C-Shares go the way of the Do-Do Bird
A change in ways to sell funds
Congress didn't actually vote to end the confusion over mutual fund share classes this month, but they took a step that ultimately could go a long way to simplifying the way investors buy and sell fund shares.The House Financial Services Committee passed the Investor Protection Act of 2009, which has some major provisions concerning the way some financial planners - notably those affiliated with brokers - deal with customers. The offshoot of this bill - if it passes and is taken to its logical conclusion - could end share-class confusion by killing off C-class shares.
Overall, it's a major change in the way funds are bought and sold through advisers.
To see how this could happen in a bill that has nothing directly to do with mutual funds, join me on a round-about journey that starts with financial planners and brokers, and that ends with unintended improvement for fund investors.
The whole thing starts with one of the dirty little secrets in the financial advice world, namely that some people you trust for advice may not have your best interests at heart. Brokers - in fact any type of intermediary whose primary job is selling products - live by the standard of "suitability," meaning that the investments they select and sell to clients must be suitable for the buyer. No speculative penny stocks for elderly widows, for example; whatever they sell, they must believe that the investment is appropriate for the investment and the situation.
By comparison, an investment adviser - anyone who makes their money giving advice, rather than selling products - must live by a "fiduciary standard," meaning they have a responsibility to put your best interests ahead of their own. If it's not in your best interests, selling it - even if it's suitable and appropriate - they shouldn't do it.
Where things have gotten confusing over the years is that there are plenty of people who, technically, are brokers, working for one of the name-brand brokerage houses, but who function as financial planners or advisers. They may act like they are selling advice, but the legal standard that applies to them is suitability.
The result has been years of confusion and arguments in the financial advice business; brokerage firms felt like it was in their best interests to create a class of counselor who could compete with the emerging horde of financial planners, they just didn't think it was in their best interests to put the customer's interests first.
The Investor Protection Act would change that by requiring that brokers who act like planners - who sell advice, and not just products - live up to the fiduciary standard.
It's a major step forward for consumers, and while there will be a lot of debate on this portion of the act as it goes upstream from committee, most observers believe the fiduciary standard ultimately will be applied to everyone who sells advice.
That being the case, let's look at how advisers currently sell funds. A growing number of them simply use no-load funds, meaning issues that have no sales charges; instead of getting a commission, they charge a percentage of the assets they manage, typically in the neighborhood of 1 percent.
But broker-sold funds have, for years, mostly come in three varieties. Class A shares charge a front-end sales load; typically anywhere from 3 percent to 5.75 percent comes off the top and goes to pay the adviser. Class B shares have a back-end load, and they charge higher on-going expenses over the first few years of ownership; after four to six years, the out-the-door fee is removed and the higher costs, which pay for the adviser, shrink or the shares convert into A-class shares. Several big fund firms, most notably Franklin Templeton, have backed away from B shares in recent years, because they're typically not cost effective, raising questions about their "suitability."
Class C shares have no front- or back-end load, but charge a higher expense ratio for life. As a general rule, that means they are the most costly shares for long-term investors. Still, they are popular with advisers and consumers because they feel like no-load funds by avoiding all sales charges.
But popular doesn't mean "in the customer's best interests." Higher costs reduce long-term returns, plain and simple. If the fiduciary standard is applied across all types of advisers, the only way most experts believe an adviser could sell a C share is if they believe the client has a short holding period, or if the customer is a trader.
Brokerage firms, which backed away from B shares because they feared bad results in arbitration, are likely to now start backing away from C shares too.
"This should give rise to the end of the C share, and the whole concept of loads is going away too; any loaded funds will become more the exception than the norm," said Geoff Bobroff of Bobroff Consulting in East Greenwich, R.I. "The industry has quietly been moving toward paying all advisers - planners, brokers, whatever you call them - a percentage of assets under management. This will just speed that up."
I have to say that this whole mess is disapointing. If the industry goes to all fee based (which I doubt), that will not serve as "protection" for the investor.
Either the author of that article is trying to cause concern for the industry, and force them to action against this legislation, or the legislation will have collateral damage.I have felt from the beginning that legislating away commissioned-based products is harmful to the client, not the advisor. We will continue to do business. However, smaller clients become less appealing in an advisory-centric world. Therefore, small clients (who need the help arguably the most) will be shunned. However, there are firms popping up that are focusing on the small client (like under $250K) as a niche. But these are few and far between, and the service model is tough. IMHO, they need to find ways to make commissions more transparent, not go away.
In one breath they say C shares are not appropriate for most long-term clients, and in the other breath, they say advisory accounts are better, which will generally cost more over time than C shares. Makes no sense.Good article. Thanks B24. I agree with your assessment about making commissions more transparent.
Getting rid of load funds and migrating to fee based benefits firms. No more revenue volatilty from ups and downs of transactional business. Fees hit the bottom line each quarter. Hasn't this been the trend of the industry for the past 20-25yrs ? Big firms and their shareholders want consistent revenue streams. Now that banks own most of the big brokerage firms, guess what they want fee revenue instead of transactional revenue because it more closely resembles their existing business model.
What will happen to existing C-Share holdings ?
The billing model works fine for smaller accounts. If done correctly, this can raise the quality of advice you get. Much like a law firm.
Junior advisor runs small accounts and bills out at I don’t know, $500/yr. Give him a 100 clients, and he’s making a pretty good living doing what? Rebalancing?
A tiered structure could be worked in.
The senior advisors have larger accounts and work off of a percentage of AUM model (or a higher fee structure).
Common practice in law firms. Associates bill at $150/hr, Junior partners at $300 and Senior partners at $450 or more (example).
And so on and so forth. Junior advisor wins, because he is getting clients and earning his stripes. Junior advisor’s clients win because they are getting competent advice at a lower cost.
Senior advisor wins because he’s getting paid more. Senior advisor’s clients win, they are getting a more experience advisor.
MO, that’s true assuming that your firm wants to have a “small-client” model in place. Most firms basically say why? 100 clients at $500/pop is $50K gross. After giving some to the firm and covering some overhead, there’s not much left. Yes, the model could work, but in reality it’s not a real easy model to implement. What about the 25 year-old that has $10K and wants to start DCA’ing in every month, What are you gonna make off that? $100?
Problem is, the fee model sort of lends itself to "service". What about the person that owns $250K of stocks, but doesn't want to go through a self-service firm (i.e. Scottrade, TDA, etc.), and they never intend to buy or sell anything? A broker can largely ignore them, but why would they want to pay an AUM fee? Sure, you could negotiate an annual "fee" which is small, but how many firms want to do that? I just think there will always be those clients that are better served by commissions than fees. For the record, I prefer fees models, but I can see those clients that prefer it the other way.Depends what they decide on. If they legislate them away, my guess is existing C-shares are grandfathered (like MFD firms that eliminated B shares). If they just legislate improved disclosures (like breaking out 12b-1's on statements), then all existing C shares would likely be impacted. Chances are, it will be something different and I'll be completely wrong.What will happen to existing C-Share holdings ?
[quote=B24]MO, that’s true assuming that your firm wants to have a “small-client” model in place. Most firms basically say why? 100 clients at $500/pop is $50K gross. After giving some to the firm and covering some overhead, there’s not much left. Yes, the model could work, but in reality it’s not a real easy model to implement. What about the 25 year-old that has $10K and wants to start DCA’ing in every month, What are you gonna make off that? $100?
Problem is, the fee model sort of lends itself to "service". What about the person that owns $250K of stocks, but doesn't want to go through a self-service firm (i.e. Scottrade, TDA, etc.), and they never intend to buy or sell anything? A broker can largely ignore them, but why would they want to pay an AUM fee? Sure, you could negotiate an annual "fee" which is small, but how many firms want to do that? I just think there will always be those clients that are better served by commissions than fees. For the record, I prefer fees models, but I can see those clients that prefer it the other way. [/quote]You have to set an account minimum for that. I understand what you are saying, I'm just saying if you structured your business correctly (and you already had a comfortable revenue stream, like most large firms) it could be done.
Think about how many advisors fail out of the business, but maybe wouldn't necessarily fail out if they were allowed to focus on smaller potatoes as they gain experience. Think of the money saved in training costs.
How much does Jones spend on training each year? MSSB, Merril?
Personally, I think Jones could implement an apprentice/master advisor program where they operated two offices two or three person offices like this.
I can't image they'd could do much more than stop future sales and existing funds remain like what is happening with companies that have dropped B shares. It wouldn't suprise me if in they just moved to A share or fee based only. Plain and simple. A-share, fee based, or go to vangaurd. I cannot see how they ever could eliminate pure commission based accounts all together. There are just to many issues with ALL brokerage accounts being fee based; regardless of size. There has been an enormous increase in disclosure amoung most all investments the past 5 years. Mainly variable annuities, fixed annuities, or private placements; but also mutual funds or prospectous items being reallocated.What will happen to existing C-Share holdings ?
Generally, I suspect that more regulation is not the answer. Small clients ( servicing small clients with C shares) will go the way of the dow dow bird (Oops, Uncle Sam much of the Dow now?).
Make that, dead corn ( I have provided a cheap cartoon to explain myself). http://www.milyunair.com/ Anway, you can just make a minimum of 25 or fifty thousand, and charge small clients more. Once again, the little guy loses. Like the guy at the tire place told me when I asked them about the tariff on Chinese tires, he said, " We're already getting those from someplace else. Those are mainly for the people on a budget, anyway. " Getting rid of C shares mainly makes it harder for some of us to give away some of our time to some less fortunate people.[quote=B24]I have felt from the beginning that legislating away commissioned-based products is harmful to the client, not the advisor. We will continue to do business. However, smaller clients become less appealing in an advisory-centric world. Therefore, small clients (who need the help arguably the most) will be shunned. However, there are firms popping up that are focusing on the small client (like under $250K) as a niche. But these are few and far between, and the service model is tough. IMHO, they need to find ways to make commissions more transparent, not go away.
In one breath they say C shares are not appropriate for most long-term clients, and in the other breath, they say advisory accounts are better, which will generally cost more over time than C shares. Makes no sense.[/quote] I think the argument isn't over C shares vs A shares, but fiduciary responsibility. The C share is basically a fiduciary payout and investment without the fiduciary. So i understand if they believe that brokers should not be paid on an ongoing basis for something that is "sold". I think EDJ will love this. They decrease payouts on C shares/B Shares. The have a fee platform now.. People with less than $50K, will be forced to pay A shares or go to Vanguard and right fully so. There is no reason for accounts under $100K to pay an advisor.[quote=Squash1][quote=B24]I have felt from the beginning that legislating away commissioned-based products is harmful to the client, not the advisor. We will continue to do business. However, smaller clients become less appealing in an advisory-centric world. Therefore, small clients (who need the help arguably the most) will be shunned. However, there are firms popping up that are focusing on the small client (like under $250K) as a niche. But these are few and far between, and the service model is tough. IMHO, they need to find ways to make commissions more transparent, not go away.
In one breath they say C shares are not appropriate for most long-term clients, and in the other breath, they say advisory accounts are better, which will generally cost more over time than C shares. Makes no sense.[/quote] I think the argument isn't over C shares vs A shares, but fiduciary responsibility. The C share is basically a fiduciary payout and investment without the fiduciary. So i understand if they believe that brokers should not be paid on an ongoing basis for something that is "sold". I think EDJ will love this. They decrease payouts on C shares/B Shares. The have a fee platform now.. People with less than $50K, will be forced to pay A shares or go to Vanguard and right fully so. There is no reason for accounts under $100K to pay an advisor. [/quote] When I started in this business I would have thought that comment was nuts, but really it is the truth.There is no reason for accounts under $100K to pay an advisor.
While I agree with this in theory, in practice it is false IMO. I have many clients that have $50m with me and $500m in their 401k. At the end of the day I am managing $550m for the client while getting paid on $50m. If you stop paying on these accounts, broker will ignore them and when rollover time comes, a broker won't get the business.Yes. That is a different case because the potential outweighs the short term work you are technically doing for free.
Jeb, this is true in that case. I have several clietns like that as well. I think what Squash is referring to is the 65 year-old that you are managing their last 50K for. That’s not a nest-egg, that’s a savings account. That’s the client you took while you were building your business. I still have a handful of them, and it is painful to talk to them. Yes, some of them are nice people, but more often than not, it’s like calling your aunt Alice just to see how she’s doing. And yes, a couple of those might give you referrals…but…
But you are right Jeb, there are some exceptions to the rule.So with more financial regulation, are they also going to take away the publics choice to (or not) buy points on a mortgage up front if you plan to stay in the home a long time? your really just buying down your interest rate when you buy a point or more which is the same as paying a load on an A share and getting lower expenses from day 1. Seems rediculous they would not address this since the faulty mortgages are to blame for the financial mess that we are in and not full disclosure between A & C shares.
IMO a client with 60k with me should pay the same loads/fee %'s/ commissons as someone with 110k. What makes my advice any less valuable to someone with a smaller account?
Wow, Interesting article that you have been posting here. I want read your other article. Could you plz provide me some articles.
<p =“Msonormal”>Nice talking in C-shares. For this he should know when to buy and sell a stock. It can
bring more profit to buy in a penny and sell it in dollars.
Buy in penny, sell in dollar. Every math I do it win.
I would disagree. Yes, there is disparity when you are close to breakpoints. But look at it this way...why should someone with $1mm pay $50,000, and someone with $100,000 pay $5,000 (if there were no breakpoints)? There is diminishing returns on advice.IMO a client with 60k with me should pay the same loads/fee %'s/ commissons as someone with 110k. What makes my advice any less valuable to someone with a smaller account?
This is the Obama administration believing it knows better than the client.
You watch, first they will take away C shares because they are not in the client’s best interest, then they will try to dictate how you set up your asset allocation.
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And I still don’t understand why a wrap account 1.35 management plus mutual fund expenses is better than Balanced Fund of America C shares.
I agree. I am much more ethical with my advisory clients than my other clients.
As always, they are trying to manage to the lowest common denominator (of advisor).thats the whole point though, A C share is basicly the same as an A Share + 1% for fiduciary duty. Yet C share is just suitability.
The only people this is a negative for is brokers who sold C shares as a no load fund, or dont want to, or didnt disclose the higher annual expense to the client.
In the wirehouses I knew many corner office guys selling c shares as no loads and that is their book.
Either decrease the 12b1 on a c share and live with suitability, or put the account in a load waived A share and charge your advisory fee.
I’m sure the wirehouses make more money on wrap admin fees. But I’m amazed at how willingly clients embrace, say, 1.5% wrap on small accounts if they are just paying the ETF internal fee. It’s a great story. Just like, A shares were a great story when they first came out, then the B share and C share story. Now the wrap story. Clients love stories. Advisors love to sell. A tempest in a teapot. The great leader Barney Frank probably couldn’t even explain the difference.
[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it].
[/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
I think you miss the point of the "fiduciary concept". It is not about what is best. That is "suitability". The most suitable is the best. A fiduciary standard is acting ONLY in your clients interest. There must be no financial incentive for you to make one investment over the other. I don't know if the government will try to determine what is best or not but that really has nothing or very little to do with a fiduciary standard. Under a fiduciary standard, if you have to equally "good" investments you could not pick one that paid you more. If they were equally good the only difference would be your pay and you cannot pick an investment based on your pay.[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it]. [/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
Sorry, ytrewq, "suitability" is not about what is best. An investment can be suitable without it being the best. For instance, it is suitable to sell an index fund that has a .7% ER even though one could be purchased for less.
As others have said... Suitability is not always In the Best interest.
the laymans example is....
Suitability.... Client wants transportation to go to work. Wirehouse sells a fully loaded mercedes S class that the client can make payments on.
Best Interest/fiduciary .... You find out from your conversations with the client that he needs basic transportation to and from the office, his commute is 50 miles each way, and wants something fuel efficient. Even though he can afford an $800 a month lease payment on an S class, client feels more comfortable with a $250 a month payment on a honda civic, so he can put the rest away in a retirement account/pay for college/pay off credit cards.
Suitability is can the client afford the product. It is not is it the best and most apropriate option for the client.
BH, you should probably educate yourself on what you are talking about, since this is more than likely a big part of our future.[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it]. [/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
B24, I realize there is a debate about this and that at the end of it we will have more disclosure statements to ask the client to sign and we will hate our compliance officers even more.
The whole concept of the fidicuary concept – to do only what’s in the client’s best interest – well, I reject that because only the client should decide what is in his best interest.
Yeah, we shouldn’t sell China funds to widows and municipal bonds to minors – I get that. But there is an awful lot of grey in between.
If I took 100k to 10 different guys on this board I would get 10 different recommendations, some of them probably wildly different, but I bet all 10 guys would be doing their best to put me in the right investment. And all 10 guys would be doing their best to get paid. As a client, I would understand that. The idea to me that the fidicuary guy is going to take care of me the best, and be more selfless, well, I don’t see that.
So I start to read the debate, and yeah, I don’t get that far because the whole concept that you can legally require to make somebody act in your best interest and then to DEFINE that best interest seems ridiculous on the face.
BH, I don’t think the policy suggests that ther is only ONE way to structure investments. But when you get 8% on an annuity and 3.5% on a fund or 2% on individual stocks, there is plenty of opportunity for “aggressive ïnterpretation” of suitability.
When you charge a flat % fee, the chances of you recommending the right strategy in your mind are much greater. And if you think only the client can decide what is in their best interest, than you must be a pretty poor advisor. Most of my clients are so far off on what is in their best interest. I can't tell you how many people I have talked to that say "Ï want to invest in the stock market" when that should, in reality, be such a small part of their investment program. They simply don't get it. We do.[quote=B24]BH, I don’t think the policy suggests that ther is only ONE way to structure investments. But when you get 8% on an annuity and 3.5% on a fund or 2% on individual stocks, there is plenty of opportunity for “aggressive ïnterpretation” of suitability.
When you charge a flat % fee, the chances of you recommending the right strategy in your mind are much greater. And if you think only the client can decide what is in their best interest, than you must be a pretty poor advisor. Most of my clients are so far off on what is in their best interest. I can't tell you how many people I have talked to that say "Ï want to invest in the stock market" when that should, in reality, be such a small part of their investment program. They simply don't get it. We do. [/quote]You are right, most clients CAN'T decide what's in their best interest, any more than they can decide what house, school, career, life partner is in their best interests, but they SHOULD. It's their responsibility and I don't see how you can regulate that responsibility away from the client.
My job is to find out what they need, what they can do, and then give them the best option(s). I spend most of my time trying to educate prospects, so they can look at me and say, 'You know, I've got too much in stocks, don't I' or, 'That term insurance idea makes sense to me.'
[quote=iceco1d]
B&H,
It’s easier to think about this in terms of how you are paid, versus how you pick investments (because that’s not really a part of it).
Part of being a fiduciary would be the 1% you are charging. Regardless of whether you select that China fund you mentioned, or use CDs, you as the advisor don’t make more or less depending on what investment you select.
…
As Anonymous says…ethics are going to be dictated in the end by the FA, not the product, the channel, or the regulators.
[/quote]
That is a GREAT selling point. (Anybody who can do that has got an advantage on me in my business.)
I’m just afraid there are parties in the fidicuary debate who are pushing it to advance their own self-interest, and I also am wary that it allows the regulators to dictate how we run our business and how the clients pay us. Remember last year when some crackpot Congressman wanted 401ks to only offer treasuries or annuities. And you know that some fidicuary advisors just want to be able to tell prospects, ‘buyandhold is not legally required to act in your best interests like I am.’
[quote=buyandhold]
[ And you know that some fidicuary advisors just want to be able to tell prospects, ‘buyandhold is not legally required to act in your best interests like I am.’[/quote]
I LOVE doing this!
[quote=anonymous]
Sorry, ytrewq, "suitability" is not about what is best. An investment can be suitable without it being the best. For instance, it is suitable to sell an index fund that has a .7% ER even though one could be purchased for less.
[/quote] As usual you wordsmith a post to make the post say what you want not what it actually says. You left out the word "most" that I used. It changes the whole post. If you actually read my post you would not have had to point out that suitable is not always best. My typing "most suitable" as "best" is a lot different than what you typed. Save your lecturing example for a post when it actually applies. Look up the definition of Suitable then add the word MOST as my post does...Ytrewq, I'm struggling here. I'm not trying to wordsmith anything. I guess that I'm not smart enough to figure out what you are trying to say. Can you try again?
[quote=anonymous]
Ytrewq, I'm struggling here. I'm not trying to wordsmith anything. I guess that I'm not smart enough to figure out what you are trying to say. Can you try again?
[/quote] Yes I can. 1: You replied to my post that I was wrong. Suitable does not always mean best. I never stated that suitable always means best. I typed that the MOST suitable investment would be best. You made up that part of my post up (wordsmithed it). 2: You gave an accurate example of how suitable may not always be best (MOST suitable). That example had nothing to do with what I posted. You used it as an attempt to prove me wrong even though I never made the statement that suitable is best. You guess you are not smart enough to know what I am trying to say but you are smart enough to misrepresent what I actually said. If you really wanted to prove me wrong you should have set me straight on my statement that "the MOST suitable is best". This is going to be interesting. I am not sure how you are going to pick apart that statement. With a thesaurus and a microscope? I bet you give it a good ole college try.Ytrewq, what I'm trying to say is that I'm admitting that I don't understand the point that you are trying to make in that original post. Can you please reword it because there is something about it that is causing me to decypher it's meaning incorrectly and I'm interested in understanding your viewpoint as opposed to my obviously incorrect interpretation of your viewpoint.
I THINK he is trying to say that there are lots of suitable investments for clients. The MOST suitable investment of all those suitable options would be the BEST option.
That may be what he’s trying to say but in the end Anonymous has it more correct. There is never a BEST option that can be determined ahead of time. It’s only the BEST option in hindsight.
There are options that have historically been better but since my clients don't buy last year's returns, they buy next year's returns. By this I mean, widow comes in and says she has 100k to invest and it needs to last her 10 years. Historically putting her into 1 equity (say BofA Preferred-L's at $200 earlier this year) buying 500 shares that pay $72 a year in dividends (grossly undervalued at the time, but were yielding 36% at that price) would have been a bad idea. Now, knowing that BAC-L's are trading at approximately 880 per share as of this writing and still paying $72 per year in dividends. She's making 36,000 per year in Divdend income while having assets totaling $440,000. My suggestion would have been terrible at the time, but turned out to be possibly the 'best' idea, or 'most suitable' given her income needs. Bottom line is that 'Most Suitable' can't be measured going forward and trying to legislate Fiduciary responsibility will turn out to be very difficult. I would argue that it's also a down right bad idea for the government to be involved in anyone's personal situation because they make laws that 'blanket' situations because a law that says case-by-case doesn't work very well in enforcement.[quote=Jebediah]There is no reason for accounts under $100K to pay an advisor.
While I agree with this in theory, in practice it is false IMO. I have many clients that have $50m with me and $500m in their 401k. At the end of the day I am managing $550m for the client while getting paid on $50m. If you stop paying on these accounts, broker will ignore them and when rollover time comes, a broker won't get the business.[/quote] Really how many people really have this.. 1 out of 50? only 50K outside of a 401K?Theoretically you could argue that there is more to do and more investments available with a larger account that you couldn't or shouldn't do with a smaller accountIMO a client with 60k with me should pay the same loads/fee %'s/ commissons as someone with 110k. What makes my advice any less valuable to someone with a smaller account?
Choice... In a wrap account you can do anything.. Build a better allocation, "name your strategy" etc... Balanced fund of america, is one fund run by one fund company and sometimes they blow up(Putnam)This is the Obama administration believing it knows better than the client.
You watch, first they will take away C shares because they are not in the client’s best interest, then they will try to dictate how you set up your asset allocation.
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And I still don’t understand why a wrap account 1.35 management plus mutual fund expenses is better than Balanced Fund of America C shares.
[quote=aeromaks]
thats the whole point though, A C share is basicly the same as an A Share + 1% for fiduciary duty. Yet C share is just suitability.
The only people this is a negative for is brokers who sold C shares as a no load fund, or dont want to, or didnt disclose the higher annual expense to the client.
In the wirehouses I knew many corner office guys selling c shares as no loads and that is their book.
Either decrease the 12b1 on a c share and live with suitability, or put the account in a load waived A share and charge your advisory fee.
[/quote]This has gotten completely ridiculous. LSUAlum uses 5 paragraphs to comment on two sentences that I typed. He/She then throws in the argument that only the future will tell what was best.
Duh. Captain Obvious. My original post 3 pages back was saying that, in my opinion, one of the differences between suitability and Fiduciary Srandard is: Suitability is about the relationship between the client and the product. Fiduciary Standard is about the relationship between the Advisor and the client. In the future we are all dead.[quote=ytrewq]This has gotten completely ridiculous. LSUAlum uses 5 paragraphs to comment on two sentences that I typed. He/She then throws in the argument that only the future will tell what was best.
Duh. Captain Obvious. My original post 3 pages back was saying that, in my opinion, one of the differences between suitability and Fiduciary Srandard is: Suitability is about the relationship between the client and the product. Fiduciary Standard is about the relationship between the Advisor and the client. In the future we are all dead. [/quote] This statement I believe in. What I was commenting on is the notion that Fiduciary Standard is about making the 'most suitable' recommendation. Since that is impossible given the unpredictability of the future it is an impossible standard to try to enforce. Duh, Captain Obvious. In the future, things will be about the same as they are now. Laws or regulations that are passed but completely unenforceable do not change the way things work.[quote=chief123][quote=Jebediah]There is no reason for accounts under $100K to pay an advisor.
While I agree with this in theory, in practice it is false IMO. I have many clients that have $50m with me and $500m in their 401k. At the end of the day I am managing $550m for the client while getting paid on $50m. If you stop paying on these accounts, broker will ignore them and when rollover time comes, a broker won't get the business.[/quote] Really how many people really have this.. 1 out of 50? only 50K outside of a 401K?[/quote] I would say it really depends on your practice. In my area, we have two large employers that are the majority of the "corpörate"jobs in the region. So if you focus on corporate employees/rollovers, you will get a lot of this. Many 45-50 year olds with several hundred thousand in 401k, but not much (for investments) outside 401K. Maybe some savings, education funds, whatever, but nothing really meant for investing long-term. However, I know exactly what each client has. I don't keep/take small accounts unless I KNOW that they have some other funds I can eventually get. And I don't take the 75 year-old widow with a 46K IRA to her name. But I will take the 45 year old scientist with 200K in his 401K, and 25K with me.[quote=chief123] [quote=Jebediah]There is no reason for accounts under $100K to pay an advisor.
While I agree with this in theory, in practice it is false IMO. I have many clients that have $50m with me and $500m in their 401k. At the end of the day I am managing $550m for the client while getting paid on $50m. If you stop paying on these accounts, broker will ignore them and when rollover time comes, a broker won’t get the business.[/quote]
Really how many people really have this… 1 out of 50? only 50K outside of a 401K?[/quote]
Every 50 yr old married man with a wife that spends what is in the checking account at month end but happens to be smart enough to defer into his 401k each month. {A little self reflection here.)
One other thing - for the most part, the only people that have a lot outside their 401K/IRA are either business/real estate owners (or formerly were), or highly paid executives. I have many clients that earn 175-250K and don’t have much outside their retirement accounts because they live a pretty “full” lifestyle. Most “employees” (versus business owners) have a hard time holding onto cash that is accessible. And the only reason most of them have decent 401K balances is because they are penalized and taxed for taking it out. Most good business owners have a healthy respect for cash, liquidity, and non-qualified assets.
U.S. financial markets, the term penny stock commonly refers to any
stock trading outside one of the major exchanges (NYSE, NASDAQ or
AMEX), and is often considered pejorative. The official definition of a
penny stock is a low-priced, speculative security of a very small
company, regardless of market capitalization.For more details visit us
at : http://www.hototc.com/
[quote=Squash1]
People with less than $50K, will be forced to pay A shares or go to Vanguard and right fully so. There is no reason for accounts under $100K to pay an advisor.[/quote] Nail = HeadI believe in freedom of choice. Clients dont have to buy c-shares. It’s a choice.
Want more disclosure ? I’m fine with that. Put the expense ratio for all funds on an end of year statement I could care less.
I do plenty of c-shares and my clients know exactly what they are getting into and when the market tanked in 08 and I sold some ( not nearly enough ) my clients were happy they didnt pay the front end load and didnt have to pay to get out.
In the end my guess is after a certain amount of time c-shares will end up converting to a shares after 7-8 years or something like that.
If they want to do away with c’s I’m just going to wrap all my clients in fees and they wont be better off cost wise ( and I know the service I give them now in c’s is just as good as I’d give them if I wrapped them )
And if they didnt want to pay the wrap then I’d boot them and then they will really be screwed
[quote=san fran broker][quote=Squash1]
People with less than $50K, will be forced to pay A shares or go to Vanguard and right fully so. There is no reason for accounts under $100K to pay an advisor.[/quote] Nail = Head[/quote] I'd argue that the accounts under $100K get more, dollar for dollar, than larger accounts. Knowledge, a central repository, goals, proper asset allocation, individualized responses, at Jones they'd get a financial plan - for a relatively small amount of money. There's probably no reason for an upwardly desirious financial advisor to take money from an account smaller than $100K - unless some other reward awaits later.Nice thread.When you start penny stocks trading career you first need to decide how much
you are wiling to invest. You need to remember that this is not a “sure-fire”
income opportunity and that it is possible that you may lose everything, so be
sure not to invest more than you can afford to lose.
MatthewBracken - Most people on here are not trading penny stocks. Might be a good idea to post on a different message board.
Penny stocks are the stocks that trade under $5. However, it can also be definite as any stock which trades either on the over the counter market or on the pink sheets. There are many stocks with share prices in the dollar range and a market cap of over a few hundred million dollars, sometimes even equivalent a mid cap in the price of their market valuation. For more vigorous information, feel home to visit our site www.stockegg.com
A penny stock is any stock that sells for under $5. It is listed on the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets. The major setback of penny stocks is that reliable information can be difficult to find since they often aren’t followed by analysts or scrutinized by the press.
Go away piker.
[quote=mlgone]What happend? Did the short bus all of the sudden get wifi access?[/quote]
You are on a roll today my friend.
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