Jones Advisory/American Funds

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Aug 7, 2009 8:46 am

It was very interesting to read this morning that Edward Jones removed Bond Fun of America from it's Advisory model portfolios.  Apparently they are moving away from the corporate bond risk model, and floating more towards MBS and govies, which now has a style too close to the other bond funds it uses in the program, and would create style overlap in it's portfolios.

It's nice to see even American Funds is not immune to their advisory philosophy.
Aug 7, 2009 9:03 am

The thing i don't understand about the advisory program is what are you paying the fee for?



Advisor can't move assets(without having to redo the whole risk tolerance process). Also i saw the fund list yesterday. And i was under the impression that it wasn't all preferred funds, but some of the crappy preferred are on there.



Aug 7, 2009 9:35 am

Yes, you can move assets by building a custom portfolio vs. using a model.  Then you can mix and match any of the funds in the program (we have like 160).  And yes, some of the preferred funds are in there, but not that many.  The downside is taht it is a pure asset allocation program, so they really only use "style pure" funds.  So funds like Capital Income Builder are not in there.

You're basically paying for the overall asset allocation, fund analysis, style/security overlap analysis, and threshold rebalancing that Jones does.  Their process for choosing funds is rather rigorous (I won't get into it here, but it's pretty thorough), and they have a definite process.  It may not match how some advisors want to manage money (me, for instance), but it's a very, very good program, and matches how most firms would set up a "model" process. 
One of the things that  you CAN do, which a lot of advisors are doing, is splitting their assets betwwen two portfolios.  So for example, client X that has 500K, might have 100K in the all-equity portfolio, and 400K in the Income portfolio.  The advisor can move money in and out of each model as they see fit, without any paperwork or anything.  So if you feel equities are peaking and you want to relax that allocation, you can shift between the two portfolios.  Or, it's an easier way to control age/risk tolerance re-balancing for your client.  It then takes away the hassle of finding and monitoring funds, preventing overlap, etc. and puts it on Jones' shoulders (which is why they are also compensated).
Aug 7, 2009 10:49 am

Even if you utilize the models, the majority of the funds aren't preferred funds.  I was just looking at our Core Plus Growth model this morning and the only two preferred funds in the model are GS G&I and VK G&I.  Buffalo, Nuveen, Columbia, Keystone, Perkins, Hotchkis & Wiley, Dodge & Cox, Harbor, Virtus, Federated, and JPM are the other names.  The Growth and Income model only has 4 preferred funds in it and two of them are bond funds. 

 
We were told at our summer regional meeting that there is a new model coming out that will be a hybrid fund/ETF/Index model.  It wouldn't suprise me at all to see those models come out without any preferred funds in them.  Now, if they'd just lower the minimum to $25K...
 
 
Aug 7, 2009 11:20 am

But you can't move assets to cash in times of market collapse? Or can you

Aug 7, 2009 11:21 am
Squash1:

But you can't move assets to cash in times of market collapse? Or can you

 
Aug 7, 2009 11:37 am

Sure you can. You won't draw the adv fee, which may create that conflict of interest often debated on this forum, but you absolutely can.

Aug 7, 2009 12:08 pm
Squash1:

But you can't move assets to cash in times of market collapse? Or can you

 
No you can't.  Here's what I would do, if the cash was part of the overall investment program, and NOT "emergency savings/short term stuff"...I would move it into a C-share short-duration treasury fund (or something similar).  No, it's not the same.  Yes, it's not ideal.  But that's what I would do if I felt I should still be getting paid something on those funds.  This is one of the things consider a major weakness in the model...we have little discretion over the investment strategy.  I have a feeling that at some point the program will be expanded to include some sort of flexibility like this, but this is obviously Jones' first foray into advisory accounts (outside of SMA's), so I think they needed to tightly control the process in the beginning.  We'll see how it evolves.
Aug 7, 2009 12:12 pm

I want a model that warns me that the market will collapse. Basically, I log onto my computer before the market opens and a siren goes off so I can sell everything out. Then that same system will sound the siren telling me exactly when to get back in. Are those out there ?

Aug 7, 2009 12:31 pm
Sorry, I work for Jones.  My technology isn't up to speed with the rest of the industry.  Evidently yours isn't either.  From what I understand it's already part of the basic office set up with an RIA or an indy office.  Now, if you and I worked for one of those places, we'd have that already. 
 
Aug 7, 2009 12:33 pm

Clearly a technology issue !

Aug 7, 2009 12:46 pm
Ron 14:

I want a model that warns me that the market will collapse. Basically, I log onto my computer before the market opens and a siren goes off so I can sell everything out. Then that same system will sound the siren telling me exactly when to get back in. Are those out there ?

 
I think Windy is developing that.
Aug 7, 2009 11:57 pm

Ok...I'll admit that I am a little buzzed while answering this.  But, I would like to tell you what you pay the fee for.  I, as an advisor, would like all of my clients to believe that I spend most of my day looking at their portfolio and looking at the money managers that we have used and monitoring them based on their (a) management team (b) management process (c) performance.  But the truth is....I don't.  I spend my day looking for new money.

 
I personally use the Advisory Solutions and I have seen the Mutual Fund Research department make changes to my portfolio based on factors that I did not know existed. 
 
We pay the fee to have a second set of eyes looking at the allocations so I can spend my time (a)actually doing planning for my clients (b) pursuing new clients.  Up until I started using this I worried about one thing......the current month and how I was going to make 25-30K gross.
 
Hope this made sense.
 
I guess I will see tomorrow.
Aug 8, 2009 12:55 am
B24:

Yes, you can move assets by building a custom portfolio vs. using a model.  Then you can mix and match any of the funds in the program (we have like 160).  And yes, some of the preferred funds are in there, but not that many.  The downside is taht it is a pure asset allocation program, so they really only use "style pure" funds.  So funds like Capital Income Builder are not in there.

You're basically paying for the overall asset allocation, fund analysis, style/security overlap analysis, and threshold rebalancing that Jones does.  Their process for choosing funds is rather rigorous (I won't get into it here, but it's pretty thorough), and they have a definite process.  It may not match how some advisors want to manage money (me, for instance), but it's a very, very good program, and matches how most firms would set up a "model" process. 
One of the things that  you CAN do, which a lot of advisors are doing, is splitting their assets betwwen two portfolios.  So for example, client X that has 500K, might have 100K in the all-equity portfolio, and 400K in the Income portfolio.  The advisor can move money in and out of each model as they see fit, without any paperwork or anything.  So if you feel equities are peaking and you want to relax that allocation, you can shift between the two portfolios.  Or, it's an easier way to control age/risk tolerance re-balancing for your client.  It then takes away the hassle of finding and monitoring funds, preventing overlap, etc. and puts it on Jones' shoulders (which is why they are also compensated).

B24-- No offense, but from what I've heard from my good friends at EJ, and from what I read here, your advisory program is quite deficient compared to what the wires and indies have.  To eliminate CIB from the lineup simply because it's not style pure is a bad move.  I'm going out on a limb here, but how about alternative investments?  This asset class had some of the only funds that made money for my clients last year, when we needed it most. 
 
And I wonder how many FA's at EJ will move clients to any level of cash, when it's appropriate, knowing they will be taking food out of their own family's mouths by going to cash.  Nobody would admit it, but there isn't an FA alive that wouldn't at least hesitate before doing so.  Especially when buy and hold has been preached to them for so long.  Also, your program has 160 funds.  Really?  That's all?  Ours has 3000, and it includes no-load funds as well.  160 is a nice start, but I wouldn't describe your platform as "very, very good" and use that number as evidence.
 
Back to buy and hold-- That works quite well in a secular bull market, but friend, we aren't in a secular bull market right now.  Building a style-pure portfolio in this type of market puts your style box equity portfolios on a one way track to "Forty Percent Loss in a Year"ville.  One must be tactical in this type of market.  And the best way to tactically manage your clients' money is not to have to call all 800 households prior to making a major asset allocation change.  By the time you're done, you missed it.  Let the fund do it for you.  I'm nowhere near a daytrader with client funds, but buy and hold is dead.
 
How about multistrategy bond funds or senior secured bankloan funds?  Can you get those yet?  In 2009, bankloans have been the no-brainer of the year.  Can you get HFLAX?  It's a preferred fund family-- you should be allowed to buy it for clients.  Especially if they allow you to buy junk bond funds.  Just sayin'.


 
Like I said, I don't wish to offend by nitpicking your advisory program.  I started at EJ, and I know how it must have felt to finally get an advisory platform other than MAP.  But don't fool yourself by thinking that it's anywhere near indies and wires.
 
Just my two cents.
 
LA
Aug 8, 2009 9:29 am

I've seen the list of EDJ's advisory platform (as it was a while back, it may have changed since) and the issue isn't 160 funds, the issue is what 160 funds they use.  The allocations look to be designed in CFA 101 and the program has little flexibility.  Just my .02 from the outside.  As far as the model that sets off the siren, that information is available, you just have to go get it.  More importantly, you have to use it even when it feels wrong.

Aug 8, 2009 11:27 am
iceco1d:

I guess "Buy & hold is dead," "secular bear market," and "you've gotta be tactical man!" are the cliche phrases for 2009. 

 
 

Aug 8, 2009 11:36 am
Lew Ashby:
B24:

Yes, you can move assets by building a custom portfolio vs. using a model.  Then you can mix and match any of the funds in the program (we have like 160).  And yes, some of the preferred funds are in there, but not that many.  The downside is taht it is a pure asset allocation program, so they really only use "style pure" funds.  So funds like Capital Income Builder are not in there.

You're basically paying for the overall asset allocation, fund analysis, style/security overlap analysis, and threshold rebalancing that Jones does.  Their process for choosing funds is rather rigorous (I won't get into it here, but it's pretty thorough), and they have a definite process.  It may not match how some advisors want to manage money (me, for instance), but it's a very, very good program, and matches how most firms would set up a "model" process. 
One of the things that  you CAN do, which a lot of advisors are doing, is splitting their assets betwwen two portfolios.  So for example, client X that has 500K, might have 100K in the all-equity portfolio, and 400K in the Income portfolio.  The advisor can move money in and out of each model as they see fit, without any paperwork or anything.  So if you feel equities are peaking and you want to relax that allocation, you can shift between the two portfolios.  Or, it's an easier way to control age/risk tolerance re-balancing for your client.  It then takes away the hassle of finding and monitoring funds, preventing overlap, etc. and puts it on Jones' shoulders (which is why they are also compensated).

B24-- No offense, but from what I've heard from my good friends at EJ, and from what I read here, your advisory program is quite deficient compared to what the wires and indies have.  To eliminate CIB from the lineup simply because it's not style pure is a bad move.  I'm going out on a limb here, but how about alternative investments?  This asset class had some of the only funds that made money for my clients last year, when we needed it most. 
 
And I wonder how many FA's at EJ will move clients to any level of cash, when it's appropriate, knowing they will be taking food out of their own family's mouths by going to cash.  Nobody would admit it, but there isn't an FA alive that wouldn't at least hesitate before doing so.  Especially when buy and hold has been preached to them for so long.  Also, your program has 160 funds.  Really?  That's all?  Ours has 3000, and it includes no-load funds as well.  160 is a nice start, but I wouldn't describe your platform as "very, very good" and use that number as evidence.
 
Back to buy and hold-- That works quite well in a secular bull market, but friend, we aren't in a secular bull market right now.  Building a style-pure portfolio in this type of market puts your style box equity portfolios on a one way track to "Forty Percent Loss in a Year"ville.  One must be tactical in this type of market.  And the best way to tactically manage your clients' money is not to have to call all 800 households prior to making a major asset allocation change.  By the time you're done, you missed it.  Let the fund do it for you.  I'm nowhere near a daytrader with client funds, but buy and hold is dead.
 
How about multistrategy bond funds or senior secured bankloan funds?  Can you get those yet?  In 2009, bankloans have been the no-brainer of the year.  Can you get HFLAX?  It's a preferred fund family-- you should be allowed to buy it for clients.  Especially if they allow you to buy junk bond funds.  Just sayin'.


 
Like I said, I don't wish to offend by nitpicking your advisory program.  I started at EJ, and I know how it must have felt to finally get an advisory platform other than MAP.  But don't fool yourself by thinking that it's anywhere near indies and wires.
 
Just my two cents.
 
LA



I agree with all your points.  I know it's not the best out there, or even close.  As I said in my post, Jones had to start with a tightly controlled program, which is what we got.  There are additional modifications coming down the road - we will see how it goes.  As far as moving to cash, I already have a work-around (not perfect).  I simply set up two portfolios for people, with one being the most conservative.  I don't use a model, I do a custom portfolio, and just load it up with the most conservative short-term stuff.  When I want to move out of equities, I just shift out of our equity portfolio into the conservative portfolio.  Not perfect, but OK.  And by the way, Jones is not the only firm (or the only advisors) that use buy-and-hold strategies.  If you think that everyone other than Jones sidestepped the market in 2008, you obviously live under a rock.
And we do have some alternatives - commodities, real estate, emerging markets.  I know, I know, we don't have any non-traded, private Baltic Island real-estate hedge funds.  But I guess we're just simple.
Aug 8, 2009 11:38 am
Jebediah:

I've seen the list of EDJ's advisory platform (as it was a while back, it may have changed since) and the issue isn't 160 funds, the issue is what 160 funds they use.  The allocations look to be designed in CFA 101 and the program has little flexibility.  Just my .02 from the outside.  As far as the model that sets off the siren, that information is available, you just have to go get it.  More importantly, you have to use it even when it feels wrong.


THIS, I agree with.
Aug 8, 2009 11:49 am

Lew - the point of advisory solutions is to NOT have 3000 funds to pick from.  Who's doing the research on those 3000 funds?  Who's making sure, like with ABNDX, that they're not style drifting.  3000 funds means that whoever put it together isn't doing any research other than where the fund rep takes him or her for lunch.  Ruth's Chris?  You're in.  Taco Bell?  Get out of my office.  There are lots of funds that didn't make the cut.  The program was designed specifically to only allow a select group of funds in.  And it had nothing to do with revenue sharing or preferred status.  And it has no loads in it.  It's designed to be a structured, disciplined approach to investing.  Not making sector bets or prognosticating based on whatever Money magazine says is coming around the corner.  It's not like the indie guys or the wirehouses.  That's the point.   

 
It kills me that in a few brief years time tested strategies can become so passe.  Who said buy and hold is dead?  Who said you have to be tactical with your portfolio?  At what point did Markowitz retract his previous statements?  At what point did the market become inefficient?  Who defines a secular bear market? 
 
See, I would have sworn that when I got into this biz in the mid 90's the Dow was at like 4000.  Doesn't that mean that we have doubled since then?  Is that a secular bear or a secular bull?  I get them confused.  Can't we pretty much say that given a long enough span of time the market has ALWAYS been bullish?   
 
Doesn't being tactical simply mean you're betting on something?  You're betting that senior loan funds are going to outperform corp bond funds.  Or you're betting that emerging markets is going to outperform large cap value.  How do you know that for sure?  Tea leaves? 
 
Thus the Advisory Solutions platform.  Asset allocation.  Diversify.  Rebalance as necessary.  No style drift allowed.  Simple.  Easy.  1.35%  Thank you very much.  Where's that FAST report?
Aug 8, 2009 12:08 pm

Lew, how many of those 3000 funds do you actually use? And how many of your clients are invested in hedge funds? One last thing, what firm do you work for?