Fee based accounts for income investor

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skbroker's picture
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So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differently

Moraen's picture
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skbroker wrote:So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differentlyWhat other option would you think to do?  Commission?  Flat fee?Also, how do you value your services?  Are you going to help him manage withdrawals?  Help him make decisions about moving money?  Answer his bone-headed questions when he calls?You should charge him 1.25% for being under $1 million.  Keep in mind that you get paid to advise him.

Ron 14's picture
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mlgone wrote: Moraen wrote: skbroker wrote:So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differentlyWhat other option would you think to do?  Commission?  Flat fee?Also, how do you value your services?  Are you going to help him manage withdrawals?  Help him make decisions about moving money?  Answer his bone-headed questions when he calls?You should charge him 1.25% for being under $1 million.  Keep in mind that you get paid to advise him. This quote is right on. I see so many advisors that are scared of showing the fee (not saying you are). I am 99% fee based. And I tell them the value I provide for my fee. Many advisors hide in C shares. Don't be scared to tell them what they are paying for. Your worth it
 
How do you go about explaining this ?
 

skbroker's picture
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Joined: 2007-06-16

Would you also charge 1 percent on million dollar laddered muni portfolio? It's not always black and white

Moraen's picture
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skbroker wrote:Would you also charge 1 percent on million dollar laddered muni portfolio? It's not always black and whiteYes.It has to be black and white, or you might run into compliance issues.

skbroker's picture
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Joined: 2007-06-16

Your clients must really value your service if they are ok with paying 1 percent on a muni ladder

BerkshireBull's picture
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Joined: 2009-06-10

Why don't you divide the money into 3 "buckets"A SPIA to pay him for the next 8-12 yearsA deferred, index, or variable annuity to replenish the first bucket when it runs outA third "wrap" bucket with a 15+ year time horizon in a moderate-aggressive mixIt sounds foolish to me to setup something that he will be immediately accessing in anything that is not guaranteed.

skbroker's picture
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Berkshire. Just curious. U with ameriprise?

Moraen's picture
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skbroker wrote:Your clients must really value your service if they are ok with paying 1 percent on a muni ladder
You are either worth it or you're not.  If you're not, they can go somewhere else.  If you are, then they should pay it.Full disclosure:  That situation has never arisen for me.  The most I have is someone who has $300k in munis, and no, they don't care.  Why would they, when they are getting stellar returns in other parts of their portfolio?Not to mention  your situation wasn't even talking about munis. You said income etfs and mutual funds.

Roxie's picture
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skbroker,
Not sure why all the talk about a muni portfolio in a qualified account.  May be hard to get past compliance although right now munis are better than taxable bonds and if you are selling the client on that piece of advice you are right on and worth every penny.  I too have looked at ETFs for income investors and shyed away from the fees, but then I realized that it will probably have about a third of it in growth and like other posters have said getting great advice from an advisor is worth every penny. 
 
I did also like the bucket theory mentioned here too.  Buckets of Money by Lucia.

BerkshireBull's picture
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skbroker wrote:Berkshire. Just curious. U with ameriprise?No, why do you ask?

skbroker's picture
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Because I have a friend that works for ameriprise he also talks about this bucket thing

3rdyrp2's picture
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skbroker wrote:Because I have a friend that works for ameriprise he also talks about this bucket thing
 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.

skbroker's picture
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Yeah. That's it. The three buckets. Lol

Ron 14's picture
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roxie- nobody is talking about muni's in a qualified account. He was talking about two different issues. 
 
 
3rdyrp2 wrote:skbroker wrote:Because I have a friend that works for ameriprise he also talks about this bucket thing
 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.
 
The 3 buckets thing is not tax free, pre tax, taxable. Some dude Ray Lucia has written a book about dividing funds into three buckets. Time frame is what separates the buckets, not taxes.

BerkshireBull's picture
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3rdyrp2 wrote:skbroker wrote:Because I have a friend that works for ameriprise he also talks about this bucket thing
 
A few years ago when they were hiring anyone who could speak English they trained us on the 3 tax buckets:  Tax free, pre-tax, and taxable.  Thats probably where he gets the buckets thing from.What's the strategy here?  Is there a story that goes with it?My buckets were time horizon, curious what the tax-status bucket philosophy is.

ABOM's picture
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Joined: 2008-11-01

I joined a team that uses an yield focus discretionary account (always look at total return never yield / income) that is fee based.  income investing should not just be static, you can tacticaly allocate to the asset class now with ETF's & funds.for example next 12 months will proably still be good for high yield and intrest rate sensitive investments and then look at shifting to floating rate and tips.just because you invest for income does not mean set it and forget it. 

skbroker's picture
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Why do these stupid retarded advisors always makes doctor analogies? I guess when you pass series 7 you can compare yourselves to heart surgeon. What a douchebag

Moraen's picture
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Joined: 2009-01-22

While I don't think the Series 7 is the equivalent of an M.D. or board certification in cardio-thoracic medicine, you also aren't getting paid what that heart surgeon is.  Not to mention there are very few  heart surgeons doing anything new.  Most of it is learned.Do you think that heart surgeon could perform arterial surgery on battlefield victim where people are shooting at him?  Unlikely.  Yet that heart surgeon has an M.D., and the guy performing that battlefield surgery may just be a medic.  Who gets paid more?  Who has more rare skills?sk - either you charge or you don't.  I don't take my ability for granted, and so my clients don't.  Starts with you.

skbroker's picture
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You have a probem with reading comprehension. Go back and slowly read the thread again you retard

deekay's picture
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skbroker wrote:You have a probem with reading comprehension. Go back and slowly read the thread again you retard
 
Since the client is asking for the MAXIMUM income, and you blatently are choosing to ignore a SPIA strategy in lieu of a fee-based one (which will be a drag on income), I agree with BF on this one.  You don't know what you are doing.  Refer the client to someone who does and split the case.

deekay's picture
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AGEMAN wrote:BioFreeze wrote: skbroker wrote:So I have been converting some of my accounts from commission to fee based in the past year. Recently I was given a referral from one if my clients who have been retired for about 3 years. He still had his old 401k plan which we decide to rollover into Ira which was about 900k. He wanted the maximum income to support his monthly expenses. So I m in the midst if creating a propsal but any way I look at the clients situation fee based account does not make any sense since we ll be investing income etfs and mutual funds that he'll probably holding for next 5 years for income and to charge 75bps or even 1 percent would really eat into his income. Anyone else see this differentlySince you don't even know what it is that you do or how to charge for it, refer him to someone else. Should a heart surgeon who can't decide between bypass surgery or a transplant be choosing, based on how he gets paid? You are a phony.
Has anyone ever seen a constructive post from this guy ever.  All he ever does is criticize other people on here.  What does everyone else think??? 
 
In spite of all his criticizm of everybody on the forum, he still adds more than you.

deekay's picture
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1)  Set aside his business practices, he has a lot of advice regarding prospecting.  I know I've learned from him. 
2)  Spelling smack?  That's weak, even for you.

deekay's picture
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Shocking.  No original thought for dealing with your clients or joke-telling. 
 
Does your employer know they hired a functional retard?

Incredible Hulk's picture
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BioFreeze wrote:
AGEMAN wrote:deekay wrote:1)  Set aside his business practices, he has a lot of advice regarding prospecting.  I know I've learned from him. 
2)  Spelling smack?  That's weak, even for you.
I guess I have missed those posts concerning prospecting.  I posted them inside of your wife - a place you don't go.

Real classy.

Way to show him up.

I hope Deekay finds a new role model.

newnew's picture
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Again: wish we had a minimum age requirement that could be enforced

skbroker's picture
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No retention rich

skbroker's picture
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If fees were the right thing to do for all clients than 2/3 of all clients assets are in the wrong platform

Moraen's picture
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skbroker - It appears to me that you don't believe the benefit you provide is greater than the cost you charge on a fee based platform.  If that is the case, I think you should reevaluate what you are doing for a living.  It makes little sense to continue in a career where you don't think you are providing a valid service."Doing the right things for the client" doesn't always mean charging them less.  Example:  If you get in trouble with the law, do you opt for the public defender?  Or do you spend the extra money for a Johnny Cochran (or whoever the big time lawyer is these days)?  It's a good bet if OJ had chosen the public defender he'd be in jail.Here's another one.  You are a business owner with complex tax needs.  Do you go to H&R block and pay $90, or do you go to a respected CPA, and pay a few thousand?If you feel that your services are mediocre, charge a mediocre price.  If not, charge what you deserve.

Wet_Blanket's picture
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Sorry, I have to side with skbroker on this one.  I can see everyone's point - ecspecially since they can't do commission business, but most firms Compliance usually watch these sort of relationships closely, always checking to see what the "cheaper" option is for the client, commission or fee based.
 
I know Morean you are worth every penny, but I just can't wrap my brain around charging an annual fee on a bond ladder.
 
Case in point, at a previous firm I worked at they had a special SMA product for clients seeking income - and for whatever reason marketing/the fa always wanted to have a one on one presentation with a client that was gross of fees.
 
One of the many disclosures you need on such a presentation is a graph of the effect an annual fee will have over the years, compounded.  Lets just say that made the product a very hard sell once the client could see where they would be if it was a commission based account, as opposed to fee.

Moraen's picture
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Wet - I get what you are saying.  But what are the expenses in a bond fund?  No one ever tells someone not to use a bond fund.The expenses on the first one that pops up on morningstar is 1.2%.  The next one is 1%.  The lowest - .54%.Now, you tell me if it's fair.  Not to mention his idea at first was to use ETFs and mutual funds.  What is the difference between me managing a laddered portfolio, where the bonds are purchased without markup, and a bond fund?  The difference is perceived talent.  The guy at the bond fund may have an MBA from Harvard and mine is from the University of Chicago.  Which is better?

Wet_Blanket's picture
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I'm not a fan of bond funds either - but at the vary least the client would get more diversification and a fund manager that they could never talk to.  Also, don't most bond funds invest indirectly through swaps instead of actual bonds (for the most part)?  Mutual funds and ETFs, fine for fee biz because you have the "allocation" angle of your advice.  If you are actively managing bonds, then I can see more of a justification for the fee - but I don't buy just having a ladder.

Wet_Blanket's picture
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Then we agree.  If you are doing a whole slew of services in addition, then it is up to the client to determine if you are worth it or not.

B24's picture
B24
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It's tough to charge 1%+ for a bond-only portfolio.  Most RIA's charge in the 0.25% - 0.75% range for a fixed income only portfolio.
 
As far as bond funds, the purpose of bond funds is often not for incoem purposes, but for diversification purposes in a well-balanced portfolio.  It is part of a strategic allocation.  Big difference between the two.

skbroker's picture
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How's everything at the Ira center?

Wet_Blanket's picture
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mlgone wrote:You better be careful I have a house in Charlestown!
 
Is that directed at me?  I don't live near Charlestown...

Moraen's picture
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Charge what you want.  Or don't.  I was just trying to help.Doesn't really matter for me, since I mainly work with equities anyway.Bonds are such a small part of my business, it makes no difference.

NYCTrader's picture
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Joined: 2009-11-20

I normally charge less for straight muni clients, usually 25-100 bps depending on the account size.  The reason being twofold:1.  Returns are generally going to be less than accounts that hold equities.2.  My muni clients are almost entirely buy and hold, so once the bonds have been purchased, the major work has been accomplished (of course there will be monitoring the credit ratings of the issuer and quarterly reviews, but it's less upkeep than for an equity portfolio).That said, I do my best work (I feel) researching munis.  I think it really sets me apart from other advisors.  I look deep into an issue and provide a level of analysis my client won't get at the wires or his bank.  If what you are doing is simply regurgitating the bonds your muni desk tells you to buy, then your service isn't really worth much.  If you are hand selecting the bonds and doing the due diligence on your own and presenting a detailed analysis to your clients, then you are worth it and your clients will know it (especially the more sophisticated investors that will appreciate and understand the work that goes into properly vetting a bond issue).I agree with what MLGone said earlier.  If you're worth it, your clients will know it and pay you your fee.  Don't run away from your fee.  You should have a schedule in place that encourages your clients to place more money with you (ie your fee will go down as the asset levels increase).

exUBS's picture
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Interesting question.  In my case, I use a bonds in 2 ways: 1) as part of a strategic allocation in a managed fee based account   2) for incomeFor fee based accounts, I sell the value of including bonds in an overall portfolio and position myself as their portfolio manager- adding or subtracting within the account as needed, providing service updates etc.  Account performance the past few years has validated my approach and justified my overall fee.For accounts where the objective is income first, strategic allocation secondary, I purchase individual bonds.  Cheaper and cleaner for the client.  Income stream is locked in and clients like knowing that in Jan of each year they can predict their income for the year.  You can make a case that fees in bond funds can easily equal or exceed individual commissions.  While you do get the benefit of professional management and institutional level of bond selection, you can also get hit with an unexpected cap gain each year.  Try justifying that to a buy and hold muni bond fund buyer....

CORR's picture
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mlgone wrote: Don't be scared to tell them what they are paying for. Your worth itNice pep-talk Coach!

skbroker's picture
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Ok moraen. If you have a client that is interested in opening a million dollar account in a commission based program after you explained your fee structure do you turn it down?

Vin Diesel's picture
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VA with Income Rider!
 
Or a Individual Bond Ladder

Moraen's picture
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skbroker wrote:Ok moraen. If you have a client that is interested in opening a million dollar account in a commission based program after you explained your fee structure do you turn it down?Ice nailed it.I direct those accounts to the local Edward Jones office.  That way, when they blow up, they come running back. Just kidding Jones guys!

B24's picture
B24
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At least I got my 3.5% upfront!

Moraen's picture
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B24 wrote:At least I got my 3.5% upfront!

skbroker's picture
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when you suffer as i suffer.

Wet_Blanket's picture
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Spammers....shocker on this website.

brila777's picture
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Even if you are a ll fee RIA does that mean you cant be licesned with an insurance company to maybe do a SPIA?

cutacheck's picture
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Joined: 2009-02-21

What would you want an FA to do if this was your fathers portfolio?

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