Bye Bye 12b1 fees ED Jones

You think that will really happen?

Jones isn't the only firm that would feel it IF 12-b-1 fees go away.  The name of the fee might change, but I don't believe that they will go away completely.  It is an interesting discussion the SEC is having though.

Can't see how the SEC would screw the smaller investor by doing away with them. How many of us really use our big clients to " subsidize our small clients " , and do some social work. 12b1s just help pay for servicing small clients. This elitist liberal Spitzer stuff will swing the other way. Spurred by Hillary jacking taxes, folks will demand a lighter federal hand and choice.

we all will be hurt by this. that is why i am a big first trust,Van kampen and claymore uit producer. just trying to stay ahead of the ball of s**t

[quote=vbrainy]

What in the world will you guys do when the SEC gets rid of your

12-b-1 fees?  Starting every year from square one has got to hurt.

[quote=Maxstud] [quote=vbrainy]

What in the world will you guys do when the SEC gets rid of your

12-b-1 fees?  Starting every year from square one has got to hurt.

[/quote]

Adjust to the new reality and take care of business.  If it happens.  Isn't it really the B and C share fees they are most concerned about?
[/quote]

Interesting point on the B shares.  That should hurt the MF since they already paid the advisor.  Correct?

The big concern is disclosure, not the charging of fees, per se.  The fees will not go away.  Commissions on MFD’s have gone down so much over the years, before long there will BE NO commissions.  That just isn’t going to happen.  You can’t up-end an entire industry.  That will screw the little investors (who wants to pay wrap fees for their little $20K rollover??).  They will allow them, but will likely need to be disclosed on customer statements as a fee of some sort (outside of the performance of the fund).

[quote=Broker24]The big concern is disclosure, not the charging of
fees, per se.  The fees will not go away.  Commissions on
MFD’s have gone down so much over the years, before long there will BE
NO commissions.  That just isn’t going to happen.  You can’t
up-end an entire industry.  That will screw the little investors
(who wants to pay wrap fees for their little $20K rollover??). 
They will allow them, but will likely need to be disclosed on customer
statements as a fee of some sort (outside of the performance of the
fund).[/quote]



Yes you can upend an entire industry. Most likely we will see a cap on 12b-1 fee’s to 25bp, what would be very cool is a ban on revenue sharing.



Of course that would kill the payout to EDJ GP’s by 70%.

Banning sub/TA fees

Can you imagine what that would do not only to discount brokers

But it would also have a huge effect on the wires house payouts.

Also LPL and other indies bottom line!

Interesting thought! 

The fund families would just figure out another way to make themselves financially important to the firms they want to work with.  Not just with Jones, but with everyone else that does revenue sharing. 

We'd also quickly launch the fee based accounts they've been talking about.  The GP payout might miss a beat, but it wouldn't be a long beat.  And I wouldn't be starting at $0 every month anymore.  

12b1’s aren’t going anywhere.

What’s all this nonsense about the little guy getting hurt if 12B-1 fees go

away? Like you give a shisa about the little guy. Trails are gravy, and you

don’t want your gravy to go away.



I really hope you don’t actually believe the PR put out by the mutual fund

industry.

[quote=aldo63]we all will be hurt by this. that is why i am a big first trust,Van kampen and claymore uit producer. just trying to stay ahead of the ball of s**t[/quote]

LOVE UITs myself

[quote=Edward Pwns]What's all this nonsense about the little guy getting hurt if 12B-1 fees go
away? Like you give a shisa about the little guy. Trails are gravy, and you
don't want your gravy to go away.

I really hope you don't actually believe the PR put out by the mutual fund
industry. [/quote]

What are you talking about? C shares can be cheaper than A shares at 1% wrap. Maybe you don't give a shisa about the little guy - my point was, some little guys come to me and I help them because I am a nice person and do care.

If you think the way this industry offers to charge clients is just PR, I question whether you really have a diversified book and can relate to reality.

[quote=GolFA]

[quote=Edward Pwns]What's all this nonsense about the little guy getting hurt if 12B-1 fees go
away? Like you give a shisa about the little guy. Trails are gravy, and you
don't want your gravy to go away.

I really hope you don't actually believe the PR put out by the mutual fund
industry. [/quote]

What are you talking about? C shares can be cheaper than A shares at 1% wrap. Maybe you don't give a shisa about the little guy - my point was, some little guys come to me and I help them because I am a nice person and do care.

If you think the way this industry offers to charge clients is just PR, I question whether you really have a diversified book and can relate to reality.

[/quote]

How long have you been in the business.  How nice that you care for the little guy.  Most little guys (under$50,000) are better served by staying in their 401k program or trading on line.

You need $30,000,000 to survive in this business.  That is 300 clients.  You can't really take good care or many more people than that.  Oh, unless you just charge the upfront comission and run.

Financial Advisors cannot help everyone who they come by, and they should not.  Spend time on people who value your business and will pay for your time and expertise.

Well I run more than 30m but I have less than 300 clients. Biggest is 5m + and smallest is a few K. I don’t think there are many meaningful hard and fast rules, you get to build it as you see fit. Of course I care about the little guy, I work by referral only. Sweet spot is around 300k. It seems to work okay for me, I am the product, not my affiliates or particular ideas or investment vehicles. I am sure you can relate, anyway.

[quote=GolFA]Well I run more than 30m but I have less than 300 clients. Biggest is 5m + and smallest is a few K. I don't think there are many meaningful hard and fast rules, you get to build it as you see fit. Of course I care about the little guy, I work by referral only. Sweet spot is around 300k. It seems to work okay for me, I am the product, not my affiliates or particular ideas or investment vehicles. I am sure you can relate, anyway. [/quote]

I guess one of the few downsides of working in a bank program is average account size.   Out of my 450 households only around 10 have more than 300k with me.    My average account is about 50k.     I would imagine over time this average account size will rise.   Since I only cover one branch I really need to focus more on bringing in assets outside of the bank since I've "cherry picked"  most of the low hanging fruit here already.     I have around 25M  under management and hopefully will reach 30M around the end of the year.   Hopefully then I will feel like I can "survive".

Scrim

Interesting, Scrim. Vbrainy brings up a good point about economy of scale, and I would think an "average" of 250k would be " necessary". But I was just looking at my net net payout, it is about 38% of AUM after everything ( solo independent office, help, ticket charges, E & O, entertainmnet, my car, phones - everything). And, I keep a lot of money in low key stuff like CDs, and the wrap accounts are at 1% under 1m and lower over 1m.

Wow, didn't know my payout was only 38%. But I don't have to wear a suit, and work about thirty hours a week, close to home - still - maybe your bank situation is not that bad, even with smaller accounts, if they would pay for some staff to provide some service, maybe you could get more referrals from your bigger accounts if you could spend time golfing with them.

Believe it or not, Bond Guy's marketing appeals to me - I'm wondering if anyone ever goes from independent back to wire house, just for the support, I guess the payout would be at least 38% net net? What is the bank payout net net? ( Don't think I could do a bank at this point!) But for raw cold calling power, check out that Bond GUy stuff on the cold calling section.

I don’t think you’re too bright.

Well I guess you are pretty clever, then, not to mention articulate.

Seriously, it takes a hard-headed business person to evaluate all of the options, Fact is, I'm a damn good cold caller and haven't done it for about ten years. Wire house support could free me up and make me more productive and make my life simple. But then, you don't really know much about me, anyway.

Maybe I was too tough on you, however what you say doesn't make sense. I'm a solo indy, and I can assure you that I after expenses I'm making about 70% net. Where in the world are you coming up with 38%?? 

I don't do volume business, therefore I don't need to waste money on an assistant. I answer my own phone and I do my own paperwork. I will continue it this way north of 500 gross/year.

I would never dream of going back to a wire for more support, much less anything else. WAKE UP MAN!!

[quote=vbrainy][quote=GolFA]

[quote=Edward Pwns]What's all this nonsense about the little guy getting hurt if 12B-1 fees go
away? Like you give a shisa about the little guy. Trails are gravy, and you
don't want your gravy to go away.

I really hope you don't actually believe the PR put out by the mutual fund
industry. [/quote]

What are you talking about? C shares can be cheaper than A shares at 1% wrap. Maybe you don't give a shisa about the little guy - my point was, some little guys come to me and I help them because I am a nice person and do care.

If you think the way this industry offers to charge clients is just PR, I question whether you really have a diversified book and can relate to reality.

[/quote]

  Most little guys (under$50,000) are better served by staying in their 401k program or trading on line.

[/quote]

Most little guys MAY be better in a assett alocation fund, but trading online?  Do you really believe you can't bring one percent of value to the AVERGAGE little guy?  Profitably no, but if you are a "nice person"? Statistics say avg individual investor realizes 3-4%.  Gotta e able to beat that after fees.

[quote=ezmoney]

Maybe I was too tough on you, however what you say doesn’t make sense. I’m a solo indy, and I can assure you that I after expenses I’m making about 70% net. Where in the world are you coming up with 38%?? 

I don't do volume business, therefore I don't need to waste money on an assistant. I answer my own phone and I do my own paperwork. I will continue it this way north of 500 gross/year.

I would never dream of going back to a wire for more support, much less anything else. WAKE UP MAN!!

Alright, I recalculated and my payout on AUM is something like 44%, that's bottom line schedule C divided by AUM.  My wrap accounts are at 1%, have lots of C shares and certificates. And total GDC is about 275k 12 month trailing.

My Indy is not top paying, and I have a solo office, very comfortable with some part time help.

I'm just saying, if you are kind of laid back with the fees and money turnover, the payout ain't that hot. Payout on GDC is interesting, but ROI on AUM seems to just get hosed in any b/d scenario, so why not let them pay fixed costs and focus on asset gathering.

Part of me says, just move to Merrill and focus on cold calling, and the other part says screw the whole broker dealer thing completely. Or do nothing, just go play golf, probably not a bad idea.

 make that, four point four tenths of one percent per year of AUM.

One more comment, I net four point four tenths on one percent AUM and some guy is going around whining about 12b1 fees. And the common man needs help, needs me to take the stress of equity investing in good times and in bad, absorb the discomfort of making him take action today for tomorrow. Go figure.

I see now...you're phrasing things differently that we're accustomed to.  I'm pretty close to you...right at 275K pace this year, 36 million in assets, net about 68% of my gross, so if I run the calculation like you are, it looks like this...

275K/36 mil AUM = velocity of about 76 bps

.7639 X 68% net = 52 bps net on my book compared to your 44 bps

so, your AUM is a little higher than mine, but my velocity being slightly higher evens things out.

...and EZ...I'm using a part-time assistant now...once I get to 50 million AUM, I'm hiring another licensed assistant...I'd rather have a little help than all the money.  Even with 1.5 assistants. I'm still figuring on personally netting well over 200K per year...I can live on that.

Indy, nice to see the comparision, thanks.

I guess when you look at the net net, and recurring revenues, one thing you could say, life is good. The opportunity cost of switching indies appears limited, versus starting your own RIA firm or something. Still not sure about the exposure of going RIA, the only two solo RIAs I know may be slightly crazed ( probably just a coincidence).

EZ, I think most of us find that having an assistant takes us to the next level - mentally, if nothing else. No man is an island.

[quote=aldo63]we all will be hurt by this. that is why i am a big first trust,Van kampen and claymore uit producer. just trying to stay ahead of the ball of s**t[/quote]

Indeed!  Gotta love UITs -- those ugly red-headed stepchildren of the investment world!  I do and my clients certainly do as well.  Great point, Aldo!

About 35% is managed money, 40% VA and the balance is stocks/bonds and mutual funds. Using the lpl platform, I really don't see how one can justify an assistant until north of 500k. Again we (indies) for the most part are not doing a volume business.

Can you really justify an assistant grossing 300k? I have plenty of hours in the day to prospect, meet clients, and run my business.

When I do hire an assistant it will be my wife(cheap labor) She is also part of my sucession plan. She will get licensed so if anything happens to me she can take over the business which currently pays reccurring income of approx. 120k net. on 16 mill aum.

You’re doing fine, sounds like a nice plan for  you. Don’t forget, as your money grows, your fixed costs diminish as a percentage of gross and every new dollar is profit. Spending a little on labor can mean a huge increase in your own quality of life. Clients like it too - a lot of good comes from having that " third party" sounding board in your practice. I have been fortunate to have a stable, caring assistant work for years at about 16 hours per week, four - four hour days. My wife tried it, she hated the paperwork, overexposure to me, and relatively low wages. A smart person without a college degree can work really well for the role.

I just went Indy a few months back and  have a full time assistant in my office. With the transfers, she is obviously great help, but as I become more in tune to processes within the LPL system, I see a less need for her here fulltime.  I recently asked her to make a list of what she feels she is responsible for here in our office.  She made the statement about being able to do everything in about 2hrs per day so I’m hoping to put her on a 4hr, 5 day schedule very soon. So, basically I’m glad to hear other opinions on this, especially GolFA.  It makes me feel better about reducing her hours.  I love the LPL system, and how in control of the situation I have become. 

That's great. As far as an assistant, the consistency factor - working part time, being positive, motivated, high energy - plus the specialization and experience factor, means for us ( me and my wife as non participating co-owner) paying a better hourly wage, and now I am paying a quarterly bonus, based on new clients aquired through referral from client-bring-a-friend appreciation events (golf lesson lunches and lunches for non golfers). Bonus is also based on achievement of things like mastery of Morningstar Workstation " planning" tools, pulling together Allbridge reports for client reviews, making the files look nice for wrap account compliance reviews - and basically managing all of compliance.

The return you get from a great assistant ( even unlicensed) is bigger than a buck. And of course, reinvesting in the business compliments taking money out that gets taxed at 40%, or whatever. The key is to try to get the right person and align interests, just what we try to do with our clients I guess.

[quote=vbrainy]

What in the world will you guys do when the SEC gets rid of your

12-b-1 fees?  Starting every year from square one has got to hurt.

C shares are just another choice among many for the client. Wrap accounts are more complicated, have minimums and the b/d gets paid more than the broker and can be more expensive to the client. On smaller accounts, there are numerous features - advantages -benefits to be consider. Not just black and white, unlike reality.

[quote=GolFA]C shares are just another choice among many for the client. Wrap accounts are more complicated, have minimums and the b/d gets paid more than the broker and can be more expensive to the client. On smaller accounts, there are numerous features - advantages -benefits to be consider. Not just black and white, unlike reality. [/quote]

Exactly HOW does the b/d get paid more on wrap accounts?  Educate me please…

C shares pay 1% GDC to b/d, b/d takes regular haircut, rep gets regular " payout ".

Wrap account at 1%, b/d takes regular haircut, minus " admin fees", and the net is lower than C shares. At least, that's how it works in my situation.

[quote=GolFA]

C shares pay 1% GDC to b/d, b/d takes regular haircut, rep gets regular " payout ".

Wrap account at 1%, b/d takes regular haircut, minus " admin fees", and the net is lower than C shares. At least, that's how it works in my situation.

Charge 1.5%

Something that rookies or those in the business less than 6 years might want to keep in mind: we are going on 5 years now of an excellent market. Clients (should) be doing well and seeing their monthly statement increasing on a regular basis. Fees are not quite as much of an issue in times like these.

This changes dramatically when you go through an extended downturn (i.e 200--2002). The quarterly fees they see on their statement are basically adding insult to injury and many clients' will be very unhappy about it.  You will tell them that you (too) are taking a cut in pay due to the decrease in value; you are still keeping in touch and reminding them that while the market is down, they haven't lost "as much" as a comparative index; you'll try and keep them from selling out because it's not the long-term plan and (oh by the way) that will eliminate the fees they are paying you. Yes, I'm speaking from experience.

I'm not bashing fee-based accounts (I utilize them often) and not implying that mutual funds' (C share in particular) will be immune from a down market (i.e. unhappy clients).  But I will say that during the 2000-2002 period I saw the managed money focused advisors significantly affected, though not quite as much as the transactional (trading stocks) brokers.  I saw advisors whose business was geared around conservative/diversified funds fare much better, with a lot less angst from clients.  And no individual stocks blowing up on them.

As always, the key is to just keep bringing it in.  New accounts, new assets.

[quote=GolFA]C shares are just another choice among many for the
client. Wrap accounts are more complicated, have minimums and the b/d
gets paid more than the broker and can be more expensive to the client.
On smaller accounts, there are numerous features - advantages -benefits
to be consider. Not just black and white, unlike reality. [/quote]



If this is the way it is at your firm I feel for you.  The true
costs of C shares are often above 3% (include trading).  You get
1% pre-pay-out.  I run managed accounts where I am the portfolio
manager and charge 1.0% to 2.0% (depending on size)- that is what the
client gets charged and that is what I get (pre-pay-out).  I stick
it with a money manager the client gets charges 1.7% to 2.3% and I get
68% of that pre-pay-out.  All around better for the client and
better for me.



If the household is too small to qualify for a managed account I do not
open it.  If it a large Household with just a small account I use
a mutual fund wrap with visible fee’s (I can aggregate the fee’s based
on their other assets). 



It seems like people find a way to NOT show fee’s…to the extent of
really picking on managed accounts and I just don’t get it.  I
very rarely get a complaint about the fee’s, even in the tough
markets. 

From my point of view, I like to keep my book very simple and competitive to clients, " bullet proof " in terms of value delivered versus cost to client and so on.

Let's use a real example, Rightway. I use ETFs, individual stocks, but mainly funds, and I use wrap, A shares, C shares, whatever. Flexibility is good and a primary benefit of broker dealer affiliation.

Oppenheimer Main Street Opp class A has an expense ratio of about 1.08%, and the class C is about 1.83%. By the way, how do you get 3%, I pay the trading fee and client pays 1.83% per year.

Class A in wrap at 1% with no load costs client about 2%, class C is cheaper. I get part of the trails at wrap, so maybe I get paid the same on wrap or C shares.

Point is, at C shares, client pays less and I get paid about the same.

As for raising my wrap fee to 1.5%, if I am the client, and as was pointed out in a down market, I'm paying about 2.5% instead of about 2% or 1.83%.

Rightway, I don't get your logic. I think I get about 68% on wrap, net.

" It seems like people find a way to NOT show fee's...to the extent of really picking on managed accounts and I just don't get it.  I very rarely get a complaint about the fee's, even in the tough markets. "

Maybe I am taking your comment wrong, but it feels a little aggressive, given the facts.

[quote=The Judge]

Something that rookies or those in the business less than 6 years might want to keep in mind: we are going on 5 years now of an excellent market. Clients (should) be doing well and seeing their monthly statement increasing on a regular basis. Fees are not quite as much of an issue in times like these.

This changes dramatically when you go through an extended downturn (i.e 200--2002). The quarterly fees they see on their statement are basically adding insult to injury and many clients' will be very unhappy about it.  You will tell them that you (too) are taking a cut in pay due to the decrease in value; you are still keeping in touch and reminding them that while the market is down, they haven't lost "as much" as a comparative index; you'll try and keep them from selling out because it's not the long-term plan and (oh by the way) that will eliminate the fees they are paying you. Yes, I'm speaking from experience.

I'm not bashing fee-based accounts (I utilize them often) and not implying that mutual funds' (C share in particular) will be immune from a down market (i.e. unhappy clients).  But I will say that during the 2000-2002 period I saw the managed money focused advisors significantly affected, though not quite as much as the transactional (trading stocks) brokers.  I saw advisors whose business was geared around conservative/diversified funds fare much better, with a lot less angst from clients.  And no individual stocks blowing up on them.

As always, the key is to just keep bringing it in.  New accounts, new assets.

[/quote]

Well said, Judge. Asset allocation and diversification are our buddies. But these alone do not a good advisor make. As far as portfolio management (at the asset allocation level), I hope most of us have suspended the Nick Murray " stocks are the only thing that is gonna getcha there" pitch for something like, " our nearer term expectations for the market are more most now, given the great run we have had for about six years, we need plenty of bonds and dividend paying stocks to help protect what we have gained, and  help get some return, no matter what happens over the next couple of years in this economy."

[quote=GolFA]

Oppenheimer Main Street Opp class A has an expense
ratio of about 1.08%, and the class C is about 1.83%. By the way, how
do you get 3%, I pay the trading fee and client pays 1.83% per year.

It still comes down to index relative performance. There are plenty of good C share class funds that can keep up with the indexes, so the client gets to have an advisor. The bigger the account, the more the options in terms of ETFs, individual securities, diversified investment classes.

It sounds like you have a competitive arrangement, thanks for the perspective.

I will second Rightway's suggestion to get a subscription to personalfund.com

When you take a look at some of the internal, hidden trading costs of some of these funds oyu can see that these fees can double or TRIPLE the disclosed management fees...

I have seen some funds have trading costs of well over 3-4%, PLUS the disclosed 12B-1 and internal management fees. When presented to a client, it does make the SMA/ Managed Money argument that much more relevant.

Truth is, clients dont know about these costs, and most FA's dont either...

If the NET return is still greater than the benchmark, what is the issue?

Yeah, blarm, it seems that personal fund trading cost data is just another way of explaining why a lot of managed funds drop below their index or style peers. Who cares about gross trading costs, anyway? It seems a mix of managed and passive funds is " nice ",  especially for small cap, international and so on. If the managers can create value and carve out their fees, so be it. Selling the trading fee story, per se or in isolation, seems disingenuous.

If the NET return is still greater than the benchmark, what is the issue?

I would agree with you. That's why I use Columbia Marsico 21st or Cohen and Steers International Realty, for example. They are expensive internally but at the end of the day they beat their benchmark and peer group.

I made mention of the website because in reality most FA's arent aware of those costs....

[quote=GolFA]

Yeah, blarm, it seems that personal fund trading cost
data is just another way of explaining why a lot of managed funds drop
below their index or style peers.

[quote=AllREIT] [quote=GolFA]

Yeah, blarm, it seems that personal fund trading cost data is just another way of explaining why a lot of managed funds drop below their index or style peers.

[/quote]

It's very simple, look at the funds turnover, and ask yourself if that is consistent with a long term investment philosophy.

Constantly passing money back and forth across the bid/ask spread deli slicer wears it down pretty thin.

This is yet another reason why index funds are better than active mutual funds. Very little internal trading costs.
[/quote]

I was wrong. You're not COMPLETELY stupid.

[quote=AllREIT] [quote=GolFA]

Yeah, blarm, it seems that personal fund trading cost data is just another way of explaining why a lot of managed funds drop below their index or style peers.

[/quote]

It's very simple, look at the funds turnover, and ask yourself if that is consistent with a long term investment philosophy.

Constantly passing money back and forth across the bid/ask spread deli slicer wears it down pretty thin.

This is yet another reason why index funds are better than active mutual funds. Very little internal trading costs.
[/quote]

Index funds are only as good as the index.  If you had your money in an indexed fund from 2000 through 2003 you lost your ass.  Who gives a sh*t about the internal trading costs being low when you are losing money. 

I refuse to believe you are an actual advisor who deals with real live people.  Clients don't care about fees if you are growing their money.

[quote=blarmston]

If the NET return is still greater than the benchmark, what is the issue?

I would agree with you. That's why I use Columbia Marsico 21st or Cohen and Steers International Realty, for example. They are expensive internally but at the end of the day they beat their benchmark and peer group.

I made mention of the website because in reality most FA's arent aware of those costs....

[/quote]

Yep, I appreciate the reference to the website, and I had almost forgotten about the reality behind your meaning - the CFP study was years ago, and stuff slips away even with continuing ed.

[quote=AllREIT] [quote=GolFA]

Yeah, blarm, it seems that personal fund trading cost data is just another way of explaining why a lot of managed funds drop below their index or style peers.

[/quote]

It's very simple, look at the funds turnover, and ask yourself if that is consistent with a long term investment philosophy.

Constantly passing money back and forth across the bid/ask spread deli slicer wears it down pretty thin.

This is yet another reason why index funds are better than active mutual funds. Very little internal trading costs.
[/quote]

Yeah, turnover is not consistent with a long term investment philosophy, but you don't have to run the whole portfolio according to one strategy. Remember how Warren Buffet missed out on the technology stuff in the 90s? Some good old asset allocation and a little common sense portfolio rebalancing - just rebalancing stock gains to bonds - along with some value investing aka WB, and you had a sweet mix. We could apply those lessons today. A little active management with a passive core works really well for my clients, nothing wrong with a little sizzle along with the steak. And as Dust Bunny points out, the active managers can help protect the downside, especially, that is backed by experience. Passive core, regular rebalancing, pushed a little by active management. Works for me. ( And the reality is, a lot of times we are working around some holdings the client aquired over the years, so taking this approach to diversification and performance is pragmatic. Getting paid and staying in business is not a bad thing, either, from all points of view.)

I think its more of a way for a broker to try and take the business from another advisor (re. trading costs). But in the end I think net return is all anyone cares about. Also, take a look @ Keeley, Kinetics and PZFVX, most beat their benchmark w/less volatility. in the end isn’t that all that matters?

Big time. But advisors, like trained dogs, attack each other - too bad. The packagers ( everything from  etfs to b/ds ) all seem to be happy. Even the newest issue of RR is all about the booming biz of serving reps who " change ".  Must be the whole reality is better biz in the aggregate.

[quote=Dust Bunny][quote=AllREIT] [quote=GolFA]

Yeah, blarm, it seems that personal fund trading cost data is just another way of explaining why a lot of managed funds drop below their index or style peers.

[/quote]

It's very simple, look at the funds turnover, and ask yourself if that is consistent with a long term investment philosophy.

Constantly passing money back and forth across the bid/ask spread deli slicer wears it down pretty thin.

This is yet another reason why index funds are better than active mutual funds. Very little internal trading costs.
[/quote]

Index funds are only as good as the index.  If you had your money in an indexed fund from 2000 through 2003 you lost your ass.  Who gives a sh*t about the internal trading costs being low when you are losing money. 

I refuse to believe you are an actual advisor who deals with real live people.  Clients don't care about fees if you are growing their money.

[quote=GolFA][quote=AllREIT] It’s very simple, look at the funds
turnover, and ask yourself if that is consistent with a long term
investment philosophy.

Constantly passing money back and forth across the bid/ask spread deli slicer wears it down pretty thin.

This is yet another reason why index funds are better than active mutual funds. Very little internal trading costs.
[/quote]

Yeah, turnover is not consistent with a long term investment philosophy, but you don't have to run the whole portfolio according to one strategy. Remember how Warren Buffet missed out on the technology stuff in the 90s? Some good old asset allocation and a little common sense portfolio rebalancing - just rebalancing stock gains to bonds - along with some value investing aka WB, and you had a sweet mix.[QUOTE]

GolFA, you're just repeating the same tired old cliche's about investments and investing. It's boring and sophisticated clients see right through it. What WB does is not what you are doing for clients, (putting them in C-shares).

Do you even understand why WB missed out on the tech bubble?

BRK is really three separate operation hidden in a holding company.

1) Core insurance operations of Personal lines (GEICO) and reinsurance. WB gets to time the reinsurance market vs vs monoline insurance companies who must play the market at all times.

The trick to BRK is that the insurance companies are very well capitalised at the corporate level *and* the assets at the holding company level are pledged to them.

Provided Gen Re etc do not suffer catastrophic losses, BRK gets to earn a return on the holding company assets twice. One from their intrinsic return and again from pledging them to the insurance operations.

2) The control investments. WB owns companies that he buys very cheaply and have defensible economic moats (e.g they earn economic profits) and do not face errosion of those moats..

That is the exact opposite of technology companies which face constant obsolesence of their products and have to spend huge amounts on R&D/Capex.

Whats Iomega up to these days?

3) The Outside passive minority investments are all done with the same perspective as a control investor. These arent "trading" stocks

4) Finally WB does not have a mandate to invest. So BRK is sitting on $40B in cash. You try doing that with clients, telling them that the market sucks and to hold 40% in cash.Value investing means being "off message" most of the time. If you do that with ordinary clients, you will get fired.

Klarman did that in the late 1999s and he took flack from clients.  They said  "Why are we paying you 2/20 to hold cash, you lazy bum?"

WB and deep value investors are the exact opposite of the passive EMH crowd and the diversify and try to beat the market crowd. They invest for absolute returns with limited downwards volatilty.

Something that is impossible to do if your goal is to track/beat a benchmark on a consistent basis.

Couple of points.

It's very simple and you help make my point: value is buy and hold and growth needs active management. Just because Buffet is a value investor does not make growth investing irrelevant.

In the larger scheme, companies like Iomega drive the whole economy and clever investors know when to buy and sell.

It's boring and sophisticated clients see right through it. What WB does is not what you are doing for clients, (putting them in C-shares).

Why are you insulting me? Be careful about projecting your own ideas on "sophisticated" clients. When was the last time WB helped a small investor with retirement income strategies or basic diversification? WB's holding period is forever, not the case for most folks trying to take an income off a portfolio.

WB probably eats too many hamburgers and drinks too much coke, maybe he's a geek who forgot how to spend his money - although he'll do a lot of good by giving it away. Point is, from a financial planning point of view, how much you make, or how you make it, or how much it costs - there is an important opportunity cost paid by those who focus only on such things - seriously, a lot of smart people keep it very simple for a lot of reasons, and move on to other opportunuties,  so don't assume simplicity is necessarily cliche.

You bring up some good and very basic points. If everyone followed your idea precisely, the market would beat a path around that idea, too. You are not smarter than the market, or even the collective wisdom and hands on experience of every single poster here. But I like your ideas and persistence.

( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)

I like to know how much I pay for things.  Clients do too. 



The post is NOT about net performance, it is about how much a client is charged and how much the FA keeps.  Of course
there are many portfolio managers out there that have a ton of talent
in C share funds…and they have served their shareholders well. 
The SEC will one day decide to change the landscape and brokers with
giant books of C shares will find themselves fighting with clients
about, by all measures, a successfull portfolio of mutual funds. 
Why? 



I am telling you that if I get in front of your client and show them
they have been been paying 2.88% and they were told by you it was 1.83%
you will not be looked at in a positive light…despite the
performance.  Please trust me on this…I am not fighting but
rather offering assistance.   If it is not me, it will be the
fund company and the SEC.



If I am building a business I certainly would not choose to build it on
a soft sandy foundation that has a very high probability of
crumbling. 



To each their own though…I just offer the opinion.

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[quote=AllREIT]

[quote=Broker24]The big concern is disclosure, not the

charging of

fees, per se. The fees will not go away. Commissions on

MFD’s have gone down so much over the years, before long there will BE

NO commissions. That just isn’t going to happen. You can’t

up-end an entire industry. That will screw the little investors

(who wants to pay wrap fees for their little $20K rollover??).

They will allow them, but will likely need to be disclosed on customer

statements as a fee of some sort (outside of the performance of the

fund).[/quote]



Yes you can upend an entire industry. Most likely we will see a cap on

12b-1 fee’s to 25bp, what would be very cool is a ban on revenue

sharing.



Of course that would kill the payout to EDJ GP’s by 70%.

[/quote]



That would kill the payout to every firm. All the major firms have revenue

sharing. Sorry to burst your bubble.

[quote=rightway]I like to know how much I pay for things.  Clients do too. 

The post is NOT about net performance, it is about how much a client is charged and how much the FA keeps.  Of course there are many portfolio managers out there that have a ton of talent in C share funds...and they have served their shareholders well.  The SEC will one day decide to change the landscape and brokers with giant books of C shares will find themselves fighting with clients about, by all measures, a successfull portfolio of mutual funds.  Why? 

I am telling you that if I get in front of your client and show them they have been been paying 2.88% and they were told by you it was 1.83% you will not be looked at in a positive light...despite the performance.  Please trust me on this...I am not fighting but rather offering assistance.   If it is not me, it will be the fund company and the SEC.

If I am building a business I certainly would not choose to build it on a soft sandy foundation that has a very high probability of crumbling. 

To each their own though...I just offer the opinion.
[/quote]

But your little trading fee rap is somewhat disingenuous, as my clients already know they are buying proprietary products, and are focused basically on meeting the indexes, and potentially beating them a little or protecting the downside through active management, combined with some passive stuff.

Look, I'm very tight with my clients, they get a ton of service which is very personal. They won't be sitting with you, and don't care about how you package your logic. I appreciate what you are saying, and always try to look forward for pitfalls, and have had the same thoughts and concerns, and can move on ideas as the situation dictates. The next competitive move would be RIA, got that one all figured out, but the cost/benefits of moving from b/d are  not as compelling now that I am ready to move.

All I'm saying is, EVERYONE in this industry has an agenda. Things like C shares are the result of a demand for choice, not an evil invention.

I used to be pretty up and at guys like Bobby and their annuity focus, but even that should be seen in perspective. If you had to be an excellent investment advisor and could only use annuities, you could do it, because you are trained in listening, identifying goals, creating cash reserves, thinking about tax strategies, retirement income, estate planning, insurance, ownership and beneficiaries, and so on. All of that is more important than the next do gooder stirring up the public about fees, which are already disclosed, and that do gooders agenda, which is likely profiting from financial planning or investment management in some fashion. The reason our profession is a diaspora is not because of products, rather,we dumb ourselves down with too much thinking and jousting of inflated egos.

[quote=Ferris Bueller]

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[/quote]

I must really be missing the humor here. Help me out a little.

[quote=GolFA][quote=Ferris Bueller]

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[/quote]

I must really be missing the humor here. Help me out a little.

[/quote]

Nevermind.  You're beyond help.

[quote=Ferris Bueller]

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[quote=GolFA]

Look, I’m very tight with my clients, they get a ton
of service which is very personal. They won’t be sitting with you, and
don’t care about how you package your logic. I appreciate what you are
saying, and always try to look forward for pitfalls, and have had the
same thoughts and concerns, and can move on ideas as the situation
dictates. The next competitive move would be RIA, got that one all
figured out, but the cost/benefits of moving from b/d are  not as
compelling now that I am ready to move.

I get your technical points, that stuff is pretty obvious and been hashed over quite a bit here. A lot of reps forget that we are first and most importantly in the personal service business. We the reps should stick together more as professionals, since the profit of service and product providers is extracted from our labor, yet we continuously joust each other about relatively unimportant technical issues which divide us further and support the sectarian interests of entities that don’t even have personal relationships with (our) clients.

[quote=joedabrkr] [quote=Ferris Bueller]

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[/quote]



Ok I'll admit I didn't get it on the first reading, but the second time I damn near peed my pants!  That was masterful.
[/quote]

Nice contribution here, Joe.

[quote=GolFA][quote=joedabrkr] [quote=Ferris Bueller]

[quote=GolFA]( And I keep a note Warren wrote to me on my office wall - guess somewhere in his heart he appreciates what we do for the common man.)[/quote]

It reads:  "Dear Janitor.  Next time please make sure you empty the trash can under my desk, but NOT the one labeled 'recycle'.  Oh and can you please leave more TP for the mens restroom?  Thanks.  WB"

[/quote]



Ok I'll admit I didn't get it on the first reading, but the second time I damn near peed my pants!  That was masterful.
[/quote]

Nice contribution here, Joe.

[quote=GolFA]I get your technical points, that stuff is pretty obvious and been hashed over quite a bit here. A lot of reps forget that we are first and most importantly in the personal service business. We the reps should stick together more as professionals, since the profit of service and product providers is extracted from our labor, yet we continuously joust each other about relatively unimportant technical issues which divide us further and support the sectarian interests of entities that don't even have personal relationships with (our) clients. [/quote]

You come across as a stuck-up arrogant jerk.  Go ahead, tell me I'm right.

Sorry, my intention was to make a point to which we could all relate. Obviously I am way off the the mark, and I apologize. No response to the content of my meaning, so I guess I feel like I have wasted my time here. Carry on with the really important stuff, then.

Relax and stop taking yourself so seriously.  We GET that you probably have a phd in philosophy or something, no need to write like it.  For god’s sake read your quote above.

Honestly, Baller, I don't get your point. Why don't you take a shot at some logical debate here?

[quote=GolFA]Sorry, my intention was to make a point to which we could all relate. Obviously I am way off the the mark, and I apologize. No response to the content of my meaning, so I guess I feel like I have wasted my time here. Carry on with the really important stuff, then. [/quote]

"No response to the content of my meaning…"

WTF is that supposed to mean?

Actually that comment was mainly directed to you: specifically, I made the point that we are in the personal relationship business and that we get hung up on technical stuff to our own detriment ( in the spirit of what Nick Murray teaches), we end up fighting each other as professionals ---

And you, Joe, an apparent veteran here, your contribution to the discussion, to our investment of time and energy here, is to reinforce some childish humor - you seem to be more interested in the process than the content.

You may agree or not, just letting you know that it does not feel good spending time from my point of view.

Son you honestly are asking "WTF" is that supposed to mean or are you just pulling my pud?

Sorry, a typo, not " Son", should be “so”.

[quote=GolFA]

Actually that comment was mainly directed to you: specifically, I made the point that we are in the personal relationship business and that we get hung up on technical stuff to our own detriment ( in the spirit of what Nick Murray teaches), we end up fighting each other as professionals —

And you, Joe, an apparent veteran here, your contribution to the discussion, to our investment of time and energy here, is to reinforce some childish humor - you seem to be more interested in the process than the content.

You may agree or not, just letting you know that it does not feel good spending time from my point of view.

Son you honestly are asking "WTF" is that supposed to mean or are you just pulling my pud?

[quote=GolFA]

Honestly, Baller, I don't get your point. Why don't you take a shot at some logical debate here?

[/quote]

The point is that you are so busy trying to say something intelligent and verbose with your writing that your message is lost.  Stop trying to write a thesis and just say it.  Read Joe's post.  He makes a good point about not understanding WTF you are saying.

Just for kicks, what is your educational background?

All right, then, thanks for the feedback. I'm really not trying to sound important, but from experience I know I can be too abstract sometimes. So thanks.

My educational background is pretty unique and specialized, it might be giving too much personal info for an internet forum - that personal info accretes, you know.

But I'm serious about my point. I was reading Nick Murray years ago and have heard him lecture - while I don't personally like the man, he is the main force for some bigger picture thinking in this industry.

And while it may be fun to argue, how many times can you make a case for or against annuities?

A small metaphor to the obsession with investment vehicle mechanics and advisory platforms: if you turn off your car a/c, you won't save the earth from global warming, you are just capturing wasted energy (as long as the windows are rolled up to cut wind resistance).

I just like to shake up the playing field a little for discussion - a big interest in this industry right now is us, advisors, as " life coaches". Duh. What does that have to do with the price of a mutual fund, especially since we can all offer ETFs or whatever alongside whatever we want?

Part of this involves the primacy and power of the relationship with Mr. client - a great untapped dynamo of energy and creativity for us here.

Okay, I'm going to lighten up and just go now to keep my tee time with him. Practice what you preach.

[quote=GolFA]

And while it may be fun to argue, how many times can you make a case for or against annuities?

[/quote]

That's the beautiful part about this business, to use an annuity largely depends on the situation of our client.  They work in some instances and do not in others.  That's why we have the 405 rule.  Part of the problem is that banks tend to ONLY use annuities for ALL solutions.  That's like only having a screwdriver in your toolbox.  The net effect is that everyone will get screwed, regardless if they need it.

[quote=GolFA]I get your technical points, that stuff is pretty obvious
and been hashed over quite a bit here. A lot of reps forget that we are
first and most importantly in the personal service business. We the
reps should stick together more as professionals, since the profit of
service and product providers is extracted from our labor, yet we
continuously joust each other about relatively unimportant technical
issues which divide us further and support the sectarian interests of
entities that don’t even have personal relationships with (our)
clients. [/quote]



Great post!  We all want too succeed.  There is room for
everyone.  But it the fire in our passion dies we will become
CPA’s, and make 50% less per year for our families and charities. 
Lets keep it up, but be objective!!!

Thanks for reflecting and building on that. At the risk of sounding sentimental, you could say our industry is a diaspora controlled by self interested (manufacturers) and reinforced by compulsive thinking (reps) - but the power unleashed from a single atom ( the bond between advisor and client) could change our world. It's just a problem of raising awareness.

Yep, there is room for everyone, even Bobby.

12b1 fees are not expected to go away or materially change any time soon.

12b1 fees are not expected to go away or materially change any time soon.

Thank you for that..

Those who believe 12b-1 fees will be preserved should not, perhaps, feel so comfortable.

A possible fatal blow occurred to 12b-1 fees at the June 19, 2007 SEC Roundtable Discussion on 12b-1 Fees. With all five commissioners looking on, Consumer Federation of America’s long-time consumer advocate, Barbara Roper, raised the issue as to whether payment of 12b-1 fees to broker-dealer firms and their registered representatives violated the Investment Advisers Act of 1940 (IAA).  After many speakers during the day discussed the ongoing advice provided by broker-dealers to customers, funded by 12b-1 fees, Ms. Roper noted that such advice appeared to not be "incidental advice" permitted under the broker-dealer exclusion from the definition of "investment adviser" found in the IAA. Moreover, payment of 12b-1 fees looked very much like payments to broker-dealers under fee-based accounts, and hence "special compensation," which payment arrangement was recently struck down by the District of Columbia U.S. Court of Appeals.  Furthermore, some forum participants observed Ms. Roper briefly discussing the issue with three commissioners immediately following the forum's conclusion.

Written comments submitted to the Commission by this commentator on June 18, 2007, and available on the SEC's website, explain why payment of 12b-1 fees to broker-dealer firms often violate the IAA. Brokers and dealers are not subject to the "fiduciary status," comprehensive disclosure, and other requirements of the Investment Advisers Act ("IAA") where their investment advice is (1) "solely incidental to the conduct of [their] business as a broker or dealer," and (2) the broker or dealer "receives no special compensation therefor." 15 U.S.C. § 80b-2(a)(11)(C) (2000).  However, as was made clear from many comments submitted from securities industry representatives and individual registered representatives, 12b-1 fees are often utilized to compensate broker-dealer firms for a wide range of ongoing advisory services which are not directly connected to a securities transaction. Even the NASD recently acknowledged that 12b-1 fees were not "transactional sales charges," but rather ongoing "assets under management" relationship compensation, in a comment letter dated April 19, 2007 to the SEC regarding Regulation R. While some 12b-1 fees may be utilized for legitimate purposes, to compensate broker-dealers for the actual costs of service (acting as custodians, providing prospectuses and annual reports to clients, etc.), it was clear from the many comments submitted that many broker-dealers utilized a substantial portion of both the (NASD-maximums) 0.25% annual "service fee" and the 0.75% annual "asset-based sales charge" to compensate registered representatives for ongoing "investment advisory" services – which are only permitted under the IAA.

Will powerful advocates such as the Financial Planning Association, Consumer Federation of America, Fund Democracy, the Public Investors Arbitration Bar Association, and state securities regulators (through the North American Securities Administrators Association), again band together to challenge certain 12b-1 fee payments as impermissible under the IAA? These organizations successfully challenged the SEC’s broker-dealer fee-based accounts rule (a.k.a. the "Merrill Lynch Rule") in court, and the SEC recently decided not to appeal the U.S. Court of Appeals decision which overturned that rule.  Broker-dealer firms are struggling to adjust to the elimination of fee-based brokerage accounts (which now possesses an October 1, 2007 deadline under an extension granted by the U.S. Court of Appeals.  Hence, given all of the current disruption in the broker-dealer industry, these associations are likely to wait for SEC action on 12b-1 issues.  However, any rulemaking which either preserves, curtails or eliminates 12b-1 fees is likely to be very closely scrutinized.

Should the SEC repeal 12b-1 fees, or limit them substantially, industry observers hope for a very long transition period.  Noting that thousands and thousands of registered representatives depend upon 12b-1 fee income for a substantial portion of their personal income, a hoped-for transition period of at least a year, if not longer, would be desireable.

I would like to stress that no one wants to put good financial advisors out of business.  However, change is occurring within the financial services industry.  Fiduciary status is being applied more and more - if not by the SEC, than under state law (several recent court decisions apply fiduciary status to "financial planners" and others who represent themselves as "investment experts" or who actually undertake financial advisory activities.)  Prudent RRs, who rely upon 12b-1 fees as a source of compensation, may desire to proactively undertake efforts to change their business model.  For example, if the RR has not already achieved IAR status (investment adviser representative), and is not a CFP (or one of the other handful of designations, the attainment of which negates taking an exam), then perhaps studying for the Series 66 exam is in order.

I hope this added perspective helps.  Good luck.

ROn don’t you think they will just change the name to shareholder servce fee and put it on the statement as a cost or fee. I do. I am fine with it too.

In reply to "Bankrep1" - whatever "12b-1 fees" may be called, it does not matter.  If 12b-1 fees are utilized to compensate registered representatives for providing ongoing advice to the client, then they constitute "special compensation" for "non-incidental advice" - and the BD exclusion from the application of the IAA does not apply.

In other words, if it walks like a duck, talks like a duck, quacks like a duck ...

No, I don't think the SEC will just rename 12b-1 fees as "service fees" and require more disclosures.  The SEC has suffered a lot of black eyes recently.  The language of the FPA vs. SEC decision on fee-based brokerage accounts provides added clarity to the limited scope of the BD exclusion.  Also, when Consumer Federation of America spokesperson Barbara Roper raised this issue at the June 19th forum on 12b-1 fees, one commissioner is reported to have leaned over to another and said, "It looks like she caught them (BDs) speeding."

I suggest that RRs who rely heavily on 12b-1 fees start considering another business model.  Change is coming.  It's hard to ignore the duck quacking.  If you don't like the fact that change may occur, or are in denial, I suggest the short read, "Who Moved My Cheese?" as a starting point.  Good luck in the future, as you endeavor for a good business model in which to serve clients and provide a good living for you and your family.

[quote=Ron A. Rhoades]

In reply to “Bankrep1” - whatever “12b-1 fees” may be called, it does not matter. If 12b-1 fees are utilized to compensate registered representatives for providing ongoing advice to the client, then they constitute “special compensation” for “non-incidental advice” - and the BD exclusion from the application of the IAA does not apply.

In other words, if it walks like a duck, talks like a duck, quacks like a duck …

No, I don’t think the SEC will just rename 12b-1 fees as “service fees” and require more disclosures. The SEC has suffered a lot of black eyes recently. The language of the FPA vs. SEC decision on fee-based brokerage accounts provides added clarity to the limited scope of the BD exclusion. Also, when Consumer Federation of America spokesperson Barbara Roper raised this issue at the June 19th forum on 12b-1 fees, one commissioner is reported to have leaned over to another and said, "It looks like she caught them (BDs) speeding."

I suggest that RRs who rely heavily on 12b-1 fees start considering another business model. Change is coming. It’s hard to ignore the duck quacking. If you don’t like the fact that change may occur, or are in denial, I suggest the short read, “Who Moved My Cheese?” as a starting point. Good luck in the future, as you endeavor for a good business model in which to serve clients and provide a good living for you and your family.

If Mr. Rhoades is accurate in his letter to the SEC, it makes sense why EDJ is asking all reps to get their 66.

Change is coming. It might be a year or two, but it seems likely we will all be fee based, if the regulators have their way.