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Feb 12, 2007 10:12 pm

So there I am, on hold with the Dell service persons (odd to call it that given that the reason I'm on hold is that there isn't an actual person there...) Thumbing through Investment News I notice an article "Web Sleuth Wants SEC Post"

Well considering the web is what has me hot under the collar, I decide to read it and low and behold it's about Yolanda Holtzee and it talks about some of her successful sleuthery.

Not the greatest article I've ever read, in fact the reporter, Kathie O'Donnell was even a bit snarky in her assessment of Ms Holtzee's quest (she [)'Donnell] and her editor don't seem to know that Ms is the whole word and not an abreviation for anything, thus the dot after the s is both superfluous and incorrect, but I digress as if to wste time while I sit on hold , just seconds away from the one hour mark!)

Good luck YMH, although I will say that having a cop around is sort of a buzz kill, I think I'll prolly go back to not posting here again. But before I go, I'd like to hear what you have to say about that "fee based vs. commissions" in the bond ladder that I explained in this thread... http://forums.registeredrep.com/forum_posts.asp?TID=3962&amp ;PN=1 .

How could the regulators sit on brokers for commissions when, as this case illustrates, a "fee only" advisor would scalp the account for up to 10 times the costs over the investor's objective time?

Of course I'd like to hear the "fee onlys" defend their position and how these fact square with their "best interests of the client" rhetoric, but so far, they won't.

Mr. A

Feb 12, 2007 10:46 pm

I'd like to hear the "fee onlys" defend their position and how these fact square with their "best interests of the client" rhetoric, but so far, they won't.

B/ds and affiliates won't continue to take their claim of moral superiority lying down. My prediction is, you ain't seen nothing yet.

Feb 13, 2007 12:03 am

This is gonna be fun. I can just tell…

Feb 13, 2007 1:11 am

Ladies and Gentlemen:

It all depends on the client as to which type of account is deemed appropriate. Am certain you're all familiar with the term, "know thy client," right?

As to being a cop, I have to wait until 2009 and even then, it's all up to the incoming POTUS (President of the United States). Until then, you have nothing to fear from me or my (hopefully) soon to be new organization, the Securities and Exchange Commission.

Feel free to exercise your First Amendment Rights (Freedom of Speech).

Feb 13, 2007 1:55 am

The fee is for oversight and administration.

The oversight of a qualified financial advisor/portfolio manager may bring

a superior outcome to a stand-alone, set-it-and-forget-it, laddered -

portfolio of fixed income securities. Not always, of course. There are

good managers and bad, but at least there’s a professional involved, with

skills and knowledge to bring to the process. If you don’t believe that’s

possible or necessary, why are you in this business? The client may

benefit from a more dynamic and flexible approach than a bond ladder.

Markets change, investors change, and a simple-minded bond ladder is a

head-in-the-sand approach. The fee assures objectivity. No incentive to

churn. Client and advisor on same side of the fence, with the same goal in

mind: performance. As long as the portfolio is performing well and is

aligned to the client’s parameters, and brings comfort to the investor, it’s

all good.

Feb 13, 2007 1:56 am

Sorry about that code. I don’t know how that got there!<!–
var SymRealOnLoad;
var SymReal;

Sym()
{
window.open = SymWinOpen;
if(SymReal != null)
SymReal();
}

SymOnLoad()
{
if(SymRealOnLoad != null)
SymRealOnLoad();
window.open = SymRealWinOpen;
SymReal = window.;
window. = Sym;
}

SymRealOnLoad = window.onload;
window.onload = SymOnLoad;

//–>

Feb 13, 2007 2:39 am

[quote=ymh_ymh_ymh]

Ladies and Gentlemen:

It all depends on the client as to which type of account is deemed appropriate. Am certain you're all familiar with the term, "know thy client," right?

As to being a cop, I have to wait until 2009 and even then, it's all up to the incoming POTUS (President of the United States). Until then, you have nothing to fear from me or my (hopefully) soon to be new organization, the Securities and Exchange Commission.

Feel free to exercise your First Amendment Rights (Freedom of Speech).

[/quote]

Good one! You got these fa's picking up their ticker tapes and running for the hills! There's a SPY amongs us!  Yowee!

Liked your US Air Force Link.

Feb 13, 2007 9:18 am

Thanks very much.

I posted the US Air Force link for one of my soon to be new colleagues, Roel Campos (Commissioner). He's a USAF Academy grad. He doesn't post here but I have heard he sometimes reads this thread and gets some of his "broker" jokes from posts made over here. He's told quite a few of them at speeches recently.

Feb 13, 2007 12:49 pm

[quote=ymh_ymh_ymh]

Ladies and Gentlemen:

It all depends on the client as to which type of account is deemed appropriate. Am certain you're all familiar with the term, "know thy client," right?

As to being a cop,...[/quote]

Well that answer is a cop out that for sure! "Know Thy Client" so if you know your client is a dolt it's ok to steal $10,000 per year for doing the same work that a commissioned broker is doing? Cool! BZZZZZZZTT! Try again!

[quote=Sailor25]The fee is for oversight and administration.

The oversight of a qualified financial advisor/portfolio manager may bring a superior outcome to a stand-alone, set-it-and-forget-it, laddered -portfolio of fixed income securities. Not always, of course. There are good managers and bad, but at least there's a professional involved, with skills and knowledge to bring to the process. If you don't believe that's possible or necessary, why are you in this business?

The client may benefit from a more dynamic and flexible approach than a bond ladder. Markets change, investors change, and a simple-minded bond ladder is a head-in-the-sand approach.

The fee assures objectivity. No incentive to churn. Client and advisor on same side of the fence, with the same goal in mind: performance. As long as the portfolio is performing well and is aligned to the client's parameters, and brings comfort to the investor, it's all good.


[/quote]

Spoken like a true zealot! No regard for the facts in evidence, simply a revomiturization of the same old self serving solopisms.

How is it in the client's best interest to be being ripped off for $10,000 per year The post is on this page of this thread http://forums.registeredrep.com/forum_posts.asp?TID=3962&amp ;PN=1&TPN=5

The math is fairly simple and it assumes that the two coupon bond buyers do the same ammount of work on the bond portfolios.

As to your mindless characterizations of commissioned brokers being motivated by anything other than the best interests, this example puts the lie to that presupposition, therefore it is illogical for you to raise that "point" as supporting "evidence" of your position.

Try to talk in a straight line there swabbytwobits. One can surely cloudy the calculation by saying well "I would be able to do better because I'm better at running money." (I'm sure you're familiar with the words, if not the actual meaning, "Past performance not indicative of future results.") We are comparing an apple to an apple, don't try to throw a red potato in there.

Mr. A

Feb 13, 2007 2:26 pm

Mr. A. -

I'm assuming you want to take this fight to every bond manager on the earth.

How can the American Funds Group have the same expense ratio for a bond fund AND an equity fund? 

Buying bonds in a fee-based account can eliminate the potential of a firm selling you a bond from inventory, since some firms cannot sell a client bonds on a principal basis.  That being the case, when bonds are bought without the high markups typically found in brokerage inventory bonds, you'll find that the fee amoritized over the holding period of the bond is potentially equal to the markup paid through a combination of the  1.) Commission and 2.) firm's markup for selling out of inventory. 6 for one, half a dozen another, as I see it....

Mr. and Mrs. Client will have a baseline expense in buying, selling, and owning a bond portfolio.  Either on a commission, mark-up, or advisory fee basis.... either way, it's there.

If you are good at active bond management, you should be paid for it.

C

Feb 13, 2007 2:42 pm

I did not speak to the "$10,000 fee," which is probably too high.

To restate my point, which apparently eluded you, the fee is for ongoing objective oversight, not for the various portfolio positions.

It is unrealistic in the real world to assume the same degree of portfolio turnover in your comparison between fee-based and transaction-based arrangements, for that would assume that the transaction-commission paid broker maintains a virtuous self-governing morality beyond that of the fee-governed advisor, whose income level is agreed in writing by the client, upfront and transparent. There are nice guys in the business, and mebbe you're one of them, but how do you know who they are, except in hindsight?

Your sloppy "solopism" only works when the client is ignorant of your sales credit.

Feb 13, 2007 3:01 pm

You know what happens when you assume? You get it Effing wrong!

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

Try to keep focus on the question at hand. Try not to squirm and slither for some imagined shade from the magnifying glass's hellishly hot focus!

 

We commission based brokers have had to put up with the rhetoric of the Fee Based only "advisors" who heap calumny after calumny on our character and practice. Herein we have a clear cut example of why it is in the best interest of the client to avoid, like the plague, the fee based goniff and all I ask is that the fee basers justify their extra $300,000 in fees over the useful life of the given portfolio.

 

Not surprisingly, when faced with the facts of the Mathematics of the case, they (the self same KISS crowd that points to pie charts and alphas and beta and 40/60 splits and so many other non-provable, and un-dis-provable, abstracts) have fallen silent!

 

How strong are those ethics now? That they now notice that a basic calculation proves the lie to their whole "best interests of the client" rhetoric? I'm not surprised that they are too embarrassed to defend their indefensible position.

 

As to the fee based account making up for the rate charged... A very easy check puts the lie to that too. Go to your bond calculator function and use it to determine the price on a 4% coupon bond that matures 20 years from now (which gives it the longest amortization consistent with this example) you'll see that the bond will  need to be priced at 90.15 to create a 4.75% yield such that the .75% fee is negated by the increased rate.

 

Are you sure you're able to buy bonds 10 points cheaper than I can? Two maybe four point maybe, but not 10.

Mr. A

Feb 13, 2007 3:13 pm

[quote=Sailor25]

I did not speak to the "$10,000 fee," which is probably too high.

To restate my point, which apparently eluded you, the fee is for ongoing objective oversight, not for the various portfolio positions.

It is unrealistic in the real world to assume the same degree of portfolio turnover in your comparison between fee-based and transaction-based arrangements, for that would assume that the transaction-commission paid broker maintains a virtuous self-governing morality beyond that of the fee-governed advisor, whose income level is agreed in writing by the client, upfront and transparent. There are nice guys in the business, and mebbe you're one of them, but how do you know who they are, except in hindsight?

Your sloppy "solopism" only works when the client is ignorant of your sales credit.

[/quote]

If you did not speak to the $10,000 fee which is probably too high then you didn't talk to the issue at all. Regardless of what you aluded eluded which deluded whom.

The FACT is that for the SAME work the "fee only" guy gets $322,000 dollars over the 30 year life of the portfolio and the commissioned broker gets between $32,000 and $42,000 dollars. (and actually much lower in that the scenario assumes that the commissioned broker gets a full point for each bond he buys, given that a third of the bonds he buys are going to be for maturities less that 10 years, and many of those will be for less than 5 years, the chances that he's going to get a point is slim) 

As debunked above, the Fee Only broker can not make up this difference in performance by buying bonds cheaper enough.

Stop with the ad hominem attacks of the ethics of commissioned broker. We're talking about mathematics here. The math says fee based brokers are the unethical scuzbuckets and the commissioned brokers are the ones acting in the client's best interests.

To disprove this, you will have to disprove the math, not re present your fantasies about the Simon LeGrees out here slinging AAA munis at unsuspecting widows!

Mr. A

Feb 13, 2007 3:32 pm

This all strikes at the heart of why I remain dually registered.  Some clients simply don’t want to pay fees, and for others who tend to buy and hold(especially fixed income) it it is considerably more expensive to work under fees than on a commission basis.  Maybe if you hire some highfalutin’ fixed income manager he can add value in excess of the fee.  But, for me when I am buying FI directly with a client(rather than as a slice of a balanced or growth/income portfolio) we generally buy the best value for the appropriate maturity based on their goals and then hold to maturity.  IMHO it just wouldn’t be ethical to charge a fee in that situation, and frequently I tell clients that.

I went to a Fidelity seminar a number of years ago, and they talked about how clients don’t think about asset allocation like we do.  Rather, they tend to classify their money in “pockets”, and think of these accounts or “pockets” according to the level of risk involved or the goals to which they are dedicated.  The folks at Cannon Institute talk about a similar outlook, dividing client’s portfolio into “Capital Growth” and “Capital Preservation” sections.  Many of my fee based clients also have “safe money” accounts where they purchase CD’s and muni bonds and GNMA’s, and their “risk capital” goes into the separate fee-based accounts.  It seems to give them a great peace of mind to take this approach.

Feb 13, 2007 3:42 pm

So we can count you in the "Fee only 'advisors' are scuzbuckets whoes business model ought to be re-examined by the persons looking at a position with the SEC and by the financial media" column?

Cool.

Mr. A

Feb 13, 2007 3:44 pm

[quote=mranonymous2u]

So we can count you in the “Fee only ‘advisors’ are scuzbuckets whoes business model ought to be re-examined by the persons looking at a position with the SEC and by the financial media” column?

Cool.

Mr. A

[/quote]

Well I think that characterization is a little extreme, or at least incendiary.

Then again when I was at UBS I used to love to listen to the sales manager prattle on about how I should wrap inactive accounts to increase my revenues, particularly when some of those accounts were inactive for a good reason-there was nothing that needed to be changed.
Feb 13, 2007 3:46 pm

[quote=mranonymous2u]

As to the fee based account making up for the rate charged... A very easy check puts the lie to that too. Go to your bond calculator function and use it to determine the price on a 4% coupon bond that matures 20 years from now (which gives it the longest amortization consistent with this example) you'll see that the bond will  need to be priced at 90.15 to create a 4.75% yield such that the .75% fee is negated by the increased rate.

Are you sure you're able to buy bonds 10 points cheaper than I can? Two maybe four point maybe, but not 10.

Mr. A

[/quote]

15% turnover within a bond portfolio is low.  I'd hold that 20-year issue for maybe 5 to 6 years, if that.  That being the case, you'll see the spread that commission-based firms charge, not including commissions, be a much larger factor in the performance of the account.  Fees vs. commissions and spreads are completely justifiable.  The true cost to the client, in a commission-based environment is much more than disclosed to the client.  I do NOT see where this is ethical, and can totally understand why a commission-based bond arrangement should be scrutinized further until there is full disclosure of all costs paid by the client in that type of transaction.

C

Feb 13, 2007 4:10 pm

Statist collectivist Captain vomiturated,

"15% turnover within a bond portfolio is low.  I'd hold that 20-year issue for maybe 5 to 6 years, if that.  That being the case, you'll see the spread that commission-based firms charge, not including commissions, be a much larger factor in the performance of the account.  Fees vs. commissions and spreads are completely justifiable.  The true cost to the client, in a commission-based environment is much more than disclosed to the client.  I do NOT see where this is ethical, and can totally understand why a commission-based bond arrangement should be scrutinized further until there is full disclosure of all costs paid by the client in that type of transaction."

As if his churning of a bond client's portfolio is germaine to the question.

I don't frickin CARE what you think is the proper way to run money (especially if you think it's proper to buy 20 year paper only to sell it 5 years later). I don't care if you don't ascribe to the idea that a bond ladder is a valid investment discipline, that's a discussion for a different day (a day that has come and gone long ago and it was decided that it is a good idea).

We're talking about THIS situation not your imaginary out performance of the bond ladder.

Puleese! As IF! 

If you told a client, "Mr. Jones, for running this account, I'm going to get 1 point per bond and my firm or some firm that I buy the bonds from is going to get to keep three points per bond, and so over the 30 year life of this illustration you are going to generate $168,000* in fees for us all. However, if you do the same business in my cool Fee Only account, where we'll only charge you .75% per year to take care of your whole portfolio and I'll do the same business that the commission broker and we'll pretend the the firms I buy from make $0 on each transaction I do, then you'll only pay a low low $322,000 over that time period, whaddayathinkboutthat?" how about doing that Captian?

Why don't you do that? Call all your clients and disclose how much it's going to cost them over the next 30 years if you have a static rate of return (whatever rate you want to put there) as compared to the commissions they would pay?

 * $168,000 figure calculated as though the $42,000 bond commissions were at 4 points instead of 1 point.

NEXT!

Mr. A  

Feb 13, 2007 4:29 pm

Static calculations have no relevance in a fluid situation, yet you  foist your unrealistic scenario on us to prove your mundane point that a one-time commission (without client's knowledge) is inherently superior to a managed account setup. The math is correct, but your assumptions are wrong.

I'd have more respect for your argument if you told your customers how much you make on every bond trade.

Feb 13, 2007 4:40 pm

How do you know I don't (tell my clients how much I make on every bond trade)?

This is not about me (which is rare for me).

How is this scenario unrealistic? You tell me you've never built a bond ladder for a client? Which assumption is wrong? (Aside from the assumption that if you've never made a bond ladder for your clients that should be fixed income clients with at least part of their money then you are guilty of not being the sharpest knife in the draw.)

And what exactly does the client's "knowledge" make a difference here. I mean, do the same exercise that I prescribed for Captain above. Facts is facts, you are potentially screwing clients with your "fees only" paradigm.

Mr. A