EJ Tax Planning .................. NOT

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Jun 12, 2006 6:13 pm

I had several clients who retired early and I used the 72t strategy with one exception - I always split their IRA's into two. If they can live on the amount allowed on the 72t calculation with one IRA- hopefully into equal portions, there should not be a problem.


I am by no means a Jones Fan, but something went seriously wrong here. How did he get through audits every year? How did he get away with 100% in one stock?


I'll bet he tried to get the client to sell his TI stock every time he did a Portfolio Review. I bet the client refused because of sentimental ties to the stock. Because otherwise this makes no sense at all. This guys' career is now ruined  on an account he never made any money on!


I think the lesson here must be DOCUMENT DOCUMENT DOCUMENT.


Jun 12, 2006 6:31 pm

There's another lesson here also......don't make any assumptions such as, "'Cordin' to this here Ibbotson chart, the gol'dern stock market has returned, ya'know, better'n 10.5% since, ya'know, Jesus was in the third grade or, ya'know, fer a long time." Take EVERY LAST ONE of the "planning" assumptions and throw them out the window. It ain'ta gonna happen. We better learn how to live off the INCOME of our portfolios.  

Jun 12, 2006 10:10 pm

I'm with Muny, I would bet a good amount that he was told to sell at every review.  There was no mention of a lawsuit, so he probably had also signed the "Large Stock Holding" letter.  It's probably not fair to blame EDJ for this one.

Jun 12, 2006 10:32 pm

Ready

The Large stock holding letter is a new requirement. In fact Mr. Hendrick may be the culprit for the form.   

Jun 13, 2006 9:15 am

I agree with you guys, sucks for the broker....

Jun 13, 2006 10:11 am

Why didnt the guy use NUA when rolling out of the 401(k)?  This guy wants to write about tax planning, that would have been a superior strategy to 72(t).  And the article is somewhat inaccurate.  There are three ways to take your 72(t) calculation, and it is generally best to advise the client to use the calculation with the lowest payout so if they do need more money, they can bump up their payout by using a different calculation.  You can never bump down. 


The guy should catch some heat for having 100% in a single stock, but the strategy is very viable and works great for many.  It's just like everything else in our industry, it has to be applied properly.  Oh yeah, and it helps if the market does well. 


Lets say this guy was 59 1/2 and we didnt even have to use the 72t rule.  Would this have caused him to lose less money?  Not unless he went back to work and didnt need to dip into the IRA anymore.  He would have had to make withdrawls anyway. 


I think a general rule of thumb is to back into determining how to apply 72t.  Find out how much income the person is needing at a minimum for retirement, then find out how many $'s in an IRA using 72t it would take to produce that much income.  Put that amount in one IRA and the rest in another. 


Also, don't be dumb and put someone in an annuity with surrender charges if this is something they may have to consider.  That would be another hit on the head. 


And if people are 55, and seperated from service, they can pull from the 401(k) and not have to wait until 59 1/2. 

Jun 13, 2006 10:30 am

One thing that they don't bring up in the original article is any real information about the Jones broker.  I suspect that he was a young guy who hadn't much or any experience in the industry and was way over his head in this one and tried to do his best for the client. 


As we all know, (and if you didn't know, I'm telling you for a fact) that the Jones brokers are given just enough information to be dangerous, not only to the customers, but also to  themselves. It takes either years of experience or good training to be able to overcome the dangers in the above scenario.  The "Large Stock Holding Letter", that seems to be a new development for Jones is good to have, but an experience broker would have drafted his own letter and had the client sign and date it.  I have done this many times in the past......even when I was at Jones and it has saved my butt.


It is a shame for both the client and the broker.  But what can you expect when you have loose cannons in the field.

Jun 13, 2006 11:22 am

this is a perfect example of "failure to surpervise" by the branch manager at the firm (a.k.a. field supervision director).


so much for the "great" systems that supposidely are over there too!


perhaps that's why the firm had to pay $280K of the losses.

Jun 13, 2006 12:28 pm

Mr. Hendrick was 56 years old, was  a parts inspector and made $45,000 a year.


This bugged me all afternoon yesterday. As Financial Advisors, Investment Reps, whatever you call yourself, you can read right through this story.


The article clearly, and UNFAIRLY states that the EDJ broker "Put all his money in one stock". NO WAY would Jones allow 100% of an IRA purchase be in one stock. This guy rolled his TI stock over and refused to sell it because it made him money in the past and he didn't have a freakin' clue one why.


It reminds me of a quote from Proverbs "Like a dog returns to it's vomit, so a fool returns to his folly."


Gross, but really says it all. How many times have any of us had clients who take up your time, ask a million questions, then don't take your advice? Lawsuits waiting to happen. The idiot lost his retirement not because of his Edward Jones/ Smith Barney/ Merrill Lynch/ Independant broker- he lost his retirement because he was too stupid to accept advice.


Jun 13, 2006 1:05 pm
munytalks:

Mr. Hendrick was 56 years old, was  a parts inspector and made $45,000 a year.


This bugged me all afternoon yesterday. As Financial Advisors, Investment Reps, whatever you call yourself, you can read right through this story.


The article clearly, and UNFAIRLY states that the EDJ broker "Put all his money in one stock". NO WAY would Jones allow 100% of an IRA purchase be in one stock. This guy rolled his TI stock over and refused to sell it because it made him money in the past and he didn't have a freakin' clue one why.


It reminds me of a quote from Proverbs "Like a dog returns to it's vomit, so a fool returns to his folly."


Gross, but really says it all. How many times have any of us had clients who take up your time, ask a million questions, then don't take your advice? Lawsuits waiting to happen. The idiot lost his retirement not because of his Edward Jones/ Smith Barney/ Merrill Lynch/ Independant broker- he lost his retirement because he was too stupid to accept advice.




Yes. We have all had "those" clients. 


This is a prime example of why we need to document every conversation with a client, have them sign letters to confirm the advice you gave and they decided to ignore.  It is also a lesson on why we need to be more forceful with clients and fire them (kick them to the curb) when it is obvious that they are determined to make your life a living hell.


Even though there may not be mandatory letters or company form letters for these instances I make my own and have the client sign and date.


1. I informed them that they should have long term care insurance to protect their significant assets and they declined.  That way the clients heirs can't come back at you.


2. They decline to consider life insurance as part of an overall estate plan.  They don't think they need this so much as the Unified Credit is high at this time, but in the future it may not be so and they will most likely not be able to get appropriate insurance.  Again so the heirs (greedy bunch) don't come back at me.


3. They are over-weighted in stocks or certain mutual funds and refuse to do asset allocation according to my super duper expert advice


4. They insist on buying a stock for which I have no research available to give an opinion, or buy an investment when I have specifically said that it was not suitable for them. Junk bonds, speculative stocks, aggressive mutual funds.


5. I have recommended stop loss orders or sell limit orders, etc and they have declined.  If the stock drops like a rock, below the stop loss and I can't get their attention I am covered.


I also document every time I have called or written to beg them to come in for an account review and they have declined.  That way if the investments go south, they can't say I didn't try to get their attention.


Anal. yes.  Safe.  I hope so.


Jun 13, 2006 1:13 pm

Does anybody know what happened to the broker? Every new broker needs to have this lesson hammered into their head for both the client and themselves.

Jun 13, 2006 8:59 pm

so why did the firm end up coughing up $280K of a a $380K loss ????


Failure to supervise!


Regardless of what the broker did or rather failed to do, it is still the onus of the Branch Manager (a.k.a. FSD) to ensure proper procedures are carried out.

Jun 13, 2006 9:28 pm
babbling looney:

One thing that they don't bring up in the original article is any real information about the Jones broker.  I suspect that he was a young guy who hadn't much or any experience in the industry and was way over his head in this one and tried to do his best for the client. 


As we all know, (and if you didn't know, I'm telling you for a fact) that the Jones brokers are given just enough information to be dangerous, not only to the customers, but also to  themselves. It takes either years of experience or good training to be able to overcome the dangers in the above scenario.  The "Large Stock Holding Letter", that seems to be a new development for Jones is good to have, but an experience broker would have drafted his own letter and had the client sign and date it.  I have done this many times in the past......even when I was at Jones and it has saved my butt.


It is a shame for both the client and the broker.  But what can you expect when you have loose cannons in the field.



I agree, especially w/ you comment about "just enough info to be dangerous"

Jun 14, 2006 12:23 am
babbling looney:
munytalks:

Mr. Hendrick was 56 years old, was  a parts inspector and made $45,000 a year.


This bugged me all afternoon yesterday. As Financial Advisors, Investment Reps, whatever you call yourself, you can read right through this story.


The article clearly, and UNFAIRLY states that the EDJ broker "Put all his money in one stock". NO WAY would Jones allow 100% of an IRA purchase be in one stock. This guy rolled his TI stock over and refused to sell it because it made him money in the past and he didn't have a freakin' clue one why.


It reminds me of a quote from Proverbs "Like a dog returns to it's vomit, so a fool returns to his folly."


Gross, but really says it all. How many times have any of us had clients who take up your time, ask a million questions, then don't take your advice? Lawsuits waiting to happen. The idiot lost his retirement not because of his Edward Jones/ Smith Barney/ Merrill Lynch/ Independant broker- he lost his retirement because he was too stupid to accept advice.




Yes. We have all had "those" clients. 


This is a prime example of why we need to document every conversation with a client, have them sign letters to confirm the advice you gave and they decided to ignore.  It is also a lesson on why we need to be more forceful with clients and fire them (kick them to the curb) when it is obvious that they are determined to make your life a living hell.


Even though there may not be mandatory letters or company form letters for these instances I make my own and have the client sign and date.


1. I informed them that they should have long term care insurance to protect their significant assets and they declined.  That way the clients heirs can't come back at you.


2. They decline to consider life insurance as part of an overall estate plan.  They don't think they need this so much as the Unified Credit is high at this time, but in the future it may not be so and they will most likely not be able to get appropriate insurance.  Again so the heirs (greedy bunch) don't come back at me.


3. They are over-weighted in stocks or certain mutual funds and refuse to do asset allocation according to my super duper expert advice


4. They insist on buying a stock for which I have no research available to give an opinion, or buy an investment when I have specifically said that it was not suitable for them. Junk bonds, speculative stocks, aggressive mutual funds.


5. I have recommended stop loss orders or sell limit orders, etc and they have declined.  If the stock drops like a rock, below the stop loss and I can't get their attention I am covered.


I also document every time I have called or written to beg them to come in for an account review and they have declined.  That way if the investments go south, they can't say I didn't try to get their attention.


Anal. yes.  Safe.  I hope so.




Babs. That is a great post and is something that everyone should pay attention if they want to stay in this industry. Thanks!!

Jun 14, 2006 9:32 am

[quote=noggin

Babs. That is a great post and is something that everyone should pay attention if they want to stay in this industry. Thanks!!


[/quote]


noggin,


as my nine-year old would say "thanks Capt. Obvious"


yes the ir is to blame, however I still stand by my statement that this is more of an example of failure to supervise than a "bad ir".  We all know what the average training and knowledge of the IRs at your firm is, but what is the average training of the "branch manager/fsd" at your firm?


What happended to the person that was responsible for the supervision of the ir in question?

Jun 14, 2006 12:56 pm
compliancejerk:

[quote=noggin

Babs. That is a great post and is something that everyone should pay attention if they want to stay in this industry. Thanks!!



noggin,


as my nine-year old would say "thanks Capt. Obvious"


yes the ir is to blame, however I still stand by my statement that this is more of an example of failure to supervise than a "bad ir".  We all know what the average training and knowledge of the IRs at your firm is, but what is the average training of the "branch manager/fsd" at your firm?


What happended to the person that was responsible for the supervision of the ir in question?


[/quote]



I understand what you are saying and I agree also. When I first read the post I was caught up in the anger of the moment.


GREAT Point too on level of experience/training by Field Supervision-


and  so I say again  GOD BLESS THE NASD FOR MAKING THE U-4 PUBLIC KNOWLEDGE.


Just for sh*ts & giggles- go to the NASD website and enter the name of your favorite/ least favorite FSD director. I have and found that my last Team Leader from EDJ jumped around to FOUR different firms before becoming a Tead Leader. Whoopie!


Read the 'Resume' of your Regional Leader and then read where they REALLY worked before Jones - it's a hoot!

Jun 14, 2006 2:10 pm

Compliance-jerk is right. How many more people will loose their shirts before EDJ adopts a Field Supervision platform that includes a office manager?

Jun 14, 2006 2:25 pm

They will get a new Feild Supervision Platform as soon as they update their communication system and get the employees email.

Jun 14, 2006 6:32 pm
jonesescapee:

They will get a new Feild Supervision Platform as soon as they update their communication system and get the employees email.



This b/d actually has a very good system (real time trading and real time account approval) and all HO employees have had email for at least the last 12 years.  FS also has the capacity to filter all incoming emails that are sent via the IR's webpage for "certain" words and/or phrases (for at least the last 8 years).


All UK IRs have had email from day one .... I guess the satellite foot print doesn't reach there

Jun 14, 2006 11:11 pm

Man, I learned this lesson as a rookie and got lucky to escape unscathed.  In a different firm, my ass would have been grass!


I had a client who was trustee of a family trust worth about $2 mil.  At the point he took over control, more than half the trust was in one health care stock.   He refused to sell it because it had been a solid performer despite the fact it was far too large a holding and he didn't want to take the tax hit.  The rest of the portfolio was also largely same sector stocks.


He was speculating with a couple of hundred K (his personal money and outside of the trust) and we were doing well...in the beginning.  Then he caught Dell fever.  He maintained a very large holding in them as it is, and we had agreed to buy calls in small quantities.  But then the last time, when I wanted to sell the contracts (at a 400% gain) he decided he wanted to purchase the additional shares the contracts.  He ended up buying several hundred shares of MORE Dell at what is to this day its historical high (1999).


I then fired him as a client.


When the stock tanked he tried to come back at me.  My good fortune was that he lived in another part of the state and we communicated largely via IMs which I had logging software on (which is why my firm let me do it).  So, I had the Internet equivalent of a recorded line.  


His initial complaint was quickly squashed when I pulled out an inch of logs that showed that not only had I specifically advised what he did, but that I had warned him of violating his fiduciary responsibilities to the trust AND had even suggested that he could invest in tech sector funds and probably do as well or better after taxes and fees.


Technically, I think the firm was still supposed to report it but it was resolved without any money or settlement in a matter of days once his lawyer realized we had our asses covered by paperwork.


Document, document, document.   AND


don't be afraid to fire high risk clients!