Best Answer?
But Mr. FA, if I should not withdraw over 4.5%, why should I give you 1.5%?
To make sure you are not living in a tent in five years…
They think that they are giving you 1/3 of what they are taking out. The 4.5% and the 1.5% are not of the same number. The 1.5% needs to be looked upon as a drag on performance. The question that needs to be answered isn’t why they are giving you 1/3 of the 4.5%, but rather, what are you doing that is worth 1.5%.
Not that I ever really have to “justify” my fee, but one of the things I point out is the money that we protect them from losing. But if you are just going to stuff them in some funds and forget about them, you probably aren’t worth 1.5%. IMHO we earn our keep by protecting people from themsleves and stupid decisions (like over-allocations to equities). This is SO common from what I see. 65 year-olds with 85% in equities (and mostly concentrated in S&P 500-type stocks and funds). Or they still have relics of old IPO’s from their venture with the new Merrill broker 14 years ago.
Unfortunately, it is often hard to quantify this, as you will never know what "would have" happened if they didn't use you.Agreed on the over-alloc in retirees-- another BIG reason is A shares. Had they been in fee accts, there is less conflict but with Ashares the higher commissions points to equities (“don’t worry about indiv bonds or cds, there is some of that in the CAIBX I sold you”)
Mr Client, It really depends how comfortable you are betting your retirement lifestyle on your own investment decisions.
[quote=rankstocks]Mr Client, It really depends how comfortable you are betting your retirement lifestyle on your own investment decisions. [/quote]
Sounds a little insulting. Isn’t the first rule not to try and piss them off?
Do FA's really do this? Grrrrrrr. At 100K breakpoint, aren't they all the same? I don't usually do A shares under 100K. I think maybe the short-duration stuff caps out at 2.5%. But I can't justify charging someone 3.5% for something that likely won't return better than 2-3% in the short term (referring to the short term stuff). I make it a point not to look at the breakpoint schedules (knowing that I always hit 100K). I think you build the portfolio that makes the most sense, and the fees are what they are. If you get less on the short, safe stuff, so be it. I hate when people make conscious attempts to maximize revenue (and cost to the client) by jockeying their portfolios. I am a firm believer in earning good money for what we do, but if you would feel guilty having to explain it and fully justify it to a client, then it's probably not the right thing to do.Agreed on the over-alloc in retirees-- another BIG reason is A shares. Had they been in fee accts, there is less conflict but with Ashares the higher commissions points to equities (“don’t worry about indiv bonds or cds, there is some of that in the CAIBX I sold you”)
The thing that has the biggest influence on investor results, is not what mutual funds they are in, or what stocks they own, but their behavior (wouldnt use that word when talking to a client, i would say their response to changing market conditions). Clients dont pay me to pick the best 5 star mutual funds. They pay me for my advise and counsel, the 1.5% is my fee for acting as their coach, and helping them see reality when it looks like the world is about to fall apart.[quote=rankstocks]Mr Client, It really depends how comfortable you are betting your retirement lifestyle on your own investment decisions. [/quote]
Sounds a little insulting. Isn’t the first rule not to try and piss them off?
The question doesn’t make sense–what does their rate of withdrawal have to do with the fees you charge??
Are you saying they are only EARNING 4.5%, and they are questioning why you are charging 1.5% on that account?? If you are willing to give a little more detail, you may get more useful responses.The thing that has the biggest influence on investor results, is not what mutual funds they are in, or what stocks they own, but their behavior (wouldnt use that word when talking to a client, i would say their response to changing market conditions). Clients dont pay me to pick the best 5 star mutual funds. They pay me for my advise and counsel, the 1.5% is my fee for acting as their coach, and helping them see reality when it looks like the world is about to fall apart.[/quote][quote=Moraen] [quote=rankstocks]Mr Client, It really depends how comfortable you are betting your retirement lifestyle on your own investment decisions. [/quote]
Sounds a little insulting. Isn’t the first rule not to try and piss them off?
I agree. But you don't change their behavior by insulting them, IMO.
I dont think its insulting anyone. If you chose your words correctly you are telling them that what most investors do is react to market movements by piling on, and that is an instinctive reaction but investing successfully means not always doing what is instinctive.
Why is that insulting? You change their behavior by educating and coaching.needs no more detail- it is a q that is asked so what is the answer? The 4.5% is an extremely well known financial planning rule of thumb for long term w/d rates.
It's an extremely well known financial planning rule of thumb??? Sounds like your clients are smarter than you than since they know "an extremely well known financial planning rule of thumb" and you have no response.needs no more detail- it is a q that is asked so what is the answer? The 4.5% is an extremely well known financial planning rule of thumb for long term w/d rates.
Doesn’t sound insulting to me. Sounds like an honest question. The client could say “Well, I think I know exactly what I’m doing”. Or, “Hmmm, I get your point.”
He/she could also say "I'm of the modern type of American that gets offended by anything I don't like or understand, and you, sir, have offended me." lol. Sorry, but I would hope that the client realized he is paying his FA for the truth, and not just BS that goes down well. That last quote works best if you use a Peter Griffin voice.I really don’t see the question as insulting. I see it as getting to the point as quickly as possible and have used it before. I then will follow it up with something to the effect of, “If you break your arm, you won’t try and fix it yourself. If you need an estate plan drawn up, you aren’t going to chance writing one on your own. If you build a home, you are going to hire a team of experts to make sure it meets code and is built to spec. The same rule applies to investing. You need an expert to guide you through the process and make sure you don’t make any mistakes that might be detrimental to your long term retirement strategy.” I’m glad more advisors aren’t direct, otherwise my job would be much tougher.
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