult a doctor, you might be able to take something for that.