$850, 000 portfolio, hates fees, now what?

Perhaps you need to educate the client better. If he pays for the fee’s with a taxable account they will be ded. Also does he understand that funds have FEES?? & almost always higher at that level.   Educate him and you win!!

With 850k you should be much closer to 1-2% upfront.

Mixing in a bunch of C- shares will help. 

If you only use American Funds, you will be able to hit the $500K breakpoint at 2% upfront.  Couple that with some of the lowest expenses in the industry and you have a very light fee load.  You could even hit the $250K break with another fund family to fill in the gaps American Funds leaves.  It would raise the overall by about 1%, but still, not bad on $850K.  C-shares would be fine, but if he can read, and he chooses to read the prospectus looking for the fees, he's out of the frying pan into the fire. 

[quote=vbrainy]What do you do when a client HAD a $1,000,000 lost about $150,000 (not with me) in the recent market downturn in a FEE based account.  NOW HE HATES FEES.  It is a retirement account.

If the client has a bunch of different mutual funds in the fee based account--transfer in kind and exchange the funds around within the fund families--the least amount of cost to the client--you only get to keep the 12b-1 fees.  It just might be the right thing to do!

[quote=Roadhard]

If the client has a bunch of different mutual funds in the fee based account--transfer in kind and exchange the funds around within the fund families--the least amount of cost to the client--you only get to keep the 12b-1 fees.  It just might be the right thing to do!

speculative investments? Your average mutual fund holder has lost 15% since october so far.

Perhaps if he’s not a risk-taker, he should look at a VA.  Look, we all know there are fees involved in everything we do…we have to eat, too.  The fee-based fees are just much more transparent and easy to attack.  It’s stupid semantics, but at least a VA wouldn’t show a quarterly fee on his statement and he’d have some protection from downside risks with it, along with some income guarantees if desired.

Suggest he “refinance” his investment. Suggest either funds that have a good track record during market declines, IE: that play defense instead of constantly playing defense. Capital income builder comes to mind, class C. Or go with Pru Xtra credit 6 VA currently paying a 7% upfront credit with no addl fees for the credit, with the lifetime 7 and GRO return of principal. If he complains about fees, remind him he’s just “paid” a 15% fee in the form of market losses. Good luck!

Correction: I meant funds that play defense instead of always playing OFFENSE. Sorry if this has caused  confusion.

Hate to be too negative at the start of a probable 1-2 Bear market, but any broker who thinks the clients will tolerate this wave of managed money b.s is fooling himself.  This is a recent ponzi scheme the firms came up with.  I would think many 1 million producers will lose 30-40% of their assets in the decline and another 33% from clients saying enough.  Meaning production will be down to the 400K area, reality is on its way.

[quote=fritz]

Hate to be too negative at the start of a probable 1-2 Bear market, but any broker who thinks the clients will tolerate this wave of managed money b.s is fooling himself.  This is a recent ponzi scheme the firms came up with.  I would think many 1 million producers will lose 30-40% of their assets in the decline and another 33% from clients saying enough.  Meaning production will be down to the 400K area, reality is on its way.

Not that I am a million dollar producer by any means, but for any decent advisor to lose 30-40% of his assets in a market decline would mean the stock market would have to lose over 50% of it's value. (bonds is the answer to your math question)  

I rode through the '98 and 2001-2 markets while building a fee-based practice. Both times added several dozen new fee-based relatinships and lost less than 3-4. This January alone, I have added 4 new fee-based accounts from clients deciding they’d rather have me running the investments on a professional basis, rather than us doing it together on an ad-hoc basis. So this is an environment that is terrific for adding to your fee-based account base. You’re building the leverage for the next bull mkt.

i suggest you punch him in the face and tell him markets go up and down. if he was in a VA you could kill him and get his heirs could get his money back(death benefit)  i hate clients like that. it sounds like he never experienced a down market. ask him if was in the market in 200-2003. if he was show him how much it went down and how much it came back

You could alway tell him Booyah…or “Welcome to the house of Pain” when he calls the next time.

Tell the idot to hit the road! Yes 850k is a nice chunk but its not worth the bother of someone who cant take the ups and downs of the market. We all panic at times (Sept 11 2001) the end as we knew it…fire him and get on with your practice.

Who doesn’t hate paying for stuff?  Who doesn’t want something for nothing?

Unfortunately, whether we like it or not is irrelevant: there’s no such thing as a free lunch.  That universal law is NOT suspended when it comes to investing. 

The question isn’t whether there is a cost to investing, it’s how much it is and how you pay it.

Then start asking questions to probe what is REALLY frustrating him, because I agree that chances are the fees are just an easy target.  The more you can refocus his mind on his real goals and the process you use, the more likely you are to discover the rational person lurking behind the facade of the guy you’re sitting across the table from.  And once you get him to admit that you’re right, you’ve already won him over and he is ready to follow your lead.

That’s generally the key - if you let him set the agenda and the tone for the conversation you’ll never please him, because his expectations are unrealistic.  If you tactfully but confidently lead him to the real issues he needs to focus on, you have the basis for a productive working relationship. 

If you can’t lead him, let him go.  I know it hurts, but it’s better for both of you.  In those cases I remind myself that you can lead a horse to water but you can’t make him drink it.

I choose to only work with thirsty horses.

Tell the client to go to Vanguard. He will pay less than 30 basis points a year.

As usual, you are giving good information.

I have to say, I agree.  Especially when the fee based accounts don’t hold up or have some stinky mutual funds.

“stinky funds” in fee based accounts?  have you looked at any.  they do normally contain fidelity, vanguard, franklin-templeton, american, dodge & cox, etc etc.  they are not programs where the red headed stepchild goes to hide.  those are just the fund based programs. 

[quote=iceco1d][quote=kirkyboy]

Just perusing this board. New to board, not whatshisface. Agreed (i.e. any half arsed…) but some clients can delude/lie (to themselves) and no one would ever know.  

Here’s how I’d do it:



Invest large cap portion in Wash Mutual, Fundamental, Growth Fund

Invest mid cap portion in mid cap index fund (value, blend, growth)

invest small cap portion in small cap index funds (value, blend growth)



Invest International in Vanguard total Intl (it’s lower cost and it’s outperformed Europacific growth and captial world growth)

or you could break it out into Eur index fund, pacific and emerging



I’d also add a very small amount of commodites for more diversification (smoothe out ups and downs)



For fixed income

Emerging Debt

High Income

Long term bond



I’d have a pre specificed % for each fund and rebalance anually. This will force you to buy low and sell high.

You don’t know a thing about the client and you already have recommendations.   I see that you add a lot of value to your clients.

That’s the reason I didn’t break it down into percentages dummy.

Ok, without knowing anything about the guy, how do you know what funds should be used?  How do you even know that he should be in funds?  People who "hate fees", yet come from a fee-based account, probably don't hate fees.  He hates losing money.   The fact that he wants to make a change after losing money may indicate that a VA is in order.  (I don't have a clue because I don't know a thing about the guy.)

Does your firm have a selling agreement with Vanguard that would allow you to sell Vanguard funds?

[quote=josephjones107]That’s the reason I didn’t break it down into percentages dummy. [/quote]

Atta boy - when all else fails, why not try name calling?  It’s so much easier than resorting to actual reasoned discourse. 

Or maybe - using your apparent logic - it’s not name calling if you don’t actually specify what percentage of a dummy you think he is?

I’m not going to be an order taker and basically ask the client what they would like to invest in.



80% of my clients have similiar goals and I know what needs to be done to get them to those goals. I control the client relationship and not vice versa. Sure I ask them their goals, but in the end I can guarantee I’m investing them into a very diverse portfolio.



At this point, I don’t need any one prospects business, so I just sell what I believe in

Here’s how I’d do it:

Invest large cap portion in Wash Mutual, Fundamental, Growth Fund
Invest mid cap portion in mid cap index fund (value, blend, growth)
invest small cap portion in small cap index funds (value, blend growth)

Invest International in Vanguard total Intl (it’s lower cost and it’s outperformed Europacific growth and captial world growth)
or you could break it out into Eur index fund, pacific and emerging

I’d also add a very small amount of commodites for more diversification (smoothe out ups and downs)

For fixed income
Emerging Debt
High Income
Long term bond

I’d have a pre specificed % for each fund and rebalance anually. This will force you to buy low and sell high.

[quote=Northfield]I rode through the '98 and 2001-2 markets while building a fee-based practice. Both times added several dozen new fee-based relatinships and lost less than 3-4. This January alone, I have added 4 new fee-based accounts from clients deciding they’d rather have me running the investments on a professional basis, rather than us doing it together on an ad-hoc basis. So this is an environment that is terrific for adding to your fee-based account base. You’re building the leverage for the next bull mkt.

American Funds has been very successful outperforming, but they’re mostly a large cap manager.



Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.

American Funds has been very successful outperforming, but they’re mostly a large cap manager.

Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.

[quote=josephjones107]American Funds has been very successful outperforming, but they’re mostly a large cap manager. Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.

You guys crack me up.

NOW is a good time to be investing in long bonds?!!!

5 Year Large cap (S&P)

Index 11.54%

Average large fund 14.64%



5 year mid cap (MSCI US MID CAP 450)

Index 16.08%

Average fund 14.34%

5 Year Large cap (S&P)
Index 11.54%
Average large fund 14.64%

5 year mid cap (MSCI US MID CAP 450)
Index 16.08%
Average fund 14.34%

Pretty basic stuff son, no need to get confused.

OK, there are proportionately more lousy mid-cap managers than large cap managers during the past five years.  That doesn’t mean it’s harder for mid-cap managers to beat an index.  It simply means that the available pool of talent performed relatively poorly when compared to large cap managers.  Does anyone else here disagree that large cap markets are more efficient than small caps and thus harder to beat over a given period of time?

indexes are for the MOST efficient markets (large caps) where active alpha is harder to obtain. this jones guy is totally wrong, and is making a fool of himself.

it is part of the jones culture to constantly use hypos or whatever to look at past results, when the real issue is managing risk MOVING FORWARD

Mid & small managers have difficulty because of market impact costs. (you may want to read up on that as you are way out of your league right now)   Cash flows of actively managed funds (mid & small) destroy performance.

this is crazy

ok my last post was too short. what I mean to say is that obviously active managers capitalize on less efficient markets—they can find opportunity in volatility.  more efficiency=less opportunity. very very basic

Okay, I’ll do a little hand holding for you





Market Impact Costs (101)

MARKET IMPACT COSTS

Unfortunately, trading costs do not end with commissions and bid/offer spreads. Active managers incur market-impact costs, too. Market impact is what happens when a mutual fund buys or sells a large block of stock. The fund’s purchase or sale causes the stock to move beyond its current bid (lower) or offer (higher) price, increasing the cost of trading.

BARRA Inc., a Berkeley, California–based research organization (www.barra.com) studied market-impact costs and found many factors (fund size, asset class and turnover) can influence costs. BARRA noted that a typical small-cap or mid-cap stock fund with $500 million in assets and an annual turnover rate of between 80% and 100% could lose 3% to 5% annually to market-impact costs—far more than the annual expenses of most funds.

For the period BARRA studied, the PBHG Emerging Growth Fund happened to have the highest estimated market-impact cost among small-cap or mid-cap funds—5.73% annually.

someone elses turn

Look, your statistics are wrong due to style drift, i.e many of those managers dip down into midcap-helping (or up into large - hurting), and into international waters.  Therefore using the S&P is not even close to an accurate comparison.  I'm pretty much a purist, I use indexes across the board as often as possible.  I've never even heard someone try to argue that it's easier to beat in large cap.   If you can get five established posters on this site to agree with you I will eat my hat.  (Or one well respected authority in the field.)

it’s hard to beat benchmark in mid and small area due to market impact costs. this is why so many of these funds end up closing to new investors as it gets very tricky gettting in & out of small names.

Remind me how those large cap managers are doing again?

I’m talking about mid cap and small not large.

gad - is that a batman begins reference?

I’m talking about mid cap and small not large.

Yes Hulk, nice catch.

more managers are beating their large benchmarks than are small funds beating small benchmarks

I’ve always loved how Bale emphasized the DOOOO in that line. My wife and I crack up everytime…can’t wait 'till the sequel.

this convo is brutal, lol. 

JJ, you indicated that large cap mgrs had clobbered the index.  Gad’s graph indicates a completely different story…care to address that?

different timeframe

also his only includes large cap blend funds. does not include growth and value.



For example non of these would be in his figures

Growth Fund of America

ICA

Wash mutual

<?: prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />01-29-08

YTD

3 year

5 year

Fund

-5.24

8.49

14.00

+/- Cat

0.60

1.34

1.74

+/- S&P 500 TR

1.89

1.34

2.45

Different timeframes!!!  It’s obvious from this exercise that we can all dredge up statistics to support what we believe to be true.  You’ll obviously believe what you want to…I’m moving on…TSFTF.

just go to your bloomberg terminal, type in the ticker, equity…it will show performance versus peers.

On that Bloomberg terminal of yours, what do you to show future performance?  I'm assuming that you can do this since you are able to put together portfolios without knowing anything about the person.

On that Bloomberg terminal of yours, what do you to show future performance? I’m assuming that you can do this since you are able to put together portfolios without knowing anything about the person.

ok now two of us have tried and failed to get jones to see the obvious. this thread should end now!

actually at least 3 of us

[quote=josephjones107]I’m talking about mid cap and small not large.

Blah Blah Blah.