Can you clarify a few things…



1.) The index fund business is in what form at present? Funds or ETFs?

Are you managing them on a discretionary basis presently?

2.) Your separate account business… things like $100,000 accounts with

the manager through your firm’s wrap fee program? Or, is it $3 million

accounts manged outside your firm’s wrap fee program?



Please advise.



C

[quote=Captain]Can you clarify a few things...

1.) The index fund business is in what form at present? Funds or ETFs?
Are you managing them on a discretionary basis presently?
2.) Your separate account business.... things like $100,000 accounts with
the manager through your firm's wrap fee program? Or, is it $3 million
accounts manged outside your firm's wrap fee program?

Please advise.

C[/quote]

1. ETFs currently, but with the expectation of moving over to certain DFA  and other mutual funds. Managed on a discretionary basis.

2. Using widely available SMA managers (avail through Schwab Inst, at least) through wrap fee program.

3. Using rep-as-pm discretionary accounts with individual securities.

Thanks for your insights.

Here are a few of my comments, and they are based solely on using the

Fidelity system, since that’s the one we have at present.



1.) The ability to manage model portfolios which include DFA funds, or

ETFs is excellent. Through their proprietary trading system (known as

AdvisorChannel) you can trade multiple accounts, as you wish, through a

one-point execution system. I think their trading system is excellent. We

came from a wirehouse which only allowed you to manage accounts on an

account-by-account basis, which made it horribly time consuming to

manage funds on a truly discretionay basis.



2.) The SMA platform through Fidelity is twofold. First, you have the

Separate Account Network which allows you to virtually use any manager

you want. However, you have to meet the seperate account manager’s

minimums (which can be millions on a per account basis). Then you have

Envestnet, which is a Fidelity-sponsored wrap program. This program

was created much like the wrap programs of the wirehouse environment,

where the minimums are $100,000 (mostly) per manager, and they offer

lower manager fees, bundled pricing, etc. You have the ability to create

multiple accounts with one application, and can terminate and replace a

manager through one document signed by the advisor. It’s not a bad

system, and we’ve been happy so far.



You’ll find that most SMA programs through Schwab, Fidelity or TD do not

offer any type of performance reporting. You’ll have to purchase a

’portfolio management system’ in order to 1.) execute your billing, and 2.)

prepare summary performance reports for your clients.



Fidelity, in my opinion, is excellent. I’m happy with the company and feel

that they are moving in the right direction in order to make the advisor

more efficient. I’m not sure which firm you are coming from (or type of

firm, for that matter), but you should look at both Schwab and Fidelity for

your business. BE SURE to make sure that the managers aren’t ‘just on

their list’, and look at account minimums before you make your change.

Some of the widely-used managers were on the Fidelity list, however,

their minimums were too lofty for us to continue to use.



I’d interview both Fidelity and Schwab. I think they offer the best in terms

of service, technology, and resources to meet your needs.



Are you coming from a wirehouse, or are you already an RIA, and just

switching custodians?



C

Thank you for all of your insight.

We would be coming from a wirehouse and have become frustrated with the bureaucracy and cheapness of the firm.

Do you have an opinion on the quality of consumer banking services between the two firms (Fidelity vs Schwab)?

Again, I’m not totally familiar with Schwab’s platform, but I will say this…



When you say ‘consumer banking services’, I’m assuming that you are

referring to checkwriting, card, billpayment and cash management

services. If that’s the case, you should find that Fidelity can do all of the

above. What you will find, however, is that they really try to emphasize

the money management side of your business. That’s really where they

excel. You’ll find that Fidelity and Schwab won’t have a cash management

platform as impressive as Merrill Lynch, SB or Wachovia where they offer a

linked credit card with automatic payment. They [Fidelity] will offer a

debit card with ATM-free transactions (to a point). But, don’t expect to

have a ‘full monty’ type of cash management system without a small

number of headaches.



In our transition, we had LOADS of cash management accounts to

transition. The biggest problem was getting all the automatic bill

payment/bill presentment items to link through to the new account (i.e.

mortgage payments, car payments, utility bills). So, while we did some of

this via online with some clients, we issued a letter advising the client of

their account and routing numbers, provided them with a list of phone

numbers to call, and highlighted those which pertained to their account.

They did the rest. We did partial ACATs of the investment assets, and left

a majority of the cash at the old firm until things began to happen

through their new accounts.



The problem with Fidelity is that they do not report the name of the payee

on their statements when the client writes a check. It just shows the

check number. Not a problem for most clients, but we just see check

numbers, etc., instead of payees.



I’d give the cash management platform a ‘B’… there are some things

which could be improved, but in general, they do a good job. I think the

GREATEST thing for us in this whole transition is that I had the

opportunity to tell a bunch of clients that opening a local bank account

would be a great idea… and they did. Now, we are focused on the

investments and that’s where our time is spent. It’s truly a good thing.



Hope this helps.



C

Does anyone have experience with BrokersXpress or FolioFN professional?

Thanks a lot for your insights Cap’n!

SF, I assume you're looking to go as an RIA since you're asking about custodians.  I'm also assuming that your book is fee-based, since RIA's don't do transaction-based business (at least that's the way I remember it...).

As someone who's content as an independent, but always curious, was there anything, aside from the obvious payout increase (which for me would be an increase from 92% to 100%), were there any other factors that pushed you the RIA direction?  Frankly, I've been a bit intimidated by the compliance/legal work required, and I'm still too dependent on transactional business (about half of my revs last year), but I'm always curious...

My practice is almost entirely from asset management, rep-as-pm, so the transition should be easier.

I haven't decided that I want to do this, it's just that an opportunity has presented itself and I may have an excellent opportunity to build a VERY strong team, including two excellent rainmakers, besides myself.

The attraction of an RIA is the lower level of compliance generally required and the freedom to truly be our own bosses - with nobody (besides ourselves) telling us what to do.

[quote=san fran broker]

The attraction of an RIA is the lower level of compliance generally required and the freedom to truly be our own bosses - with nobody (besides ourselves) telling us what to do.

[/quote]

I hate to rain on your parade, but there will be a lot of people telling you what to do. Let's start with the NASD. This business will always be a compliance nightmere and on own you get to deal with it all yourself. In addition, your new responsibilities as business owner will take away from time managing portfolios.  The grass isn't always greener.

Lex, no offense, but you are completely wrong.



The NASD governs registered reps, and not RIAs. Quite a stark difference

in terms of regulation and oversight when compared to a NASD-regulated

environment. SEC regulations are much easier to deal with once you

eliminate the possibility of earning commissions from your sales.



An RIA is a completely different animal.



C

[quote=Lex123][quote=san fran broker]

The attraction of an RIA is the lower level of compliance generally required and the freedom to truly be our own bosses - with nobody (besides ourselves) telling us what to do.

[/quote]

I hate to rain on your parade, but there will be a lot of people telling you what to do. Let's start with the NASD. This business will always be a compliance nightmere and on own you get to deal with it all yourself. In addition, your new responsibilities as business owner will take away from time managing portfolios.  The grass isn't always greener.

[quote=Lex123]

I hate to rain on your parade, but there will be a lot of people telling you what to do. Let's start with the NASD. This business will always be a compliance nightmere and on own you get to deal with it all yourself. In addition, your new responsibilities as business owner will take away from time managing portfolios.  The grass isn't always greener.

[/quote]

From a number of my colleagues that have gone out and started hedge funds (which are RIAs), I get the distinct impression that you're incorrect.

I beg your pardon. My point was simply that we are in a heavily regulated industry and I doubt very much that you will be able to escape it.

[quote=Lex123] I beg your pardon…I doubt very much that you will be

able to escape it.[/quote]



No worries, Lex.



The issue through the NASD regulation is heavily clouded since you are

regulating both commission-based platforms AND certain fee-based

platforms. The NASD regulations and rules were written for the lowest

common denometer of an advisor (i.e. the worst advisor at the firm). So,

that being the case, you’ll find an overly-aggressive amount of regulation

through the NASD due to the abuses by the commission-based advisors.

It’s the ‘one bad apple ruins the bushel’ problem that pushes many fee-

only advisors from NASD regulation to SEC regulation as RIAs.



It’s not an avoidance of the rules, it’s just that the rules are different, and

written for a specific type of advisor… an RIA.



Until you’ve been on both sides, you will not understand.



C

I have an account at FolioAdvisor (FolioFN) and have been very impressed with the model portfolio management platform. I also like that you can automate the tax gain/loss with a click of the mouse. The backtesting ability is nice too.

I'd recommend setting up an account with them, then you can create "watch" accounts and manage fake money to see how it works.

brokersXpress has had great execution and service.  I am biased to bX, but you asked.

SF - I went through what you are thinking about several years ago and elected to join an established but young RIA firm rather than start from scratch.  They already had the compliance infrastructure and custodial relationship (Schwab) and we just had to worry about fit and the structure of our deal.  Long story short - I think joining an existing RIA was the right decision.  We moved several hundred million over from our former wirehouse and we love the RIA business.  Schwab has been a great partner.

[quote=FormerWirehouse] SF - I went through what you are thinking

about several years ago and elected to join an established but young RIA

firm rather than start from scratch. They already had the compliance

infrastructure and custodial relationship (Schwab) and we just had to

worry about fit and the structure of our deal. Long story short - I think

joining an existing RIA was the right decision. We moved several hundred

million over from our former wirehouse and we love the RIA business.

Schwab has been a great partner.

[/quote]



Former -



What, basically, was the structure of your deal? I can’t think of any reason

why I would ask someone to join my RIA, other than to collect an override

on their business. Sharing overhead expenses isn’t enough for me to

bring someone else on board, show them how the system works, and get

entangled with their questions and issues.



What did you do to strike a deal with an existing firm? Percentage of

revenues? 10%, 15%, 20%?



C