Starka. The only thing that would affect the client's net worth is the cash value of the insurance policy.  Again.... Net worth is what you are worth NOW.  It doesn't include the estate value of life insurance.    If you have a 1 million dollar term insurance policy on yourself, it will not increase your net worth one cent.

[quote=anonymous]

As long as he’s alive, he doesn’t have an estate.

What’s your point?

Since when does someone’s estate at death have any bearing on their net

worth while alive?

Hell yea, I brought insurance into the debate.   How does insurance possibly get left out of a financial planning conversation that deals with what people want in terms of financial advice?  

What's going on Starkyboy, you lose the argument so the opposing argument becomes drivel?

[quote=Kargon][quote=Spaceman Spiff]

[quote=Kargon]I do know that a Jones broker will liquidate some old ladies Metlife annuity (with a 5% surrender fee without telling her) that is performing well to roll into an IRA and then invest in American Funds A shares, again without telling her.[/quote]

Are you kidding!?  I know a lot of Jones brokers and none of us would do that.  Most of us would keep a good Met annuity.  The only person I've ever heard of doing that was the local US Bank guy. 

First, Field Supervision wouldn't let it happen because the surrender is too big.  We have to prove that it's beneficial to the client to liquidate an annuity.  Then we have to have the client sign all kinds of acknowledgement letters that says they understand.  We haven't even talked about the death benefit yet. 

Second, unless it's already qualified money you can't just roll it into an IRA.  I'll give you the benefit of the doubt and assume you know that.  We may use American Funds A shares, we may not.  I like Goldman and Franklin right now. 

Finally, we'd explain the whole thing to the client before we did it.  A shares and all.  And if it is an IRA, unless the little old lady really wants the death benefit of an annuity or to annuitize, the mutual funds would be cheaper for her in the long run.  No M&E charges.

Maybe there are some IRs out there that are struggling enough that they'd try that hoping they don't get caught, but they are certainly the minority.     

[/quote]

Trust me, the client was never informed and I had to run around and work to get the annuity reinstated, but because the Jones broker had invested in A Shares and taken 10k in commissions, I couldn't get the annuity reinstated.  My firm would have fired me if I had done this to this lady.

[/quote]

Wow, 10k.  That must have been one of your larger clients.  If the FA put all the funds into American it would have had to be $400K to generate $10K in commissions.  I'm suprised that a broker of your standing would be so in the dark about one of his best clients that you didn't know she was unhappy with her annuity.  Did she call you and ask for a second opinion on what the evil Jones broker said?  Or did you get blindsided and then scramble to try to save the policy?  She must not have been completely happy with the policy like you think or she wouldn't have been talking with the Jones FA.    

If there was a 5% surrender that would mean you sold it to her what, 2 years ago?  Was it for the tax deferral, death benefit, or income benefits that you put an "old lady" into a Metlife annuity?  Or was that all you could sell her?  Maybe it just paid you the most.  Annuity commissions I understand are a lot higher than mutual fund commissions. 

So, tell me, where did you get the money?  From another annuity would be my guess.  Was it really necessary to move the contract and start another 7 year surrender period, or could you have done something different with the existing contract to look for better returns?  How much did  you get paid on that transaction?  What $25K+?  Who's best interest was that?  Did she know how much you got paid, or did you tell her that she doesn't pay anything, which by the way is not completely true?

I don't know the specifics behind the policy you sold her, the actual age of the client, what her goals for the money were, etc.  I do know that if the scenario played out like you said it did, the Jones broker didn't hurt her much.  5% surrender + 2.5% sales charge = 7.5%.  Let's say 1.4% on the M&E for 5 more years = 7%.  Maybe they did talk about the surrender and she was willing to let go of the .5% for immediate access to all of her money, not just the 10% max your contract would have given her. 

With that said, I still argue that if this FA went through all of the proper Jones channels, Field Supervision wouldn't have let it go through.  Maybe he didn't.  Who knows.

If the FA put all the funds into American it would have had to be $400K to generate $10K in commissions.

Please explain how $400,000 into an American Funds Mutual Fund could generate $10,000 in commissions for a Jones rep.  We may have to send you back to remedial math.

[quote=Starka] [quote=Broker24] [quote=Starka] By law, no one can

know anything

that no one else

knows.[/quote]



There are things much more important than performance. For example,

in the distribution years of retirement, you can’t afford the std deviations

you get from the indexes. In addition, when the market gets thrown all

out of whack (i.e. the late '90’s, then the early 20’s), indexes are

extremely inefficient. They can’t adapt since they are not managed. I am

not saying that every MF manager knows the right answers in every

situation, but there are certain money managers I trust to manage my

clients money more than I do the wisdom of the “market”. Yes, you can

re-balance what indexes you hold, but then you are betting your skilss

against talented money managers. Not a bet I want to make.



I manage to minimize risk, not beat some arbitrary index.

[/quote]



Then why don’t these talented money managers consistently beat the

indices? People invest with us for one reason and one reason alone…to

increase their net worth. Period. To believe anything else is simply

foolish.



I agree with the statement that if you were my finanacial advisor and you

said simething as stupid as the above, you’d be fired in a flash.[/quote]



Starka, I think you’re missing the point. There’s a big difference between

investing for a 40 year old, and investing for a 67 year old. I have plenty

of clients that come to me with 70% of their 7 figure net worths in ONE

stock (their employer). Now, this employer has delivered about 22% per

year the past 6 years. Do you think it would be wise for me to try to get a

retiree 22% per year in retirement?? That’s insane. But that’s what I’m

talking about. Risk and volatility. Most wealthy individuals would prefer

relative safety over the absolute highest returns. Any knucklehead can go

out and pick the highest returning investments. I am not talking finding

them 4% returns. I’m saying giving someone 10% annual returns with low

beta versus 11% with wild deviations makes a lot of sense.



Maybe my clients are all different, but I don’t think I am off-base here.

[quote=Broker24] Starka, I think you’re missing the point. There’s a big difference between
investing for a 40 year old, and investing for a 67 year old. I have plenty
of clients that come to me with 70% of their 7 figure net worths in ONE
stock (their employer). Now, this employer has delivered about 22% per
year the past 6 years. Do you think it would be wise for me to try to get a
retiree 22% per year in retirement?? [/quote]



This has nothing to do with what we have been talking about, the fact
that active fund managers consistantly fail to beat their passive
benchmarks.



You can get any risk profile you want via an allocation to a riskfree
asset and one or more risky asset classes. If you want less risk, you
crank up the cash allocation.



Portfolio risk depends on exposure to market risk factors. Active
management within those risk factors is mostly useless and often
harmful in an effecient market.

[quote]That’s insane. But that’s what I’m 
talking about. Risk and volatility. Most wealthy individuals would prefer
relative safety over the absolute highest returns.[/quote]



Your clients could be taking a real risk working with someone who doesn’t understand the concepts of portfolio risk management.

[quote]Any knucklehead can go 
out and pick the highest returning investments. I am not talking finding
them 4% returns. I’m saying giving someone 10% annual returns with low
beta versus 11% with wild deviations makes a lot of sense.
[/quote]



If you want a low beta portfolio, reduce your exposure to market risk (beta).

"Starka, I think you’re missing the point. There’s a big difference between

investing for a 40 year old, and investing for a 67 year old. I have plenty

of clients that come to me with 70% of their 7 figure net worths in ONE

stock (their employer). Now, this employer has delivered about 22% per

year the past 6 years. Do you think it would be wise for me to try to get a

retiree 22% per year in retirement?? That’s insane. But that’s what I’m

talking about. Risk and volatility. Most wealthy individuals would prefer

relative safety over the absolute highest returns. Any knucklehead can go

out and pick the highest returning investments. I am not talking finding

them 4% returns. I’m saying giving someone 10% annual returns with low

beta versus 11% with wild deviations makes a lot of sense.



Maybe my clients are all different, but I don’t think I am off-base here. "

___________________________________________



I’m not too sure about who’s missing the point, B24. You’re citing the

exception to prove the rule. If you’re simply in business to minimize risk,

why are you looking at betas anyway? Put the whole portfolio into CDs

and be done with it.



And frankly I’d question the statement that you have “plenty” of seven

figure clients who have 70% of their net worth in one company’s stock.

That would truly be an extraordinary book. Extraordinary indeed.

[quote=Starka]


I’m not too sure about who’s missing the point, B24. You’re citing the

exception to prove the rule. If you’re simply in business to minimize risk,

why are you looking at betas anyway? Put the whole portfolio into CDs

and be done with it.



And frankly I’d question the statement that you have “plenty” of seven

figure clients who have 70% of their net worth in one company’s stock.

That would truly be an extraordinary book. Extraordinary indeed.

[/quote]



If you are really serious about reducing risk, you would be developing
optimised portfolios using MPT. B24 has given no evidence that he does
any of that.



And if you accept the idea’s of Modern Portfolio Theory, then you would
accept the core hypothesis that exposure to market risk factors is what
creates portfolio risk and portfolio returns.



I’ve seen 70% in a single stock portfolio’s but that usually pretty
rare and a fair percentage of those people are dingbats who would
refuse to sell any of their precious stock.



So either you decline the engagement or you put the remainder of the
portfolio in muni’s/tips and other assets with low correlation to
that stock.

[quote=anonymous]

If the FA put all the funds into American it would have had to be $400K to generate $10K in commissions.

Please explain how $400,000 into an American Funds Mutual Fund could generate $10,000 in commissions for a Jones rep.  We may have to send you back to remedial math.

[/quote]

Let me take off my shoes so I can do this math.  Let's see...$400,000, $250K breakpoint is 2.5%, that should equal $10,000.  Let me check again, $400,000 X 2.5% = $10,000.  Yep, checked out the second time too. 

OK, in reality the numbers are $400,000 X 2.5% = $10,000, American keeps .5% = $2000.  Gross to the Jones rep $8000, net $3200.  Minus expenses, insurance, communications charges, money to GPs and LPs, BOA's salary, net net to me...$1.

Anonymous, if that's the best you got, you better go back to school.  Do they really let you talk to clients?

[quote=Spaceman Spiff]

Let me take off my shoes so I can do this math.

[quote=Spaceman Spiff][quote=anonymous]

If the FA put all the funds into American it would have had to be $400K to generate $10K in commissions.

Please explain how $400,000 into an American Funds Mutual Fund could generate $10,000 in commissions for a Jones rep.  We may have to send you back to remedial math.

[/quote]

Let me take off my shoes so I can do this math.  Let's see...$400,000, $250K breakpoint is 2.5%, that should equal $10,000.  Let me check again, $400,000 X 2.5% = $10,000.  Yep, checked out the second time too. 

[/quote]

I think you know what anonymous meant.  On a $400,00 purchase, that generates a $10,000 Sales Charge, it generate $8,000 in Commission. To generate $10,000 in commission, the FA would need to invest $625,000 into American Funds.

It would generate $8,000 in GDC which in turn would pay out a commission of somewhere about $3,000 for the Jones rep.

Actually, for the rep to generate $10,000 commission, the investment into American Funds "A" share would have to be $2,500,000.  This would give a GDC of $25,000 creating a commisson at 40% of $10,000.

This is a far cry from Spaceman's $400,000.

You guys must be bored today trying to figure out how to make my math look bad.  Don't you have some wrap account to push?

Indy - first, yeah I knew what he meant.  But I also think he knew what I meant and it was an attempt to make the lowly Jones broker look bad. 

Second, I love how you only quoted part of my response.  The rest that you didn't quote said exactly what you did.  Minus the calculation to get my net up to $10K.  Thanks for that.  Now I know how many $$$ I need to take from you to net $10K next month.  I think I'm halfway there.  

Anon - the semantics game is killing me.  If you go back and read Kargon's post, he said that he couldn't get the annuity reinstated because the broker had purchased A shares and taken $10K in commissions.  He didn't differentiate sales charges or dealer concession or net to broker.  Just blanket statement, commissions.  That's what the customer would have called them.  So, my originall math as my fingers and toes pointed out, was correct in the context of the post.  You should really try doorknocking.  It will take up a lot of that time you spend sitting around trying to make other people on this board look inferior to you.

In all honesty Spiff, I wish he was in my town! Tell me THAT’s not some low

hanging fruit!

Some days it’s just too easy.

[quote=AllREIT]

[quote=Starka]

I’m not too sure about who’s missing the point, B24. You’re citing the

exception to prove the rule. If you’re simply in business to minimize risk,

why are you looking at betas anyway? Put the whole portfolio into CDs

and be done with it.



And frankly I’d question the statement that you have “plenty” of seven

figure clients who have 70% of their net worth in one company’s stock.

That would truly be an extraordinary book. Extraordinary indeed.

[/quote]



If you are really serious about reducing risk, you would be developing

optimised portfolios using MPT. B24 has given no evidence that he does

any of that.



And if you accept the idea’s of Modern Portfolio Theory, then you would

accept the core hypothesis that exposure to market risk factors is what

creates portfolio risk and portfolio returns.



I’ve seen 70% in a single stock portfolio’s but that usually pretty

rare and a fair percentage of those people are dingbats who would

refuse to sell any of their precious stock.



So either you decline the engagement or you put the remainder of the

portfolio in muni’s/tips and other assets with low correlation to

that stock.

[/quote]



REIT-

I can’t understand why you have to prance around this board with a

wholier than thou attitude. It seems as if you are the only person (in your

mind) that has any idea what they are doing. Do I follow MPT? Yes. I try

to ride the efficient frontier just like the rest of you. Just because I don’t

spew every bit of knowledge I have about investing doesn’t mean I don’t

possess the knowledge.



My point in the previous post was that my goal is to get the BEST risk

adjusted returns as possible, not just reduce risk period. Of course I

could reduce risk with cash or G-Bonds or whatever, but that is not what

I’m trying to accomplish. My point is that clients appreciate significant

reductions in risk without significant reductions in return (though they

will accept SOME reduction in return). And yes, there are many ways to

get there. A bucket of Index funds inside a wrap account is not the only

way to achieve that.



Can’t you accept that your way is not the ONLY way??

[quote=Broker24]
Can’t you accept that your way is not the ONLY way??[/quote]



Only the best way.



More seriously, B24 don’t be so sensitive. You’re a smart guy and I
have confidence that you do what you think is best for clients.



You should really read up on DFA’s website and understand how the academic finance people approach investing. 

[quote=Spaceman Spiff]

You guys must be bored today trying to figure out how to make my math look bad.  Don't you have some wrap account to push?

Indy - first, yeah I knew what he meant.  But I also think he knew what I meant and it was an attempt to make the lowly Jones broker look bad. 

Second, I love how you only quoted part of my response.  The rest that you didn't quote said exactly what you did.  Minus the calculation to get my net up to $10K.  Thanks for that.  Now I know how many $$$ I need to take from you to net $10K next month.  I think I'm halfway there.  

[/quote]

Would you like me to do the math on what you actually take home if you net $10K next month?  I would show you, but I'm a nice guy, and don't want to depress you. (don't forget to put some into the toilet paper and trash bags fund)

[quote=now_indy][quote=Spaceman Spiff]

You guys must be bored today trying to figure out how to make my math look bad.  Don't you have some wrap account to push?

Indy - first, yeah I knew what he meant.  But I also think he knew what I meant and it was an attempt to make the lowly Jones broker look bad. 

Second, I love how you only quoted part of my response.  The rest that you didn't quote said exactly what you did.  Minus the calculation to get my net up to $10K.  Thanks for that.  Now I know how many $$$ I need to take from you to net $10K next month.  I think I'm halfway there.  

[/quote]

Would you like me to do the math on what you actually take home if you net $10K next month?  I would show you, but I'm a nice guy, and don't want to depress you. (don't forget to put some into the toilet paper and trash bags fund)

[/quote]

Are you going to include my office profitability check, my profit sharing contribution, my diversification trip, and my LP distribution?  Or are you just going to use your distorted view of how bad it is to be a Jones broker? 

Seriously, I'm just poking a little fun at you.  Don't get your panties in a wad.