Do you do what's right for the client EVERY time?

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Dec 7, 2009 12:04 am

I feel so good running a fee-based business.  I never have to worry how I answer the above question.

Dec 7, 2009 5:28 am

"So, let me get this straight.  I pay you if you lose 40% of my account balance too?"

 
For the record, I have no problem if you want to charge fees instead of commissions.  I have a problem with you charging fees and somehow feeling you're more ethical or moral than someone who takes a commission.  Method of compensation has zero to do with how ethical or moral an advisor is.
Dec 7, 2009 5:59 am

Spiked, I'm confused.  How does running a fee-based business cause you to do the right thing?  Did you screw clients when your business wasn't fee-based?   Doesn't fee-based mean that you can now charge fees or commissions and you can choose to do whichever will put the most money in your pocket?

Dec 7, 2009 9:15 am

[quote=deekay

 
For the record, I have no problem if you want to charge fees instead of commissions. 
 
 I have a problem with you charging fees and somehow feeling you're more ethical or moral than someone who takes a commission. 
 
Method of compensation has zero to do with how ethical or moral an advisor is.[/quote]
 
"how ethical or moral and advisor is" is something God will decide on......
 
if you dont think the way we are paid changes our choices as advisors (collectively) .....your in denial
 
Dec 7, 2009 9:18 am

I agree with both sides of the coin.  Here's an example....for most clients with under 100K, I use C-shares.  Not that it's right or better than A-shares, but I just don't feel right charging someone 4.5%-5.5% upfront.  Now, I have colleagues that ONLY care about their "commission screen".  Many of them use a combo of A shares and UIT's.  Are they building a portfolio just as good as mine?  Maybe.  They sure try, which is what matters.  But they are more than quadrupling my commissions (4.5%-5.5% vs. 1.0%).  I can tell you, it's not because they are in love with UIT's (not the product itself anyway).  And I do use UIT's sometimes for fixed income when bonds are scarce.  Point is, you can't tell me that this scenario does not creat a conflict of interest.

Dec 7, 2009 9:34 am
spikedkoolaid:

I was always looking for the biggest commission, miss breakpoints, etc. .

 
... mmm. Care to explain this, in light of the thread you started?
Dec 7, 2009 9:50 am
B24:

I agree with both sides of the coin.  Here's an example....for most clients with under 100K, I use C-shares.  Not that it's right or better than A-shares, but I just don't feel right charging someone 4.5%-5.5% upfront.  Now, I have colleagues that ONLY care about their "commission screen".  Many of them use a combo of A shares and UIT's.  Are they building a portfolio just as good as mine?  Maybe.  They sure try, which is what matters.  But they are more than quadrupling my commissions (4.5%-5.5% vs. 1.0%).  I can tell you, it's not because they are in love with UIT's (not the product itself anyway).  And I do use UIT's sometimes for fixed income when bonds are scarce.  Point is, you can't tell me that this scenario does not creat a conflict of interest.


 
The problem, B24, is that you shouldn't be making that decision for your client.  If the money is going to be held for a long time, you are increasing your commissions and increasing their fees by using C shares.  "A" vs. "C" should be a time horizon question.
Dec 7, 2009 9:51 am

The biggest conflict of interest is having an advisor who is financially struggling. 

 
Long term, the easiest way for an advisor to make the most money is simply to do what is in the client's best interest all of the time.
Dec 7, 2009 10:02 am
anonymous:
B24:

I agree with both sides of the coin.  Here's an example....for most clients with under 100K, I use C-shares.  Not that it's right or better than A-shares, but I just don't feel right charging someone 4.5%-5.5% upfront.  Now, I have colleagues that ONLY care about their "commission screen".  Many of them use a combo of A shares and UIT's.  Are they building a portfolio just as good as mine?  Maybe.  They sure try, which is what matters.  But they are more than quadrupling my commissions (4.5%-5.5% vs. 1.0%).  I can tell you, it's not because they are in love with UIT's (not the product itself anyway).  And I do use UIT's sometimes for fixed income when bonds are scarce.  Point is, you can't tell me that this scenario does not creat a conflict of interest.


 
The problem, B24, is that you shouldn't be making that decision for your client.  If the money is going to be held for a long time, you are increasing your commissions and increasing their fees by using C shares.  "A" vs. "C" should be a time horizon question.
 
Understood.  What I probably failed to say is that I do use commissions and fees.  And i do give my clients the choice.  Most choose C shares, even when I show them the difference in returns over time (7-10 year break-even on small or no breakpoint amounts).
My point was that many (OK, some that I know of) of my colleagues design portfolios with the maximum possible commissions without raising red flags.  I know of experienced vets that do the multi-family A-share/individual stock/bond thing on large portfolios so they can miss breakpoints without causing compliance problems.  Now, I don't believe that you always have to use one fund family (in fact I don't like doing that - another reason for C shares on small accounts), but I know of guys that come up with the right combinations of securities on $500K+ accounts to get 3%+ commissions.
It's not that we shouldn't get paid, it's that using commissions can lead people to find ways of maximizing commissions.  I simply don't don't like commissions dictating how an advisor might invest.  I like investing without regard to commissions.  When commissions are all the same, you are free to develop the best possible combination of investments that you choose for each client.
I basically have just a few combinations of investments I use for all clients. 
 
I agree, using commissions does not always "lead unto temptation", and fees do not somehow make people more ethical.  But commissions open the door for more abuse by bad brokers than fees.
Dec 7, 2009 6:16 pm

is this tread for real


fee based advisors have this -sefl righteous way about them. really lame.
Dec 9, 2009 12:08 am

Just got a new client a couple of weeks ago.  Close to a million dollar account.  Her CPA had told her she was paying too much in fees.  She's a sweet old lady, and is very trusting - probably to a fault.  She mentions the fees to her old advisor and he says he'll move all of her money into short term bonds, "because he only charges 1.5% on bonds."  1.5% after she squeezes him on fees?  I don't even want to know what it was before.

Fee based accounts just introduce (or shift toward) a different set of conflicts of interest.  How often would a fee advisor recommend that a client pull a large amount of money out of their account to pay off their house - even if it made sense financially?  You lose four to six times the trail per dollar out of the account. . .

My two cents - I'm pretty new in the business, but I have already heard too many stories of advisors slamming their entire book into fee accounts from A-shares sold years and years ago - simply to give themselves a raise.  It is disgusting.  I would like to think that I could resist the temptation, but I don't have 150 million in AIVSX like some.

Dec 9, 2009 6:40 am

In order to be able to do the best for the client, one must have the ability to charge fees and earn commissions.  Alternatively, one must be willing to give away business.


Regardless, it still comes down to personal ethics.
However, let's be honest that if one can't support their own family, it's much more difficult for them to remain true to their ethics.
Dec 9, 2009 8:23 am

Fees are fine as long as they are commensurate with the service provided. 

What makes fees seem better to me is that if you provide a statement to your clients that show exactly what they are paying for what, at least there is disclosure.  They KNOW what they are paying, and it is YOUR job to justify the fee.  How many people with a $1million in A-shares realize they are paying over $10k a year in fees?

The problem with commissions and trails is that they don't know what dollar amount they are paying.  Even if you do disclose how much they are paying in expenses, they don't quantify it (often - some of you will have engineer clients who know EXACTLY what they are paying). 


Dec 9, 2009 8:38 am

I prefer charging a fee rather than commission, but one issue thats arising is that advisors are selling prospects on the idea of charging .25, .50 or whatever % less than their current advisor is charging.  That doesn't happen w/commissions because the fund family regulates A share load charge.  I think over time it'll be easier to lose clients that are currently in fee-based accounts for that fact alone, as well as anyone who's already paid the A share load knows they aren't paying an annual fee (On top of the fund expense anyways) and are ok w/that vs. moving from no annual fee w/the A share to a fee-based account. 

Dec 9, 2009 8:45 am

True, if you have A-shares in a fee-based account.  That's really stupid anyway. 

But low-cost index funds or individual equities accounts will allow you to charge less than A-shares.

Once again though, I think it is how much the client values your service.

Dec 9, 2009 10:19 am
Moraen:

True, if you have A-shares in a fee-based account.  That's really stupid anyway. 

But low-cost index funds or individual equities accounts will allow you to charge less than A-shares.

Once again though, I think it is how much the client values your service.

 
Of course, but for every 100 clients there will always be that handful that is a pain in the ass when it comes to fees and probably would bolt the minute another broker sold them a bill of goods no matter how many birthday cards you send or how much you outpace the S&P by.
Dec 9, 2009 9:52 pm
BioFreeze:

My clients don't pay fees or commissions.





barter?

Dec 9, 2009 9:55 pm
Its hard a fukc to make money over the long haul WITH total discretion and NO worry at all about commis etc



2. Its IMPOSSIBLE to make money over the long haul if you have to call a client and CONVINCE/SELL THEM on the idea and also worry about commis. Impossible.