EDJ Unveils Fee Based Platform
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It shouldn't suprise me that there is the negativity about this program from you guys, but it does. You griped for years, some of you even left because, Jones didn't have a fee based platform for the average account holder. I'll bet some of you are the ones that would send Suggbox wires to Bachmann and Hill complaining that you were losing business to the fee based planners out there and that Jones was missing the boat by not having it. Now, with Weddle in the drivers seat it becomes an option and you complain that Jones is only doing for the money and that we shouldn't have existing clients utilize the plan.
Perhaps I'm interpreting it wrong, but Jones isn't abandoning the buy and hold philosphy. In my mind it will still be the most cost effective option for my clients. We are simply offering them a different solution. A shares will still be available and discussed, at least in my office, but the client should have some choice in how they invest with us. I for one am happy to be able to give them that option. I am going to talk to ALL of my existing clients who are eligible for Advisory Solutions. I'm going to put the program on the table for them and let them decide if it is something they are interested in doing. I DO NOT plan on apologizing for selling them A share 4 years ago. In my office, I've never told anyone that fee based business in general is bad. And if some of you guys did, you were stupid. And Jones never told you to do it. I heard Bachmann say several times that fee based business isn't bad. It simply wasn't something he believed in and that meant Jones wasn't going to do it. I'll bet he still doesn't like that we're headed this direction. However, he's not in charge anymore and he doesn't get to call the shots. Let me ask a question. If I decided to leave EDJ and set up shop as an indy and in doing so decided that I was going to be a fee only advisor, what do I do with all of my good clients that bought A shares from me a few years ago while I was a drone at EDJ? After all, I've seen the light, stopped drinking the kool aid, and my IQ suddenly went up by 50 points, and I can see the error in my ways and FEES are the RIGHT way to do business now. What about Mr. and Mrs. Smith who have a portfolio of American Funds? I certainly don't want to lose them as clients or leave them for the next drone in my EDJ office. What do I tell them?If I decided to leave EDJ and set up shop as an indy and in doing so decided that I was going to be a fee only advisor, what do I do with all of my good clients that bought A shares from me a few years ago while I was a drone at EDJ? After all, I’ve seen the light, stopped drinking the kool aid, and my IQ suddenly went up by 50 points, and I can see the error in my ways and FEES are the RIGHT way to do business now. What about Mr. and Mrs. Smith who have a portfolio of American Funds? I certainly don’t want to lose them as clients or leave them for the next drone in my EDJ office. What do I tell them?
Personally, I think it is a big mistake to be FEE ONLY. Not all clients are served by a fee for advisory account and you eliminate a lot of good accounts that could turn into something bigger in the future. People who are dollar cost averaging into IRA or 529 accounts. Many of my clients hold portfolios of muni bonds. Not a great deal of active management there and they would object to paying a fee for AUM. If you do transfer those American Funds class A shares to a managed account the 12B-1 fee is eliminated or the shares are converted to I shares (depending on your platform). I certainly wouldn't want to change out an account that "Just" recently paid a commission to purchase but I would tell the clients "Being in a fee based account eliminates the mandate that I must continue to put you into the same fund family to get breakpoints. American Funds are very fine funds and that is why I recommended them to you in the first place and I think that we should keep much of the portfolio in this strategey. HOWEVER,...... many other fund families may have sector or specialty funds that are not covered by American Funds and a fee based account will allow us to have a lot more flexibility in actively managing your portfolio to respond to these difficult financial times with out worrying about commissions or breakpoints."Actually my A share clients still have A Shares. Some of the longer term holders I have moved to different asset classes and away from mutual funds completely as they really aren’t my thing, but I haven’t moved any A share into fee based accounts.
Bottom line I feel that it is just pissing the others off that we now have the fee based program…now they cant say “why go with Jones you know they are the most expensive guys in town”
[quote=Eyetattoo]Bottom line I feel that it is just pissing the others off that we now have the fee based program…now they cant say “why go with Jones you know they are the most expensive guys in town”
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Whether Jones has finally added an advisory program or not is of little consequence to me, but I am still curious to hear how you come to a two year break even calculation on the program, as asked previously:
Originally posted by Eyetattoo
I
regards to your double dipping comment…if a client purchased A
shares within the last two years they get that commission rebated back
to them. Why only two years? Well anyone who has held for over two
years has pretty much broken even as to what they would have paid in
the advisory program.
Please elaborate on the math used that results in a two year break even between A shares and your advisory program.
You’re right, it’s not quite a breakeven at two years. The max fee is 1.35%. The break at $100K (also the minimum for Advisory Solutions) is generally 3.5%. So, 3.5/1.35 = 2.6. So the appropriate answer is two years, seven months, and 6 days. Somebody please check my math.
I would like to thank all of you for asking such pointed questions. It has been a great help to me in developing the conversation to have with my clients who will be hearing about Advisory Solutions. I know that I have clients who will ask some of these same questions. It's better to come up with the answers now, rather than with them at my desk.Let's not go jumping off the deep end with that ETF or UIT portfolio talk. After all, it does say EDJ on my office door.
Seriously, I've not done any research on the ETF/Index driven models in Advisory Solutions. I would guess that for some asset classes you are correct, but with others you are really off base. But I think there's a whole other thread that's debating that issue.Spiff-
I think I directed you once before to the white paper published by DFA funds. Now with some of the dynamic ETF's available, you can almost have the best of both worlds without the excess costs. The only asset classes where you might be right would be small cap value/growth. Myabe midcap, but I would tend to think that most managers would be considered absolutely exceptional to consistently beat the bench. Don't fret they still need us, and now that you have the model, run with it. Imagine....a book without American Funds. Koombuyah.... What a concept.for those that do a lot of fee based business, are you having client complaints about their portfolio going down and still getting dinged 1% in fees. Curious for feedback.
I am curious to see the historical performance of all of our models once they aer loaded into Morningstar. I think that’s in 2 weeks?? I am not going to go through the exercise of setting them up myself. But it will be interesting to see how they comapre to the models I do myself right now.
Bro-
The best part of your new model is now you have one to compete with the rest of us. You are giving clients choice and rarely is that a disadvantage. Yeah there were will be challenges bridging old clients to fee based. But those that take the time to review it, should buy into it. As far as costs are concerned with down markets. In the absence of value price is an issue. If you differentiate yourself you should have less questions about your fees. I have had more clients complain about taxes due to mutual funds held in non IRA accounts (my old EDJ days coming back to haunt me), than I have had about fees in down markets. When times are tought clients look to us for support. Many of us tend to hide. It's the rare FA who remains proactive and in constant contact. After 15 years in the industry, just my 2cents.ICE< that is also a lost concept sometimes. But it bites hard when you invest someone into A-shares at the beginning (or even several months) prior to a bear market. Over the past few years, I had clients make up their commissions in literally months. But anyone that I invested after, say, July of 2007 is probably still underwater (except for some of the older, or more conservative investors). Even if the % was low, at say 2 or 2.5% percent upfront, the dollars can be large (30-40K down). So by the time we climb out of this, they are going to be underwater for maybe a year and a half or more. It is a bit easier for my C-share clients or annuity clients to stomach. But then again, you put someone into an advisory fee platform over the past year, and they are wondering why they are paying $500 every month to lose money. In some ways, timing can be everything in this business.
Foot-
Regarding the tax mangement benefits of advisory, Jones FA's are not getting this because they are going to be using models diversified across asset class. This eliminates the flexibility of owning domestic stock assets in non-qualified accounts and fixed income or global in qualifed accounts. This certainly is a benefit to advisory fees that I didn't see when I was at Jones, and Jones is not yet there. Another unfortunate part of this is that if someone were to move out of their current taxable portfolio and into the mutual fund wrap account, they will have to liquidate their current holdings unless they are in the model, and I assume it will happen without discretion of the advisor. I'd also be interested in seeing how the advisor can control income distributions from this new plan...another advantage to a "real" advisory program.[quote=LuvIndy]Foot-
Regarding the tax mangement benefits of advisory, Jones FA's are not getting this because they are going to be using models diversified across asset class. This eliminates the flexibility of owning domestic stock assets in non-qualified accounts and fixed income or global in qualifed accounts. This certainly is a benefit to advisory fees that I didn't see when I was at Jones, and Jones is not yet there. Another unfortunate part of this is that if someone were to move out of their current taxable portfolio and into the mutual fund wrap account, they will have to liquidate their current holdings unless they are in the model, and I assume it will happen without discretion of the advisor. I'd also be interested in seeing how the advisor can control income distributions from this new plan...another advantage to a "real" advisory program.[/quote] Luv, Couple things: first, we have a tax managed portfolio for every portfolio focus (growth, balanced, income, etc.). They focus on low turnover equity funds, muni funds, etc. There are a total of 24 models. There are also 6 ETF/Index only models. Or you could also build your own. And as far as controlling income distributions, that is the same for all mutual fund advisory programs. We also have separately managed account programs for better controlling individual equity distributions (our "MAP" platform). But you are right - if someone currently holds funds, and they want to go into our MFA program, they would have to liquidate. I see that as a weakness of the program, but I would guess they would address that at some point, once they iron out all the kinks in the program.[quote=Broker24][quote=LuvIndy]Foot-
Regarding the tax mangement benefits of advisory, Jones FA's are not getting this because they are going to be using models diversified across asset class. This eliminates the flexibility of owning domestic stock assets in non-qualified accounts and fixed income or global in qualifed accounts. This certainly is a benefit to advisory fees that I didn't see when I was at Jones, and Jones is not yet there. Another unfortunate part of this is that if someone were to move out of their current taxable portfolio and into the mutual fund wrap account, they will have to liquidate their current holdings unless they are in the model, and I assume it will happen without discretion of the advisor. I'd also be interested in seeing how the advisor can control income distributions from this new plan...another advantage to a "real" advisory program.[/quote] And as far as controlling income distributions, that is the same for all mutual fund advisory programs. We also have separately managed account programs for better controlling individual equity distributions (our "MAP" platform). [/quote] Duplicate post-sorry[quote=Broker24][quote=LuvIndy]Foot-
Regarding the tax mangement benefits of advisory, Jones FA's are not getting this because they are going to be using models diversified across asset class. This eliminates the flexibility of owning domestic stock assets in non-qualified accounts and fixed income or global in qualifed accounts. This certainly is a benefit to advisory fees that I didn't see when I was at Jones, and Jones is not yet there. Another unfortunate part of this is that if someone were to move out of their current taxable portfolio and into the mutual fund wrap account, they will have to liquidate their current holdings unless they are in the model, and I assume it will happen without discretion of the advisor. I'd also be interested in seeing how the advisor can control income distributions from this new plan...another advantage to a "real" advisory program.[/quote] Luv, And as far as controlling income distributions, that is the same for all mutual fund advisory programs. We also have separately managed account programs for better controlling individual equity distributions (our "MAP" platform). [/quote] I'm not sure what you mean. Under an advisory fee program where the client and advisor have control over the investments and timing, they can make the decision on how to draw income, just like you do at Jones now. Maybe you didn't realize that?I don't give a SH1T what your 5 year plan says. What I am talking about it is how MOST of the Vets and all of the training harped continuously that Fee based was of the Devil and A shares were much better for the client. Holier than thou and then some. If you never told this to a client then good for you. If you did and you go back to that same client and try to pitch them on Advisory I hope they call it what it is. I am not one of your major Jones bashers on this site and have applauded Weddle for bringing you guys out of the Dark Ages. I am glad you finally have an advisory program. Many of my friends still there are excited. However you should quit claiming we are mad that Jones get advisory. I am simply mad at the 2 yr rule. I am convinced though that based on the former position of Jones on A shares, that any client who subsequently is swapped into Advisory should not have to pay fees until at LEAST the Sales charge is fully covered. Otherwise Jones IS a screwing the client.
And if you have actually seen our 5-year plan, it is explicitly stated that we rely too much on a single revenue stream. I think far more than MAKING more money for the firm, it is meant to diversify our revenue base. It’s as much a risk management tool as a profit driver. I think the “new guard” saw the light and knows that AMF and revenue sharing are too big a risk to the firm right now (it’s the equivalent of having 65% of your 401K in your company’s stock). They are simply doing what the “old guard” could not or would not do.
[quote=babbling looney]
Another unfortunate part of this is that if someone were to move out of their current taxable portfolio and into the mutual fund wrap account, they will have to liquidate their current holdings unless they are in the model, and I assume it will happen without discretion of the advisor. So....? Wouldn't they have to do that in any fee based platform when going from a mix of investments (stocks bonds mutual funds) to a strictly mutual fund based wrap program? Mutual fund wraps are not managed by the advisor. If you want a managed fee program, I assume you have other choices? Ones where the advisor can choose the investment mix.[/quote]I guess we're getting our terminology crossed. In my not so humble opinion, the way to do this and avoid as much conflict of interest as possible is to charge an advisory fee on the account regardless of what the client owns (already invested or not). This way the advisor does not need to make a move with the investments just to get comped.
I happen to recommend mutual funds almost exclusively, but I guess I wouldn't have to. This is what I think of when I think advisory fee accounts.