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Nov 18, 2005 9:29 pm

Our industry has a history of jumping on a bandwagon and letting it
ride until clients revolt.  Fee based accounts are a major recent
addition.  I’ve always offered clients the choice of commissions
or a flat fee for AUM and clients have always chosen fees for the past
5 years.  That is until the last few months.  We’ve had new
clients and 3 current clients actually request to make the transition
back to commissions. 



The main reason?  Every one of them thought they would get better
service if we used commissions.  Think there could be a move back
in the other direction?  RIAs can’t compete with the commission
model.

Nov 18, 2005 9:37 pm

Alot of clients know that in a fee based acct, if there is a need to move money it's for a good reason not just for the broker to "make a sale".

for instance...

Had a client that was thinking about picking up some GM (back awhile ago).  Ironically, his broker called and said, "I think it's time to sell your GM." 

Client then replies, "Oh, I was thinking about buying some more."

Broker reply...  "That's not a bad idea either."

At that point the client realized his broker wasn't calling him with an unbiased stock idea, he was calling him to make some money!

Nov 18, 2005 9:42 pm

I think if you clearly communicate to the client what they get for the fee. (i.e. quartlery reviews, fin planning, and regular communication) they will not feel that the fee is a park and forget program that wont get much attention from the advisor.

The desire for current clients to switch back to commissions would make me reevaluate my practice and the value I am providing for my fee.

Nov 18, 2005 11:08 pm

[quote=Beagle]Our industry has a history of jumping on a bandwagon and letting it ride until clients revolt.  Fee based accounts are a major recent addition.  I've always offered clients the choice of commissions or a flat fee for AUM and clients have always chosen fees for the past 5 years.  That is until the last few months.  We've had new clients and 3 current clients actually request to make the transition back to commissions. 

The main reason?  Every one of them thought they would get better service if we used commissions.  Think there could be a move back in the other direction?  RIAs can't compete with the commission model.
[/quote]

Beagle,  you must be lacking in skills to conduct your Quarterly Reviews, my clients always say "I wish you would have done this years ago, I really understand what is happening on my investments and what we are striving to acheive."  Those comments I never got with a Transaction acct only.   You need HELP.............TALK TO YOUR firm......................

PS: Referrals have really increased since we moved to FEE BASED business  

Nov 22, 2005 4:09 pm

So when you were commission based you didn’t meet with your clients on
a regular basis and develop a strategic plan?  It took a switch to
fee based billing structure for you to incorporate these ideas?



I’ve always been honest up front that commissions were MUCH cheaper for
my clients.  I roughly turn over 20-25% of a portfolio each
year.  With commissions they will be billed about .4-.5%. 
With a fee based account they will be charged 1%.  Their service
is the exact same either way. 



I spoke with our local financial planning journalist about what I’ve
seen.  He said the last time he wrote an article recommending
people use only fee based planners and avoid all commission planners he
received his first complaints ever from the non-professional community.


Nov 22, 2005 6:25 pm

Was just notified the local paper ran an article that the NASD fined a
local firm for putting all clients into asset fee accounts and not
providing enough ongoing services.  Haven’t a clue if this is true
or not as I haven’t seen the article.  Would explain the clients
motivations.  Talked to an advisor up the block who said he’s seen
the same sort of activity.

Nov 22, 2005 7:18 pm

I don't see how a transaction fee has anything to do with the timing of an investment or the service/communication you provide.  To suggest that commissions are "bad" and "fees" are good, is pretty naive. 

Nov 22, 2005 8:07 pm

The fines were for the advisors not being affiliated with an RIA.

Nov 29, 2005 5:24 am

[quote=skeedaddy2]

I don't see how a transaction fee has anything to do with the timing of an investment or the service/communication you provide.  To suggest that commissions are "bad" and "fees" are good, is pretty naive. 

[/quote]

Intellectually you're correct skeedaddy2 but political correctness wise you're out of touch. Regulators, direct merchants and now dealers all want the fee system so commission are bad and fees are good. Is it empirically pretty stupid to apply this on a broad base? You bet. Is it reality? You bet!

Nov 29, 2005 11:53 am

[quote=Beagle]So when you were commission based you didn’t meet with your clients on
a regular basis and develop a strategic plan?  It took a switch to
fee based billing structure for you to incorporate these ideas?



I’ve always been honest up front that commissions were MUCH cheaper for
my clients.  I roughly turn over 20-25% of a portfolio each
year.  With commissions they will be billed about .4-.5%. 
With a fee based account they will be charged 1%.  Their service
is the exact same either way. 



I spoke with our local financial planning journalist about what I’ve
seen.  He said the last time he wrote an article recommending
people use only fee based planners and avoid all commission planners he
received his first complaints ever from the non-professional community.


[/quote]



This is a wise post.  The fee charged in Wrap accounts is not
paying for the reviews, the planning, and the service!  The fee is
to replace the commissions.  If the supressed commissions are far
less than the fee being charged the regulators will have a problem with
that account…PERIOD!  If you want your “fee” to pay for planing
and reviews, you have to be covered under the 1940 Act as an RIA or get
in an approved discretionary program where you are the portfolio
manager, not the advisor.  THis issue will get much bigger before
it goes away.

Nov 29, 2005 9:46 pm

A wrap account doesn’t have to be cheaper for a rep to justify it as
the client may see the lack of a conflict of interest and value it
highly.  But the fee IS a replacement for commissions.  It
isn’t a fee for extra service. 



Firms have every reason to want fee based accounts.  When the
advisor is fired, quits or retires in a few years, they don’t have to
do much work to keep the funds flowing.


Nov 29, 2005 9:56 pm

[quote=Beagle] Firms have every reason to want fee based accounts.

When the advisor is fired, quits or retires in a few years, they don’t have to

do much work to keep the funds flowing.[/quote]



Finally, someone with some balls has come right out and called it for what it

is. The real benefit isn’t for the client so much as for the firm.



When you trade too much in a fee account, you get reprimanded. When you

trade too little in a fee account, you get reprimanded ( as I did in 2002 when

I carried high levels of cash in accounts…in the clients best interest).



Firms can’t decide just how they want it.   

Nov 30, 2005 1:57 pm

[quote=skeedaddy] [quote=Beagle] Firms have every reason to want fee based accounts. 

When the advisor is fired, quits or retires in a few years, they don’t have to

do much work to keep the funds flowing.[/quote]



Finally, someone with some balls has come right out and called it for what it

is. The real benefit isn’t for the client so much as for the firm.



When you trade too much in a fee account, you get reprimanded. When you

trade too little in a fee account, you get reprimanded ( as I did in 2002 when

I carried high levels of cash in accounts…in the clients best interest).



Firms can’t decide just how they want it.    [/quote]



If your strategy and advice was to hold cash you should have moved the
cash to a non-fee based account and linked the statements.  The
fee is NOT for your advice (It could be in a discretionary account, but
you would never get a strategy of holding cash for a fee
approved).  You should have been remrimanded. 

Nov 30, 2005 2:29 pm

Rightway wrote:

"If your strategy and advice was to hold cash you should have moved the cash to a non-fee based account and linked the statements.  The fee is NOT for your advice (It could be in a discretionary account, but you would never get a strategy of holding cash for a fee approved).  You should have been remrimanded." 

Rightway, the fee may well be for advice if the account was an advisory account instead of a fee-based brokerage (fee in lieu of commission) account.  It doesn't have to be discretionary to be an advisory account.

Nov 30, 2005 3:17 pm

Justify it any way you like…we need to get paid…that boys and girls, is what the commissions and fees are for.

Nov 30, 2005 3:32 pm

Its funny but no clients complained about preserving assets while the market tanked 25%.  The only ones complaining was management. 

Management even asked me to transfer accounts back to commission structure.  I said fine, you call the client and tell him why.   

Nov 30, 2005 3:37 pm

I guess that's why I never got any accounts reassigned to me after most of the rookies in the office blew up.  Litigation costs and arbitrations were at a peak and they want me to close down a fee account because the account is "under invested".

Why does management always get more than their share of assholes?

Dec 1, 2005 2:29 am

It is not management and it is not an issue of us getting paid. 
It is a matter of the law. Your advice to hold cash was good advice,
but you cannot be directly paid for that advice unless it is an
advisory account, which you were not.  If you wanted to be paid,
you would had to have placed it in a fixed annuity or some other
product that paid a commission.  None of us like it, but it is a
fact of the law. 



Knowing this allows us to manage to it, arguing about it and blaming others is a waste of time.