Arbitration and The Green Machine
210 RepliesJump to last post
[quote=Borker Boy]
I also don't understand the value in charging someone 1-1.5% every year to put their money into an "advisory" account of mutual funds that auto-rebalance. There's almost no work involved for the advisor, and little if any for the B/D, but we're going to make them pay us year after year after year? For what?[/quote] You don't know what you don't know. If rebalance is the only thing the client is getting, then you would be correct. There is a little more involved however. Typical Jones "cheapest get it and forget it until I'm close to trip" mentality.100% commissioned based business does create conflicts of interest.
I would argure that 100% fee business creates more conflicts of interest. I would further argue that any financially struggling financial advisor has the most conflicts of interest regardless of mode of compensation. The least conflicts of interest are with an advisor who is financially secure and can charge fees and/or earn commissions.My clarity comes from being in a very small community, where reputation is everything. I see 90% of my clients at the Walmart, Church, sporting events etc. I go out of my way to make sure I’m doing what is in the best interest of my client. I would bet, based on assets, I’m the lowest paid advisor in my town, but I know in the long run this is how its to be done. Every client contact I have, I could find someway to justify to my clients a certain investment which will ultimately benefit me. IF I followed the famed quote “sell without a conscience”…I could double my production overnight.
[quote=Primo][quote=Maxstud][quote=CIBforeveryone]Seriously I use to compare everything to CIB-hence CIBforeveryone! I now have realized on the outside that not all funds have exposure to international stocks and they aren’t all supposed to move the same direction at the same time.
[/quote] WOW.[/quote] Max you must be in a better mood today. CIB, how long did it take you to figure out that mutual funds may invest differently, have different objectives, have different allocations than other mutual funds? What makes this amazing, you didn't even pick the best AF. I second the WOW.[/quote]I don't think you guys picked up on the slight sarcasm, probably because I didn't word it strongly enough. My point is that the culture at EJ is to look at a fund like CIB and say "look at the 18 years of consistency and total return." "Who would ever argue with that?" vs. evaluating what CAUSED that end result. My point is that back then I didn't really take into consideration that the 18 years of history (at that time-now 20) was built on 18 years of generally rising bond values. I didn't take into consideration that the later years included a growing international stock position. At EJ a "Growth & Income" fund is a "Growth & Income" fund. The "system" doesn't do anything to go beyond that.
In the outside world I realize that if I can add more moving parts to the clients portfolio (such as Van Kampen Comstock or a Lord Abbett Affiliated) I will have to go through some temporary periods of underperformance on that ONE fund, but something else will be outperforming. The client realizes I am choosing this fund for a reason, and it has nothing to do with my compensation. As the tide shifts from one sector to another, the moving parts will shift, and because I am MANUALLY rebalancing as appropriate I can provide a SMALL amount of alpha to justify PART OF the advisory fee the client is paying.
The rest of the fee is for advice & counsel on other areas of financial planning, and another part of it is "fee in lieu of commission." Keep in mind we only need to "justify" the expense ABOVE what they would pay a Jones IR, and if they are being traded like some Jones IRs do, the bogey is not very high...
Enough ranting, we've covered all of this in other threads anyway.
Same thing happened when I left Jones. New rep tried to get clients out of non-AF funds I had sold. I know VK has been weak for the past three years, FT too, but I also know these were good money managers and they would come around. I told my clients to have patience, new FA told them to move to AF! I just asked why they would want to pay a broker another 3.5% because she could show them funds with better past results. Her actions, encouraged by her mentor and field trainer, made it easier to get clients to come with me.
I'm not feeling any pain, but I'm sure you are. [quote=bspears]How many investments have you swithched today Max.....was it bond to funds or funds to bonds or hell even the scarry funds to funds....[/quote] Let me count......zero. So why don't you STFU and get down to Wal-Mart to get another can of Copenhagen before they roll up the sidewalks and you get arrested for being out after 6pm on a weeknight. mmm Mayberry gotta love it.I was feeling the same towards you…sucks when the truth hits you pretty hard.
Liar. No pain here in smalltown america. Low expenses + 350k in Jt taxable income + 28k Fed refund and 1800 in State Refund....yah..after 6pm I'm home with the family or helping coach my daughters softball team. Between my wife and I, she put away 42k in her 401k/profit sharing plan, I added 15k to mine. Purchased a condo in FL, purchased 50%(with brother-in-law) 120acres of farmground....yah I feel the pain...from 01-06 at the green machine.
Spears, you're not going after my pipeline are you?? Thought I would lighten up a rather dark thread!I see 90% of my clients at the Walmart …
[quote=bspears]
Liar. No pain here in smalltown america. Low expenses + 350k in Jt taxable income + 28k Fed refund and 1800 in State Refund…yah…after 6pm I’m home with the family or helping coach my daughters softball team. Between my wife and I, she put away 42k in her 401k/profit sharing plan, I added 15k to mine. Purchased a condo in FL, purchased 50%(with brother-in-law) 120acres of farmground…yah I feel the pain…from 01-06 at the green machine.
[/quote]Liar
Okay, maybe not 90% at Walmart…You’re right…I need to lighten up on the green machine, but man when I get on a roll, its like I go into overdrive. It all stems from the backlash I witnessed when great people would leave to wherever…and the lies would kick into overdrive. They won’t make it, they’ll make less, they’ll finally see what a great company we are…blah blah…and it’t absolutely the opposite. THe green machines shit DOES stink…I was there long enough to see/witness/be trained in all the little tricks to the trade. Maybe I was in the worst region, I don’t know, its the only one I participated in. But when you preach, we do things the rightway, and you have several top producers(not all) in the region teach you to basically churn and burn to make your month…well it just leaves a bad taste in your mouth. Nuff said…
You wish it was a lie…and if the grain prices explode to the downside, I will to…
You're such an idiot, I'm suprised you can spell 401k.You wish it was a lie…
Max, come on man. I know your happy not to be selling used volkswagens anymore…go and type rankfunds on the green screen, find the LA Affiliated and make a call list and move those to CIB. Make sure you have 3 reason’s why this is a good move for your customers. Don’t forget to let them know you will be sending them a form to sign on the switch…just to cya. Let us know what your yield to broker was today. Tomorrow we will do rankstocks and do this allover again…With a little coaching, we may get you to seg 3 in no time…
Nobody has asked yet, but what would you have done different. You're the new FA sitting down with the client for the first time. You're reviewing the portfolio and notice LAFFX has a annual return number of 5.06% for the last 8 years and 1 month. That's not really the return number that you would like to see. So, you run a quick hypo on CAIBX (I know, I know it's a completely different fund) and find that over the same time frame it would have returned 10.5%. Wow, that's a big difference. On $100K it's a $78,000 difference.
So, now you have some choices. One, Just ignore it. If the client doesn't bring it up, don't talk about it. No harm, no foul. Two, suggest he make a change to another fund within LA. This still causes a taxable event and the dollars out of his pocket for that, but no commission dollars. In order to find something that has performed better, you have to add additional risk to the portfolio since there are no other funds in a similar category at LA. That screws up your bar chart and now you have to figure out what to do with that info. Three, move to another fund, like CAIBX, that keeps your bar chart in balance, doesn't add risk, but has shown better returns over the same time frame. There is a cost for taxes and a cost for commissions on the move to AF. His bar chart remains the same, so in your mind that is a good thing. Since spears is always right and the Jones guys are always wrong, what do you do if you are Bspears? BTW, that 5.06% number is actually from a client of mine who currently owns LAFFX for that time frame. I'm curious what the brilliant minds out there would tell us at Jones to do.If I still believed in the money managers at LA, I’d leave it and continue to monitor it. (As if we at Jones have the resources to even determine whether we do or don’t believe in a fund’s money managers. )
Woudn't you be guilty of chasing the winners if you moved him to AF? LA is a quality fund family and will eventually come back. Besides, if in a couple years CAIBX is lagging LAFFX, do you move the client back over to LA? Where does all of this end?No need to answer my last question. I read the title of this thread and got my answer.
Arbitration...and then...eventually...jail.Hell Spiffy, I could justify moving anyone of the funds my clients hold today, anyone of them. I just don't believe in moving away from good quality funds, because I can find another fund with better PAST performance...If my research says we're not recommending xyz fund because the fund manager is gone, the objective has changed etc...I would look for another fund to compliment, BUT I would investigate the LA funds to find a suitable investment....Jones brokers automatically look to another fund family, right off the bat....churn and burn baby, yield to broker..
[quote=Spaceman Spiff]
Nobody has asked yet, but what would you have done different. You're the new FA sitting down with the client for the first time. You're reviewing the portfolio and notice LAFFX has a annual return number of 5.06% for the last 8 years and 1 month. That's not really the return number that you would like to see. So, you run a quick hypo on CAIBX (I know, I know it's a completely different fund) and find that over the same time frame it would have returned 10.5%. Wow, that's a big difference. On $100K it's a $78,000 difference.
So, now you have some choices. One, Just ignore it. If the client doesn't bring it up, don't talk about it. No harm, no foul. Two, suggest he make a change to another fund within LA. This still causes a taxable event and the dollars out of his pocket for that, but no commission dollars. In order to find something that has performed better, you have to add additional risk to the portfolio since there are no other funds in a similar category at LA. That screws up your bar chart and now you have to figure out what to do with that info. Three, move to another fund, like CAIBX, that keeps your bar chart in balance, doesn't add risk, but has shown better returns over the same time frame. There is a cost for taxes and a cost for commissions on the move to AF. His bar chart remains the same, so in your mind that is a good thing. Since spears is always right and the Jones guys are always wrong, what do you do if you are Bspears? BTW, that 5.06% number is actually from a client of mine who currently owns LAFFX for that time frame. I'm curious what the brilliant minds out there would tell us at Jones to do. [/quote] What would or should the Jones IR do: The variables.... 1. Is this client investing new money on a regular basis (am I getting paid from this client above trails?) 2. How is my month going so far? 3. How close am I to making the next segment or trip and will 1 or 2 trades make the difference? 4. Did I hear from my RL or other figure head within the last week and is there pressure to go to yellow from red, or green from yellow, or seg 2 to seg 3, or seg 3 to seg 4. Then: Look at 10 year results on LAA: 5.1% ICA: 5.47 Van Kampen Comstock: 5.95 S&P 500: 2.87 Explain to the client that stocks in fact have shown a low single digit return over the last 10 years considering the short upside then extreme downside early, and 10 year results only tell part of the story, but it is a reasonable way to compare similar investments against a benchmark, as long as the constants are kept equal as much as possible. Explain that there is some variation between these funds, but they are all within .85% of each other, and there is no way to know what fund manager will be best over the next 10 years. Recommend the client do nothing and explain your only compensation is .25%/year, and you get 40% of that, so it's really .1%/year. Unfortunately that is the nature of the way I do business. It is your decision if want to pay me for a change, but I can't justify it based on the facts. What I will have to ask you to do is thank me by referring your friends, family, and neighbors, because my primary source of compensation is new dollars coming in either through existing clients or new clients. I am keeping it real and all of the above are real issues with the way Jones does business. Probably the other big firms, too, but EJ is the only one I've lived.