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EDJ Unveils Fee Based Platform

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Jun 24, 2008 5:55 am

I dont know about you guys but by the time I get to the point where a client is ready to buy, the fee is an after thought…I really dont think it is going to be that big of a deal…I know a top producer in our region (who is in the pilot) is mainly focusing on people that are currently in a MAP account that isnt performing up to par.

If all you do is sell based on fees then your just shooting yourself in the foot.

Jun 24, 2008 11:26 am
snaggletooth:

[quote=noggin]Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy. They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it’s all about revenue… I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do? Scary, scary.



So how are you (EDJers) going to explain this to the clients?



So, Joe, we bought these funds 5 years ago, and remember how I explained the whole upfront commission and that we would essentially break even after 5 years and then have really low fees and expenses from then on? Remember that…yeah? Well, now we’re going to tack on an extra 1.35% per year on your account because I want to get paid to service you.



Is it just me, or does anyone else see the opportunity here? If you have EDJ prospects on your list, wouldn’t you call them now and tell them this just to put it in their ear? It seems that it might be a good way to drive a wedge.[/quote]



At some point, most veteran advisors at other firms “transitioned” to fee based. Nobody started out 25 years ago doing fee-based. So it’s not some big dillema where Jones is the only firm in the world transitioning to fee-based. And plenty of advisors (yes LPL, Merrill, SB, etc.) still do transactional business (most firms are less than 60% fee-based). It really comes down to what makes sense. This transition will take some time, as Jones has always pounded a-shares into people’s heads. But you might be surprised how many advisors at Jones (a) want feee based, (b) will be able to sell it, and (c) are doing the right thing for clients.



Bottom line, no matter what Jones does, most people on this forum will bash them for it.



Noggin-

That guy is just an idiot. If he hasn’t educated himself enough about fee programs, then that’s his fault. Plenty of us know what they are and how they work. I don’t think the ONLY reason was to keep vets happy. I think it came to to demand from clients/competitive landscape as well. I mean, it all comes back to business decisions. The bottom line is to be profitable. So whether it was to retain veterans, add more revenue, compete for fee-based business, whatever, it all comes back to business and profits. Anyone that can’t see that is just fooling themselves. I have been around long enough in other industries to know that you spin these things however you want, but it all results (or is trying to) in a larger bottom line.
Jun 24, 2008 1:41 pm

Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!)

  Second, it forces you to maintain a balanced portfolio in each account, rather than across accounts. It creates duplication rather than consolidation.   It is taking the advisor out of the investment selection process almost entirely.   They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.   This is not even close to what other firms have to offer their clients in terms of flexibility.   CIB
Jun 24, 2008 1:47 pm

Real question would be…can a joneser leave and transfer the fee based accts??..IF so…move as much to fee base platform and LEAVE to garner the larger payout…WIN WIN…

Jun 24, 2008 1:59 pm

CIB-

  I know that when I transitioned some of  my American funds I was able to switch to American  F shares from A without tax consequence. A little known secret, but they will do it if you ask them.
Jun 24, 2008 2:13 pm

I have been doing this as well. The Jones plan will sell any fund holdings that don’t match their model.

  (EJ people-are they turning over the whole portfolio on one business day?)  
Jun 24, 2008 4:22 pm

[quote=footsoldier]CIB-

  I know that when I transitioned some of  my American funds I was able to switch to American  F shares from A without tax consequence. A little known secret, but they will do it if you ask them.[/quote]   Actually, a well-known secret.  In fact, in the advisory account site, it explains how/when to do this.  They also list all of the funds that will transfer in-kind (i.e. a-share to f-shares for each MFD)
Jun 24, 2008 4:38 pm

[quote=Broker24] [quote=snaggletooth] [quote=noggin]Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy.  They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it’s all about revenue… I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do?  Scary, scary.[/quote]

 
So how are you (EDJers) going to explain this to the clients? 
 
So, Joe, we bought these funds 5 years ago, and remember how I explained the whole upfront commission and that we would essentially break even after 5 years and then have really low fees and expenses from then on?  Remember that...yeah?  Well, now we're going to tack on an extra 1.35% per year on your account because I want to get paid to service you.
 
Is it just me, or does anyone else see the opportunity here?  If you have EDJ prospects on your list, wouldn't you call them now and tell them this just to put it in their ear?  It seems that it might be a good way to drive a wedge.[/quote]

At some point, most veteran advisors at other firms "transitioned" to fee based. Nobody started out 25 years ago doing fee-based. So it's not some big dillema where Jones is the only firm in the world transitioning to fee-based. And plenty of advisors (yes LPL, Merrill, SB, etc.) still do transactional business (most firms are less than 60% fee-based). It really comes down to what makes sense. This transition will take some time, as Jones has always pounded a-shares into people's heads. But you might be surprised how many advisors at Jones (a) want feee based, (b) will be able to sell it, and (c) are doing the right thing for clients.

Bottom line, no matter what Jones does, most people on this forum will bash them for it.

Noggin-
That guy is just an idiot. If he hasn't educated himself enough about fee programs, then that's his fault. Plenty of us know what they are and how they work. I don't think the ONLY reason was to keep vets happy. I think it came to to demand from clients/competitive landscape as well. I mean, it all comes back to business decisions. The bottom line is to be profitable. So whether it was to retain veterans, add more revenue, compete for fee-based business, whatever, it all comes back to business and profits. Anyone that can't see that is just fooling themselves. I have been around long enough in other industries to know that you spin these things however you want, but it all results (or is trying to) in a larger bottom line.[/quote]   B24,   I agree with you.  I won't bash them for being late to the party.  I just see it as potentially an opportunity.  If I have 10 EDJ prospects, and 1 guy becomes a client because of the transition, then it's worth it to me.  I just see it as a way to possibly drive a wedge.  Could he eventually leave me because of fees?  Sure, anyone can.  But I'll take my chances.   Say you have a client that is upset over returns, service, and his nagging wife.  One tiny thing could throw him over the edge.  Maybe you didn't return a phone call, maybe it's a fee.  If I get the guy, I'm going to try hard as hell to build a relationship that's above fees.   I do agree with you though for the majority of people.  And I'm happy for you that you now have another tool in your toolbox...Miss J, not so much.
Jun 24, 2008 7:30 pm

Snags,

I suppose you could do that.  It might make sense in an area with heavy concentrations of Jones offices, where you are competing for business.  In my area, there are only 4 Jones offices in my county of 250K households.  Each office probably has a few hundred "real" households, so there is not a lot of competition among brokers (much of the business in our area is "new" business - 401K rollovers, small business retirement plans, etc. - people that did not previously have a "real" advisory relationship).  There are a handful of established advisors in the area at ML, UBS, SB, MS, WACH, and a few small solo indy offices.  A lot of them are "baby boomer" advisors that have been in the biz 25 years and are pretty much coasting.  They are dealing mostly with old money, established accounts, family money, etc.  Although there is a lot of competition, it is not a real "competitive" area.   But if that works in your area, go for it.  You have to use whatever edge (or "wedge"!) you can get. 
Jun 24, 2008 8:39 pm

With the Jones buy and hold strategy, and the American funds history, what exactly is the advantage to the client?  Seems to me like you are just piling on a fee to something they have already bought.  If you can move A share funds into the platform, and they are currently only paying .25 or whatever the current expense ratio is, what is the advantage of moving it and charging them an additional 1%? 

  It sounds like a negative for your clients not a positive.  It sounds to me like you are openning a can of worms unless you have a way of proving or justifying a client benefit.  You are effectively moving A shares to C shares (or the equivelant of C shares) and no companies compliance department would approve that.
Jun 24, 2008 8:42 pm

[quote=new_indy]With the Jones buy and hold strategy, and the American funds history, what exactly is the advantage to the client?  Seems to me like you are just piling on a fee to something they have already bought.  If you can move A share funds into the platform, and they are currently only paying .25 or whatever the current expense ratio is, what is the advantage of moving it and charging them an additional 1%? 

  It sounds like a negative for your clients not a positive.  It sounds to me like you are openning a can of worms unless you have a way of proving or justifying a client benefit.  You are effectively moving A shares to C shares (or the equivelant of C shares) and no companies compliance department would approve that.[/quote]   My thoughts exactly.
Jun 24, 2008 8:52 pm

what compliance department…

Jun 24, 2008 8:54 pm

[quote=CIBforeveryone]Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. - Jones CFA’s to be exact. Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. - Only if they choose to make the change in their account.  It’s no different in my mind than moving someone’s mutual funds to a VA for the income rider.   They get trade confirms on that move too.  They do it because they see a benefit to do it. The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!) - It’s designed specifically for people who a) don’t really want to have to make a decision about rebalancing, or when to switch AMCPX for NEWFX or b) recognize that one fund family cannot possibly be the best at everything and value the diversification.  Mr. Client, let’s say you get to take a team to take to the world series this year.  Would you pick the Cardinals or one of the All Star teams?

  Second, it forces you to maintain a balanced portfolio in each account - This is a bad thing?, rather than across accounts. It creates duplication rather than consolidation. -  I'm not sure I understand why this is an issue.  If I have two IRAs of equal size for the same person, chances are I'm going to build identical portfolios in each account.  I'm not sure I'm following why this is a detriment to the client.  BTW, I see this all the time with other similar programs.      It is taking the advisor out of the investment selection process almost entirely. - Who would you rather have picking your investments - A team of highly qualified, educated, and monitored analyists whose only job is to make sure that the investments in this program are the cream of the crop  OR Spaceman Spiff.   They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.   This is not even close to what other firms have to offer their clients in terms of flexibility.   CIB
[/quote]   Flexibility how?   
Jun 24, 2008 9:10 pm

Do you get the choice of cherry, grape, or watermellon or do you have to drink the lemon lime flavor?

Jun 24, 2008 11:37 pm

What kool aid? 

Jun 25, 2008 12:44 am

I know alot of guys who are making the move to fee based.  Its fairly simple to move existing clients.   It makes sense for the broker and the client.  We all know the benefits of the fee based account to the client.   Now the broker at EDJ does not have to serve 500 households on top of searching for new blood.  They can service 250 households better and not have to worry about the $$$.  Less conflict of interest.  You dont have a broker shoving a bond to make a few bucks anymore.

The advantage of a client also having the Advisory Account if they already have American is more diversification.  American has great Growth & GI funds on the conservative side of the spectrum.  They do not have everything.   Now a client can diverisify without having to pay another upfront charge to have another fund family to get that.

Jun 25, 2008 1:01 am

I think as far as flexibility is concerned he is talking about the limitations of the program (no stocks, individual bonds, etc.). Which is really just a Jones thing.



I’ve done a little research on how much our analysts are paid (by the way, very few have earned the CFA charter). And not to quibble, but I have to point this out because it is on the ethics portion of the Level 1 exam - you can’t BE a CFA, only earn the CFA charter. Sorry, I’m a just showing off a little.



Second, our analysts are some of the lowest paid in the industry. I think that results in low quality analysts.



I personally think the program is ok. Except that it’s another method of control for the HO to exert on us “business owners”.

Jun 25, 2008 1:13 am

We didn’t have an advisory fee program - we got bashed.

We now have an advisory fee program - we get bashed for using it.



Nobody said everyone was going to move all their A-share clients to it.

Jun 25, 2008 1:50 am

If you are giving up the buy and hold strategy, the case is legitimate.  Otherwise not getting called on a bond is not a “client benefit”.    If you stick with the buy and hold strategy, it is not a benefit to the client.  You are getting bashed, because you bashed the program of everyone else and built a culture and investment strategy around buy and hold with no advisory accounts.  Now you have one, and all of a sudden they are a wonderful idea.  Can’t have it both ways.

  Tell me what the benefit of any A share being moved into the advisory program might be?
Jun 25, 2008 6:16 am

The retarded part of the program is the account minimum.   I’ve got a statement on my desk right now 200k in NQ and a 50k IRA.  Sorry buddy, I have to charge you 4.5%  up front on the IRA.  Why the hell can’t all the accounts be handled the same way?