"A" share Accountant Anyone?

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Mar 27, 2007 7:26 pm

I am sick and tired of people pulling the "run a 20 yr hypo of A vs. C share (or fee based) and see which one wins" CRAP.

In 90% of situations "A" share is not in the clients best interest.

Bottom line is this. 

Unless a client has over 1 million investable assets you cannot afford to give them the service they deserve over that 20 yr period under the A share model.

1,000,000 times .025 = 2,500 x .4 = $1000 per year.

Less than that and you cannot offer them full service to their financial life and/or give them the attention they deserve. 

Try this analogy. 

What if you went to your accountant and he said I've got this great new plan.  Instead of paying me $300 per year, why don't you pay me $1,000 this year and I'll do your return for $50 per year forever. 

(Note:  Reading to this point this already sounds like a crappy idea as a client because you KNOW so many variables make paying fees for services years from now a stupid idea.  And this is before your accountant lays out the caveats.)

HOWEVER, you only get a once a year 30 min apt, with no real time fr research if you have new problems, and you can call me during the year if you have questions but I may or may not have time to call you back.  We just assume the same situation every year and it is your responsibility to be on top of any changes we need to make. 

On top of that if you change your filing status (i.e. mf) for marriage, divorce, new entity, or any other reason then you get to pay me another $1,000 in the year that in happens.

In addition if you decide next month that I am a crappy accountant you have no recourse.  Sorry.  (If you are unfamiliar with the person, you immediately think "this person probably is a crappy accountant who wants to get paid now because they know I likely won't use them again next year".) 

How many of you would like that deal from your accountant because it is now a CHEAPER method.

Is it somehow in your BEST INTEREST?

FINANCIAL ADVICE is an ONGOING need for our clients.  If you have more than a few hundred clients per advisor, then some of them are suffering from your lack of attention due to time constraints.  

Mar 27, 2007 8:41 pm

I have been reading posts on this forum for a while now and I think this was one of the most insightful one’s I have read.  Enough that I am printing it off and sharing it with advisors contemplating moving assets into advisory platforms.  Especially Jones reps.

Mar 28, 2007 10:04 am

i agree

Mar 28, 2007 10:10 am

Spiffy, Caddy and I agree

Mar 28, 2007 4:14 pm

Great, great analogy.  For Jones, the mechanic might be a better fit than a CPA....take your car in and see if you can prepay for 20 yrs of repairs to your car.

And if you take a perfectly good portfolio to many a purely transaction-based broker (a la EJ), they will find some "repairs" that are necessary.  Of course, you might have a "breakdown" (eg Putnam 2003) in a few years that requires some more "repairs."

The analogies are endless...hey, how about pre-paid surgery anyone?  A hundred grand for this heart procedure, but all the follow ups to tweak your valves are "free"!

Mar 28, 2007 4:58 pm

I love how spears has decided to answer for me. 

You can't argue from a pure cost perspective that the A share model is the best for a buy and hold client.  That's why the hypo gets run.  I think the whole reason that Jones is moving toward a fee based option is exactly the arguement gad makes.  Nothing I love more than spending an otherwise profitable afternoon working on a financial plan for an existing client all the while knowing I'm not making a dime.  Now, if said client were paying me a fee every year, then I don't feel so bad.  I absolutely agree with gad. 

The problem I have is that it seems like FAs are on one side of the fence or the other.  Either all fee based or all commission based.  Being entirely fee based is just as wrong as being all commission based. 

How's this model sound to you guys.  A shares for the actual investments, but an hourly fee for the planning.  You want to roll your 401K to me but don't care about my planning abilities?  Fine.  Let's do A-shares.  No more expense but only once a year phone call.  Or you can buy the planning for say $100/hour with a cap so that I don't milk it.  That way I'm not over charging you for not doing anything with your investments, but still getting paid for my time and knowledge.  There has got to be a middle ground.  I'm starting to develop the perfect firm in my head.  Me as a CFP, CPA in the next office, JP down the hall for your estate planning work and a junior assistant to handle all the grunt work.  Hey spears, you looking for a job?

Mar 28, 2007 5:06 pm

I was hoping to see your resume…chief bottle washer…See I knew you would agree!  Your new firm…yah right.  The koolaid has too much control…Luke…you know they’re using you…come to the dark side and be free…to do things as you see fit…not the GP’s.

Mar 28, 2007 5:07 pm

Get over on the rookie thread and respond to my dking!!!