I’m interested in hearing the various rebuttables to a prospect’s fear of paying annual fees, on top of mutual fund fees, on their assets under management.
Our fimr has a mutual fund advisory program where a fee of 1.25% is assessed. That allows us to purchase A shares at NAV, thus reducing the potential trading costs of rebalancing, getting in/out of money managers, etc. Our firm has an investment oversight committee that actively monitors the performance, style adherence, risk/return characteristics, etc, to make sure the managers in the program are doing what is expected. Also, the program has a quarterly rebalancing feature to keep the portfolio aligned with the clients strategy. All told, the program runs about 1.9% annually. That program, coupled with the fact that an FA is monitoring it as part of the larger strategy, should allow the client to see the value of outsourcing that account…
What blarmston said.
If the client needs professional advisory help (plus all the other service matters that come up in the course of a relationship), they're obviously going to have to pay for it. Advisory fees are one way, loads & trails (i.e., commissions) are another.
If they don't want professional management of the underlying assets (i.e., mutual funds), total costs can be reduced by using ETFs instead of funds.
Ditto all of the above, plus the fact that such a program allows you to select managers from various fund families without breakpoint issues. This prevents the problem of having to use a sub-par manager just because the fund is in the family that you are using for breakpoint discounts.
Nothing raises the hair on the back of my neck more, than when the mere question of justifying fees is raised. I had this conversation just yesterday with a client and a propsect. "The plain fact is I have the ability to manage your account to gain opportunity, and to reduce risk. I know how to do this, in order for me to truly help you, there has to be something in it for me. If after 12 months you don't believe iv'e added significant value or service to justify my fee....you should fire me.
It just kills me that people will go out and blow money on the most rediculous things, yet the fact that they have to pay someone to manage their money (one of the most important jobs behind saving lives) drives them crazy.
I know the answer... I know why this is... The typical investor has not the foggiest clue how we manage money. The concept of moving money out of bonds because of limited opportunity in bonds, and exposing them to international or another area showing promise...which there is no extra charge for....this move is included in the annual fee completely escapes them. They don't understand the simplest aspects of allocation or rebalancing. And there are so many "Stockbroker" horror stories out their, that will substantiate their fears, along with a very sporadic 5 year market. It's no wonder they don't want to spend money investing.
I would love to be in the position to confidently tell a fee concerned prospect. "I really would welcome the opportunity to work with your account. our fee is 1% on every cent in the account. You would be a great addition to our business, and will receive the best service and financial planning in town. We manage a frkn ton of dough for people and institutions, and there are many out there that need help, and feel a 1% fee is fair. If this is an issue for you we may not be a good fit." ...........................prick!
IMHO 1% is an obscene amount of money to pay for most people.
There is a reason advisors are switching from commissions to the 1% fee
rate - it’s a bonanza of cash in an annuity form. We’ve been
using C-shares charging 1% for almost 10 years and most with less than
$75k haven’t heard from us in years over the phone - they just get
I charge the 1% up to $150k and then we charge commissions and use
ETFs, CEFs, individual bonds and stocks with a buy/hold strategy.
With this the client also receives free tax analysis and preparation if
they have the $150k.
Any client with $150k gets just about the same service as a person with $500k so why should they pay a huge amount more?
your right…kinda, we discount as account size grows. I think there comes a time when you realize your own worth, and marketability. What a nice point to reach…when the fee is a consideration only in the eyes of the client. (I am not there, hope to be someday)
Spoken like a true cheap accountant. BTW "c" share expenses average 2% in management fees, your take is 1%. Also 1-2% is not an obscene amount for managed money. No wonder your're charging 1% or commissions for a buy and hold strategy. Buy & hold strategy and actively managed money are not apples to apples. Two different things. To which the latter requires additional fees. BTW buy & hold doesn't cut it for commissions or fees you're charging.
Take a look at the mfd you are using, what are their man fees?
To have a "mutual fund" that is designed specifically for that client, managed for taxes, and with fees being possibile tax deductions... Why would you not use a professional money manager?
... Plus if you are managing stocks, and things go "south", you as the one who picked the stocks are to blame. With a $manager, you can fire that manager and find a new one. But the big plus is, you get to keep the acct, rather than being fired if you choose the investments.
Food for thought!!!
So I should use investment managers because I can then defer the blame
when things so sour? What sort of credit do you expect when
things are going well?
I’m not a fan of “financial planning” for the vast majority of the
public because I feel it is complete overkill. I do believe the
vast majority of the public needs an advisor to help them and someone
to guide them away from major mistakes like investing a major portion
of their money in CDs.
Our industry has all sorts of different opinions. I for one hate
annuities but a huge segment of the industry finds them suitable for
every person. Everyone has a different opinion and a different
set of clients.
I guess it depends on how you want to build your practice. I for one do not want the conversations about individual stocks, who, what, why to buy or sell, cannot get in touch with client half the time. Very high Maintenance. Give me a managed book, where i can appropriately manage money, and have control of my life anyday.
Why do you think financial planning is overkill? Have you ever noticed pople 401K's seem to revolve around a certain level based on their income. As a simple rule of thumb 3x their income, of course their are exceptions (good savers). Don't you think if these people had an advisor show them retirement is going to cost a million or so dollars that they would start saving at an early age and save more rather than spend spend spend? Financial Planning is a way to add value people are learning they can pick funds on their own and save alot in commission costs and their performance is similar to what they're broker could do.
If your never using annuitties your doing a disservice to your clients, like any product it fits for certain situations to say never for all types is doing a disservice, learn the product and learn where it fits. My uncle purchased an immediate annuity in the 80's and locked in a payout based on interest rates in the high teens he couldn't be happier.
I have 3 words for you...... CONFLICT OF INTEREST.
These conflicts are removed when you use a money manager or mutual fund wrap program. I don't care what manager you use Mr. Client. We are on the same side of the table and have the same goal that you have. If you make more money, I make more money. If I call you to make a change, you'll know it's because I think it is best for you, not because I need a commission, not because the manager gave me golf balls last month. I want you to make money.
You get the best manager in each asset class and if one isn't up to snuff, we fire them - Trump Style and move on. If you hate me in 6 months... leave. No penalties, no upfront fees. Simply pay as you go.
Inconsult100 - I really see no arguement against your post. It truly creates a win win situation.
THE NICE THING ABOUT A MUTUAL FUND WRAP ACCOUNT IS THE REBALANCING FEATURE. FOR NO EXTRA CHARGE, OUR FIRM REBALANCES ON A QUART, SEMI, OR ANNUAL BASIS- AUTOMATICALLY. wITH C SHARES, YOU HAVE TO ACTIVELY MONITOR THOSE SWINGS. I WOULD MUCH RATHEWR SIMPLIFY MY LIFE BY HAVING A DISCIPLINED APPROACH INSTEAD OF WINGING IT AND GOING IN RANDOMLY TO REBALANCE.
I’m curious, what exactly is (are) the deciding factors to “fire” a money
manager? and how many times in the past 3 or 5 years have you fired
Is it performance slippage? or personnel changes? is it redundancy in
positions or changes to asset allocation? And why did you select those
managers in the first place?
I guess what I’m driving at is the dreaded word “performance” We and
most all investors are attracted to results. Its the first thing we see when
you look at a firm’s profile. Alpha or beta or r-squared is a distant
Also what value is a financial plan if your assets aren’t performing? I think
the industry has blown smoke up everyone’s asses with this financial
planning stuff. Like the question, “what are your goals?” my simple
answer is "make the most with the least amount of risk!"
Can you imagine your doctor/lawyer asking “what’s your goal today?” I
mean have you seen some of these questionnaires? I’m embarassed to
pull them out because they’re so stupid.