Syracuse, NY

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The Duke's picture
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I've got a friend who is convinced he wants to put his EJ office in the Syracuse NY or surrounding area.  Being a canadian, I'm not too familiar with central/upstate NY but I was always under the impression that it lacks the higher net worth clients to build a strong business on. 
Any information or suggestions on areas he could build a solid book would be appreciated.
 
Thanks

3rdyrp2's picture
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That's why they invented A shares.

ytrewq's picture
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He could build a solid book in Syracuse, NY or surrounding area.
 
What in the fool does "That's why they invented A shares." mean and how does it relate to Syracuse, NY?

3rdyrp2's picture
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It was a facetious response to how someone would build a book buy acquiring non-high net worth clients.  Put 100 clients w/$50,000 in A shares and you've done a decent job closing biz in a 2 year period.  You now only have $12,500 of recurring trails w/that strategy, but its an idea w/medium value clients.  Disclaimer:  I hate A shares and think they're a fraud.

deekay's picture
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Joined: 2007-05-15

But charging a point and a half on a MF wrap account is ok?

3rdyrp2's picture
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I don't see why anyone would charge 1.5% on a mutual fund wrap account, especially when they would still be getting paid the .25% 12b-1 fee as well.

deekay's picture
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My experience is, most MF wrap accounts use institutional shares that don't charge 12(b)-1's. 

 
Do you feel all funds are rip-offs, or just A shares? 

3rdyrp2's picture
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I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.
 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.

SometimesNowhere's picture
Joined: 2008-12-22

Syracuse and the surrounding areas are a great fit for the Jones model. I have family there, lots of middle-class folks. I think it is as good a place as any, in fact better than a lot of places to open an office.

Spaceman Spiff's picture
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3rdyrp2 wrote:I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.
 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.
 
So, it's not OK to limit the client's flexibility within a fund family, but it is OK to limit a client's flexibility (# of funds, rebalancing on YOUR schedule) based on your personal business choices.  Interesting.  So, the fee justifies the limitations, but the sales charge doesn't?
 
As to the OP's question.  One word.  GOLDMINE!  Jones has 1 FA in Syracuse.  And he's in East Syracuse.  We don't have anyone in Syracuse proper.  There are $15.8 BILLION investable dollars in the Syracuse zip codes according to our internal reports.  91,000 households.  If he just got a 1% market share for himself he'd have a great career.  He could spend 10 years talking to 25 households a day and only talk to everyone one time. 
 
Jones offices thrive in areas where the big boys, who only want to work with the clients with millions of dollars, don't.  Some of those guys wouldn't walk across the street for a $50,000 account like was mentioned before.  Most Jones folks will take those all day long. 
 
Tell your friend to jump on the opportunity before I do. 
 

3rdyrp2's picture
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Spaceman Spiff wrote:3rdyrp2 wrote:I don't like the idea of handcuffing a client to one fund family for an extended period of time in order to make up the cost of the upfront load.  Why not?  2 years ago Fidelity would have been a great fund family to have your clients in, with New Insights, Leveraged Co. Stock, Strat Income, Diversified International being good holdings for your ordinary client.  Last year, I would have been trying to get every client out of Fidelity and somewhere else, but instead I'd be stuck moving a client from New Insights into their Large Cap Equity fund or some other random fund with them.  A shares limit flexibility for you and the client, period.
 
I like A shares in a wrap account though, and I use a lot of them, but I don't charge 1.5% as a management fee.  The most I'll do is 1.25% and thats only if the account is under $50k, or the client insists on rebalancing more than twice a year or wants to have like 1 fund/etf/stock for every $5,000-$7,500 in the account, ex. 15 funds in a $100,000 account.
 
So, it's not OK to limit the client's flexibility within a fund family, but it is OK to limit a client's flexibility (# of funds, rebalancing on YOUR schedule) based on your personal business choices.  Interesting.  So, the fee justifies the limitations, but the sales charge doesn't?

 
I, just like you, work for the purpose of getting paid and running a profitable business.  If I charge a client a % of assets for semi-annual portfolio restructuring, and they want to do it quarterly, wouldn't it be make good business sense to charge them more for the extra time I'm spending on them?  If you charge your clients $600 per year for 4 meetings, and they ask if they can meet with you on a bi-monthly basis, are you telling me you would keep the $600 price, or would you charge them your cost for 6 meetings a year?  My time is valuable to me, and I don't work for free.
 
Ask anyone here who works on a fee basis if they charge the same for someone who does once a year rebalancing vs. quarterly rebalancing, everything else being equal (same account size).

Borker Boy's picture
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Yawn

Mishigun's picture
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I'm clarify a few thoughts for myself, not sure how much this has to do with upstate New York, or wherever that cold and beautiful city must be.
 
I think you're on the right track, 3rd. A shares are a good deal for some folks, too. I do wrap with ETFs, under 100k pays 1.5%, to 250k pays 1.25%, to 1m pays 1%, over 1m pays .75%. EB gets the same treatment.
 
A shares could be the best deal for the client, but this about having a long term, proactive, evolving relationship with the client. Since most mediocre manufacturers (as you pointed out, trying to beat the index has been shown to be pretty iffy at best) charge 12b1s, have selling arrangements with distributors, (even LPL in some cases, tell me if I'm wrong), AND:
 
Since the fee is totally visibile to the client in the wrap account ( 1% plus the "invisible" but direct two tenths of one percent fee on your Vanguard ETF) - it seems the fee arrangement is totally negotiable.
 
Personally, I don't "get" the idea of selling funds that have 12b1 fees in wrap accounts, or selling any 12b1 fee funds at all. In other words, if the minimum to open a wrap account at your firm is 25m, or 50m, or whatever, then invite your client to come back when they can meet the minimum.
 
I turned down the invitations for due diligence trips to Boston and SF this year, and the Oppenheimer dinners dowtown, and so on. Sent them all  packing. ETFs, or other low cost indexes without 12b1s, are absolutely the future, B shares and C shares are going away.
 
Of course, there are a few notable exceptions. I guess State Farm is the A#1 family (Forbes), Waddell and Reed have very, very good actively managed funds with 12b1s. What does this tell us? Reality is not absolute, it's okay to sell American A fund shares or whatever. It will be interesting to see how Jones survives the impending 12b1 wars, that's where I believe the "next" great battle is coming. At least, it's an opportunity to move money, and cut out the middle man, the partners, the selling arrangements, and generally clarify one's focus.

Mishigun's picture
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Joined: 2009-04-16

And by the fee arrangement being "negotiable", I mean, "take it or leave it, this is how I work". If we need to take a bunch of extra time, you can pay a separate, flat, hourly fee, but I'm going to get you lined out with more than just your investment portfolio for the wrap fee.

Mishigun's picture
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Also, I've heard people say, " Why are you charging 1.25% a year to throw money in low cost indexes in a wrap account". Dude, if you can't provide value -  beyond the placement of investments - at this price - you don't belong in this business. Get some experience, get your CFP, help a few folks avoid making a few big mistakes - I'm the "cheapest" guy in town. Clients understand the idea of cutting out the middle man, and paying you. Sure, your b/d is making a nice admin fee (or you're not paying that expense category at RIA) - but everybody's clear about costs and value.

3rdyrp2's picture
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Exactly.  I feel much more confident w/my clients paying me .75-1.25% to get full account service and access to many more options and much more value than throwing them in an Oppenheimer portfolio and doing a few exchanges every year.  Net fees to them almost equal an A share portfolio when taking into account roughly half the holdings are ETF's (.1-.2% expense), a quarter are institutional shares (low expense ratio and no 12b-1) and a quarter are A shares that I can't sell as institutional shares (.85-1% avg.), and no asset fee gets taken out for cash holdings.  All that without the hassle of explaining to them that "5.75% of your account is taken off the top and it may take a few years to make up the cost, but 10 years from now you'll be golden!  Lets just hope that Oppenheimer Strategic Income or Main Street doesn't blow up over the next decade."

Mishigun's picture
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Lord Almighty. Oppenheimer Strategic Income, what a disappointment. At this point, danged if you did and danged if you don't (hoping it will come back with some liquidity in the bond markets, before I liquidate it for BND, BWX and so on.
 
"More confident" is well put. More focused. And things like the Vanguard Energy Index make great conversation right now (" What do you think is going to happen to the price of energy over the next few years").
 
Generally, I'm not in favor of liquidating "good" A share funds where a load was paid. On the other hand, you paid 5% to get in, and your costs remain about the same. You "bought" the idea that you were getting something for the 5% (you did) - some indexes are down 50%, the "Dow" can fluctuate 5% in one day. Let's get focused. Not a bad "story" right now, now a bad way to get paid for providing a service.

Spaceman Spiff's picture
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I understand, agree with you to a certain extent, that the fee based relationship using ETFs is a great way to go.  But to just flat out say that A shares are fraud may be one of the most ludicrous statements I've ever read hear.  They are what they are.  I could say that you're a fraud because you're charging your clients a fee and you won't meet with them whenever THEY want.  I know you're the advisor, but last I checked it was still THEIR money.  THEY hired YOU to do a job for them.  Therefore, YOU WORK FOR THEM.  THEY ARE YOUR EMPLOYER.  I think this is one of the big disconnects in this business between the clients and the advisors.  Too many advisors think their stuff doesn't stink and they forget that the client is still in charge of the money.  Most of them don't look over our shoulders while we do what we do, but that doesn't mean we should do everything that is necessary to make sure we are doing the job they hired us to do. 
 
I have to chuckle at the timed rebalancing comment made before.  So, what that implies is that in your infinite wisdom, your client's portfolios are only out of balance twice a year?  Or four times a year?  Do you not have an investment policy statement that says went X asset class gets Y% out of sync with the original target percentages, you'll rebalance back to the original target? 
 
Far be it from me, the lowly EDJ FA, to question the logic in your statement, but those comments like "my time is valuable" and "if we need to take a bunch of extra time" lead me to believe that you two have forgotten who writes the checks in this business.  That your belief is that your clients are somehow subordinate to you and not the other way around.   

Mishigun's picture
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You had me on board until the last paragraph.
 
Of course A shares are not fraud, unless they are abused. ( Like, collect the load, then forget the client.) You got paid up front.
 
This share class stuff, and how we get paid, IS a huge disconnect for the business.
 
"Rebalancing" is a small part of what we do. In fact, tactical asset allocation has recently been questioned (again).
 
In your final paragraph, you sound a little defensive. I respect you, I know the EDJ model, I have visited your HQ.
 
When I say, " I we need to tak a bunch of extra time", I mean this: according to the CFP Board Code of Ethics, the financial planning deliverable can be oral or written. If you want charts, what ifs and other software driven deliverables, it is going to cost you extra.
 
Please be critical Spaceman. At least part of the problem is that Jones has (or had? - tell me, do they still have) selling arrangements with certain vendors - from what I could tell, this money gets rebated directly back to the partners in St. Louis. That includes a big chunk of the load, and also the 12b1s. Given Jones' turnover and overall training status in the industry, I'd say a lot of clients are getting inexperienced advisors, or small accounts are getting minimal service (human nature and economics). Tell me all of that is not confusing to clients.
 
The only way this may reflect upon you is your overall choice of b/d affiliation and way of doing business. I have a few things I'm in the process of cleaning up myself. I'm just pointing to the writing on the wall.
 
As for A shares, with their loads and selling arrangements, per se, they could be better for the client in some situations. With regards to the advice business, I'd argue that they contribute to the dumbing down of mental clarity ( I've got a few people who won't sell one star "loaded" funds with high expense ratios they bought years ago, because someone sold them the "load" idea), and they don't deliver the kind of economics that keeps good advisors in business.
 
My dream is that some day, even the little guys that have to be hunted down for a sale will come to us ( and we'll get paid to help them). The mistrust created certain practices perpetuates the used car salesman image of advisors. I don't see how making fees completely visible hurts anybody. The load on A shares is visible, but I think 12b1s hurt us more than they help us.  

3rdyrp2's picture
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My clients can meet with me whenever they want to.  I've never told a client, "I'm too busy, try next quarter", or "Ah ah ah, you only paid me for 3 meetings, I can't meet w/you till our next agreed time!".  However, most of any business that takes place can be done w/a 5 minute phone call.  If a client has a question or wants me to go over something with them, there's no reason I can't call them or they can't call me.  We don't need a 45 minute sit down meeting every time the client needs a question answered or wants a status update on their accounts.
 
You're misunderstanding (thanks to Roger Clemens for that piece of English language expertise) the rebalancing concept.  If I spent my career, especially the last 12 months, calling my clients and having them rebalance something every time a holding became disproportionate to the original allocation, I'd be trading their account every week.  Real Estate funds are up and down 10% per day now.  It is what it is.  I rebalance in the 2nd and 4th quarter.  I'm not, nor should you be, some stock jockey trading client accounts every 3 weeks.
 
I don't think my s*** doesn't stink.  My clients are well aware of how I work, and I'm well aware of the type of service and value they expect from me and together that builds great relationships. 
 
I understand that A shares are how you get paid.  I probably crossed the line when saying they were a fraud.  In most cases they are.  If I see one more portfolio of someone that has $75,000 split between 2 fund families I'm going to jump out the window.  But an $8,000 account?  Sure, throw them in Fidelity Advisor Freedom fund or something.  There's not really a whole lot else that you could do there, I guess. 

Mishigun's picture
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Yeah, except, encourage them to save a cash reserve to get the minimum 25k, or whatever. Having cash makes people feel powerful.
Yes, my clients call me whenever they want to! It took me ten years to get over my "financial advisor" training, and act like a broker - call, email, call, have lunch. Access is what their paying for, you're making the case. I'm well paid to provide immediate access, and be proactive, too.
Rebalancing is about common sense. I thought there might be a recession coming, about two years ago I started reducing equities if the client agreed. (Did not call the meltdown.)
Touch, service, just like Bond Guy and Spaceman. We're all good guys.

Mishigun's picture
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So, with our model, I would argue the overhead of a wirehouse, or even EDJ, is just ripping off the clients, AND the advisors. Because time is money, and personal contact is valuable. Of course, the whole industry knows it. The big wirehouse layoffs is just a short term move to aggregate 12b1s and such against fixed costs, until they figure out their next move. Kinda like being eaten by minnows!

Brett Favre's picture
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You're misunderstanding (thanks to Roger Clemens for that piece of English language expertise)Actually I think misunderstanding is a proper word - - perhaps I'm just misremembering what I learned in school.BF

3rdyrp2's picture
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Lmao...good call!

jkl1v1n6's picture
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Brett Favre wrote:
You're misunderstanding (thanks to Roger Clemens for that piece of English language expertise)Actually I think misunderstanding is a proper word - - perhaps I'm just misremembering what I learned in school.BF
 

buyandhold's picture
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Joined: 2008-09-23

If I'm a client, I have a hard time paying you a fee if you're just going to give me a quick risk toleralance quiz, check your asset allocation model and put me in index funds. It's funny to hear the A share bashing, as if Jones guys are somehow getting rich putting people in A shares. Guy gives me 500k, we wind up using two fund families, buy some individual bonds and individual stocks, put 100k in CDs, -- total cost to him is probably less than 10k upfront, plus his annual expenses are very low. My gross commission is probably 12k tops, which I net maybe 4k, which makes me wonder how I can make it when a great account pays me living expenses for less than one month. I have a couple of clients like this and I provide them good service but I'm getting very little out of it beyond selling them another 20k bond every six months.Fwiw, though, I think A shares are on their way out. The public wants to get something for nothing, and even Jones guys are smart enough to figure out that fee based business is a better way to go, for the advisor, for clients who want an advisor.

Mishigun's picture
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You're making my point. I respect you. I think you're getting screwed.
But I don't think the public wants something for nothing. Maybe the partners at Jones do, or something like that.
 
You know darn well that I, and we, do a lot more than just give a quiz and throw stuff in wrap. I'd rather have a smaller client who is paying me. 500k ain't no big swingin' d***, neither is 2m.
 
That's the whole problem, everybody (not you) wants to be a swingin' d***, and noboby wants to do the work. Well guess what, cut out the fat and everybody can eat.

3rdyrp2's picture
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buyandhold wrote:If I'm a client, I have a hard time paying you a fee if you're just going to give me a quick risk toleralance quiz, check your asset allocation model and put me in index funds. It's funny to hear the A share bashing, as if Jones guys are somehow getting rich putting people in A shares. Guy gives me 500k, we wind up using two fund families, buy some individual bonds and individual stocks, put 100k in CDs, -- total cost to him is probably less than 10k upfront, plus his annual expenses are very low. My gross commission is probably 12k tops, which I net maybe 4k, which makes me wonder how I can make it when a great account pays me living expenses for less than one month. I have a couple of clients like this and I provide them good service but I'm getting very little out of it beyond selling them another 20k bond every six months.
 
Total cost upfront is less than $10k???  Thats a Hyundai!!  Why would someone rather pay $10,000 upfront before getting any type of value for his dollar yet?  If I charge someone who has $500,000 with me at 1%, after year one he's out $5,000 and if I suck and don't provide the value he's looking for, he can take his money somewhere else without worry of being stuck in some crappy fund family.  If I put him in A shares and I suck, he can take his money somewhere else (as long as the company is able to hold the fund family), but he's stuck with the same fund company for however long it'll take him to recoup the upfront fees. 

Mishigun's picture
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Of course he could dump the fund family, but then he would not have learned a darned thing.
You know what's amazing, guys have been trained to defend the status quo that is sucking them dry.
 
You've got to defend all of these costs, instead of just moving from where I am now, to where I oughta be. Irony is, now is the PERFECT time to be honest and move forward.

buyandhold's picture
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You make interesting points, Mishigun. ... Me, I'm just a piker trying to figure things out so I can, as you say, move forward. ....  The irony is that I'd like to put people in fee-based, even the EJ model, but I need the A-share upfront money. But I don't even do that right, because I keep doing what's best for the client. Fock, I am getting screwed.

Moraen's picture
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You can do the right thing for the client at places other than Edward Jones, and it might pay a lot better.
 
Indpendent you can do a combination of upfront fees and fee-based.

Mishigun's picture
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B&H, as you know, the present value of your practice resides with the firm, the future value is you. Your clients know you are doing the hard work of survival. They like you and want you to be successful.
 
When the time is right, with the stroke of a pen, the present will become the future ( I notice my b/d dropped compliance documentation requirements for shifting A shares to ETFs. No written explanations or signatures required.)
 
My point is, we have been trained to fight like dogs or roosters about meaningless crap that enriches management. Clients have been trained to be loyal to meaningless concepts, like buy and hold the overpriced funds of mediocre companies like Fidelity and Oppenheimer.
 
I respect every EJ guy and every BG and c***y RIAs alike. America needs us ... now. I thought that Robyn posting on here was a real reminder ... of how we  industry professionals share some common instincts and experience that needs to be respected better by those who would profit from our sweat equity.

CreditOnion's picture
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Total cost upfront is less than $10k???  Thats a Hyundai!!  Why would someone rather pay $10,000 upfront before getting any type of value for his dollar yet?  If I charge someone who has $500,000 with me at 1%, after year one he's out $5,000 and if I suck and don't provide the value he's looking for, he can take his money somewhere else without worry of being stuck in some crappy fund family.  If I put him in A shares and I suck, he can take his money somewhere else (as long as the company is able to hold the fund family), but he's stuck with the same fund company for however long it'll take him to recoup the upfront fees. 
 
But then if he likes you and stays with you for 5 years, he will have paid you at least $25,000 for what he could have bought for $10,000. You guys are amazing. What ever happened to doing what is best for the client and not stuffing your pocket every year with that 1% fee. You are stealing fees from your clients that they did not need to pay. They could have bought good A share funds and never paid another commission after year 1. You make them pay something every year...forever.
 
What a rip-off for the client. You make money and they pay unnecessary fees. I meet with my A share clients whenever they want to and whenever we need to without charging them for my time.

Mishigun's picture
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I think you're a little out of touch. By the time the time you run the #s, pay the fixed costs of the business, a provide a quality product, you can't afford to do it for less than 1%. I don't know about your situation, but most business people herewould probably agree. It's fun to say "what a rip off for the client" and provide anecdotal evidence, it's another to fly solo and provide real value for real clients over a long period of time. If you're selling A shares you're obviously hooked in with a b/d, you're carrying a ton of costs with (hidden) fees. Whatever, I don't care about your business.

CreditOnion's picture
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Mishigun wrote:
I think you're a little out of touch. By the time the time you run the #s, pay the fixed costs of the business, a provide a quality product, you can't afford to do it for less than 1%. I don't know about your situation, but most business people herewould probably agree. It's fun to say "what a rip off for the client" and provide anecdotal evidence, it's another to fly solo and provide real value for real clients over a long period of time. If you're selling A shares you're obviously hooked in with a b/d, you're carrying a ton of costs with (hidden) fees. Whatever, I don't care about your business.
 
Regardless of your justification, you are not doing what is right for your client. You are overcharging them on fees to fill your pocket. Go find new clients to work with, don't overcharge the ones you have because I steal those clients away everyday by doing what is right for THEM.

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CreditOnion wrote:
 
Quote:Total cost upfront is less than $10k???  Thats a Hyundai!!  Why would someone rather pay $10,000 upfront before getting any type of value for his dollar yet?  If I charge someone who has $500,000 with me at 1%, after year one he's out $5,000 and if I suck and don't provide the value he's looking for, he can take his money somewhere else without worry of being stuck in some crappy fund family.  If I put him in A shares and I suck, he can take his money somewhere else (as long as the company is able to hold the fund family), but he's stuck with the same fund company for however long it'll take him to recoup the upfront fees. 
 
What a rip-off for the client. You make money and they pay unnecessary fees. I meet with my A share clients whenever they want to and whenever we need to without charging them for my time.
 
Hopefully the wholesalers are taking good care of you.  You'll be in your 20th year still having to acquire 40 clients a year to maintain a commission business because you can't afford to stay afloat with the residual 12b-1 fee every year.  A client you've had for 10 years with $100,000 in A shares is paying you $250 in trails each year, and after the payout you could be netting half of that.  You're working for a $100,000 account, meeting 2-4 times a year, doing admin work and doing account rebalancing for $100-$200 per year.  How on gods green earth can you stay in business with that set up?
 
Quote:But then if he likes you and stays with you for 5 years, he will have paid you at least $25,000 for what he could have bought for $10,000. You guys are amazing. What ever happened to doing what is best for the client and not stuffing your pocket every year with that 1% fee. You are stealing fees from your clients that they did not need to pay. They could have bought good A share funds and never paid another commission after year 1. You make them pay something every year...forever.
 
If he likes me and I'm providing him good value and giving him the choices and services that all my clients should be entitled to have then what is wrong with him thinking I am worth his money?  You say "good A share funds", what if I was around in 1995 and put a client in Putnam?  Good choice at the time, they had a solid mix, but if they were still my client today I'd have gotten their a$$es out of there years ago.  And they'd have to pay another commission to get into a different fund family.  Are you really confident enough to bank your client relationships and  your business on the hope that a good A share today will be still be just as good if not better 15-20 years from now?

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I know it may sound hypocritical, but I think you're both right.  I LOVE the fact that Jones has given me another way to get paid for what I do through Advisory Solutions.  I have prospects that I couldn't even have competed for without AS.  Met another one yesterday in fact.  Another Mutual Fund store client.  Said she knows she is paying a high fee.  I can now talk with her about both A share mutual funds, fee based mutual funds, fee based ETFs, or commission based ETFs.  Or individual stocks or bonds.  This time last year I didn't have two of those choices. 
 
Each of us can argue our own side and make very compelling points.  However, at the end of the day, the client has to make the decision about how, or if, they pay an advisor to do what we do. 
 

CreditOnion's picture
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Joined: 2008-01-17

Spaceman Spiff wrote:I know it may sound hypocritical, but I think you're both right.  I LOVE the fact that Jones has given me another way to get paid for what I do through Advisory Solutions.  I have prospects that I couldn't even have competed for without AS.  Met another one yesterday in fact.  Another Mutual Fund store client.  Said she knows she is paying a high fee.  I can now talk with her about both A share mutual funds, fee based mutual funds, fee based ETFs, or commission based ETFs.  Or individual stocks or bonds.  This time last year I didn't have two of those choices. 
 
Each of us can argue our own side and make very compelling points.  However, at the end of the day, the client has to make the decision about how, or if, they pay an advisor to do what we do. 
 
 
I agree. However, some of the biggest accounts I have ever transferred were from clients that realized they were going to pay that 1% every year so long as they were invested with the other firm. I showed them a less expensive way to invest and get good returns and they became my clients.
 
 

Mishigun's picture
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Joined: 2009-04-16

CreditOnion wrote:Spaceman Spiff wrote:I know it may sound hypocritical, but I think you're both right.  I LOVE the fact that Jones has given me another way to get paid for what I do through Advisory Solutions.  I have prospects that I couldn't even have competed for without AS.  Met another one yesterday in fact.  Another Mutual Fund store client.  Said she knows she is paying a high fee.  I can now talk with her about both A share mutual funds, fee based mutual funds, fee based ETFs, or commission based ETFs.  Or individual stocks or bonds.  This time last year I didn't have two of those choices. 
 
Each of us can argue our own side and make very compelling points.  However, at the end of the day, the client has to make the decision about how, or if, they pay an advisor to do what we do. 
 
 
I agree. However, some of the biggest accounts I have ever transferred were from clients that realized they were going to pay that 1% every year so long as they were invested with the other firm. I showed them a less expensive way to invest and get good returns and they became my clients.
 
 
Kind of like the recent "Office" episodes, where Michael Scott Paper Company steals business by going into debt.
 
 Basically, commissions of any kind are good for paying up front costs, and leveraging the labor of other people (look at any sales organization).
 
Using new business to subsidize long term business relationships is not a sound strategy. Please don't go around feeling virtuous with your head in the sand.

3rdyrp2's picture
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Joined: 2008-11-13

CreditOnion wrote:Mishigun wrote:I think you're a little out of touch. By the time the time you run the #s, pay the fixed costs of the business, a provide a quality product, you can't afford to do it for less than 1%. I don't know about your situation, but most business people herewould probably agree. It's fun to say "what a rip off for the client" and provide anecdotal evidence, it's another to fly solo and provide real value for real clients over a long period of time. If you're selling A shares you're obviously hooked in with a b/d, you're carrying a ton of costs with (hidden) fees. Whatever, I don't care about your business.
 
Regardless of your justification, you are not doing what is right for your client. You are overcharging them on fees to fill your pocket. Go find new clients to work with, don't overcharge the ones you have because I steal those clients away everyday by doing what is right for THEM.
 
If lower fees are your justification then if you were really doing whats best for the client you'd draw up a good Vanguard allocation for them to go implement w/no loads and .2% annual fees. 

Mishigun's picture
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Joined: 2009-04-16

Spaceman Spiff wrote:I know it may sound hypocritical, but I think you're both right.  I LOVE the fact that Jones has given me another way to get paid for what I do through Advisory Solutions.  I have prospects that I couldn't even have competed for without AS.  Met another one yesterday in fact.  Another Mutual Fund store client.  Said she knows she is paying a high fee.  I can now talk with her about both A share mutual funds, fee based mutual funds, fee based ETFs, or commission based ETFs.  Or individual stocks or bonds.  This time last year I didn't have two of those choices. 
 
Each of us can argue our own side and make very compelling points.  However, at the end of the day, the client has to make the decision about how, or if, they pay an advisor to do what we do. 
 
 
Fundamentally, I agree, flexibility is a good thing. You have enough scale to create your own marketing mix of pricing. And the Mutual Fund store pricing can be too expensive, fund chasing can be stupid.
 
But .... if you're completely honest with yourself, and us, .... I'll be we could sit down with some of your clients, and compare notes, and find that your  pricing appears to be unfair. Some pay loads, some pay wrap. Some pay less and get more service. Or maybe  not you, but let's face it, the way our industry prices service, you end up with a lot of competitive subsidizing, in order to win business. I'm not saying that's morally wrong, I just saying it's confusing. Obviously, the strong can play rougher, too. Wirehouses used to have the upper hand, the tides is turning to lower cost producers (margin compression).
 
More power to you. Where applicable, don't be home office's chump. In many cases, the upfront commissions become the aggregating tools of newer rep's labor which becomes the profit (after fixed costs) for you and the partners. I remember the particular day in my life when I decided I was going to try to stop letting other people profit from my labor ... ironically, that has absolutely nothing to do with unions ... or top heavy corporate structures. The result is a win- win for client, and advisor.

Mishigun's picture
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Joined: 2009-04-16

And also, is it fair to use the commissions from new clients, to subsidize "old" clients. Is it fair to let "big" clients subsidize little clients? By "fair", I mean, you are a professional. Your pricing structure should reflect your time allocation, with the exception of pro bono work, to make sure clients get value. And what about fair to you? Some guy pays you a commission, and ten years later you're his slave for a few hundred bucks a year. That's unprofessional, and more people see or understand or sense how you're working than you may realize. And built-in to this is some are some automatic hosing mechanisms, certain products that are purchased probably more as a function of trust or intelligence than economic reality. Commission based, of course, for "leverage". For example, the market is down, interest rates are down, and fixed annuity sales are way, way up. I'm sure some are appropriate, on the other hand, it's harvest time for that segment. And here you stand, defending the status quo, while you're really getting hosed. Kind of Shakespearean, in a tragic sort of way. The huge irony is, the traditional core of the b/d industry has been poisoned, but there's hope for recovery.

Mishigun's picture
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Joined: 2009-04-16

3rdyrp2 wrote:CreditOnion wrote:Mishigun wrote:I think you're a little out of touch. By the time the time you run the #s, pay the fixed costs of the business, a provide a quality product, you can't afford to do it for less than 1%. I don't know about your situation, but most business people herewould probably agree. It's fun to say "what a rip off for the client" and provide anecdotal evidence, it's another to fly solo and provide real value for real clients over a long period of time. If you're selling A shares you're obviously hooked in with a b/d, you're carrying a ton of costs with (hidden) fees. Whatever, I don't care about your business.
 
Regardless of your justification, you are not doing what is right for your client. You are overcharging them on fees to fill your pocket. Go find new clients to work with, don't overcharge the ones you have because I steal those clients away everyday by doing what is right for THEM.
 
If lower fees are your justification then if you were really doing whats best for the client you'd draw up a good Vanguard allocation for them to go implement w/no loads and .2% annual fees. 
 
Sure. Instead of charging 1%, charge .5%, plus the .2% internal Vanguard fee. If you can operate at that level.
 
Or, just keep collecting 1/2 of .25 12b1 ( and the client pays .8 internal fund fees on the A share).
 
This is about YOU and the client getting ripped off by other people, if you don't understand all of this, just keep doing what you're doing until you get it.

Hus Bin Pharteen's picture
Joined: 2009-04-25

In truth, if I charge an annual fee of 9%, it's disclosed, shown on the statement as a hard charge and the client agrees to it, that is infinitely better than A share funds that the client has no friggin clue what they pay.  Credit Onion, call your top 5 clients Monday and have them tell you what they paid in fees last year, all in (Load, 12b-1, CDSC - if applicable etc.).  The right compensation plan for the advisor is the one the client trusts - period!

Hus Bin Pharteen's picture
Joined: 2009-04-25

I steal those clients away everyday by doing what is right for THEM.
 
If lower fees are your justification then if you were really doing whats best for the client you'd draw up a good Vanguard allocation for them to go implement w/no loads and .2% annual fees. 
 
Sure. Instead of charging 1%, charge .5%, plus the .2% internal Vanguard fee. If you can operate at that level.
 
Or, just keep collecting 1/2 of .25 12b1 ( and the client pays .8 internal fund fees on the A share).
 
This is about YOU and the client getting ripped off by other people, if you don't understand all of this, just keep doing what you're doing until you get it.

 
Holy cats Credit Onion, you must be a former Jones guy, no?  At some point in your career, you'll realize that price is what you pay, value is what you get.  I think if you look at the comp plans in the future you'll see clients willing to pay a premium for transparency, proactivity and personal attention.  Cheap does not equate to good.  Cheap means cheap.

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