EDJ Unveils Fee Based Platform

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newnew's picture
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Joined: 2007-02-23

It's Summer Regional Time! Jonesers, what's the scoop on this topic- been promised for years- was it worth the wait?

nestegg's picture
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Joined: 2007-06-14

Wow this is Cutting edge stuff they are doing lol

footsoldier's picture
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Joined: 2006-04-30

Reminds me of the Paul Simon song....
Still waiting after all these years. Oh still waitng after all these years.
 
But I am sure Spiff will be telling us how truly different their platform is.......................on Monday when he gets in the office.
 
Rumor has it that the compliance officer at the regional will be pulling him aside to discuss the magnitude of his defense addiction, and suggest that perhaps he take some time off to decompress.
 
Meanwhile he was just voted most inspirational at the meeting by his peers and asked by the regional leader to volunteer (some would call it a donation to the firm) 1 hour a week (just for the next 6 months or so) to mentor another new rep who is moving in two blocks from him. The reason for the request.... because others before him gave back to the firm and so should he. Besides LP is calculated with a subjective formula after profitability (still paying 1300/mo for that T1?) that supposedly is enhanced by volunteering.
 
Spiffy....we are more alike than you can imagine....
 

Indyone's picture
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It will be interesting how this is presented to my local market since two different Jones reps have taken an account from me by telling my clients how awful fees are.  I don't know how many times they've badmouthed my fee accounts...all I know is that it's worked twice...both times with clients I'd had less than a year.  Once clients have some history with a fee-based arrangement, they're generally not fooled by the evil fee-based broker story.  I don't see this fee-based platform at Jones being difficult to compete against as it sounds pretty limited from what I've heard thus far.

snaggletooth's picture
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Indyone wrote:It will be interesting how this is presented to my local market since two different Jones reps have taken an account from me by telling my clients how awful fees are.  I don't know how many times they've badmouthed my fee accounts...all I know is that it's worked twice...both times with clients I'd had less than a year.  Once clients have some history with a fee-based arrangement, they're generally not fooled by the evil fee-based broker story.  I don't see this fee-based platform at Jones being difficult to compete against as it sounds pretty limited from what I've heard thus far.
 
Indy- How much in fees were you charging?  How big were the accounts?  Did you find out what the EDJ reps put them into?
 
I'm assuming they were wrapped mutual funds. 

2legit2quit's picture
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I am piloting the program.It is made up of approx 200 funds/etf/index funds.   Their are 24 research models that fit into the edj pyramid.  Which are Core, Core plus( includes niche funds like commodities, real estate), and index/etf portfolio, and a tax efficient model.However, you can also customize it using any mix of the available funds to your liking.  It does have to fit in the parameters of the pyramid.  You can't have all Growth and no Growth and Income for example.The fee is 1.35, and is discountable up to 30%.  Payout is 40% up to a 15% discount. Any bigger discount, payout is cut to 30%.  Also when you build your portfolio you can also see the average expenses for the individual mutual funds that you are adding.  which range from 10 basis points to just over 100bps.  Some of the mutual funds are Class A, some are Class F.  Revenue sharing and any 12b1's not deducted from the expense ratio are rebated back to the client.The minimum account is 100k and you can have any account you want.  You can also change an A share client into the program.  If the client had paid the up front sales commision in the previous 2 years, the prorated fee will be deducted from the monthly fees over a two year period.  This also applies to CDSC if you are changing into the program.   Currently you cannot do bonds/stocks....yet so I hear.  But not a bad program to start.  Obviously not as flexible as Indy's but acceptable for 95% of FA's

ednomore's picture
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Joined: 2007-08-29

If you charge 1%, which seems like a fair price for the investment options available,the payout will very little more than the fund service fee. That doesn't seem like much of a deal for the FA when you consider it is also reduced by national charge etc. I must be missing something.

2legit2quit's picture
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The 1.35% charge is your gross commision.  This is vs the 25 bps on service fees that you get gross.  So its a 5x increase in commision gross and net.

ednomore's picture
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You are correct, I was not thinking straight.

Indyone's picture
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snaggletooth wrote:Indyone wrote:It will be interesting how this is presented to my local market since two different Jones reps have taken an account from me by telling my clients how awful fees are.  I don't know how many times they've badmouthed my fee accounts...all I know is that it's worked twice...both times with clients I'd had less than a year.  Once clients have some history with a fee-based arrangement, they're generally not fooled by the evil fee-based broker story.  I don't see this fee-based platform at Jones being difficult to compete against as it sounds pretty limited from what I've heard thus far.
 
Indy- How much in fees were you charging?  How big were the accounts?  Did you find out what the EDJ reps put them into?
 
I'm assuming they were wrapped mutual funds.
 
1% - 200K & 80K - about half were transfered in kind and the remainder were liquidated because the rep said they could not be held at Jones.  I assume the free funds were reinvested in load funds, but that's just a guess. - they were wrap accounts...mostly mutual funds and ETFs.

Effay's picture
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Joined: 2008-04-11

Remember, it is 37-40% of 1.35% at EJ.
Versus 85-90% of the same and pay my own way, picking the services from headquarters I want.
Hmmmmmm.....

Spaceman Spiff's picture
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footsoldier wrote:
Reminds me of the Paul Simon song....
Still waiting after all these years. Oh still waitng after all these years.
 
But I am sure Spiff will be telling us how truly different their platform is.......................on Monday when he gets in the office.
 
Rumor has it that the compliance officer at the regional will be pulling him aside to discuss the magnitude of his defense addiction, and suggest that perhaps he take some time off to decompress.
 
Meanwhile he was just voted most inspirational at the meeting by his peers and asked by the regional leader to volunteer (some would call it a donation to the firm) 1 hour a week (just for the next 6 months or so) to mentor another new rep who is moving in two blocks from him. The reason for the request.... because others before him gave back to the firm and so should he. Besides LP is calculated with a subjective formula after profitability (still paying 1300/mo for that T1?) that supposedly is enhanced by volunteering.
 
Spiffy....we are more alike than you can imagine....
 
Funny. 
 
The platform is nice.  At least for me.  It's not much different from an investment standpoint than what I see with 95% of the wonderful FAs at places like ML or MS doing these days.  Most people are using a mixture of funds and ETFs.   They might have the ability to throw individual stocks in there, but most of them aren't. 
 
I don't know enough about the other platforms nuts and boltsout there to know exactly how different ours is.  I know our fee is competitive.  I know the funds chosen are good.
 
There are three levels of scrutiny placed on the program.  IPAC (Investment Policy Advisory Committee) sets the general guidelines for asset allocation.  A group of CFAs do the due diligence on the funds and ETFs to make sure to get what they perceive as the best of class to put into the program.  Then there is an Advisory Solutions Committee that oversees the whole thing to make sure the other two are doing their job. 
 
There is a threshold rebalancing program instead of a timed program like I see most of the time.  Meaning, when the Income portion gets over or underweighted as compared to the target by some percentage, they will rebalance.   Most of the time I see rebalancing quarterly if they are rebalancing at all.  And it's not based on anything other than a calendar.  
 
12b-1 fees, shareholder accounting fees, and revenue sharing are all rebated to the client.  However, those rebates don't take any money out of my pocket.  That may be SOP with accounts like this, I just don't know. 
 
There is also a Jones requirement to have a minimum annual meeting with these clients.  They will sign off to say it actually happened.   
 
 
On the volunteering - I enjoy helping the new FAs, the region, and the firm.  I see it as helping my LP return currently, but also helping me get more in the future.  I figure every dollar I put into my LP is a another chunk of income I don't have to worry about in retirement.    

Spaceman Spiff's picture
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Effay wrote:Remember, it is 37-40% of 1.35% at EJ.
Versus 85-90% of the same and pay my own way, picking the services from headquarters I want.
Hmmmmmm.....
 
You do know you're comparing apples to oranges, right? 

newnew's picture
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Joined: 2007-02-23

Sounds like a pretty good program-- i am impressed that so much has changed for the better so quickly at Jones.

Effay's picture
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Joined: 2008-04-11

Spiff,
 
As Ricky so often said: "splane, Lucy!"
 
Thanks...!

ezmoney's picture
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i'm sure glad i left 4.5 years ago. that's the difference between having built a 15 mill fee based book now, vs.  having to start building one today had I waited for good ole EJ to intro a fee based program. I'm sure as hell glad I trusted my insticts on that one. my life is a whole lot easier today, and EJ speaks with forked tongue.

Joe2121's picture
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Joined: 2008-06-12

If you are starting new at Jones and you actively use this platform how are they going to determine your rolling average and gross?

Broker24's picture
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Joe2121 wrote: If you are starting new at Jones and you actively use this platform how are they going to determine your rolling average and gross?

This is the scary part. It's the chicken-and-egg conandrum. I think once Jones sees how much activity goes through the program, they will re-evaluate the production-only goals for new FA's (in other words, give credit for building fee-based biz). At some point, I can see some sort of bonus system for adding annuitized AUM. Otherwise, nobody other than veterans can afford the program (maybe they're OK with that). But, like the program itself, the change will take time.

noggin's picture
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Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy.  They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it's all about revenue...... I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do?  Scary, scary.

snaggletooth's picture
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noggin wrote:Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy.  They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it's all about revenue...... I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do?  Scary, scary.
 
So how are you (EDJers) going to explain this to the clients? 
 
So, Joe, we bought these funds 5 years ago, and remember how I explained the whole upfront commission and that we would essentially break even after 5 years and then have really low fees and expenses from then on?  Remember that...yeah?  Well, now we're going to tack on an extra 1.35% per year on your account because I want to get paid to service you.
 
Is it just me, or does anyone else see the opportunity here?  If you have EDJ prospects on your list, wouldn't you call them now and tell them this just to put it in their ear?  It seems that it might be a good way to drive a wedge.

Eyetattoo's picture
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I dont know about you guys but by the time I get to the point where a client is ready to buy, the fee is an after thought........I really dont think it is going to be that big of a deal....I know a top producer in our region (who is in the pilot) is mainly focusing on people that are currently in a MAP account that isnt performing up to par.If all you do is sell based on fees then your just shooting yourself in the foot.

Broker24's picture
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snaggletooth wrote: noggin wrote:Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy.  They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it's all about revenue...... I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do?  Scary, scary.
 
So how are you (EDJers) going to explain this to the clients? 
 
So, Joe, we bought these funds 5 years ago, and remember how I explained the whole upfront commission and that we would essentially break even after 5 years and then have really low fees and expenses from then on?  Remember that...yeah?  Well, now we're going to tack on an extra 1.35% per year on your account because I want to get paid to service you.
 
Is it just me, or does anyone else see the opportunity here?  If you have EDJ prospects on your list, wouldn't you call them now and tell them this just to put it in their ear?  It seems that it might be a good way to drive a wedge.

At some point, most veteran advisors at other firms "transitioned" to fee based. Nobody started out 25 years ago doing fee-based. So it's not some big dillema where Jones is the only firm in the world transitioning to fee-based. And plenty of advisors (yes LPL, Merrill, SB, etc.) still do transactional business (most firms are less than 60% fee-based). It really comes down to what makes sense. This transition will take some time, as Jones has always pounded a-shares into people's heads. But you might be surprised how many advisors at Jones (a) want feee based, (b) will be able to sell it, and (c) are doing the right thing for clients.

Bottom line, no matter what Jones does, most people on this forum will bash them for it.

Noggin-
That guy is just an idiot. If he hasn't educated himself enough about fee programs, then that's his fault. Plenty of us know what they are and how they work. I don't think the ONLY reason was to keep vets happy. I think it came to to demand from clients/competitive landscape as well. I mean, it all comes back to business decisions. The bottom line is to be profitable. So whether it was to retain veterans, add more revenue, compete for fee-based business, whatever, it all comes back to business and profits. Anyone that can't see that is just fooling themselves. I have been around long enough in other industries to know that you spin these things however you want, but it all results (or is trying to) in a larger bottom line.

CIBforeveryone's picture
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Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!)
 
Second, it forces you to maintain a balanced portfolio in each account, rather than across accounts. It creates duplication rather than consolidation.
 
It is taking the advisor out of the investment selection process almost entirely.
 
They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.
 
This is not even close to what other firms have to offer their clients in terms of flexibility.
 
CIB

bspears's picture
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Real question would be...can a joneser leave and transfer the fee based accts??..IF so..move as much to fee base platform and LEAVE to garner the larger payout...WIN WIN...

footsoldier's picture
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CIB-
 
I know that when I transitioned some of  my American funds I was able to switch to American  F shares from A without tax consequence. A little known secret, but they will do it if you ask them.

CIBforeveryone's picture
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I have been doing this as well. The Jones plan will sell any fund holdings that don't match their model.
 
(EJ people-are they turning over the whole portfolio on one business day?)

 

Broker24's picture
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footsoldier wrote:CIB-
 
I know that when I transitioned some of  my American funds I was able to switch to American  F shares from A without tax consequence. A little known secret, but they will do it if you ask them.
 
Actually, a well-known secret.  In fact, in the advisory account site, it explains how/when to do this.  They also list all of the funds that will transfer in-kind (i.e. a-share to f-shares for each MFD)

snaggletooth's picture
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Broker24 wrote: snaggletooth wrote: noggin wrote:Broker24- The whole reason that the program was EVEN introduced was to keep the veterans happy.  They are going to be able to transition those A share portfolios where they were getting 25 BPS and now get 1.00- 1.35 BPS. It was not even a consideration for younger brokers, it's all about revenue...... I was talking to one of my former buddies who is still at the Green Empire and he tried to tell me that the all in cost to client was 1.35%. Once I explained to him that you add to that the expense ratio of the fund or etf to the 1.35% to get the cost. He is a broker that has been out 6-7 years and makes that mistake, what is the average Eval/Grad person going to do?  Scary, scary.
 
So how are you (EDJers) going to explain this to the clients? 
 
So, Joe, we bought these funds 5 years ago, and remember how I explained the whole upfront commission and that we would essentially break even after 5 years and then have really low fees and expenses from then on?  Remember that...yeah?  Well, now we're going to tack on an extra 1.35% per year on your account because I want to get paid to service you.
 
Is it just me, or does anyone else see the opportunity here?  If you have EDJ prospects on your list, wouldn't you call them now and tell them this just to put it in their ear?  It seems that it might be a good way to drive a wedge. At some point, most veteran advisors at other firms "transitioned" to fee based. Nobody started out 25 years ago doing fee-based. So it's not some big dillema where Jones is the only firm in the world transitioning to fee-based. And plenty of advisors (yes LPL, Merrill, SB, etc.) still do transactional business (most firms are less than 60% fee-based). It really comes down to what makes sense. This transition will take some time, as Jones has always pounded a-shares into people's heads. But you might be surprised how many advisors at Jones (a) want feee based, (b) will be able to sell it, and (c) are doing the right thing for clients. Bottom line, no matter what Jones does, most people on this forum will bash them for it. Noggin- That guy is just an idiot. If he hasn't educated himself enough about fee programs, then that's his fault. Plenty of us know what they are and how they work. I don't think the ONLY reason was to keep vets happy. I think it came to to demand from clients/competitive landscape as well. I mean, it all comes back to business decisions. The bottom line is to be profitable. So whether it was to retain veterans, add more revenue, compete for fee-based business, whatever, it all comes back to business and profits. Anyone that can't see that is just fooling themselves. I have been around long enough in other industries to know that you spin these things however you want, but it all results (or is trying to) in a larger bottom line.
 
B24,
 
I agree with you.  I won't bash them for being late to the party.  I just see it as potentially an opportunity.  If I have 10 EDJ prospects, and 1 guy becomes a client because of the transition, then it's worth it to me.  I just see it as a way to possibly drive a wedge.  Could he eventually leave me because of fees?  Sure, anyone can.  But I'll take my chances.
 
Say you have a client that is upset over returns, service, and his nagging wife.  One tiny thing could throw him over the edge.  Maybe you didn't return a phone call, maybe it's a fee.  If I get the guy, I'm going to try hard as hell to build a relationship that's above fees.
 
I do agree with you though for the majority of people.  And I'm happy for you that you now have another tool in your toolbox...Miss J, not so much.

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Snags,
I suppose you could do that.  It might make sense in an area with heavy concentrations of Jones offices, where you are competing for business.  In my area, there are only 4 Jones offices in my county of 250K households.  Each office probably has a few hundred "real" households, so there is not a lot of competition among brokers (much of the business in our area is "new" business - 401K rollovers, small business retirement plans, etc. - people that did not previously have a "real" advisory relationship).  There are a handful of established advisors in the area at ML, UBS, SB, MS, WACH, and a few small solo indy offices.  A lot of them are "baby boomer" advisors that have been in the biz 25 years and are pretty much coasting.  They are dealing mostly with old money, established accounts, family money, etc.  Although there is a lot of competition, it is not a real "competitive" area.
 
But if that works in your area, go for it.  You have to use whatever edge (or "wedge"!) you can get. 

new_indy's picture
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With the Jones buy and hold strategy, and the American funds history, what exactly is the advantage to the client?  Seems to me like you are just piling on a fee to something they have already bought.  If you can move A share funds into the platform, and they are currently only paying .25 or whatever the current expense ratio is, what is the advantage of moving it and charging them an additional 1%? 
 

It sounds like a negative for your clients not a positive.  It sounds to me like you are openning a can of worms unless you have a way of proving or justifying a client benefit.  You are effectively moving A shares to C shares (or the equivelant of C shares) and no companies compliance department would approve that.

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new_indy wrote:With the Jones buy and hold strategy, and the American funds history, what exactly is the advantage to the client?  Seems to me like you are just piling on a fee to something they have already bought.  If you can move A share funds into the platform, and they are currently only paying .25 or whatever the current expense ratio is, what is the advantage of moving it and charging them an additional 1%? 
 

It sounds like a negative for your clients not a positive.  It sounds to me like you are openning a can of worms unless you have a way of proving or justifying a client benefit.  You are effectively moving A shares to C shares (or the equivelant of C shares) and no companies compliance department would approve that.
 
My thoughts exactly.

bspears's picture
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what compliance department......

Spaceman Spiff's picture
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CIBforeveryone wrote:Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. - Jones CFA's to be exact. Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. - Only if they choose to make the change in their account.  It's no different in my mind than moving someone's mutual funds to a VA for the income rider.   They get trade confirms on that move too.  They do it because they see a benefit to do it. The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!) - It's designed specifically for people who a) don't really want to have to make a decision about rebalancing, or when to switch AMCPX for NEWFX or b) recognize that one fund family cannot possibly be the best at everything and value the diversification.  Mr. Client, let's say you get to take a team to take to the world series this year.  Would you pick the Cardinals or one of the All Star teams?
 
Second, it forces you to maintain a balanced portfolio in each account - This is a bad thing?, rather than across accounts. It creates duplication rather than consolidation. -  I'm not sure I understand why this is an issue.  If I have two IRAs of equal size for the same person, chances are I'm going to build identical portfolios in each account.  I'm not sure I'm following why this is a detriment to the client.  BTW, I see this all the time with other similar programs.   
 
It is taking the advisor out of the investment selection process almost entirely. - Who would you rather have picking your investments - A team of highly qualified, educated, and monitored analyists whose only job is to make sure that the investments in this program are the cream of the crop  OR Spaceman Spiff.
 
They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.
 
This is not even close to what other firms have to offer their clients in terms of flexibility.
 
CIB
 
Flexibility how?   

new_indy's picture
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Do you get the choice of cherry, grape, or watermellon or do you have to drink the lemon lime flavor?

Spaceman Spiff's picture
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What kool aid? 

2legit2quit's picture
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I know alot of guys who are making the move to fee based.  Its fairly simple to move existing clients.   It makes sense for the broker and the client.  We all know the benefits of the fee based account to the client.   Now the broker at EDJ does not have to serve 500 households on top of searching for new blood.  They can service 250 households better and not have to worry about the $$$.  Less conflict of interest.  You dont have a broker shoving a bond to make a few bucks anymore.The advantage of a client also having the Advisory Account if they already have American is more diversification.  American has great Growth & GI funds on the conservative side of the spectrum.  They do not have everything.   Now a client can diverisify without having to pay another upfront charge to have another fund family to get that.

Magician's picture
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I think as far as flexibility is concerned he is talking about the limitations of the program (no stocks, individual bonds, etc.). Which is really just a Jones thing.

I've done a little research on how much our analysts are paid (by the way, very few have earned the CFA charter). And not to quibble, but I have to point this out because it is on the ethics portion of the Level 1 exam - you can't BE a CFA, only earn the CFA charter. Sorry, I'm a just showing off a little.

Second, our analysts are some of the lowest paid in the industry. I think that results in low quality analysts.

I personally think the program is ok. Except that it's another method of control for the HO to exert on us "business owners".

Broker24's picture
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We didn't have an advisory fee program - we got bashed.
We now have an advisory fee program - we get bashed for using it.

Nobody said everyone was going to move all their A-share clients to it.

new_indy's picture
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If you are giving up the buy and hold strategy, the case is legitimate.  Otherwise not getting called on a bond is not a "client benefit".    If you stick with the buy and hold strategy, it is not a benefit to the client.  You are getting bashed, because you bashed the program of everyone else and built a culture and investment strategy around buy and hold with no advisory accounts.  Now you have one, and all of a sudden they are a wonderful idea.  Can't have it both ways.
 
Tell me what the benefit of any A share being moved into the advisory program might be?

DB Cooper's picture
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The retarded part of the program is the account minimum.   I've got a statement on my desk right now 200k in NQ and a 50k IRA.  Sorry buddy, I have to charge you 4.5%  up front on the IRA.  Why the hell can't all the accounts be handled the same way?

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new_indy wrote:If you are giving up the buy and hold strategy, the case is legitimate.  Otherwise not getting called on a bond is not a "client benefit".    If you stick with the buy and hold strategy, it is not a benefit to the client.  You are getting bashed, because you bashed the program of everyone else and built a culture and investment strategy around buy and hold with no advisory accounts.  Now you have one, and all of a sudden they are a wonderful idea.  Can't have it both ways.
 
Tell me what the benefit of any A share being moved into the advisory program might be?
 
First, nobody said everyone was goign to move all their clients into it.  Much of it will be new money.  Some clients want it.  Some clients have added significant money since they first opened their accounts, and need/want a new level of service.  I have a few clients that had 25K IRA's, and now the retired and rolled over 700K from their 401K.  At the time, they had no need for a sophisticated program for 25K.  But when you are talking about that amount of money, you can't just put it all into an asset allocation fund and call it a day (jesus, I can't believe I am actually trying to sell and advisory account on this forum...who woulda thunk?).
 
Second, many of us sold A-shares to our clients because that's what we had.  Not everyone believes advisory accounts are bad, despite what John Bachman or Fes Shaughnessy might have said.
 
Finally, you are right.  Jones was very disingenuous for many years, saying they are not best for clients, then turning around and offering them.  But frankly, I think there is some old guard/new guard dynamics at work.  Because advisory accounts are not the only thing new to come about in the past few years.  That is why I say that not EVERYONE felt they were bad.

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I'll chime in here, I think I see where CIB is coming from. (I've been lurking long enough)
 
 
Spaceman Spiff wrote:CIBforeveryone wrote:Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. - Jones CFA's to be exact. 
 
This is the same line all advisors (Indy or not) use when they say "that's why Mercer makes the big bucks!" Come on, they are putting together asset allocation models, it's not rocket science.
 
Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. - Only if they choose to make the change in their account.  It's no different in my mind than moving someone's mutual funds to a VA for the income rider.   They get trade confirms on that move too.  They do it because they see a benefit to do it.
 
Uh, yeah it is. They are selling 3-6 positions and buying 24? A VA is one transaction. Anyway, as we all know...good clients don't choose, they follow their advisor's recommendation.
 
 The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!) - It's designed specifically for people who a) don't really want to have to make a decision about rebalancing, or when to switch AMCPX for NEWFX or b) recognize that one fund family cannot possibly be the best at everything and value the diversification.  Mr. Client, let's say you get to take a team to take to the world series this year.  Would you pick the Cardinals or one of the All Star teams?
 
When it comes down to it, the more activity there is in an account that the client is not involved in, the more they feel like they don't know what's going on. If there are fewer holdings, and the advisor is selectively talking to them before making minor adjustments, they feel much more informed.
 
Second, it forces you to maintain a balanced portfolio in each account - This is a bad thing?, rather than across accounts. It creates duplication rather than consolidation. -  I'm not sure I understand why this is an issue.  If I have two IRAs of equal size for the same person, chances are I'm going to build identical portfolios in each account.  I'm not sure I'm following why this is a detriment to the client.  BTW, I see this all the time with other similar programs.   
 
This is an issue when you realize the Jones method of reverse-DCAing out of mutual fund portfolios is not a good way to draw income. It is far more effective to have an account invested based on when it is going to provide income, and to take income specifically from the appropriate source. Besides that, if you want two separate strategies for diversification, now you are going from 25 funds to 50 funds! Imagine the annual reports and proxy statements!
 
It is taking the advisor out of the investment selection process almost entirely. - Who would you rather have picking your investments - A team of highly qualified, educated, and monitored analyists whose only job is to make sure that the investments in this program are the cream of the crop  OR Spaceman Spiff.
 
See above-this is not rocket science.
 
They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.
 
This is not even close to what other firms have to offer their clients in terms of flexibility.
 
CIB
 
Flexibility how?   
 
Because with a true advisory fee platform you don't need to liquidate a client's positions to get them there. It is what creates an unbiased platform. This is NOT an unbiased platform....either the client pays you an advisory fee to go into the plan you have to offer, or they don't. A true fee program would you base a fee on holding their assets, and it's up to the client if they want to follow your recommendations or not. You are only recommending the change because you believe it is in their best interest, and you receive no compensation or change in compensation because of it.

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Broker24: Valid point, but unless you change the buy and hold strategy, which is unlikely, you are just charging them 1.3% annually to sit on their money.  Which if you look at break points on a 700k account, creams them in a very short period of time.  I still fail to see the advantage to the client.  You can rebalance at NAV in A shares, so once again, unless you are going to be moving clients in and out of etf's and mfd's to respond to market conditions, which I doubt Jones will, where is the client benefit?

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LuvIndy wrote:
I'll chime in here, I think I see where CIB is coming from. (I've been lurking long enough)
 
 
Spaceman Spiff wrote:CIBforeveryone wrote:Unfortunately for EJ, they did a half-assed start on this. This is a mutual fund wrap program with funds selected by Jones. - Jones CFA's to be exact. 
 
This is the same line all advisors (Indy or not) use when they say "that's why Mercer makes the big bucks!" Come on, they are putting together asset allocation models, it's not rocket science.  - No, it's not rocket science, but they do the due diligence on the funds and managers to make sure that the portfolios are built and maintained correctly.  No more complaints from you guys about using all American and style drift. 
 
Imagine transitioning an American Funds/Franklin Portfolio into this. The clients will be forced to liquidate all of their positions, give up the history on their statements, and probably get a transaction confirmation on every transaction. - Only if they choose to make the change in their account.  It's no different in my mind than moving someone's mutual funds to a VA for the income rider.   They get trade confirms on that move too.  They do it because they see a benefit to do it.
 
Uh, yeah it is. They are selling 3-6 positions and buying 24? A VA is one transaction. Anyway, as we all know...good clients don't choose, they follow their advisor's recommendation. - The point was that if you move to another product, you still have to liquidate the funds thus losing the account history. 
 
 The client will go from 5-6 funds per account to 25 funds per account. (I have no idea what the hell is going on inside my account!) - It's designed specifically for people who a) don't really want to have to make a decision about rebalancing, or when to switch AMCPX for NEWFX or b) recognize that one fund family cannot possibly be the best at everything and value the diversification.  Mr. Client, let's say you get to take a team to take to the world series this year.  Would you pick the Cardinals or one of the All Star teams?
 
When it comes down to it, the more activity there is in an account that the client is not involved in, the more they feel like they don't know what's going on. If there are fewer holdings, and the advisor is selectively talking to them before making minor adjustments, they feel much more informed.  - You must have missed the part in the conversation about this being designed for those folks who don't necessarily want to worry about talking to you before making minor adjustments.  They just simply don't care.  They just want you to make them money.  We are going to keep up with them on so many other things that what changes in their investment portfolio is almost an afterthought for them. 
 
Second, it forces you to maintain a balanced portfolio in each account - This is a bad thing?, rather than across accounts. It creates duplication rather than consolidation. -  I'm not sure I understand why this is an issue.  If I have two IRAs of equal size for the same person, chances are I'm going to build identical portfolios in each account.  I'm not sure I'm following why this is a detriment to the client.  BTW, I see this all the time with other similar programs.   
 
This is an issue when you realize the Jones method of reverse-DCAing out of mutual fund portfolios is not a good way to draw income. It is far more effective to have an account invested based on when it is going to provide income, and to take income specifically from the appropriate source. Besides that, if you want two separate strategies for diversification, now you are going from 25 funds to 50 funds! Imagine the annual reports and proxy statements!  - Funny that something that has been done for 50 years successfully suddenly become a bad idea.  But I guess since you're an indy guy you have a lot better ideas than us lowly Jones people do. 
 
It is taking the advisor out of the investment selection process almost entirely. - Who would you rather have picking your investments - A team of highly qualified, educated, and monitored analyists whose only job is to make sure that the investments in this program are the cream of the crop  OR Spaceman Spiff.
 
See above-this is not rocket science. - So you keep track of management changes, go to shareholder meetings, talk with all of your fund managers personally to learn their money management philosophy,style, and procedures to determine if it is reapeatable or appropriate, look for overlap, manage for risk, etc?  You have the time for that and talk with your clients about their estate plans, LTC plans, retirement, education, home ownership, cash flow, business interests, Life Insurance?  You must be more of a man than I am. 
 
They did the rebalancing right-this is the method I use on my own. The downside to the auto rebalancing is it eliminates a reason to contact the client and removes all "credit" from the advisor.
 
This is not even close to what other firms have to offer their clients in terms of flexibility.
 
CIB
 
Flexibility how?   
 
Because with a true advisory fee platform you don't need to liquidate a client's positions to get them there. It is what creates an unbiased platform. This is NOT an unbiased platform....either the client pays you an advisory fee to go into the plan you have to offer, or they don't. A true fee program would you base a fee on holding their assets, and it's up to the client if they want to follow your recommendations or not. You are only recommending the change because you believe it is in their best interest, and you receive no compensation or change in compensation because of it.
 
So in your unbiased platform let's say an EDJ client who owns $500,000 in ICA walks into your office.  He tells you that he doesn't want to work with EDJ anymore and wants to know if you can handle his money.  You tell him sure, but you charge 1% a year for your unbiased platform.  Whether you make any changes or not, you still charge him 1%.  You're telling me because he didn't have to liquidate anything to get into your fee based office that he's better off?  Because you are unbiased.  But still getting paid.  For doing nothing.  Forever. 

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First I can almost promise you I would make a change if a client had 500k in ICA.  I might diversify it within others within the fund family and put a portion of the assets with a third party manager.  I probably wouldn't use an advisory account in that instance.  It just doesn't make sense.  So to answer your question, I don't have to do an all or nothing scenario and I wouldn't be storing his funds for the 1%.   I don't do alot of funds anyway, so it isn't a likely situation for me.  Still the scenario you presented backs up my concern regarding what is going to happen with your new advisor program. 

new_indy's picture
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I agree to some extent, but if a client already had the A shares, and had no reason to liquidate the full position, I would still offer the two accounts.  Put a portion into a managed account program that I get paid on, and leave a portion in the funds and just take the trails.  In time, the full positon might end up being managed since like I have said, funds aren't my thing, but until then the additional 1% is unnecessary.

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Your example is why an advisory fee makes so much sense Spiff. He comes to me, and I don't need to sell him another product just to "get paid." He becomes a client equal to any other 500k client of mine because he is paying me based on how much I am helping him with.This way when I saw, "Client, I think you'd be far better off with x y and z", he knows I am recommending it strictly because I believe that to be the case, and not because it's what I need to do to generate an income. I am amazed at the significant difference in decision making that has come from my clients since I've gone to working on fees. It is easier for them to make decisions they know are right, even if they might not have made them otherwise, and in the end, that is a significant part of the value of the fee-only comp.Icecold is right on...the client gets far too much value in some years, and far too little in others, but in the end everyone wins.

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I'm not disagreeing with your stance.  It just isn't the way I do it.  I work alot with structured investments and principal protected securities.  As such, I can't really justify advisory accounts for all of my clients holdings.  It is one of the advantages of being Indy, we can all do the things we are best at and hopefully the client always wins.  My primary concern when I started mentioning this is that Jones has no background in anything but by and hold mutual funds.  As such it is a straight loss for the client unless they change their core beliefs. 
 
If they had wanted, they could have sold C shares to their clients and gotten the 1%, but they went with A shares.  Now they want to double dip and put the same A shares into wrap accounts and get the 1%.  That isn't really acceptable unless they can justify it.

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Iceman, I can't answer for most other professions, but I can tell you that absolutely, CPAs DO charge more for more complex tax returns.  I'm not sure that was what you were trying to say, but that's the way I read your example.  I would also not be surprised to see dentists start surcharging potty mouths if some aren't already.  It makes sense to me that if there's a lot more work involved, the charge may well reflect that.  I certainly charge more for fee-based accounts if I believe there will be proportionately more work.  Larger accounts are generally more complex (how many ways can you realistically and effectively slice $100K vs. a million?) and the overall fee generally reflects that, even if the charge as a percentage is the same of less than smaller accounts.

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Indyone wrote:Iceman, I can't answer for most other professions, but I can tell you that absolutely, CPAs DO charge more for more complex tax returns.  I'm not sure that was what you were trying to say, but that's the way I read your example.  I would also not be surprised to see dentists start surcharging potty mouths if some aren't already.  It makes sense to me that if there's a lot more work involved, the charge may well reflect that.  I certainly charge more for fee-based accounts if I believe there will be proportionately more work.  Larger accounts are generally more complex (how many ways can you realistically and effectively slice $100K vs. a million?) and the overall fee generally reflects that, even if the charge as a percentage is the same of less than smaller accounts.
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True story on the CPA example.  I also charge more for a fee based account if they are going to be very very active.  Trading options for example or lots of actively managed stock trades and portfolio rebalancing (I mean not portfolio rebalancing across the board for all clients as a group)
 
 

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new_indy wrote:I'm not disagreeing with your stance.  It just isn't the way I do it.  I work alot with structured investments and principal protected securities.  As such, I can't really justify advisory accounts for all of my clients holdings.  It is one of the advantages of being Indy, we can all do the things we are best at and hopefully the client always wins.  My primary concern when I started mentioning this is that Jones has no background in anything but by and hold mutual funds.  As such it is a straight loss for the client unless they change their core beliefs. 
 
If they had wanted, they could have sold C shares to their clients and gotten the 1%, but they went with A shares.  Now they want to double dip and put the same A shares into wrap accounts and get the 1%.  That isn't really acceptable unless they can justify it.
 
I believe that your issue with this is that you are seeing the fee from an investment only standpoint.  You are correct that if the ONLY thing that were going to happen with these accounts is to move an A share portfolio into the fee based platform and start charging 1% for nothing extra, it is just a fee to increase revenue.  However, the program is far from that.  In addition to the investment management that either HQ does or we as FA do (there is a custom model we can use if we choose), there are service requirements that must be fulfilled every year.  Using a platform like this will allow us to focus more attention on the planning aspects of this biz than the investment side.  I can recommend a client utilize this platform knowing that the CFAs at HQ will be doing their job to watch the portfolios, while my clients and I focus on the bigger picture.  There are no biases towards one fund family, no breakpoint issues, no buy and forget mentality, no commission concerns.  Just focus on giving attention to the client and working through solutions to their problems.  I don't see it as a change in our core belief.  I see it as giving our clients one more way to work with us.   

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