Using Morningstar ratings?
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May 22, 2009 9:57 pm
I’m a little confused here and just looking for help. I’m still pretty new to the full service brokerage world.
I'm at a local indy OSJ and I love it; freedom, product spectrum, etc. One caveat is though I seem to have a different perspective on investments than everybody else. Almost every advisor in my office uses Morningstar ratings when they're recommending funds and make it a point to say, "It's a 2 star fund, so we're going to drop it". I'm not a CFP but I took the coursework and from what I remember in my investment course, those ratings change all the time b/c they use rolling periods. And from what I think, it's idiotic to use mstar ratings to determine whether or not which fund to use. So my question is what am I missing here, if anything? I went to Mstar's website to confirm what I thought I already knew that it depends on the rolling period of returns (1,3,5, 10 I believe) and use that as the MAIN focus on the star ratings. Is it me? Also, another question for everybody else just so I can understand how other people operate. In my opinion, I'm an FA and my job is to prospect and make new clients and once I have enough clients, to service them. And if they're eligibile for turn key fee based pfolio, that's what I'm putting them in b/c I don't want to monitor pfolios and do rebalancing for two reasons. 1) I don't think I have enough knowledge to do that as CFA's and other individuals do that for YEARS and still haven't mastered it, so how the hell can I, so I'd rather delegage it out 2) I just don't want to be bogged down rebalancing all the damn time. So my 2nd question is how do you guys operate with clients when they have accounts eligible for fee based relationship and they want it; do you manage it or do you let the analysts and money managers do it? Obviously if I have someone with over $100 and all they want to do is buy fixed income, I'll do that all day. Again, people at my firm actually manage it and rebalance all the time, so while I'm making calls, they're on the excel spreadsheet and making trades to rebalance, which drives me crazy. I'm just trying to get some different opinions.1st point - you’re right. Who is the advisor? Is it Morningstar or is it the person who is in charge of the relationship? Again, I think your perspective is right on.
2nd point - You're thinking as a business owner and not an employee. That's good. I wouldn't want to manage all those portfolios manually myself either. Your job as a business owner is to not only keep your financial costs as low as possible, but to keep your future time commitments as minimal as needed to service your clientele. Not everyone budgets or keeps in mind their future time commitments in this way.I saw a study once that showed 1 star funds (from the day they became a 1 star fund) outperformed 5 star funds (again from the day) over a three year period. FWIW
army you are absolutely on the right track. using after the fact ratings to gauge future performance is a joke. our job isn’t to find the best performing investment, it is to put our clients in investments that will align them with their goals
KensLoveChild:
Not trying to be a jerk but are you serious or being sarcastic? It's kind of hard to decipher that on a forum. And what specifically are you referring to? Everybody else, thanks for the insight. I thought I was doing something out of the ordinary but I guess the beauty of this business is that people can manage their practice the way they want.Army- That is one of the best mission statements I’ve seen for an FA.
[quote=Sam Houston]
I saw a study once that showed 1 star funds (from the day they became a 1 star fund) outperformed 5 star funds (again from the day) over a three year period. FWIW
[/quote] I would love to see that; do you remember where you saw it?thats called reversion to the mean and is well known among those of us who actually invest cclient $$$.
MinimumVariance:
Oh, so you actually analyze and pick the exact holdings for all of your clients ?thats called reversion to the mean and is well known among those of us who actually invest cclient $$$.
I know. I was being sarcastic. He was obviously taking a shot at advisors who don’t pick the exact investments for their clients.
army13A:
I hope this isn't part of your Investment Policy Statement that you give your new clients. Speaking of this, and I don't wanna throw Army out as the martyr for my point, since I'm sure what he said isn't exactly how he runs his biz. But if our job is to do whats best for our clients, and they aren't getting properly serviced until the advisors biz is running up to what they consider its highest potential, then wouldn't it be best for a client to latch on with an advisor that already has an established practice (and is still willing to take on quality clients)? I don't necessarily think this is accurate (in many cases), but there's definitely something philosophical about what is best for the advisor who is building a business vs. what is best for a client who is looking for an advisor to give them the quality service they think they are paying for.In my opinion, I’m an FA and my job is to prospect and make new clients and once I have enough clients, to service them.
3rdyrp2:
homosaywhat?
I hope this isn't part of your Investment Policy Statement that you give your new clients. Speaking of this, and I don't wanna throw Army out as the martyr for my point, since I'm sure what he said isn't exactly how he runs his biz. But if our job is to do whats best for our clients, and they aren't getting properly serviced until the advisors biz is running up to what they consider its highest potential, then wouldn't it be best for a client to latch on with an advisor that already has an established practice (and is still willing to take on quality clients)? I don't necessarily think this is accurate (in many cases), but there's definitely something philosophical about what is best for the advisor who is building a business vs. what is best for a client who is looking for an advisor to give them the quality service they think they are paying for.[/quote][quote=army13A]In my opinion, I’m an FA and my job is to prospect and make new clients and once I have enough clients, to service them.
homosaywhat?
3rdyrp2:
I hope this isn't part of your Investment Policy Statement that you give your new clients. Speaking of this, and I don't wanna throw Army out as the martyr for my point, since I'm sure what he said isn't exactly how he runs his biz. But if our job is to do whats best for our clients, and they aren't getting properly serviced until the advisors biz is running up to what they consider its highest potential, then wouldn't it be best for a client to latch on with an advisor that already has an established practice (and is still willing to take on quality clients)? I don't necessarily think this is accurate (in many cases), but there's definitely something philosophical about what is best for the advisor who is building a business vs. what is best for a client who is looking for an advisor to give them the quality service they think they are paying for.[/quote] I never said I wasn't properly servicing my clients and it was my fault for not being specific. Once I have enough clients, my SOLE JOB would be to service them and not have to prospect that hard. I meet my existing clients on a quarterly basis and we have an agenda that we follow in regards to that. The point I was trying to make is what is an Advisor supposed to do: do an analysts job (balance and rebalance portfolios) or be the conductor of the financial orchestra for the client and manage all the moving pieces as the investment piece is just ONE piece of the pie. The guys that I see that try to be investment gurus for the clients and focus on returns are the ones who aren't talking to the clients about how their estate would be settled if they would pass away tomorrow or how under insured they are. As for your point on what's best for a client, it depends on the client. All clients have different expectations on what kind of service they expect. Some of my really good clients are content with just meeting once a year and we talk over the phone during the year and some want at a minimum quarterly appointments, so it's kind of hard to say which clients should be with an "established" advisor versus a new advisor. And how do you define quality service? When I was at my last firm (big bank based brokerage), the "established" advisors would recommend that the client should name the beneficiary of their IRA as their estate if they couldn't think of a person to name or that "buy term and invest the difference" is the only way to be insured without the thought of permanent insurance.[quote=army13A]In my opinion, I’m an FA and my job is to prospect and make new clients and once I have enough clients, to service them.
Army you are on the right track. Don’t let the clowns try to pick apart each and every comment.
army13A:
The reality is this is a 10 minute conversation. [quote=army13a]And how do you define quality service?[/quote] I think its the advisor's mindset. If someone says, "Once I have established a practice, at that point I'll be able to REALLY focus my time on my existing clients and service them to the max." That sentence says that there's a higher level of service that will be given down the road. Its not clearly defined, and for each advisor its probably different. For some, it may be a quarterly non-biz call to see how things are going personally. For some it may be to schedule a round of golf once a week during the summer with 3 clients. And for some, it means that while their in the acquisition phase, they will put their clients in Oppenheimer or American fund A shares until they have more time to put together real portfolios for their clients. Different for everyone.The guys that I see that try to be investment gurus for the clients and focus on returns are the ones who aren’t talking to the clients about how their estate would be settled if they would pass away tomorrow or how under insured they are.
3rdyrp2:
The reality is this is a 10 minute conversation. Really? 10 minute conversation? So when you have them sit down with an Estate Planning Attorney to set up a Revocable Living Trust to avoid probate or set up a QDOT Trust for the client with a non-citizen spouse or set up an ILIT for the individual whose trying to get the life insurance out of his gross estate, that's 10 minutes? Or do you just give them the card of an attorney you know and say, "Hey, you should get your will done"? Because I actually go with my clients to the Attorney to make sure that everything they told me they wanted is conveyed to the Attorney. [quote=army13a]And how do you define quality service?[/quote] for some, it means that while their in the acquisition phase, they will put their clients in Oppenheimer or American fund A shares until they have more time to put together real portfolios for their clients. [/quote] My team puts together good portfolios now. I do the risk tolerance questionnaire and then I hand it off to our Investment Advisory Team who have a bunch of analysts and CFA's who track everything about a company that we as non-analysts can never even think of and they put together a pfolio that's best suited for the client. So let me get this straight . . .When you were in the building phase of your practice, I'm sure when you came across clients who needed great service, you told them that you wouldn't be able to provide them the service that they want and that they should work with another advisor who is more established and you'll re-engage them when you're established. BTW, I think this is a good civil conversation.[quote=army13A] The guys that I see that try to be investment gurus for the clients and focus on returns are the ones who aren’t talking to the clients about how their estate would be settled if they would pass away tomorrow or how under insured they are.
Ron 14:
Ominous, buyandhold and Ron, thanks for confirming my train of thought.I know. I was being sarcastic. He was obviously taking a shot at advisors who don’t pick the exact investments for their clients.
army13A:
The reality is this is a 10 minute conversation. Really? 10 minute conversation? So when you have them sit down with an Estate Planning Attorney to set up a Revocable Living Trust to avoid probate or set up a QDOT Trust for the client with a non-citizen spouse or set up an ILIT for the individual whose trying to get the life insurance out of his gross estate, that's 10 minutes? Or do you just give them the card of an attorney you know and say, "Hey, you should get your will done"? Because I actually go with my clients to the Attorney to make sure that everything they told me they wanted is conveyed to the Attorney. [/quote][/quote] Absolutely not. It should take 10 minutes to determine if they are underinsured and have an estate that would benefit from an ILIT. The implementation part is what will take longer. Its like determining a risk tolerance for a client. It should take 30 seconds to find out someones risk tolerance, but that doesn't mean I'm saying it should take 30 seconds to put together a portfolio for a client based off of whatever risk tolerance they have. The point is you don't have to spend 45 minutes talking about who your client wants to leave their treasured crystal vase to for them to get the sense that you care about their estate plan. [quote=army13a][quote=3rdyrp2][quote=army13a]And how do you define quality service?[/quote] for some, it means that while their in the acquisition phase, they will put their clients in Oppenheimer or American fund A shares until they have more time to put together real portfolios for their clients. [/quote] My team puts together good portfolios now. I do the risk tolerance questionnaire and then I hand it off to our Investment Advisory Team who have a bunch of analysts and CFA's who track everything about a company that we as non-analysts can never even think of and they put together a pfolio that's best suited for the client. So let me get this straight . . .When you were in the building phase of your practice, I'm sure when you came across clients who needed great service, you told them that you wouldn't be able to provide them the service that they want and that they should work with another advisor who is more established and you'll re-engage them when you're established. BTW, I think this is a good civil conversation. [/quote] Me too, I like these types of conversations because it gets me thinking. We all have our business plans and ideas for how our clients will benefit more from being our clients instead of the guy down the street, so I respect everyones approach. With the way my company works, our Investment Team of CFA's and analysts were hired by the company to put together model portfolios from Conservative to Aggressive from a list of like 25 funds. Its a new concept and it doesn't have any type of track record we can show clients, other than to tell them about Wilshire and Associates and how they are well respected in the industry, blah blah blah. We're starting to use it w/clients but haven't bought in completely, yet. We're seeing who's open to the strategy, and giving it a year or two and then comparing it to the grid we use for our portfolios.[quote=3rdyrp2][quote=army13A] The guys that I see that try to be investment gurus for the clients and focus on returns are the ones who aren’t talking to the clients about how their estate would be settled if they would pass away tomorrow or how under insured they are.