Will ETFs kill the mutua fund business?

I you want to scare them…maybe tell them that they could trade at a
discount to whatever index they represent.  Tell them that if they
trade at a discount, they will get less than what the securities in the
ETF basket represent (of course they could also trade at a premium).



With an open ended mutual index fund, you will always be able to sell at the NAV of the fund. 



The best place that I have found to go for ETFs has been

http://www.amex.com

and click on the ETFs or HOLDERS link on the left hand side of the page. 



Where I work, I see a lot of people putting their money into the ETFs
than mutual funds.  Of course the mutual fund industry will not
die IMO becuase we all have to put our 401k assets in open ended mutual
funds while we are working…

[quote=Romperman]What does everybody think about this? I lost out on a $500K rollover last week to some guys that are dumping the whole thing into a ETF portfolio and charging 50 bps to actively rebalance.

The client showed me their stuff and said it all got down to cost. He was convinced by these guys that a mutual fund charging 85 bps is at a disadvantage against just buying the underlying benchmark through an ETF. He ended up with 15 ETF and a handful of TZs.

It is hard for me to argue against the math. Do you all have any ideas?   What kind of ETFs programs are out there and what kind of charges are you seeing?

Thanks

Roger and Out! [/quote]

I agree with the other guys. Why not join them in doing that kind of business for clients that want it?

I like the ETF approach and have been ‘flirting’ with making the change.  my issue is that the minimum that i know of internally i can charge is 100bp

Go here http://www.etfconnect.com/   and research the various ETFs available.   Check out the trading volume on some them.  It is really skinny

In addition to trading at a discount, (good when you are buying not so good if you are selling).  Many ETFs are not as liquid as mutual funds.  When I buy or sell these I always stress that we may not  to be able to sell large blocks in a single transaction and that we should place buy limit or sell stop orders to avoid trading at an unacceptable price.

I would never put all of one person's portfolio in ETFs for the above reasons.  But I do use them extensively in my practice.

I would tell him to ask them to provide a track record of their trades. Ask them how they decide which sectors or indexes to allocate to. Ask them how much money they manage, and their tenure in the business. Then show him your mutual fund (which has a great track record even AFTER expenses, show him the multiple managers with an average tenure of 20 years,supported by over 150 research analysts, who have been through markets both good and bad, who play defense for client money, not just offense like your competition is proposing.Show him that the firm manages BILLIONS  in client assets for Millions of clients.What is the support for your etf guys? There's only one factor that determines whether your client will achieve his goals, and it's not saving 30 basis points a year. Is saving 1/3 of a percent worth risking a 50% loss or more with your etf guys?

BTW, I have some client money in etf's, but it's not the entire solution.

Good luck

Stok

I use ETFs frequently.  My fee is 1.5% and I activly manage them by tracking each sector I follow monthly.  I track 28 international and 25 domestic ETFs using technical analysis to determine buy hold and sells each month.  With ETFs I can use stops which I love as do my clients and it puts me in the drivers seat verses some MFD manager.

I think it also makes my clients more sticky because they know it is me doing the work for them and we can really attack sectors that are doing well.  Also, after 2000 and 2001 I dont know how anyone can say mutual funds are good at protecting clients money.  Just my opinion, sorry you lost the account.

Malcom, honestly, how has your performance been using this technique?

Net of fees, if a client was invested from 1/1/05 they were up 15.4% last year.  YTD they are up 3.6%.  I also add GLD to my ETF accounts which has represented up to 12% of the account values.

My clients are happy with the returns however my big thing is not loosing money so one of the things they like best is the use of stop losses and getting rid of the "ride market cycles out" mentality.  I will sell on an absolute basis or using technicals.  If it breaks the 200 day I am out no matter what.  Some of the int'l ETF have done especially well however we have taken some hits lately. 

I have also been riding the Russell 2000 as my biggest holding right or wrong so I watch that real close not only as a market barameter but because it is our largest % holding.  Intl is 20%    

It is impossible for ETFs to trade at any significant discount or premium for long -becuase the arb bots will pounce on them, since ETFs are opened ended mutual funds. Some of you boys are confusing ETFs with closed -end funds a big difference. Go ahead check my math!



Also I know of several 401(k) plans that do not use opened ended funds - in fact that is just a myth that the opened end fund guys created. Check out ATT 401k for an example, also the Federal Govt employees. NO Mutual Funds in those plans.



And let me remind y’all that no matter how many millions are spent on research and no matter how many suckers have bought opened ended funds there remains no correlation to future performance.   The big American Funds are basically overcharged index funds - statistically impossible for them to outperform their benchmarks. They know this - unfortunately some of you schmucks out their want to believe the myth that research makes a difference, hell just buy the large cap growth ETF that MStar has out now for 20 bps. Then read the American Fund prospectus that says in black and white that past performance is not indictative of future results. There is no such thing as professional money managers, only professional marketers.



Active asset allocaters could be right or wrong - again past performance is not indictative of future results. Overweight in the wrong area -BAM!



Mutual funds are the biggest scam ever pulled off on the American public. The clowns that sell them are salesman sucked into the scheme.



I suspect Stockwiz has had a good dose of Jones Juice, it sounds like he is all goofy. That kind of talk sounds good, until somebody in the audiance knows what they are talkin about then you look like a fool boy. Go ask any finance professor what he thinks of your story! He will start laughin~!

That's great Lance.  I feel just the same although I suger coated what you came right out and said.  THose stories are great when you have a uninformed tine client with 10k to invest sitting in front of you.  Try that crap on a wealthy smart guy and see what happens.

I'm riding today at 3:00.  Ye haaa  Malcolm out

Actually, I've been independent for over 12 years, in the industry for 17. I believe the original post was for our friend Romperman who is looking for ideas to win over business, non of which I could find in your post. If you replace the word mutual fund in your post with etf's, it would make no difference. Picking etf's in a rising market is a brainless exercise.  How would a client be better served in a down market- In the hands of managers with decades of experience and who watch the markets all day , or in the hands of someone as  immature as lance legstrong? By the way, does your checking account outperform the market? Of course not. As you mature in this industry, you'll find that most clients aren't concern with "outperforming the index". Also,true licensed professionals know that asking a college professor (who are 99% liberal)about real world strategies for achieving wealth is akin to asking our poster lance weakleg about wealth management- Laughable.

Stok

Ha ha that is awesome.....

Good feedback

It is impossible for ETFs to trade at any significant discount or premium for long -becuase the arb bots will pounce on them, since ETFs are opened ended mutual funds. Some of you boys are confusing ETFs with closed -end funds a big difference. Go ahead check my math!

You are correct.  I was referring to exchange traded closed end funds when discussing the discount to NAV.  I am not a fan of buying indexes, especially the S&P or the Dow as I think they are too narrow in focus.  If you bought the index from 2000 to 2003 you are still trying to get back to square one.  However, I do like some of the sector plays in indexing.  

Stockwiz you make be laugh your righteous neo-con clown!

There is no correlation or evidence whatsover that "experienced" managers do better than their benchmarks regardless of the market conditions!

And by the way my checking account did out perform most indexes and most managers 2000-2002

Clients are concerned that they are overpayin' clowns like you who can not do better than the market.  What exactly do you do for your clients besides conning them out of their cash based on some myth that you were taught to believe in!

The number of uninformed people is shrinking and these ETFs are forcing the light to shine on the excessive fees charged by the funds. How can anyone make a serious argument that Investment Compnay of American (80 bps) can outperform its benchmark -  S&P 500 Value (IVE) ETF (20 bps). Sure it might, but that doesn't mean it will!

It doesn't take a liberal to laugh at that argument.  

Now go back and tell yourself how smart and conservative you are and how you deserve that cash that comes out of your clients pockets through the mutual fund fleecing schemes that you depend on!.

[quote=Lance Legstrong]

And by the way my checking account did out perform most indexes and most managers 2000-2002[/quote]

Yet another one who thinks the S&P 500 sums up the universe of indexes and knows even less about active management.

[quote=mikebutler222][quote=Lance Legstrong]

And by the way my checking account did out perform most indexes and most managers 2000-2002[/quote]

Yet another one who thinks the S&P 500 sums up the universe of indexes and knows even less about active management.

[/quote]

Hmmm, that was too harsh. It would be better to say that Lance's comment suggests he's new to the business and too deeply in love with the extreme version of MPT.

[quote=Romperman]What does everybody think about this? I lost out on a $500K rollover last week to some guys that are dumping the whole thing into a ETF portfolio and charging 50 bps to actively rebalance.

The client showed me their stuff and said it all got down to cost. He was convinced by these guys that a mutual fund charging 85 bps is at a disadvantage against just buying the underlying benchmark through an ETF. He ended up with 15 ETF and a handful of TZs.

It is hard for me to argue against the math. Do you all have any ideas?   What kind of ETFs programs are out there and what kind of charges are you seeing?

Thanks

Roger and Out! [/quote]

Yet one more example of the the cost tail wagging the investment dog. Stok gives good advise on a future track to take when confronted with situation. It ain't all about cost. If it was we'd all be driving trucks for JB Hunt rather than dispensing investment advise.

Mostly, from what your saying, it sounds like the other team did a better sales job than you did. Nothing wrong with that, it happens to us all. Learn from it.

If you can't beat'em on price it's time to start asking some disturbing questions. Start with:

Do you know how much risk you are taking with that plan?

Is this the kind of risk you want to expose your retirement assets to?

You are aware that ETFs are relatively new investment vehicles and don't have the long term track record of mutual funds or other investments. You can't afford to lose your retirement money, are you comfortable with this?

Before the ETF police jump on me I have nothing against ETFs and like everyone else I use them in my practice. However, If I had determined that for a particular client they were not the best way to go and found myself selling against competion that was going the ETF route you can bet I'd pull out my copy of "1000 reasons not to invest in ETFs" and club the client with it. I'd mark reason 343, ETFs give you cancer. I'd make sure that the client understands what risks are being taken and then show how those risks are not in line with his investment goals and temperment.

TJ all of those "reasons not buy an ETF" will get you laughed out of the room with sophisticated money.

All I am saying that a client can set up a very prudent risk adverse portfolio using ETFs and avoid the cost structure of a conventional mutual funds.  99% of the risk/return is going to be in allocation not from a manager.  

Of course if your sales tactic is to make stuff up and lie to the client - then maybe you should be driving a truck. 

Besides CDs and Treasury Bonds the only thing certain about any investment program is the cost/expenses that begin to acrue tomorrow.  Can anyone care to dispute the math on this concept?

The reality is that the light is beginning to shine on all of these excessive fees that mutual funds charge and that might indeed put some of you fellas behind the wheel of a truck where you belong!

What is really funny when I see some clown do a mutual fund comparison and reccomendation for a client or prospect. Again - past performance is not a indication of future results!   Why don't you just get out a voodoo doll and your crystal ball - the math is the same! 

lance legstrong,

If you expect to be taken seriously on this forum, I suggest you not use emoticons in the same post as "sophisticated money'', whatever you may think that is. I suggest you not continue to make reference to mutual funds and past performance is no guarantee of future results, as if that doesn't apply to etf's. 

You make reference to costs to the client- how are you compensated with etf's? probably with a wrap fee of 1 point or better, so there goes your cost comparison.

I think you must work for the circus, as you apparently witness alot of clowns writing business.

Romperman, I believe I've found the one who has been talking to your prospect, and I recommend you call him back asap, as lance legstrong would be no challenge in a battle of wits, or in negotiation for accounts.

Stok

client’s can sell calls against some of their ETF holdings (the ETFs
that are optionable), this might sit well with people who want some
income…

can’t do that with mutual funds…

Stok

You take yourself way too seriously.  This board is all about freedom of expression and perspectives .  Unfortunately for some goofy posters like you I tend to back mine up with FACTS that can not be disputed. 

Do you not like me because I am telling the truth? Or do you not like me because I use too many emoticons?

Thanks for giving me an others a laugh!     

A friend of mine has attracted a few very large accounts using
ETFs.  He has developed several models using only 6 ETFs. 
Large cap value, small cap growth, gold, short term treasuries, natural
resources, and international.



He says that people have responded well to the simplicity of the whole thing as well as the costs and expenses.

[quote=Lance Legstrong]

TJ all of those "reasons not buy an ETF" will get you laughed out of the room with sophisticated money.

All I am saying that a client can set up a very prudent risk adverse portfolio using ETFs and avoid the cost structure of a conventional mutual funds.  99% of the risk/return is going to be in allocation not from a manager.  

Of course if your sales tactic is to make stuff up and lie to the client - then maybe you should be driving a truck. 

Besides CDs and Treasury Bonds the only thing certain about any investment program is the cost/expenses that begin to acrue tomorrow.  Can anyone care to dispute the math on this concept?

The reality is that the light is beginning to shine on all of these excessive fees that mutual funds charge and that might indeed put some of you fellas behind the wheel of a truck where you belong!

What is really funny when I see some clown do a mutual fund comparison and reccomendation for a client or prospect. Again - past performance is not a indication of future results!   Why don't you just get out a voodoo doll and your crystal ball - the math is the same! 

[/quote]

Hey what's wrong with driving a truck? You speak of it like it's something bad. It's honest hard work. I'm hoping the bird flu doesn't screw up my chances to haul frozen chicken parts across the country driving a Kenworth T2000 Super Condo for Stevens Transport for 5 week stretches at a time.

NEWS FLASH!

The light has been shining on mutual fund fees for years. Where you been Lance?

On another note, the failure to close the client in question had nothing to do with ETFs or mutual funds. As most of the advisors using this forum recognise, both are useful products with pro and con features and should be utilized as the situation warrants on a case by case basis.

This situation, the client going with another advisor, was a sales failure. No shame in that, no one closes 100%. To keep from losing future cases it's necessary to develope strategies to sell against competitive products and advisors. If you've done the work for the client, have access to all solutions, and are offering the best solution for the client, and find yourself in a competitive situation, it's time to put on your selling shoes and close the client. Most of that is acheived by reviewing the benefits of your solution not only for the client's situation but also versus the competition.  Lance, I'm sorry you didn't get the sarcasim in my previous post, everyone else did. I guess I should have used an emoticon. My fault

Lance, if you were an advisor, broker, agent, bank rep, you'd understand this as well as we do. But, you're not any of these things are you?

Lance, are you a day trader, bored troll, or were you finally outed on Myspace.com?  

Hey you fellas are pickin on Ol' Lance, I think you should apologize.

I ride a bike - I don't know nothin' about these fancy mutual funds and wrap fees and sales tactics.  Y'all sound like big city slickers talkin' about this complex stuff.  Good thing y'alls clients can trust you fellas to figure all of these loads and fees and dem things called 12b1 fees!

Hey Skee… If one were to come up with a few different models with EFA’s how does the PFA generate income.

Is this under the whole A-B-C concepts? Or does the PFA add an expense based on the size of the account??

Any information to guide a newbeeee is greatly appreciated.

Sorry I meant ETF’s.

As far as I know he adds only 65 to 90 basis points as an advisory fee. So

far, there isn’t alot of turnover but that can change based on market

conditions. I don’t know much more than that.

Lance,

     You sound like Suzie Orman in early 2000.  Buy the index and forget about it.  3 years later your clients are looking at a 45% loss.  ETF's are a good strategy for those areas where good managers are tough to find, but they certainly are not a cure-all.

    Let's hope we don't have a flat market remnant of the '66-'82 time frame.  If that happens, all the index believers will have their hinees handed to them. 

    Here's a few suggestions to kill an all ETF portfolio, I'll just take a look at the fixed income side. 

    First, take a look at the total bond market index ETF, then compare it's return to the return reported by the actual index used in comparisons.  Why does the ETF lag by so much?  Because no ETF can truly purchase the total bond index.  That's a serious weakness.

    Second, in a year like '06 when the first couple quarters will most likely be a rising interest rate environment, a laddered CD approach makes a lot more sense than most fixed income ETF's by guaranteeing a client 5% net after fees on an insured portion of a fixed income portfolio.

    Third, why not use death benefit bonds for elderly clients to average 6% net until they pass and then give the spouse or heirs the option to cash out at full face value upon passing?

    Fourth, for clients in high tax brackets that are hit with AMT, I'm not familiar with any non-AMT ETF's, so why not ladder some short term muni's that are non-AMT to get the best bang for the buck? Or use a proven performer like Oppenheimers non-AMT fund?

    Fifth, if the base rates stays moderate to low, let me know how a TIPS ETF will outperform a single 5-year TIPS when they are paying a base rate of 2%?

    Sixth, if you have managers like those on the RVT beating the index for over a decade strait, it can't be all blind luck.  That's why a good manager can run circles around an ETF, especially in a bear market environment.

I could go on longer, but I'm bored.

Y'all are a lot smarter than me.  I only gots about a billion or so aum with dem ETFs.  I guess I am doin the wrong thing, maybe I will give some of your clients a call and make y'all look like fools

anyone see the CNBC interview today somewhere between 4:00-5:00 ? 
the host asked the CEO of ishares if EFTs were going to kill the mutual
fund business…