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Fee based accounts for income investor

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Jan 31, 2010 6:05 pm

You have a probem with reading comprehension. Go back and slowly read the thread again you retard

  Since the client is asking for the MAXIMUM income, and you blatently are choosing to ignore a SPIA strategy in lieu of a fee-based one (which will be a drag on income), I agree with BF on this one.  You don't know what you are doing.  Refer the client to someone who does and split the case.
Jan 31, 2010 8:02 pm

[quote=BioFreeze] [quote=skbroker]So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he’ll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differently[/quote]

Since you don’t even know what it is that you do or how to charge for it, refer him to someone else. Should a heart surgeon who can’t decide between bypass surgery or a transplant be choosing, based on how he gets paid? You are a phony.

Has anyone ever seen a constructive post from this guy ever.  All he ever does is criticize other people on here.  What does everyone else think??? [/quote]   In spite of all his criticizm of everybody on the forum, he still adds more than you.
Jan 31, 2010 8:34 pm

1)  Set aside his business practices, he has a lot of advice regarding prospecting.  I know I’ve learned from him. 

2)  Spelling smack?  That's weak, even for you.
Feb 1, 2010 12:49 am

Shocking.  No original thought for dealing with your clients or joke-telling. 

  Does your employer know they hired a functional retard?
Feb 1, 2010 9:04 pm


[quote=AGEMAN][quote=deekay]1) Set aside his business practices, he has a lot of advice regarding prospecting. I know I’ve learned from him.

2) Spelling smack? That’s weak, even for you.[/quote]

I guess I have missed those posts concerning prospecting. [/quote]I posted them inside of your wife - a place you don’t go. [/quote]

Real classy.

Way to show him up.

I hope Deekay finds a new role model.
Feb 1, 2010 10:23 pm

Again: wish we had a minimum age requirement that could be enforced

Feb 2, 2010 3:47 am

No retention rich

Feb 2, 2010 3:50 am

If fees were the right thing to do for all clients than 2/3 of all clients assets are in the wrong platform

Feb 2, 2010 12:57 pm

skbroker -

It appears to me that you don’t believe the benefit you provide is greater than the cost you charge on a fee based platform.  If that is the case, I think you should reevaluate what you are doing for a living.  It makes little sense to continue in a career where you don’t think you are providing a valid service.

“Doing the right things for the client” doesn’t always mean charging them less. 

Example:  If you get in trouble with the law, do you opt for the public defender?  Or do you spend the extra money for a Johnny Cochran (or whoever the big time lawyer is these days)? 

It’s a good bet if OJ had chosen the public defender he’d be in jail.

Here’s another one.  You are a business owner with complex tax needs.  Do you go to H&R block and pay $90, or do you go to a respected CPA, and pay a few thousand?

If you feel that your services are mediocre, charge a mediocre price.  If not, charge what you deserve.

Feb 2, 2010 1:40 pm

Sorry, I have to side with skbroker on this one.  I can see everyone’s point - ecspecially since they can’t do commission business, but most firms Compliance usually watch these sort of relationships closely, always checking to see what the “cheaper” option is for the client, commission or fee based.

  I know Morean you are worth every penny, but I just can't wrap my brain around charging an annual fee on a bond ladder.   Case in point, at a previous firm I worked at they had a special SMA product for clients seeking income - and for whatever reason marketing/the fa always wanted to have a one on one presentation with a client that was gross of fees.   One of the many disclosures you need on such a presentation is a graph of the effect an annual fee will have over the years, compounded.  Lets just say that made the product a very hard sell once the client could see where they would be if it was a commission based account, as opposed to fee.
Feb 2, 2010 1:49 pm

Wet - I get what you are saying.  But what are the expenses in a bond fund?  No one ever tells someone not to use a bond fund.

The expenses on the first one that pops up on morningstar is 1.2%.  The next one is 1%.  The lowest - .54%.

Now, you tell me if it’s fair.  Not to mention his idea at first was to use ETFs and mutual funds. 

What is the difference between me managing a laddered portfolio, where the bonds are purchased without markup, and a bond fund?  The difference is perceived talent.  The guy at the bond fund may have an MBA from Harvard and mine is from the University of Chicago.  Which is better?

Feb 2, 2010 1:55 pm

I’m not a fan of bond funds either - but at the vary least the client would get more diversification and a fund manager that they could never talk to.  Also, don’t most bond funds invest indirectly through swaps instead of actual bonds (for the most part)?  Mutual funds and ETFs, fine for fee biz because you have the “allocation” angle of your advice.  If you are actively managing bonds, then I can see more of a justification for the fee - but I don’t buy just having a ladder.

Feb 2, 2010 2:52 pm

Then we agree.  If you are doing a whole slew of services in addition, then it is up to the client to determine if you are worth it or not.

Feb 2, 2010 3:07 pm

It’s tough to charge 1%+ for a bond-only portfolio.  Most RIA’s charge in the 0.25% - 0.75% range for a fixed income only portfolio.

  As far as bond funds, the purpose of bond funds is often not for incoem purposes, but for diversification purposes in a well-balanced portfolio.  It is part of a strategic allocation.  Big difference between the two.
Feb 2, 2010 3:25 pm

How’s everything at the Ira center?

Feb 2, 2010 3:35 pm

You better be careful I have a house in Charlestown!

  Is that directed at me?  I don't live near Charlestown...
Feb 2, 2010 4:00 pm

Charge what you want.  Or don’t.  I was just trying to help.

Doesn’t really matter for me, since I mainly work with equities anyway.

Bonds are such a small part of my business, it makes no difference.

Feb 5, 2010 5:03 am

I normally charge less for straight muni clients, usually 25-100 bps depending on the account size.  The reason being twofold:

1.  Returns are generally going to be less than accounts that hold equities.
2.  My muni clients are almost entirely buy and hold, so once the bonds have been purchased, the major work has been accomplished (of course there will be monitoring the credit ratings of the issuer and quarterly reviews, but it’s less upkeep than for an equity portfolio).

That said, I do my best work (I feel) researching munis.  I think it really sets me apart from other advisors.  I look deep into an issue and provide a level of analysis my client won’t get at the wires or his bank. 

If what you are doing is simply regurgitating the bonds your muni desk tells you to buy, then your service isn’t really worth much.  If you are hand selecting the bonds and doing the due diligence on your own and presenting a detailed analysis to your clients, then you are worth it and your clients will know it (especially the more sophisticated investors that will appreciate and understand the work that goes into properly vetting a bond issue).

I agree with what MLGone said earlier.  If you’re worth it, your clients will know it and pay you your fee.  Don’t run away from your fee.  You should have a schedule in place that encourages your clients to place more money with you (ie your fee will go down as the asset levels increase).

Feb 6, 2010 1:12 am

Interesting question.  In my case, I use a bonds in 2 ways: 1) as part of a strategic allocation in a managed fee based account   2) for income

For fee based accounts, I sell the value of including bonds in an overall portfolio and position myself as their portfolio manager- adding or subtracting within the account as needed, providing service updates etc.  Account performance the past few years has validated my approach and justified my overall fee.

For accounts where the objective is income first, strategic allocation secondary, I purchase individual bonds.  Cheaper and cleaner for the client.  Income stream is locked in and clients like knowing that in Jan of each year they can predict their income for the year. 

You can make a case that fees in bond funds can easily equal or exceed individual commissions.  While you do get the benefit of professional management and institutional level of bond selection, you can also get hit with an unexpected cap gain each year.  Try justifying that to a buy and hold muni bond fund buyer…

Feb 13, 2010 4:20 am

[quote=mlgone] Don’t be scared to tell them what they are paying for. Your worth it[/quote]

Nice pep-talk Coach!