Small account - would like advice

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Dec 19, 2006 4:53 pm

I think AF is a great CORE fund family.  They have great equity-income and growth-income funds (Capital IB, Income Fund of Am, Fundamental Inv, Capital World G&I).  I don't know any fund that has better long-term RISK ADJUSTED returns than Capital Income Builder.  And trust me, I keep looking.  However, they do not have the best growth funds or bond funds.  If I have a lot of money to work with, I will use them as core holdings, then expand to others for Growth and Bonds.  But it's tough if you only have 100K and are trying to hit a breakpoint.  I like Columbia and Templeton Growth for growth.  I like to use Franklin Templeton for their Muni funds and Mutual Shares also.  And here's hoping that Dan Fuss drinks from the Fountain of Youth!  That guy's the REAL bond king.

To be honest, has anyone REALLY heard of someone choosing fund families because of the revenue sharing deals??  I don't even know what each contributes.  I am not even sure how/if I benefit from revenue sharing.  I think it just goes into the company coffers like most brokerage firms.  I would hazard to guess that most Jones IR's pick the fund families that they like the best, that can get them a well-rounded portfolio (in order to hit breakpoints).

Maybe I am just naive.

Dec 19, 2006 5:06 pm

24, I agree with you.  I was at Jones over 2 years before they even told us about revenue sharing. And, like you said, I didn't even know how much each fund family contributed until that stupid revenue sharing letter came out.

Because I never received a bonus, and did not have LP or GP, the only money that went into my "pocket" due to Revenue Sharing was some piece of the profit sharing contribution (which was usually 3% to 5% of my net) I received each year.

Dec 19, 2006 6:42 pm

[quote=blarmston]

American Funds have great investment options-but
they arent the godsend that some FA’s claim them to be. I would put any
of Tom Marsico’s LC Growth funds against Growth Fund anyday.

 (Snip)

I feel the trus value we can bring to the table is being able to sift through the myriad of managers out there and find those managers who consistently add alpha, ultimately ending in higher account values than one would see with AF's.[/quote]

I'm a hard core value guy, but I have to admit Marisco is very good at what he does. The international oppertunities fund is nice.

My own philosophy is that clients are over exposed to the US market, because they live in this country. Hence the need for more overseas exposure. Since I can't spend the time to pick stocks overseas, then I can add value by recomending a good overseas fund.

Long term, performance sells!!

If you arent going to pick stocks, at least pick funds.

Dec 19, 2006 6:55 pm

Broker and now:  you are right up to a point.  But the point is EJ guys and gals sell what is put in front of them–or hopefully the BEST of what is put in front of them.  But guess what is put in front of them (or has been in the past) almost exclusively?  Start with pre and ends with furred (misspelling intentional).

Dec 19, 2006 9:33 pm

I do know of EDJ brokers that sold Hartford, Putnam and others because of profit sharing.  They convinced themselves that it didn’t matter what fund family you used because they’re all good (or they wouldn’t be preferred!) and asset allocation makes up 90% of the performance.  So they figured why not sell the fund families with the highest ytb (yeild to broker).  

Dec 19, 2006 10:17 pm

The point is- there are numerous options out there that consistently beat AF's. Our job is to find those opportunities and place our clients assets in them.

I love seeing a brokerage statement that has 90% in 4 AF's. I can rip that strategy to shreds.

"Mr. Prospect, you have 600K with UBS (SB, MS, whatever). 550K of your Rollover IRA is with American funds. Do you really think, given the capabilties and options your current broker has, that your money is in the best possible place?"

Dec 19, 2006 10:45 pm

I would bet blarmston that you don’t run into many EDJ accounts. You
are obviously dealing with HNW individuals and I agree that they do
need and deserve better investments. Here again though, for your
$250,000 client, AF is great. If you do run into EDJ accounts, have you
seen any of the MAP through Goldman yet. I met a million dollar
producer w/EDJ that does a good bit of these. He is in a very affluent
area and has a lot of 401ks.

Dec 20, 2006 12:29 am

[quote=rook4123]I would bet blarmston that you don’t run into many EDJ accounts. You
are obviously dealing with HNW individuals and I agree that they do
need and deserve better investments. Here again though, for your
$250,000 client, AF is great. If you do run into EDJ accounts, have you
seen any of the MAP through Goldman yet. I met a million dollar
producer w/EDJ that does a good bit of these. He is in a very affluent
area and has a lot of 401ks.
[/quote]



Everyone needs and deserves better investments



Which is why I keep banging on about target date funds/risk allocation
funds, if you can’t manage the accounts investments properly, then make
sure it is invested in something that is self managing.



Blarmston, (I think) would have a hard time convincing someone that say
90% allocated to an American Century Livestrong fund, and 10% to PIMCO
Real Return, that their assets weren’t well managed in the context of a
small account.



But to see just four AF in a large account suggests that someone isn’t
adding alot of visible value. Otherwise how did these account
statements end up infront of another advisor to critique.



 


Dec 20, 2006 1:01 am

You will be hard pressed to find a lot of people in New England who have even heard of American Funds.  I know they are huge in the west, but around here we have Fidelity, Vanguard, Putnam, MFS, and insurance cos. like Hancock, Pru.  I had never even heard of American until a few months ago but my brother in law is a wholesaler in AZ and competes against them.  I guess they are like the Fidelity of the west?  Of course, I am not a broker, just a hobbyist. 

Dec 20, 2006 1:47 am

Cowboy and Vagabond - a couple things:



1. I am constantly in pursuit of a family of funds that can beat the risk

adjusted returns at American. Not because I dislike them, because I just

want to prove to everyone that they are out there, and to give me some

more options. But it is REALLY hard to do! I do use other preferred

funds(Franklin Templeton, Federated, Goldman), as well as non-

preferred’s (sparingly), but American is a really good core family to use.



2. So, how exactly do I benefit directly from revenue sharing? You stated

that the brokers you know used preferred funds to improve the YTB. But

how does a higher revenue share improve MY yield? I have yet to see

anything that comes directly to me. Maybe it used to and has changed in

the last year?(before I joined The Firm).

Dec 20, 2006 2:40 am

[quote=barharbor1]You will be hard pressed to find a lot of people in
New England who have even heard of American Funds.  I know they
are huge in the west, but around here we have Fidelity, Vanguard,
Putnam, MFS, and insurance cos. like Hancock, Pru.  I had never
even heard of American until a few months ago but my brother in
law is a wholesaler in AZ and competes against them.  I guess they
are like the Fidelity of the west?  Of course, I am not a broker,
just a hobbyist. [/quote]



IMHO (And this advice is worth what you paid for it, not a solicitation to buy/sell etc etc etc)



Boston is a big hub for money management.



It’s where Fidelity,Putnam, and a whole bunch of insurance companies
were based/developed. Alot of smaller companies you never heard of like
Wellington Asset and Loomis and Sayles, are located in boston, and they
subadvise many other fund families. L/S’s Dan Fuss is one of the best
fixed income managers out there. (Easiest way to acess Dan Fuss is via
Managers Bond Fund)



So if you are in the northeast its what you grew up with and knew.



Who does your brother wholesale for?

Dec 20, 2006 3:23 am

barharbor1, 

The reason that you never heard of American Funds is probably because:

1)You are brand new to the industry.
2)You never paid much attention to the industry before getting involved.
3)American Funds doesn't advertise.

4)You've only had one or no jobs in the past that had a qualified retirement plan.

Are my guesses correct?  I'd be very surprised if in NE over the last 5 years, American Funds has not had as much inflows as any other family.

Blarnstorm, I'd be concerned about someone recommending changes to an $800,000 "A" share American Funds portfolio.  We're talking about funds with a great long term track record of success and depending on the mix of funds, the investor is paying total annual expenses of around .7%.  How much is it going to cost the person to make the change?  How much additional is it going to cost the person on an annual basis?  What do you have to offer that you have a great certainty that it will beat the AF portfolio by more than this cost difference?  (I'm not talking about selling AF vs. something else.  I'm simply talking about replacing them.) 

Dec 20, 2006 3:50 am

[quote=barharbor1]You will be hard pressed to find a lot of people in
New England who have even heard of American Funds.  I know they
are huge in the west, but around here we have Fidelity, Vanguard,
Putnam, MFS, and insurance cos. like Hancock, Pru.  I had never
even heard of American until a few months ago but my brother in
law is a wholesaler in AZ and competes against them.  I guess they
are like the Fidelity of the west?  Of course, I am not a broker,
just a hobbyist. [/quote]



barharbor

American Funds are one of the largest fund families. They are big
everywhere. I would look into them. Matter of fact, they might be the
largest now.

Dec 20, 2006 3:54 pm

"Blarnstorm, I'd be concerned about someone recommending changes to an $800,000 "A" share American Funds portfolio.  We're talking about funds with a great long term track record of success and depending on the mix of funds, the investor is paying total annual expenses of around .7%.  How much is it going to cost the person to make the change?  How much additional is it going to cost the person on an annual basis?  What do you have to offer that you have a great certainty that it will beat the AF portfolio by more than this cost difference?  (I'm not talking about selling AF vs. something else.  I'm simply talking about replacing them.) "

I dont think I ever suggested that I would blow out AF A-shares and do something completely different. A good holding to keep would be the Income Fund, and then I would either reallocate to some of our CDP managers who would add alpha, or simply add on several MF managers that are better than AF in their respective asset class.

I will give one example. I would trade in Europacific ANY DAY to have international exposure through Janus Advisor International Growth and Alliance Bernstein International Value. Those two funds hit every capitalization, with a healthy weighting to emerging markets as well. Run the numbers- those two funds consistently outperform Euro on a risk-adjusted basis.

Thats our job- to find the best managers and give our clients access to them.

Dec 20, 2006 5:44 pm

[quote=Broker24]Cowboy and Vagabond - a couple things:

1. I am constantly in pursuit of a family of funds that can beat the risk
adjusted returns at American. Not because I dislike them, because I just
want to prove to everyone that they are out there, and to give me some
more options. But it is REALLY hard to do! I do use other preferred
funds(Franklin Templeton, Federated, Goldman), as well as non-
preferred's (sparingly), but American is a really good core family to use.
I agree 100%.  I have no issue with anyone using AF, and I too would love to find another option that is just as good.  My issue is that if you are building an A share portfolio of more than one or two funds and using anything other than AF, then I think you have a hard time justifying this. 
2. So, how exactly do I benefit directly from revenue sharing? You stated
that the brokers you know used preferred funds to improve the YTB. But
how does a higher revenue share improve MY yield? I have yet to see
anything that comes directly to me. Maybe it used to and has changed in
the last year?(before I joined The Firm).
You probably don't benefit, yet.  You benefit once you are profitable and eligible for bonus.  Revenue sharing is like trails, it starts small but adds up as you grow assets.  The difference today is that EDJ now combines the Rev Sharing from the different funds and pays you based on your average MF assets, they used to pay you based on how much of each Fund Family was in your book (If you had $10M in Hartford your Rev Sharing was much higher than if you had $10M in AF, now it is the same) . 

I know that there are a lot of EDJ brokers who didn't know what Rev Sharing was or what the differences between Preferred Funds were until the issue became public.  HOWEVER, I do know EDJ brokers who DID understand Revenue Sharing and built their book based on what funds would pay them the most.  I also had Preferred Fund vendors show me "unofficially" the difference that building a book of their funds would make to my future income.  So now whichever Preferred Fund the individual broker chooses has little effect on his/her bonus, but EDJ has a huge incentive to keep pushing higher paying Preferred Funds.   
I'm not saying all EDJ brokers are bad.  Most are basically honest folks with good intentions.  But if you are selling funds other than AF, look at why you are doing it.  Is it really because they offer something different or better (e.g. REITs, GS Asset Allocation, Franklin Income), or is it because you have been convinced by the propaganda that you need to "diversify" your book.     

Also remember that originally williebrown was asking about his account.  Everyone has assumed he had AF (I don't believe he ever confirmed this).  I was merely trying to point out that if he does have AF, it is hard to fault his broker.  If he doesn't have AF then he may have reason to question the motives of EDJ. 

 

[/quote]

Dec 21, 2006 2:15 am

[quote=williebrown]First off - I am not a broker and apologize if I am not welcome here.
I recently found out that all the funds my Edward Jones rep has recommended to me were in their "preferred family" of funds and I feel that he has been less than honest with me. He has my Roth IRA ($33,000) and I intend to transfer it, but have no idea where.
I am leaning toward T. Rowe Price, but I wonder if it would be worth my time to go to my local bank and inquire about any financial planning they offer.
I am at a loss as to where to go, and wonder what the professionals would advise a person with a small account.
Thank you very much for your time. [/quote]

You shouldn't trust any broker who would take an account as small as yours.