[quote=rialsoon]I'm sure your clients are attracted to your experience and advice - big picture skills and leadership. So broker dealer or RIA, things are converging from the client's point of view. But I think competition/awareness/evolution are saying, there is room for a client to pay us a fee for advice and service, but the money the profit margins are being compressed, and that is why LPL is paying 90% to the rep, and things like annuities that pay 8% commission, no matter what you think of them, these are coming under increasing scrutiny just from a cost point of view, and so what Allreit is saying, even though the broker dealers are fighting the rear guard, it is an exit strategy, and what will be left is us servicing our clients under more efficient platforms, helped along by the regulators and increasingly lobbyists for non broker dealer interests, and it will look like the demise of the old kind of photography from a business textbook case point of view. It will end, as the financial planning profession sees it, with the crucifixion of traditional insurance company products and jobs and behaviours like Bobby's. [/quote]

If that's what you have to tell yourself to avoid the fear of good salesmen, I'm all for it. How well did Al Gore and John Kerry do when they whined about the competition?

Nothing personal.  Ironic that you use the example of liberal whining to try to prop up what market forces must inevitably tear down. You will either adapt or pitch something that " pays ".

[quote=rialsoon]Nothing personal.  Ironic that you use the example of liberal whining to try to prop up what market forces must inevitably tear down. You will either adapt or pitch something that " pays ". [/quote]

These market forces you're talking about....? Why does my business keep expanding? According to you, it should be shrinking. As long as you kids are wrapping fees around MF's and stocks, I'll be just fine. "The FIRST thing I'm gonna do is turn off the broker meter for you..."

" The first thing I'm gonna do is get rid of the broker dealer for you. And in the case of Bobby, he gets a big commission up front - about seven years pay up front, to be precise. Oh yeah, his insurance company spends the next seven years squeezing that money - plus a lot more - and remember, this is a contract, you share your experience with the other insureds, so the insurance company can't lose.

And then there is the broker dealer story, and all of their cozy relationships and arrangments....

Most people who want to work with and advisor don't mind paying, but they want to pay as they go along.

Bobby will say his plan is cheaper - of course that annuity contract is sucking out plenty of money - and since Bobby gets paid up front, thinks it's stupid to be a CFP, you know, a real professional planner that give comprehensive advice and insight as we go along, well, you may have trouble getting Bobby's attention if you need help with other things.

An guess what, in about seven years, Bobby will be asking you to roll into a new contract - you'll be locked in again, and the likehood that your costs will go down is - small - since Bobby will earn another seven year paycheck.

On the other hand, you've heard me, and you know Bobby, so now you have a choice. And if you want to work with Bobby, I think that's great!

[quote=rialsoon]

" The first thing I'm gonna do is get rid of the broker dealer for you. And in the case of Bobby, he gets a big commission up front - about seven years pay up front, to be precise. Oh yeah, his insurance company spends the next seven years squeezing that money - plus a lot more - and remember, this is a contract, you share your experience with the other insureds, so the insurance company can't lose.

And then there is the broker dealer story, and all of their cozy relationships and arrangments....

Most people who want to work with and advisor don't mind paying, but they want to pay as they go along.

Bobby will say his plan is cheaper - of course that annuity contract is sucking out plenty of money - and since Bobby gets paid up front, thinks it's stupid to be a CFP, you know, a real professional planner that give comprehensive advice and insight as we go along, well, you may have trouble getting Bobby's attention if you need help with other things.

An guess what, in about seven years, Bobby will be asking you to roll into a new contract - you'll be locked in again, and the likehood that your costs will go down is - small - since Bobby will earn another seven year paycheck.

On the other hand, you've heard me, and you know Bobby, so now you have a choice. And if you want to work with Bobby, I think that's great!

[/quote]

I won't have to say a thing...I'll just tape a note to the back of a dog...

Most people who want to work with and advisor don't mind paying, but they want to pay as they go along.

I don't agree.  If you said that most people want to work with someone earning up front commissions, I also wouldn't agree.

Your clients work with you because they like you and trust you and feel that you can do a good job for them.  It has very little to do with how you get compensated.

[quote=$ N the Bank]

Hey Mike read line two.  This is fresh off the Morgan Stanley site and says everything very well.

[/quote]

Is any of that supposed to be news?

[quote=anonymous]

Most people who want to work with and advisor don't mind paying, but they want to pay as they go along.

I don't agree.  If you said that most people want to work with someone earning up front commissions, I also wouldn't agree.

Your clients work with you because they like you and trust you and feel that you can do a good job for them.  It has very little to do with how you get compensated.

[/quote]

Commisions let people feel like they are in control of what they are paying.

Let's take a closer look.

Okay, Bobby has an annuity here that has no surrender charge. The total expenses to you, if it was all invested in the stocks of large companies, for example, is about 2.4% .

And you get certain guarantees, in this case, if you die, your heirs will never get less than what you put in. Is that important to you?

Bobby still gets paid up front, and he still thinks it's stupid for a financial planner to be a Certified Financial Planner Practitioner, 'cause he's busy looking for the next sale ( he makes a lot of money, but he wastes a lot of it in taxes).

Now, if we get rid of the broker dealer, and the insurance company, will pay me 1% as we go along. This will be deducted from your account, unfortunately, I have a lot of costs, but I'm still well paid and focused on you and my other good, long term clients that all come to me by referral, in this case from your CPA.

And that suggests that your CPA understands the comparative advantage of getting rid of the broker dealer. Not just costs, but all of the other apparent conflicts of interst.

Anyway, you pay 1%, plus the exchange traded fund we'll be using costs another .2%. And every time we trade a fund, you will be charged about ten bucks.

So that's about 1.2% vs. 2.4%, but that is not where the story ends. The reason my program is better than Bobby's is, since he gets paid up front, that could be a problem. The other thing is, his broker dealer has some revenue sharing arrangements with certain preferred companies over on the mutual side, that may not apply here, but you probably don't want all of your money in annuities, so now we need to look at a few other things.

So that's an extra percent for you.

We could take a little less risk to get the same potential return to you, or we could just leave it all in stocks and compound that extra one percent. You know, when you are trying to be a little more conservative with cash, stocks and bonds, and are only trying to get a six percent return or so, that extra one percent is important.

But again, I think we should focus on potential conflicts of interest in this situation, and what is best for you.

No $ N bank,

I have no doubt that if your bank has a fee in lieu of commission account you'll find the same disclosure.....no doubt you feel you have a point in there somewhere...

Commisions let people feel like they are in control of what they are paying.

Mr. client, that sounds nice. As you can see from the example, you are free to pay more, and to pay it all up front. Being the successful business person that you are, as you consider hiring me, how do you feel about paying me several years salary in advance?

Your clients work with you because they like you and trust you and feel that you can do a good job for them.  It has very little to do with how you get compensated.

I totally agree about liking and trust.

It has very little to do with how you get compensated.

That is a great leap, my friend. Do you have a responsibility to stay sharp in knowledge and skills? Okay, you have to explain costs and let the client choose. How advisors are explaining the true ramifications of fee only? Here is where the lie begins.

But if you are truely honest, you right and tall. A better question might be, why defend the right for broker dealers to carve out an extra one percent for the home office?

Anyway, my only point to Bobby is, the market is deciding. Last year broker dealers grew at about negative five percent overall, and RIAs grew at about 30%.

Not saying one is better than the other, and I think all deserve the respect of their colleagues, for sure. Mainly, because most are entrapped in a burning building. Bobby is probably just close to retirement, anyway.

I walk both sides of the fence.  Sometimes I earn commissions.  Sometimes I earn fees.  I really just don't think that the client cares.  It's like "A" shares vs. "C" shares.  If I tell my client to use an "A" share, they'll do it.  If I tell them to use a "C" share, they'll do it.  If I recommend that we use an advisory account, they'll do it.  If I recommend an annuity, they'll do it.  In fact, the same client may have all of the above. 

The client works with me because they like me and trust me to do what is in their best interest.  Nobody is working with me because I tell them that I charge less.  I've never lost business because someone else charges less.

I understand and respect your POV, and also pragmatism, since that outlook is born out of necessity, in part.

Bottom line, anything that reduces costs for advisors and maintains or increases payout for advisors is good.

I guess the conflict of interest point is more subtle for most here. But it won't go away.

( And here I'm speaking about preferred funds, for example, on b/d advisory accout platforms, that have revenue sharing arrangements, for example.)

The implication is that broker dealers have the potential to clean up their act, but probably won't.

Anyway, for those who don't care to make any of these distinctions, you could say the client probably deserves to pay more, it's just my observation that even common $350,000 wrap account clients now are saying things like, " I've heard your advisor should be fee only, but I trust you to tell me what to do. "

Ironically, A shares are probably one of the cleanest and best regulated vehicles around, so we are not talking in absolutes here.

We all just need to do what is best for your clients, I just don't see where the big home office fits in for the future. For example, is some areas like Southern California, a lot of people with money are on to the whole broker dealer racket ( which in my opinion extracts about and extra 1 % beyond advisor compensation out of the client advisor relationhship. If that is not important to some advisors, then God bless).

Mr. client, we are transferring this account from a broker dealer custodian to a registered investment advisor custodian.

We are reducing your costs by up to 50%, but let's just say an average 25% cost reduction to you, in terms of wrap fees, to be safe.

I will paid roughly the same, or maybe a little more, so you don't have to worry about me being motivated to help you protect and grow your money.

More importantly, in my view, as a Certified Financial Planner Practitioner licensee, all of the inherent and apparent conflicts of interest associated with affiliation with a broker dealer will be eliminated.

The custodion is a large and important national financial services firm. Our relationship, my responsibilities to you and your job and expectations, are clearly laid out and documented.

The best part is, everything is simplified. And that will help us reach your goal of being financially independent for a long, long time.

And please tell your friends that I am working as a fee only financial advisor - they may have some questions about how their financial accounts are currently being managed.

[quote=rialsoon]

Mr. client, we are transferring this account from a broker dealer custodian to a registered investment advisor custodian.

We are reducing your costs by up to 50%, but let's just say an average 25% cost reduction to you, in terms of wrap fees, to be safe.

I will paid roughly the same, or maybe a little more, so you don't have to worry about me being motivated to help you protect and grow your money.

More importantly, in my view, as a Certified Financial Planner Practitioner licensee, all of the inherent and apparent conflicts of interest associated with affiliation with a broker dealer will be eliminated.

The custodion is a large and important national financial services firm. Our relationship, my responsibilities to you and your job and expectations, are clearly laid out and documented.

The best part is, everything is simplified. And that will help us reach your goal of being financially independent for a long, long time.

And please tell your friends that I am working as a fee only financial advisor - they may have some questions about how their financial accounts are currently being managed.

[/quote]

Great stuff, but how do you get past my average annual return of 25%, after ALL fees?

rialsoon, can you say what you wrote while keeping a straight face?

Also, since you are fee-only, is it safe to assume that you don't help your clients with insurance issues?

Yes.

Yes.

Bobby, unless you are God, I suggest some basic finance courses at an accredited college might be a real benefit to your clients.

[quote=rialsoon]

And please tell your friends that I am working as a fee only financial advisor - they may have some questions about how their financial accounts are currently being managed.

[/quote]

Yawn... the "I'm more ethical since I'm a fee only advisor" stuff is already wearing thin. I'll tip my hat to the first holier-than-thou "fee only" guy that's really ethical and proves it by ;

1)having the returns in his asset management accounts audited

2) recommends to clients and prospects that they not use him for asset management because his returns are below industry averages.

[quote=anonymous]

rialsoon, can you say what you wrote while keeping a straight face?

Also, since you are fee-only, is it safe to assume that you don't help your clients with insurance issues?

[/quote]

He sounds pretty fired up here, as a "real soon RIA" running a flat-fee business. Perhaps we should talk with him again after he's actually tried to pay his mortgage running that business model.