"Fee Based" Fees
What the heck does “fee based” mean?
To fee or not to fee, that is the question.
It means you earn a percentage of the assets you manage (usually around 1%) instead of receiving a commission for every trade you make.
I would say most advisors do a combination of the two in their practice. Some clients are fee-based, and some are transactional depending on their needs.
So…why don’t you call it “asset” based fees? The term “fee-based” sounds illogical to logical people. When I take an upfront commission on an annuity, aren’t I getting paid based on a percentage of the assets?
Fee Based means an advisor charges some combination of Fees and Commissions. This opposed to Fee Only.
[quote=OhioAdvisor]Fee Based means an advisor charges some combination of Fees and Commissions. This opposed to Fee Only.[/quote]
Then why don't they call it "commission based"? Isn't a commission a fee?
[quote=OhioAdvisor]Fee Based means an advisor charges some combination
of Fees and Commissions. This opposed to Fee Only.[/quote]
Are you saying that it is possible for me to be charged a fee for
giving me advice and also a commission for obtaining what is
recommended?
[quote=Jones Concerns][quote=OhioAdvisor]Fee Based means an advisor charges some combination of Fees and Commissions. This opposed to Fee Only.[/quote]
Are you saying that it is possible for me to be charged a fee for giving me advice and also a commission for obtaining what is recommended?
[/quote]
Don't ask her what she's saying...she doesn't even know what she's saying.
I’ve never collected a commission in a fee-based account. I always thought of it as fee-based vs. commission-based, as in you get one or the other…not both.
[quote=Jones Concerns][quote=OhioAdvisor]Fee Based means an advisor charges some combination
of Fees and Commissions. This opposed to Fee Only.[/quote]
Are you saying that it is possible for me to be charged a fee for
giving me advice and also a commission for obtaining what is
recommended?
[/quote]
No. The fee covers virtually all investment transactions in a given account. You won’t see any transactional income unless you cross sell something not covered by the fee (such as insurance or business services).
What makes “fee based business” attractive I believe is the recurring nature of the revenue stream. Win, Win, Win for employer, employee and mr. client we hope.
If Mr. or Ms. Client doesn't trade a lot and his/her account is passively managed and fairly large, it's not in his or her best interests to have a fee based account.
[quote=ymh_ymh_ymh]
If Mr. or Ms. Client doesn’t trade a lot and
his/her account is passively managed and fairly large, it’s not in his
or her best interests to have a fee based account.
[/quote]
But if it wasn’t for fees the registered rep would be forced to churn the account.
There’s always performance based accounts which mean Mr. and/or Ms. Broker don’t get paid a BONUS unless Mr. and/or Ms. Client’s returns exceed an agreed upon benchmark.
There is a major issue with commissioned business in "A" shares that can't be overlooked.
Let's take a buy and hold type investor. The cheapest way for them to invest is obviously to buy "A" shares. However, with "A" share investors, advisors can't afford to give them the same level of service that they give to "C" shares or fee based accounts. Often, advisors can't afford to give them any service.
[quote=ymh_ymh_ymh]There’s always performance based accounts which mean Mr. and/or Ms. Broker don’t get paid a BONUS unless Mr. and/or Ms. Client’s returns exceed an agreed upon benchmark.[/quote]
I’m aware this comp structure is common, even the rule, in the hedge fund arena. I’ve never heard of a retail advisor being compensated in such a fashion.
[quote=anonymous]
There is a major issue with commissioned business in “A” shares that can’t be overlooked.
Let's take a buy and hold type investor. The cheapest way for them to invest is obviously to buy "A" shares. However, with "A" share investors, advisors can't afford to give them the same level of service that they give to "C" shares or fee based accounts. Often, advisors can't afford to give them any service.
[/quote]How can a client, regardless of how much you bleed them, not be worthy of service?
Why can't you ask a question without throwing in a dig? Let's assume that we're dealing with an honest, hardworking, ethical, knowledgeable broker who wants to do what is in the client's best interest. Without the dig, you're asking a legitimate question.
Small clients are very worthy of service. They deserve the same level of service as a wealthy client. The question is how can the advisor afford to serve small clients and stay in business.
An advisor, early in his career, may be very happy to help a client invest $10,000 into an "A" share mutual fund. A few years later that account pays the B/D $25 a year. Maybe, the advisor is making $2.50 a quarter. The advisor can't afford to service these types of accounts and support his family. This is a lose/lose for everybody involved.
I think it would be possible to offer a retail investor a hedge fund like structure if it was spelled out in writing though no wirehouse in the world would want an advisor to do it as wirehouses don't believe in giving a retail investor or a broker/advisor what they deserve.
I don't see why some of you independent guys/gals haven't considered this before.
[quote=ymh_ymh_ymh]....though no wirehouse in the world would want an advisor to do it as wirehouses don't believe in giving a retail investor or a broker/advisor what they deserve.[/quote]
How can a client, regardless of how much you bleed them, not be worthy of service?
You get what you pay for.
If you want to stand in the line at Home Town Buffet, balance your plate and silverware in hand and pay $10.95 for your meal, don't expect the same quality of food or service that you would get at the Four Seasons. You get paper napkins instead of linen.
Life isn't fair. Not everyone is equal.....get over it.
[quote=babbling looney]
Life isn’t fair. Not everyone is equal…get over it.
[/quote]The service should be equal, and the advice should be equal too.
NASDY, You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
It's practically impossible to provide equal advice & service to everyone. For one, every investor is different; how do you give "equal advice?" With regards to service, every client is also different. Some want constant attention, others' (even some very large accounts) prefer the "I'll contact you if I need anything" approach. It goes w/out saying that all clients deserve the utmost in ethical conduct.
With regard to the original topic, fee vs. commission is usually defined as: fee- pay an annual % in lieu of commissions for transactions.
[quote=NASDY Newbie] [quote=babbling looney]
Life isn't fair. Not everyone is equal.....get over it.
[/quote]
The service should be equal, and the advice should be equal too.
[/quote]
Not true. Nothing has to be equal. There is no rule.
My time is valuable. My knowledge is valuable. If people don't value me by either respect or money (preferably both) then they don't get to have my time or knowledge.
People who pay more (or create more revenue for me) get better service. People who pay more get more advice. People who show me respect and appreciation even if they don't create the best revenue also get more of my attention. Notice I didn't say better advice, just more. Of course more is usually better.
People who are a--holes or know-it-all's get shown the door. I'm too old and life is too short to deal with fools and jerk offs.
Probably this all sounds crass. Too bad... that's the way it is in life. Not just at the brokerage, but at the car dealership, the doctor's office and the grocery store and any other place we happen to be. To think other wise is living in a fool's paradise.
You probably think we can play nicey nice with the terrorists too. ----have a gratuitous smiley.
Babs, I agree with you 100%. Socialism simply doesn't work in this business.
[/quote] People who are a--holes or know-it-all's get shown the door. I'm too old and life is too short to deal with fools and jerk offs. [/quote]
Well said.
[quote=babbling looney]
The service should be equal, and the advice should be equal too.
[/quote]
Does there have to be a rule, what is wrong with just being decent, even if there is no rule?[quote=NASDY Newbie] [quote=babbling looney]
The service should be equal, and the advice should be equal too.
[/quote]
Does there have to be a rule, what is wrong with just being decent, even if there is no rule?
[/quote]
Hey jackass......you just misquoted Babs....you wrote the above comment. What, can't figure that out? I thought you had an IQ of something in the range of eleventy kabillion or so.
NASDY, I'm repeating my question because you either don't have an answer or chose to ignore it.
You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
[quote=anonymous]
NASDY, I’m repeating my question because you either don’t have an answer or chose to ignore it.
You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
[/quote]If you accept an individual as a client you owe that individual 100% of your efforts just as if they were the biggest account in your book.
If you are so self centered that you are not prepared to give every one of your clients the best you have either drop out of the business, or be more selective in who you choose to do business with.
Thankfully, the industry is far more selective about who deals with clients than who is in middle management. (As we all have seen, any fool can middle manage.)
[quote=NASDY Newbie] [quote=anonymous]
NASDY, I'm repeating my question because you either don't have an answer or chose to ignore it.
You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
[/quote]
If you accept an individual as a client you owe that individual 100% of your efforts just as if they were the biggest account in your book.
If you are so self centered that you are not prepared to give every one of your clients the best you have either drop out of the business, or be more selective in who you choose to do business with.
[/quote]
NASDY is right. If you choose to take someone on as a client you do owe that person your best. That gets tough when the client buys one bond from you or 100 shares of stock. As a rookie's career developes they will learn when to walk away from a prospect. Not everyone needs our service. It's not that we dislike people without money, we just can't help them. Still, there are times when a small account will have to be opened. A friend of a friend, a client's daughter, or neighbor. That person gets the full treatment, period!
Personally, I will open a small account if I see big money on the table. I'm not going to purposely open an account where I know it's the person's last 10 grand. Even if I stuck that money in a 5.75% front load mf, over the next five or ten years, with the service work involved, it's a money loser. And that's a tough lesson to learn.
[quote=BondGuy]
NASDY is right.
Let's say that together!
[quote=NASDY Newbie]
[quote=babbling looney]
The service should be equal, and the advice should be equal too.
[/quote]
Does there have to be a rule, what is wrong with just being decent, even if there is no rule?[/quote]
And what standing do you have to speak on the matter of "being decent"?
What a knee slapper–you’ve got a bunch of 'em, don’t ya?
[quote=NASDY Newbie]
[quote=anonymous]
NASDY, I’m repeating my question because you either don’t have an answer or chose to ignore it.
You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
[/quote]If you accept an individual as a client you owe that individual 100% of your efforts just as if they were the biggest account in your book.
If you are so self centered that you are not prepared to give every one of your clients the best you have either drop out of the business, or be more selective in who you choose to do business with.
[/quote]
I agree, within the limits of realism. Too, if one is thoughtful and disciplined, there are ways that one can do well by smaller clients and still simplify the work involved, so as to hopefully make the relationship justifiable from a profit standpoint. Some of the newer all-in-on asset allocation funds are a good example, IMHO.
[quote=NASDY Newbie]What a knee slapper–you’ve got a bunch of 'em, don’t ya?
[/quote]
You pretty much beg for it every time you open your arrogant mouth…
[quote=joedabrkr]
[quote=NASDY Newbie]What a knee slapper–you’ve got a bunch of 'em, don’t ya?
[/quote]
You pretty much beg for it every time you open your arrogant mouth…
[/quote]
In your world it is arrogant to suggest that if you accept a client you owe them 100% of your effort?
[quote=NASDY Newbie]
[quote=joedabrkr]
[quote=NASDY Newbie]What a knee slapper–you’ve got a bunch of 'em, don’t ya?
[/quote]
You pretty much beg for it every time you open your arrogant mouth…
[/quote]
In your world it is arrogant to suggest that if you accept a client you owe them 100% of your effort?
[/quote]
No it isn’t. In fact, I was starting to worry about you when I read that post. Have you been to the doctor to have your meds checked lately?
[quote=BondGuy][quote=NASDY Newbie] [quote=anonymous]
NASDY, I'm repeating my question because you either don't have an answer or chose to ignore it.
You had a long illustrious management career. What was your advice to brokers on how they should handle accounts that were not profitable and were never going to be profitable in the future?
[/quote]
If you accept an individual as a client you owe that individual 100% of your efforts just as if they were the biggest account in your book.
If you are so self centered that you are not prepared to give every one of your clients the best you have either drop out of the business, or be more selective in who you choose to do business with.
[/quote]
NASDY is right. If you choose to take someone on as a client you do owe that person your best. That gets tough when the client buys one bond from you or 100 shares of stock. As a rookie's career developes they will learn when to walk away from a prospect. Not everyone needs our service. It's not that we dislike people without money, we just can't help them. Still, there are times when a small account will have to be opened. A friend of a friend, a client's daughter, or neighbor. That person gets the full treatment, period!
Personally, I will open a small account if I see big money on the table. I'm not going to purposely open an account where I know it's the person's last 10 grand. Even if I stuck that money in a 5.75% front load mf, over the next five or ten years, with the service work involved, it's a money loser. And that's a tough lesson to learn.
[/quote]
The reality is that I do have clients who do not generate the "big bucks" for me. I agree that once you take on a client, they deserve the best service warranted. That doesn't mean I give them substandard advice or that I don't meet with them or that I don't attempt to uncover other needs. It also doesn't mean that I don't care about them. In fact some of these clients when given time to nurture, can turn into more substantial clients. They are loyal and even if they don't bring the "big bucks" they do refer their friends and family to me.
I'm not in the beginning of my career, so I do have the luxury of declining clients and referring them elsewhere. I will do so if I decide that I won't be able to get along with them for personality or investment style reasons. I will also turn them down when it is apparent that they want to "do it themselves" and won't take my advice. Those are Etrade accounts and they can learn2google too. I'm not going to take an account, give them free advice and then have them implement it elsewhere.
The big reality is that a client who has a portfolio of over a million dollars comprising stocks, bonds and other equities and who frequently trades with me is going to require more of my time and take up more resources. The client who is dealing with complicated estate and business issues is also going to be requiring more service.
The idea that everyone should pay the same amount in fees regardless of the account size or complexity, which is the premise that I was arguing against, is just ridiculous.
You get what you pay for. If you don't want to pay for services and for the knowledge that has taken me years and years of hard work to acquire and want to do it yourself, then have at it. Newbie/JonesConcerns and all of his other schizoid personalities contend that we don't provide a service and that anyone can do this job.
In another thread he is ticked/ offended/ shocked shocked, because I told him to google the information that he wanted us to hand on a silver platter to him. Yes, I was being snide and snarkey. Why not? If you think this is so easy, then figure it out on your own.
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