$850, 000 portfolio, hates fees, now what?

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Jan 28, 2008 12:14 pm

What do you do when a client HAD a $1,000,000 lost about $150,000 (not with me) in the recent market downturn in a FEE based account.  NOW HE HATES FEES.  It is a retirement account.

 
I mean I try to group funds to get the sales discount wherever I can, but he is still going to pay about 3.5% upfront on A shares.  That is alot to swallow.  Any ideas?
Jan 28, 2008 12:17 pm

Perhaps you need to educate the client better. If he pays for the fee's with a taxable account they will be ded. Also does he understand that funds have FEES?? & almost always higher at that level.   Educate him and you win!!

Jan 28, 2008 12:21 pm

With 850k you should be much closer to 1-2% upfront.

Jan 28, 2008 1:30 pm

Mixing in a bunch of C- shares will help. 

Jan 28, 2008 2:04 pm

If you only use American Funds, you will be able to hit the $500K breakpoint at 2% upfront.  Couple that with some of the lowest expenses in the industry and you have a very light fee load.  You could even hit the $250K break with another fund family to fill in the gaps American Funds leaves.  It would raise the overall by about 1%, but still, not bad on $850K.  C-shares would be fine, but if he can read, and he chooses to read the prospectus looking for the fees, he's out of the frying pan into the fire. 


I'd guess that he might be more upset with his 15% loss than with the fees.  He can just point a finger at the fees and he can't do that with the market.  Perhaps you should show him a better portfolio that didn't go down 15%.  Maybe if he sees that you can save him money on the downside the A share charges won't sting so bad. 
Jan 28, 2008 2:14 pm
vbrainy:

What do you do when a client HAD a $1,000,000 lost about $150,000 (not with me) in the recent market downturn in a FEE based account.  NOW HE HATES FEES.  It is a retirement account.

 
I mean I try to group funds to get the sales discount wherever I can, but he is still going to pay about 3.5% upfront on A shares.  That is alot to swallow.  Any ideas?
 
Wow, that sure is a lot of money he lost in speculative investments. I would be SOO pissed if I lost 15%!
 
I don't care if this guy likes fees or not.. he has to pay to play. You can show him the value in paying 2.5%- 3.5% if you explain this is a ONE time fee. Plus he will be buying in the market at a cheaper rate then he would have a few months ago.. Explain to him that you are sorry for his loss but that isn't your fault and he can't expect to get quality advice without paying. DUHHH..
 
I seriously get pissed off at these whining clients. Obviously he is a quality candidate and I would give him my time too with 850K but damn, they wear me out.
 
Miss J
Jan 28, 2008 2:44 pm

If the client has a bunch of different mutual funds in the fee based account--transfer in kind and exchange the funds around within the fund families--the least amount of cost to the client--you only get to keep the 12b-1 fees.  It just might be the right thing to do!

Jan 28, 2008 2:47 pm
Roadhard:

If the client has a bunch of different mutual funds in the fee based account--transfer in kind and exchange the funds around within the fund families--the least amount of cost to the client--you only get to keep the 12b-1 fees.  It just might be the right thing to do!

 
Great point.. At Jones if the client has American Funds in the managed account you can transfer the F shares in and after holding them for 1 year you can exchange them for A shares without a fee..
 
Miss J
Jan 28, 2008 2:48 pm

speculative investments? Your average mutual fund holder has lost 15% since october so far.

 
I can understand why he is mad..anyone would be mad to lose a large part of their retirement next egg.  Adjust portfolios accordingly..more to come!
Jan 28, 2008 3:23 pm

Perhaps if he's not a risk-taker, he should look at a VA.  Look, we all know there are fees involved in everything we do...we have to eat, too.  The fee-based fees are just much more transparent and easy to attack.  It's stupid semantics, but at least a VA wouldn't show a quarterly fee on his statement and he'd have some protection from downside risks with it, along with some income guarantees if desired.

 
One of my pet peeves is how some of my local competitors love to point out my very transparent fee in an effort to take an account while pretending that fees don't exist in their practice.  I've gotten much better at preparing clients for this kind of hypocracy so they recognize it when it is pitched...all I had to do was lose a couple of pretty good accounts!
Jan 28, 2008 7:21 pm

Suggest he "refinance" his investment. Suggest either funds that have a good track record during market declines, IE: that play defense instead of constantly playing defense. Capital income builder comes to mind, class C. Or go with Pru Xtra credit 6 VA currently paying a 7% upfront credit with no addl fees for the credit, with the lifetime 7 and GRO return of principal. If he complains about fees, remind him he's just "paid" a 15% fee in the form of market losses. Good luck!


Stok
Jan 28, 2008 7:35 pm

Correction: I meant funds that play defense instead of always playing OFFENSE. Sorry if this has caused  confusion.

 
Stok
Jan 28, 2008 8:31 pm

Hate to be too negative at the start of a probable 1-2 Bear market, but any broker who thinks the clients will tolerate this wave of managed money b.s is fooling himself.  This is a recent ponzi scheme the firms came up with.  I would think many 1 million producers will lose 30-40% of their assets in the decline and another 33% from clients saying enough.  Meaning production will be down to the 400K area, reality is on its way.

Jan 28, 2008 9:15 pm
fritz:

Hate to be too negative at the start of a probable 1-2 Bear market, but any broker who thinks the clients will tolerate this wave of managed money b.s is fooling himself.  This is a recent ponzi scheme the firms came up with.  I would think many 1 million producers will lose 30-40% of their assets in the decline and another 33% from clients saying enough.  Meaning production will be down to the 400K area, reality is on its way.

 
Give me a break.
Jan 28, 2008 9:22 pm

Not that I am a million dollar producer by any means, but for any decent advisor to lose 30-40% of his assets in a market decline would mean the stock market would have to lose over 50% of it's value. (bonds is the answer to your math question)  

Jan 28, 2008 10:20 pm

I rode through the '98 and 2001-2 markets while building a fee-based practice. Both times added several dozen new fee-based relatinships and lost less than 3-4. This January alone, I have added 4 new fee-based accounts from clients deciding they'd rather have me running the investments on a professional basis, rather than us doing it together on an ad-hoc basis. So this is an environment that is terrific for adding to your fee-based account base. You're building the leverage for the next bull mkt.

 
For the clients who were with me during the past bear market they know as well as I do how the movie ends. It ends well if you don't panic, and if you don't try acting like a hedge-fund manager or market timer. Remove anything toxic or exotic from the portfolio, check the allocation (60/40 or whatever) and ride it out. 
 
If this strategy seems insane to you, then you should consider getting your own TV show with a bright yellow backdrop and noisy props. Cramer needs competition.
 
For the $850k prospect, is he going to be a client or a customer? Clients want your ongoing advice and counsel regardless of market conditions, and would rather pay you on a fee bassis.
 
Customers realy only want to do business with you while times are good, and you may as well do transactional, brokerage business with them. At least you'll get paid.
Jan 28, 2008 11:17 pm

i suggest you punch him in the face and tell him markets go up and down. if he was in a VA you could kill him and get his heirs could get his money back(death benefit)  i hate clients like that. it sounds like he never experienced a down market. ask him if was in the market in 200-2003. if he was show him how much it went down and how much it came back

offer him these options
ladder a bond portfolio, he will not see any fees even though they are there.
do a C share portfolio, maybe add some UIT's. some clients just hate paying fees. it does not matter how much you explain the cost they just do not want to see the fee. I have won accounts just because i paid (ate) their ira fee.
i still say punch him in the face or do what beecher did to scillinger on HBO's OZ
 
Jan 28, 2008 11:47 pm

You could alway tell him Booyah..or "Welcome to the house of Pain" when he calls the next time.

Jan 29, 2008 7:11 am

Tell the idot to hit the road! Yes 850k is a nice chunk but its not worth the bother of someone who cant take the ups and downs of the market. We all panic at times (Sept 11 2001) the end as we knew it.........fire him and get on with your practice.

Jan 29, 2008 9:17 am

Who doesn't hate paying for stuff?  Who doesn't want something for nothing?

Unfortunately, whether we like it or not is irrelevant: there's no such thing as a free lunch.  That universal law is NOT suspended when it comes to investing. 

The question isn't whether there is a cost to investing, it's how much it is and how you pay it.

Then start asking questions to probe what is REALLY frustrating him, because I agree that chances are the fees are just an easy target.  The more you can refocus his mind on his real goals and the process you use, the more likely you are to discover the rational person lurking behind the facade of the guy you're sitting across the table from.  And once you get him to admit that you're right, you've already won him over and he is ready to follow your lead.

That's generally the key - if you let him set the agenda and the tone for the conversation you'll never please him, because his expectations are unrealistic.  If you tactfully but confidently lead him to the real issues he needs to focus on, you have the basis for a productive working relationship. 

If you can't lead him, let him go.  I know it hurts, but it's better for both of you.  In those cases I remind myself that you can lead a horse to water but you can't make him drink it.

I choose to only work with thirsty horses.