Complementary investment for big Am Funds port
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I have a client with about $1.3mm in Am Funds, held by local EDJ rep. I have about $400,000 in a fee based account, there is another $400,000 in Franklin Templeton and Van Kampen with another advisor. The EDJ guy is on the board of this client (local non-profit). I would like to suggest some investments that would compliment the Am Funds portfolio, which is the bulk of their non-CD portfolio.
Any suggestions? The EDJ guy is helpfully pointing out to the board that they could just move my fee based account to Am Funds at no fee, as they are at the $1mm breakpoint. Being on the board he has their ear more than I do, and I need some ammunition. And right now I am too punchy from trying to transfer my old accounts from the bank to think straight.You have more experience than I do, to add a disclaimer…
However, I have actually done fairly well selling against American Funds. In my humble opinion it would be a colossal mistake to put too much money in an AF portfolio mainly because of the extreme overlap in some of their domestic large cap funds. I have had appointments where I will sit down with a client or prospect that has a lot of American fund holdings and just point out the top holdings in each fund. They are usually surprised.
Ultimately you get what you pay for. Sure, you could save money by blowing all the money into an all AF portfolio with no sales charge, but at what cost to the potential performance of the portfolio?
On a little bit of the low road: A lot of firms that I know are against FAs serving on boards of their clients - due to the conflict of interest. I’m not a betting man, BUT I wouldn’t be surprised if this is an undisclosed outside business activity for him. It seems that EDJ is usually overkill with their compliance…
NO, Jones allows it as long as you don’t serve as Treasurer. I am on several Boards, all disclosed. However, I am surprised he is allowed to hold the endowment funds at Jones. I refuse to allow any of the boards I am on to move money to me, and I would also never ask them to (personal money is fine). I see THAT as a big conflict (not to mention that it could lead to some discomfort on the board - I would not want to be on a board where a board member was managing the funds).
Oh, and to answer your question, I guess it depends WHAT funds he has through American. I would suggest some of the satellite-type investments like Small/Mid Caps, Real Estate, Commodities, Emerging Markets, etc. American is very good with Large-Cap Domestic Value and International Large Cap Value (which si probably a lot of what he has them in). He probably has them in Bond Fund, so stay away from Treasuries and Corp Investment Grade. If he is not using their Global Bond Fund, Templeton has a good one. Same with High Yield.
You might try showing him the correlation/style overlap between most of their equity funds.Is it the board’s money or the guy who is on the board’s money?
Either way, I would ask him if he wants to sacrifice cost for service. We can make changes in this fee-based account if needed, Mr. Client, but American Funds is going to do what they want. I’m sure Windy has your best interests in mind, but on I’ll have to disagree with him that it makes sense to put this money in American Funds.
In fact, I would talk about reducing your exposure to AF. Mr. Client, I’ve met with some of the managers of these AF. It’s interesting that although they each manage a separate portion of the portfolio, their weightings and allocations are all incredibly similar.
[quote=EDJ4now]
I have a client with about $1.3mm in Am Funds, held by local EDJ rep. I have about $400,000 in a fee based account, there is another $400,000 in Franklin Templeton and Van Kampen with another advisor. The EDJ guy is on the board of this client (local non-profit). I would like to suggest some investments that would compliment the Am Funds portfolio, which is the bulk of their non-CD portfolio.
Any suggestions? The EDJ guy is helpfully pointing out to the board that they could just move my fee based account to Am Funds at no fee, as they are at the $1mm breakpoint. Being on the board he has their ear more than I do, and I need some ammunition. And right now I am too punchy from trying to transfer my old accounts from the bank to think straight.[/quote] AM funds actually has a sheet that shows the overlap on the advisor website... I agree ad in things that AF doesn't cover(everything but international large cap), but depending on where you are I would talk about things that EDJ doesn't do... Alternatives etc....Talk to him about all his eggs in one basket… Everyone understands this… Tell him the same applies for investing in fund companies. Don’t put all your eggs in one basket.
Or how american funds got so big that they are now like index funds. Show him the list of the top 10 largest funds, i bet he sees his funds on there. Does he want to get slaughtered with the rest of the herd or does he want something built for him.Actually yes, I think so. I used to know of a way to look up the tax documents of endowments. There are a lot of endowments in the $250k-$1,000,000 range that don't have advisors and some that probably haven't reviewed their funds in any regular fashion. I remember seeing a lot of different MF families. If I could remember the site, I'd post a link. I can't remember the tax document either...maybe 5500's or something like that.Is it normal for an endowment to be in MFs anyways?
[quote=chief123]Talk to him about all his eggs in one basket… Everyone understands this… Tell him the same applies for investing in fund companies. Don’t put all your eggs in one basket.
Or how american funds got so big that they are now like index funds. Show him the list of the top 10 largest funds, i bet he sees his funds on there. Does he want to get slaughtered with the rest of the herd or does he want something built for him. [/quote] That is a great line !Actually yes, I think so. I used to know of a way to look up the tax documents of endowments. There are a lot of endowments in the $250k-$1,000,000 range that don't have advisors and some that probably haven't reviewed their funds in any regular fashion. I remember seeing a lot of different MF families. If I could remember the site, I'd post a link. I can't remember the tax document either...maybe 5500's or something like that.[/quote] True, but most real endowments require an active manager. You will see a LOT of SMA's with endowments. Many also use actively managed index tactical strategies (but professionally managed, not FA managed, i.e. Russell). Normally the investment committee will set the parameters, and then hire the FA (the larger ones would be represented by an endowment manager, not an "FA" per se). For smaller endowments, you will often see wirehouse FA's that simply hire outside SMA managers to fill the categories required by the investment committees.[quote=Wet_Blanket]Is it normal for an endowment to be in MFs anyways?
To add to this discussion - are most of the larger endowments DVP accounts or not?
Actually yes, I think so. I used to know of a way to look up the tax documents of endowments. There are a lot of endowments in the $250k-$1,000,000 range that don't have advisors and some that probably haven't reviewed their funds in any regular fashion. I remember seeing a lot of different MF families. If I could remember the site, I'd post a link. I can't remember the tax document either...maybe 5500's or something like that.[/quote] True, but most real endowments require an active manager. You will see a LOT of SMA's with endowments. Many also use actively managed index tactical strategies (but professionally managed, not FA managed, i.e. Russell). Normally the investment committee will set the parameters, and then hire the FA (the larger ones would be represented by an endowment manager, not an "FA" per se). For smaller endowments, you will often see wirehouse FA's that simply hire outside SMA managers to fill the categories required by the investment committees.[/quote] Right. I remember seeing a lot of Russell and some Vanguard. The small endowments were ripe for the picking though in some cases.[quote=snaggletooth][quote=Wet_Blanket]Is it normal for an endowment to be in MFs anyways?
DVP?To add to this discussion - are most of the larger endowments DVP accounts or not?
Actually yes, I think so. I used to know of a way to look up the tax documents of endowments. There are a lot of endowments in the $250k-$1,000,000 range that don't have advisors and some that probably haven't reviewed their funds in any regular fashion. I remember seeing a lot of different MF families. If I could remember the site, I'd post a link. I can't remember the tax document either...maybe 5500's or something like that.[/quote] True, but most real endowments require an active manager. You will see a LOT of SMA's with endowments. Many also use actively managed index tactical strategies (but professionally managed, not FA managed, i.e. Russell). Normally the investment committee will set the parameters, and then hire the FA (the larger ones would be represented by an endowment manager, not an "FA" per se). For smaller endowments, you will often see wirehouse FA's that simply hire outside SMA managers to fill the categories required by the investment committees.[/quote] Right. I remember seeing a lot of Russell and some Vanguard. The small endowments were ripe for the picking though in some cases.[/quote] Yeah, you can often crack the small endowments (say, up to a few million) by getting to know the boards. Endowments that small just typically don't have the depth of board governance. It's more about trust with them. The larger ones, it's more about CYA and hiring someone with definable experience in the endowment space.[quote=B24][quote=snaggletooth][quote=Wet_Blanket]Is it normal for an endowment to be in MFs anyways?
Thanks for all the responses. To clarify, this is the foundation’s money, not a board members. They are 501©, so tax efficiency doesn’t matter. And there is no chance I will be able to get the rest of the money, the EDJ guy has been active in the organization and on the investment committee for over 10 years. They are all true believers in American funds (think Tom Bartow, for those of you that means something to). I’m just trying to keep my part in a wrap account, and not get it moved to Am Funds at NAV (I would still probably get the trail, but .25 isn’t really what I’m after).
DVP?[/quote] Hah! Finally got you! DVP = Delivery Versus Payment We have a number of institutional clients that custody their accounts at a bank. The name is probably out of date though - I'm not sure if they still require the stock certificates to be sent to the bank. So basically we trade at whatever broker and send the securities to the bank.[quote=Wet_Blanket]To add to this discussion - are most of the larger endowments DVP accounts or not?
Make sure the client knows about the management fees of the funds. Sure the move would be at NAV but they still charge a management fee. "Instead of paying a MF manager a fee to manage your account just like everyone else, you pay me a similar fee to manage a portfolio tailored specifically to your needs and risk tolerance." FWIWI’m just trying to keep my part in a wrap account, and not get it moved to Am Funds at NAV (I would still probably get the trail, but .25 isn’t really what I’m after).
DVP?[/quote] Hah! Finally got you! DVP = Delivery Versus Payment We have a number of institutional clients that custody their accounts at a bank. The name is probably out of date though - I'm not sure if they still require the stock certificates to be sent to the bank. So basically we trade at whatever broker and send the securities to the bank.[/quote] What, I'm supposed to know the outdated terms every little chop-shop in the area uses?[quote=B24][quote=Wet_Blanket]To add to this discussion - are most of the larger endowments DVP accounts or not?