Commission to Fee Only
[quote=iceco1d]Nope, not at my firm. Anything that’s hit its 3 year anniversary. It’s a brand new “strategic initiative.” I haven’t a) done any transaction biz, b) been a rep for 3 years, so I c) don’t have to worry about it. [/quote]
[quote=anonymous]Intrigued, I’ve always wandered why someone would go fee-only. Simply from the insurance aspect, it seems like a mistake, since you can’t adequately help them in that area. Do you tend to ignore insurance subjects or do you send them to somebody else or are you not fee only?[/quote]
I refer insurance business to someone else. At a future time I may get my insurance licenses and change my adv, but for the present time I have my hands full with what I do now.
It is likely they would get a fee credit depending on how long ago they bought from you, you made a commission. Safest thing to do is avoid converting any existing clients for 2 years unless they ask.
Am I reading this correctly, you are discussing how quickly you can move an A share to fee based? 2 YEARS jw? You have got to be kidding me!! If you start a client with a commisioned product, then later decide that fee based would be better FOR THAT MONEY, you should wait longer than two years. My firm is also 2 years to move, however if you bought something less than 5 years ago, I do not make the move.
Understand 2 years is the minimum. If someone is in A shares with a $500k breakpoint, and it is 2 years later, I really don't see a major problem there. If it was $25k 6 months ago, of course you have to wait a heck of a lot longer. Also remember most firms do a fee credit to reduce fees until the client is made whole on the commissions paid. What is completely wrong is to hit the client for 6% commission, then move them to fee based weeks later, and start charging fees. Every situation must be looked at thoroughly, and best interest of client comes first obviously. I did not realize my previous post needed to go into these details, did not realize the level of cynicism was so high.
How many investment strategies do you give up on after 2 years? Mutual funds are long term investments. If it were a short term investment you should have used C shares. If someone agreed to pay a commission on day one breakpoint or not, I do not believe they should be moved to a fee based account in general. Of course there are unique circumstances that would dictate the move, but in general no. Here is my rule of thumb, (assuming good reason) would you move client to another fund family into another A share? Find me someone who does it in 2 years and I will show you someone who compliance is watching closely. My objection is people taking a good fund and sliding the same fund into a fee based account after a certain amount of time. I do not care if it is 10 years, in my opinion this is wrong.
I’ll second you sentiments, Primo.Unfortunately, you can bet your bottom dollar brokers from every firm in the country are foaming at the mouth to get those A shares converted over to fees. I'm just not a good enough salesman--or unethical enough--to come up with a convincing argument about why a person is better off making the switch in mid-stride. A shares are presented as being the least expensive way for long-term investors to buy mutual funds. A shares should remain as such.
A shares will remain the least expensive way for the long-term investors ro buy mutual funds. Lest expensive doesn’t always mean the best. My Taurus is cheaper than your AMG. That must mean my Taurus is the best car, right.Don't get me wrong, I love A shares. But you have to admit there are some limitations to the model. For instance, I was looking at a client's porfolio yesterday. I used Lord Abbett 2 years ago with this client. Just barely hit the $100K breakpoint. He's not really all that happy with his returns and neither am I. I'd love to do something different with the money, but we're kind of stuck. And internal exchanges don't really gain me anything at LA. My FSD would put me on her speed dial if I made a wholesale change to AMF or FT. So, if we stick with LA it will be a very inexpensive portfolio over the long run. But can I make him enough money to keep him around for the long term? Great service only goes so far. At some point it's all about the Benjamins.
Sorry, my point was that if you have a fee based model, like the one upcoming at Jones, you don’t have to worry about whether or not you can make a switch. You just do it.I'm not going to recommend that my client switch fund families. That would be dumb and make me look like I'm doing it ONLY for the commissions. It is absolutely cheapest for him to stay where he is. LA has always been a fine family and should rebound. But like I said before, can I keep him around long enough to prove it. I'd guess that if a broker from another firm called him today, he'd at least sit down with them to look at their proposal. I'm not dissatisfied with the entire portfolio, just a couple of funds that have underperformed their peers. The rest are doing just fine. And ice - you are correct. They've made some bets, actually left the dance early on some sectors, that have cost them some performance. They've made no material changes to management style or cost. Just did the wrong thing at the wrong time.
[quote=Borker Boy]I love all of the cozy rhetoric about how CSE and relationships are what keep clients around, but I have to call BS on that. People invest money to make money. Period. End of story. I don't have a single client who brought me their money because they wanted a new friend who would give them a phone call every few months. [/quote] Borker, providing good service and ongoing contact prevents clients from talking to other brokers. Example: let's assume we are all average to good advisors. I have a client with 250K. She has made above average returns. I never call her. Her account is down 3% right now, when the rest of the market is down 12%. She thinks she is losing money hand over fist, because she doesn't pay attention to the market, only to the value of her account. Since I never call her, she assumes I am ignoring her because I am losing her money. Now, she meets a nice gentleman at church that is an advisor. He talks to her..."oooooh, you're LOSING money? Well, what is your BROKER advising you to do? NOTHING? Oh my word, we SHOULD talk." Boom, you just lost that account to some schmuck from Primerica because of lack of service. Unless you are seriously underperforming, returns are not why you lose clients. Service is not just about answering the phone and sending birthday cards. It's strategic. You have to get between your clients and other advisors. None of us outperforms wildly over long periods of time, so eventually our day comes when we have to cash in our "good service" chips, so to speak.
After 2 years I have no problem selling off A shares and going to fees with an all ETF or No-load index stategy. This is because the costs moving forward, while slightly more, are worth it. Why? Because we no longer have to worry about breakpoints, I can truly diversify (sorry, AF are all very similar), and I am now paid on OLD money not just on NEW money coming in. This really focuses me on services them rather than chasing new money. Also removes product conflict of interest.The following Borker quote is telling: "The car analogy is one of my favorites, but I use it to convince people that paying me a load is the best thing for them to do. (I'm not personally convinced of that, but I'm in a tough spot since it's impossible to put food on the table while working for free.) " I only do what I am personally convinced of, which is that commissions are not in the best interest of my clients. Therefore I sell the Ashares (we can stop paying the huge marketing costs of the active managers). As for new clients, I say "no cost going in, no cost going out, I prove my worth to you over time (fees) or you can leave anytime". After hearing that, what client wants to pay Jones 3.5-5.75% upfront? Very few.