Edward Jones Advisory Solutions

89 replies [Last post]
RealWorld's picture
Offline
Joined: 2009-07-13

I had a conversation with another Jones person about the "real" cost of Advisory solutions.
 
First the client will pay 1.35% and then the average custom model has an expense of .70%.
 
So the real cost vs return seems to be this.
 
Clients pay about 2.05% for a product that manages money managers.
 
We take a managed product (mutual funds) pay .70% for someone to manage our clients money.
 
Then the client pays Edward Jones another 1.35% for them to manage the managers,....
 
To me it is a rip and is only sellable if your client really doesn't know what they are paying. (BTW the other guy didn't know there was any other fee other than the 1.35%, he thought that was it.  Like you are telling them that they are paying twice, but I would like other opinions about this.  Also let me know if I understand this differently please.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

EJ doesn't rebate 12b1 fees to the client in AS?

LockEDJ's picture
Offline
Joined: 2009-07-06

I think you've got it right. It's more expensive than holding A share mutual funds. However, you should offset that by looking at being able to buy best of breed investments, automatic rebalancing and investment selection - as well as reduction in noise (tinkering with the account).
My experiences have been that my custom models have outpaced the S&P by 150 to 250 basis points. (OK - back off Gaddock/Morean/whomever ... I'm not bragging here). I don't sell performance, but I also think that is reasonable information for the client to have with the proper disclaimers.
 
Finally, if issues surface with the MF management style we can address it. What will you do when Lord Abbett/American Funds/Hartford's investment style blows up?

Moraen's picture
Offline
Joined: 2009-01-22

LockEDJ wrote:I think you've got it right. It's more expensive than holding A share mutual funds. However, you should offset that by looking at being able to buy best of breed investments, automatic rebalancing and investment selection - as well as reduction in noise (tinkering with the account).
My experiences have been that my custom models have outpaced the S&P by 150 to 250 basis points. (OK - back off Gaddock/Morean/whomever ... I'm not bragging here). I don't sell performance, but I also think that is reasonable information for the client to have with the proper disclaimers.
 
Finally, if issues surface with the MF management style we can address it. What will you do when Lord Abbett/American Funds/Hartford's investment style blows up?Brag away.  I am always interested in listening to what other people have.  Sounds like you got something that works.I plan on getting together with Gaddock to bounce ideas off of each other.

joelv72's picture
Offline
Joined: 2008-11-28

Wet_Blanket wrote:EJ doesn't rebate 12b1 fees to the client in AS?
They certainly say they do.  They are also supposedly using institutional share classes where available (lower expense ratio).  I thought this guy had been with Jones since 2003.  I would have thought he should know all this by now.  If not, one word---->JonesLink

RealWorld's picture
Offline
Joined: 2009-07-13

True Lock... If you have to choose between ONLY two choices. Either put all your money in one fund family at A shares or have your clients pay 2% per year for Edward Jones services in managing those mutual funds. I think those are both two bad options...

RealWorld's picture
Offline
Joined: 2009-07-13

joel - WTF- I could use joneslink but I want to be clear of my understanding. Btw idiot ass, AS just started last year so when I started at jones has no bearing.
 
Also the 12b-1 fees I believe are not part of that .70% which means that we must have found just high expense funds.

joelv72's picture
Offline
Joined: 2008-11-28

RealWorld wrote:joel - WTF- I could use joneslink but I want to be clear of my understanding. Btw idiot ass, AS just started last year so when I started at jones has no bearing.
 
Also the 12b-1 fees I believe are not part of that .70% which means that we must have found just high expense funds.
Actually, it started in 2008.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

JONES FIGHT!

B24's picture
B24
Offline
Joined: 2008-07-08

OK, this is weird.  Advisory Solutions is jsut like every other MFD wrap program on Earth.  Client pays 1.35% max, plus there are mFD expenses (averaging about 65 bips on the active model, and like 25 on the index model).  They use ONLY ETF's, Index Funds, load-waived A-shares (for those that don't have institutional shares), and institutional share classes.  What little 12b-1's we receive get reimbursed directly back to the client's account.  We no longer accept ANY revenue sharing in Advisory Solutions (we used to rebate those back as well).  How is that different than most other MFD wrap programs?

LockEDJ's picture
Offline
Joined: 2009-07-06

RealWorld wrote:True Lock... If you have to choose between ONLY two choices. Either put all your money in one fund family at A shares or have your clients pay 2% per year for Edward Jones services in managing those mutual funds. I think those are both two bad options...
 
??? As opposed to ... ??? Buying all C shares? Which certainly is BY FAR more expensive to the client? Or by buying A shares across multiple fund families ... thus truly lacking flexibility? Or would you prefer using individual stocks and bonds - which Jones is uniquely poorly qualified to do?
 
As B24 suggests, this is a typical mutual fund wrap program and has been endlessly covered here. I feel AS is about as inexpensive as you'll find in the marketplace. If you think we're excessive I'd suggest you ask what Ameriprise is up to, and be sitting down when you hear it.
 
At the end of the day, my buddy said it right,"The price is the price." It's up to you to see the value in it and present it to the client. But I can tell you, the competition isn't doing it cheaper than us.

joelv72's picture
Offline
Joined: 2008-11-28

LockEDJ wrote:RealWorld wrote:True Lock... If you have to choose between ONLY two choices. Either put all your money in one fund family at A shares or have your clients pay 2% per year for Edward Jones services in managing those mutual funds. I think those are both two bad options...
 
??? As opposed to ... ??? Buying all C shares? Which certainly is BY FAR more expensive to the client? Or by buying A shares across multiple fund families ... thus truly lacking flexibility? Or would you prefer using individual stocks and bonds - which Jones is uniquely poorly qualified to do?
 
As B24 suggests, this is a typical mutual fund wrap program and has been endlessly covered here. I feel AS is about as inexpensive as you'll find in the marketplace. If you think we're excessive I'd suggest you ask what Ameriprise is up to, and be sitting down when you hear it.
 
At the end of the day, my buddy said it right,"The price is the price." It's up to you to see the value in it and present it to the client. But I can tell you, the competition isn't doing it cheaper than us.
That was kind of the point I was getting at.  If I had to guess, Real World is probably holed up in his jammies going through the Study for Success program and is trying to figure out Jones products during his down time, since he doesn't have full access to JonesLink yet.

navet's picture
Offline
Joined: 2010-02-25

Some people just like to bitch. AS provides a level of diversity at a reasonable price. I have a wealthy client primarily in AF's. I would like to switch him to Adv Sol, or better yet to the MAP when they revamp it. It will give us the flexibility to use "best in class", low expense funds in a reasonably priced platform. My long term concern for my clients is that if something happens to them, will their spouse or progeny be able to understand and maintain their investments. 1% to 1.5% is a very reasonable amount to pay for that level of service. And having our managers manage other groups of funds adds a level of safety much needed in this post-Madoff time.

chief123's picture
Offline
Joined: 2008-10-28

RealWorld wrote:I had a conversation with another Jones person about the "real" cost of Advisory solutions.
 
First the client will pay 1.35% and then the average custom model has an expense of .70%.
 
So the real cost vs return seems to be this.
 
Clients pay about 2.05% for a product that manages money managers.
 
We take a managed product (mutual funds) pay .70% for someone to manage our clients money.
 
Then the client pays Edward Jones another 1.35% for them to manage the managers,....
 
To me it is a rip and is only sellable if your client really doesn't know what they are paying. (BTW the other guy didn't know there was any other fee other than the 1.35%, he thought that was it.  Like you are telling them that they are paying twice, but I would like other opinions about this.  Also let me know if I understand this differently please.

I agree and disagree with you...
 
I have no problem with someone charge 1.35% plus investment fees(MFs, ETFs, etc) for actually doing something..
 
But for EDJ platform, you can't do anything as the advisor(move to cash, reallocated, etc) without signing brand new paperwork... that makes the account a rip..

chief123's picture
Offline
Joined: 2008-10-28

RealWorld wrote:joel - WTF- I could use joneslink but I want to be clear of my understanding. Btw idiot ass, AS just started last year so when I started at jones has no bearing.
 
Also the 12b-1 fees I believe are not part of that .70% which means that we must have found just high expense funds.

The fund expenses are pretty high on some of these Advisory solutions(I had a buddy fax me a copy.... it is dated but looks like some of these are just high expense funds.. (for example Keystone Large Cap Growth 1.50%.. who the fk is that?)

navet's picture
Offline
Joined: 2010-02-25

The thing that bothers me with Adv Sol is that it's the only platform we sell. There are a number of good fee based platforms out there and I would like my pick of them. Plus, we were told that one of the best things about Jones is the lack of proprietary products.  But even with that being said, I would like to ask the original poster what a "reasonable fee" is? And what great and unique service does he provide his clients? And finally, if he can't see any value in a product like advisory solutions, maybe he just doesn't know enough about this business.

chief123's picture
Offline
Joined: 2008-10-28

B24 wrote:OK, this is weird.  Advisory Solutions is jsut like every other MFD wrap program on Earth.  Client pays 1.35% max, plus there are mFD expenses (averaging about 65 bips on the active model, and like 25 on the index model).  They use ONLY ETF's, Index Funds, load-waived A-shares (for those that don't have institutional shares), and institutional share classes.  What little 12b-1's we receive get reimbursed directly back to the client's account.  We no longer accept ANY revenue sharing in Advisory Solutions (we used to rebate those back as well).  How is that different than most other MFD wrap programs?

BS.... you kept that... that is why when you discontinued revenue sharing in AS, you had to raise the fees across the board.... somebody fckd that one up..

chief123's picture
Offline
Joined: 2008-10-28

LockEDJ wrote:RealWorld wrote:True Lock... If you have to choose between ONLY two choices. Either put all your money in one fund family at A shares or have your clients pay 2% per year for Edward Jones services in managing those mutual funds. I think those are both two bad options...
 
??? As opposed to ... ??? Buying all C shares? Which certainly is BY FAR more expensive to the client? Or by buying A shares across multiple fund families ... thus truly lacking flexibility? Or would you prefer using individual stocks and bonds - which Jones is uniquely poorly qualified to do?
 
As B24 suggests, this is a typical mutual fund wrap program and has been endlessly covered here. I feel AS is about as inexpensive as you'll find in the marketplace. If you think we're excessive I'd suggest you ask what Ameriprise is up to, and be sitting down when you hear it.
 
At the end of the day, my buddy said it right,"The price is the price." It's up to you to see the value in it and present it to the client. But I can tell you, the competition isn't doing it cheaper than us.

Except you are limited on funds...and changing the portfolio...

joelv72's picture
Offline
Joined: 2008-11-28

I thought you Jonesers could opt for the canned approach or build a custom model?

Piker34's picture
Offline
Joined: 2008-08-25

LockEDJ wrote:RealWorld wrote:True Lock... If you have to choose between ONLY two choices. Either put all your money in one fund family at A shares or have your clients pay 2% per year for Edward Jones services in managing those mutual funds. I think those are both two bad options...
 
??? As opposed to ... ??? Buying all C shares? Which certainly is BY FAR more expensive to the client? Or by buying A shares across multiple fund families ... thus truly lacking flexibility? Or would you prefer using individual stocks and bonds - which Jones is uniquely poorly qualified to do?
 
As B24 suggests, this is a typical mutual fund wrap program and has been endlessly covered here. I feel AS is about as inexpensive as you'll find in the marketplace. If you think we're excessive I'd suggest you ask what Ameriprise is up to, and be sitting down when you hear it.
 
At the end of the day, my buddy said it right,"The price is the price." It's up to you to see the value in it and present it to the client. But I can tell you, the competition isn't doing it cheaper than us.
 

 

Breakpoint

Max

Min

$25k to $100k

2.25%

1.00%

$100k to $250k

2.15%

0.90%

$250k to $500k

2.05%

0.80%

$500k to $1MM

1.95%

0.70%

$1MM to $5MM

1.85%

0.60%

over $5MM

1.75%

0.50%

 
That's what Ameriprise is up to... and personally, I do a hell of lot more than some mutual fund wrap account. So yes, I suggest you do sit down to know I'm not just sitting here picking funds with the highest Morningstar rankings. Some of us don't use mutual funds but prefer etf's, individual stocks, preferreds, bonds (muni and corp), equity-linked cd's, structured products, UITs, closed ends, and yes, you better sit down for this one, option strategies.
 
I'm sure there are plenty of Ameriprise guys that charge more than I do for a lot less. Just as there are plenty of EJ guys that roll A shares every 4 years into a different fund family (seen it, guys that consistantly grossed $80,000/mo were doing it; not here to pick a fight on that crap).
 
One thing you should focus on is not the cost, but the value. Maybe you run across one of my clients and you see I'm charging 1.5% and for the same size account, you could charge 1.0%. Sure, you're 0.5% "cheaper" but maybe, just maybe, I'm providing more value in that 1.5% than you possibly could in that 1%.
 
 

LockEDJ's picture
Offline
Joined: 2009-07-06

OK, yes you do have to create new paperwork. Considering the philosophy of Edward Jones ... as well you should, true?
At the end of the day, the whole concept of AS is to remove emotion from investing. A move to cash/reallocate/market-timing-momentum trading is an anathema to the underlying principle. So requiring paperwork places distance in making that decision and gives the client (advisor?) pause.

LockEDJ's picture
Offline
Joined: 2009-07-06

Piker ... like I said, the price is the price. Focus on value, the service you provide.
 
I've seen Ameriprise at 1.5% on a $150K portfolio, no financial planning provided (that would be extra), investments spread out over four accounts and each account had the same four or five investments - with one particular investment accounting for 20% of the portfolio. Like you, I'm not here to pick a fight ... I agree with you. It's about what you are providing for the cost, which is what the OP was ripping Jones for.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 

LockEDJ's picture
Offline
Joined: 2009-07-06

chief123 wrote:

Except you are limited on funds......
 
Yeah, that's a bit of a rub ... but again if you buy the philosophy to begin with, then more isn't better. It's just more noise.

LSUAlum's picture
Offline
Joined: 2009-10-18

Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 

There is a particular advisor at a different firm than me that happens a daughter that goes to the same school as mine. He and I will discuss diferent platforms and ideologies from time to time. Usually at some inoportune moment like a soccer game.
 
Where we have the more interesting discussions is the notion of timing the market or rebalancing portfolios. One theory is that by rebalancing you are DCA'ing all the time and thus can achieve higher returns, especially on a risk adjusted basis. Another theory is that by rebalancing often you miss out on quality runs and end up watering the weeds and cutting the flowers. You are pouring money into underperforming assets but are capturing gains from the outperformers.
 
We haven't settled the disucssion and both sides have their merits.

LSUAlum's picture
Offline
Joined: 2009-10-18

LockEDJ wrote:chief123 wrote:

Except you are limited on funds......
 
Yeah, that's a bit of a rub ... but again if you buy the philosophy to begin with, then more isn't better. It's just more noise.
Agree wholeheartedly with this premise. Having thousands of funds on the market hasn't improved investor performance over the years. If anything, more makes it harder to outperform and truly diversify due to overlap and the amount of due diligence needed to make smart choices.

chief123's picture
Offline
Joined: 2008-10-28

LockEDJ wrote:
OK, yes you do have to create new paperwork. Considering the philosophy of Edward Jones ... as well you should, true? False... if my goal is "growth and income" how is that helped when the market is collapsing? Why do i have to continue to hold when nothing is going up.. If the true philosophy of edward jones is time in the market, then they should only advise buying index funds...
At the end of the day, the whole concept of AS is to remove emotion from investing(yeah but not to remove advising). A move to cash/reallocate/market-timing-momentum trading is an anathema to the underlying principle(you forgot to add "at Jones"). So requiring paperwork places distance in making that decision and gives the client (advisor?) pause.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

LSUAlum wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 

There is a particular advisor at a different firm than me that happens a daughter that goes to the same school as mine. He and I will discuss diferent platforms and ideologies from time to time. Usually at some inoportune moment like a soccer game.
 
Where we have the more interesting discussions is the notion of timing the market or rebalancing portfolios. One theory is that by rebalancing you are DCA'ing all the time and thus can achieve higher returns, especially on a risk adjusted basis. Another theory is that by rebalancing often you miss out on quality runs and end up watering the weeds and cutting the flowers. You are pouring money into underperforming assets but are capturing gains from the outperformers.
 
We haven't settled the disucssion and both sides have their merits.
 
That's crazy talk!  I certainly hope you don't let your daughter associate with his.

chief123's picture
Offline
Joined: 2008-10-28

Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 

Wet_Blanket's picture
Offline
Joined: 2008-11-13

That is usually used as an arguement for "staying the course," and I think every firm has something out there like it.  For compliance reasons, I've never liked those pieces.
 
-but its been so long since one of those crossed my desk, that I don't recall my arguement.

navet's picture
Offline
Joined: 2010-02-25

Rebalancing and market timeing are completely different concepts. Rebalancing simply takes SOME of the gain and moving it to a predetermined asset class. Timing is an attempt to predict the market. You have a greater probability of predicting red or black on the roulette table.

LSUAlum's picture
Offline
Joined: 2009-10-18

chief123 wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 

I think that everyone would agree that if you could properly time the market you could out gain the market substantially. The issue isn't whether timing the market is effective but rather if it's practical. Most people agree that you can't know which 40 days are going to be the worst in advance and vice versa on the best. You rely on the active management to use it's experience and knowledge to hopefully avoid some of the worst and capture some of the best.

navet's picture
Offline
Joined: 2010-02-25

Active management funds time the market? Since when? I thought they looked in depth at company fundamentals to determine which companies would be most profitable, thus go up in value the most. That's not market timing.

LSUAlum's picture
Offline
Joined: 2009-10-18

navet wrote:Rebalancing and market timeing are completely different concepts. Rebalancing simply takes SOME of the gain and moving it to a predetermined asset class. Timing is an attempt to predict the market. You have a greater probability of predicting red or black on the roulette table.

Agreed on the level that timing the market has never been shown to be a practical option. But they are not completely different concepts. They are related in that they both try to pick which asset (or asset class) will do better in the future. If you rebalanced your gains from Small Cap Growth to Large Cap Value you are implicitly stating that you feel, for the next period of time, that Large Cap Value will outperform Small Cap Growth (or else why do it?).
 
They are very related.

LSUAlum's picture
Offline
Joined: 2009-10-18

navet wrote:Active management funds time the market? Since when? I thought they looked in depth at company fundamentals to determine which companies would be most profitable, thus go up in value the most. That's not market timing.
They look at fundamentals? You're kidding right? Most of the large money managers trade in and out of stocks frequently. The fundamentals of ExxonMobil don't change daily or even monthly. But the money managers change their positions based in part on the long term view but even more on the technical analysis of the market. They time the market.
 
Some active managers use techical analysis exclusively. Almost by definition techinical analysis is market timing.

navet's picture
Offline
Joined: 2010-02-25

Again, that isn't market timing. It's diversification. The reasoning is that all asset classes trade in a cycle, and you have the greatest probability for success to be invested at certain percentage levels into the major asset classes. To maintain your position throughout the growth cycle of an asset class eventually leads to a loss of profit, since all classes trade in a cycle. And by rebalancing you maintain a determined footing accross all asset classes in order to take advantage of the next big mover. It's solid portfolio management, not market timing.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

Now its even sounding like market timing to me - you just do it on a schedule and you aren't IN and OUT.

LSUAlum's picture
Offline
Joined: 2009-10-18

navet wrote:Again, that isn't market timing. It's diversification. The reasoning is that all asset classes trade in a cycle, and you have the greatest probability for success to be invested at certain percentage levels into the major asset classes. To maintain your position throughout the growth cycle of an asset class eventually leads to a loss of profit, since all classes trade in a cycle. And by rebalancing you maintain a determined footing accross all asset classes in order to take advantage of the next big mover. It's solid portfolio management, not market timing.

Full disclosure: I didn't indicate which side of the argument I was on since I can see both sides.
 
While it may be solid portfolio management, rebalancing is indeed a form of market timing. You can say it's cyclical or whatever, but in essence it's about knowing when to pull the trigger on assets to rebalance. In fact, many advisory programs rebalance quarterly. Since the rebalancing is based on the calendar and not the business cycle, that's an even greater correlation to market timing.
 
 

navet's picture
Offline
Joined: 2010-02-25

If large mutual funds are in and out of the market frequently, and using market timing exclusively, then why are capital gains and losses so small?

LSUAlum's picture
Offline
Joined: 2009-10-18

navet wrote:If large mutual funds are in and out of the market frequently, and using market timing exclusively, then why are capital gains and losses so small?

Brilliant part of the tax code that lets you offset them.
 
Do you really not believe me when I say they are in and out of the market frequently? Look at the turnover ratios.

B24's picture
B24
Offline
Joined: 2008-07-08

chief123 wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 
 
I absolutely HATE when firms (mine included) tote out the old "missing the best days" crap, but politely forget to mention what happens if you miss the worst days.  It's not so  much about "timing" in the classic "day trader" sense that most people picture it as.  It's about downside protection.  Getting out of the way of the bus. 
 
I read a statistic some time ago - I wish I had logged it somewhere.  It said something like if you had simply missed like 75% of the downside of the major "bears" (i.e. 1973/4, 2000-2002, 2008), you only needed like 25% of the upside during the recovery to beat the market, because you had missed so much of the beating.  Now, these were NOT the exact numbers (my memory is fading), but it was VERY dramatic.  The point was, everyone always talks about how you can't time the market because even if you get out in time, you will miss the recovery.  The point of this story was that you don't NEED most of the recovery if you miss the huge downside. 

Roxie's picture
Offline
Joined: 2009-10-19

I too think it is costlier to the client and would use ETF portfolios to try and trim some of that off.  Mgd is the trend in the industry throw, either those select clients pay you more or you must find more clients for the next transaction commission and try to service hundreds or even thousands of clients.  It all comes down to the client gets what they pay for and they can vote with their feet. 
 
Not to go off topic but I can't wait to see what will happen if C shares go away, or if the industry moves entirely to fiduciary standard and combine either of those with the average age of broker being over 50.  Good times ahead to be in this business 5-10-15 years from now.

chief123's picture
Offline
Joined: 2008-10-28

LSUAlum wrote:chief123 wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 

I think that everyone would agree that if you could properly time the market you could out gain the market substantially. The issue isn't whether timing the market is effective but rather if it's practical. Most people agree that you can't know which 40 days are going to be the worst in advance and vice versa on the best. You rely on the active management to use it's experience and knowledge to hopefully avoid some of the worst and capture some of the best.

But i think you can.. or at least get close...

LSUAlum's picture
Offline
Joined: 2009-10-18

B24 wrote:chief123 wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 
 
I absolutely HATE when firms (mine included) tote out the old "missing the best days" crap, but politely forget to mention what happens if you miss the worst days.  It's not so  much about "timing" in the classic "day trader" sense that most people picture it as.  It's about downside protection.  Getting out of the way of the bus. 
 
I read a statistic some time ago - I wish I had logged it somewhere.  It said something like if you had simply missed like 75% of the downside of the major "bears" (i.e. 1973/4, 2000-2002, 2008), you only needed like 25% of the upside during the recovery to beat the market, because you had missed so much of the beating.  Now, these were NOT the exact numbers (my memory is fading), but it was VERY dramatic.  The point was, everyone always talks about how you can't time the market because even if you get out in time, you will miss the recovery.  The point of this story was that you don't NEED most of the recovery if you miss the huge downside. 

We have used an example to illustrate this before to clients.
 
If you have a stock say, Google at $20 per share in year 1.
It goes up 30% in year one, down 50% in year 2 and then up 50% in year three how much is the stock worth? . The answer is clearly $19.50. Then compare that to a Muni Zero that pays 4% (leave the tax free part out of this for now) that same 20 would be worth 22.50 or roughly 15% more than the Google stock.
 
It just illustrates the importance of not losing money in bear markets versus gaining it in Bull Markets.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

So then it sounds like, to over simplify things, you and B24 are willing to "spend" some upside on portfolio hedges - not saying you are currently doing this.

LSUAlum's picture
Offline
Joined: 2009-10-18

chief123 wrote:LSUAlum wrote:chief123 wrote:Wet_Blanket wrote:Just as an aside, one thing that I always found interesting in this industry.  Clients are often told that market timing doesn't matter, and x% of returns is from allocation, the time you get in doesn't matter that much...yada yada yada.
 
But then those exact same firms scrutinize every trade by a SMA manager, constantly wanting to know about "trade rotation" and if they are getting prices consistent with what other platforms are getting.
 
Next time we should just tell them that market timing is meaningless and the investment itself is most important. 
S&P market return 9.66%
 
If you missed best days
10 days..6.44%
20days...4.16%
30days...2.18%
40days...0.47%
 
If you missed worst
10days...14.67%
20days...17.28%
30days...19.46%
40days....21.46%
 
.....so timing does matter(doesn't that make EDJ a little hypoctricial(along with most fund companies that timing doesn't work) then why pay for active managed funds?)
 
 

I think that everyone would agree that if you could properly time the market you could out gain the market substantially. The issue isn't whether timing the market is effective but rather if it's practical. Most people agree that you can't know which 40 days are going to be the worst in advance and vice versa on the best. You rely on the active management to use it's experience and knowledge to hopefully avoid some of the worst and capture some of the best.

But i think you can.. or at least get close...

In what way? I mean only the very best handful of professional asset managers can consitently  beat the market, and even then it's by slim margins. It doesn't take but one bad decision to often wipe out alot of good decisions by trying to time markets.

LSUAlum's picture
Offline
Joined: 2009-10-18

Wet_Blanket wrote:So then it sounds like, to over simplify things, you and B24 are willing to "spend" some upside on portfolio hedges - not saying you are currently doing this.
I can't speak for B24, but for me. Absolutely. Hedging the down side risk is the whole point of diversification. When I talk about return to clients I talk about risk adjusted return.
 
If I can get you a 'safe' (careful using that term) 7% versus a 'risky' 10% I think I've done my job.
 
Another example I use is why large institutions and governments buy US Treasuries rather than the S&P Index. It's about reliable steady returns that effectively help wipe out the really nasty bad days times in the market. It's what hedge funds were originally designed to do, but that has since gone the way of speculating for higher returns rather than hedging against lower returns.

Wet_Blanket's picture
Offline
Joined: 2008-11-13

Have you conducted any analysis on your downside / upside capture ratio?

LockEDJ's picture
Offline
Joined: 2009-07-06

chief123 wrote:LockEDJ wrote:
OK, yes you do have to create new paperwork. Considering the philosophy of Edward Jones ... as well you should, true? False... if my goal is "growth and income" how is that helped when the market is collapsing? Why do i have to continue to hold when nothing is going up.. If the true philosophy of edward jones is time in the market, then they should only advise buying index funds...
At the end of the day, the whole concept of AS is to remove emotion from investing(yeah but not to remove advising). A move to cash/reallocate/market-timing-momentum trading is an anathema to the underlying principle(you forgot to add "at Jones"). So requiring paperwork places distance in making that decision and gives the client (advisor?) pause.
 
 False... if my goal is "growth and income" how is that helped when the market is collapsing?Why do i have to continue to hold when nothing is going up.. Edward Jones advises buying quality across the board; that in fact, if you hold those quality investments you will do well and they will recover. Nothing better symbolizes that than the last 36 months. A portfolio of blue chip stocks would have lost nearly nothing in that time period; over the longer time period of the "lost decade" they would have doubled in value.
 
The fact of the matter is, that IF YOUR GOAL IS TRULY GROWTH AND INCOME ... dividend paying stocks would have continued to increase their dividends across the 2008 landscape if you would have only held on. And in the end, your portfolio would have been better for it, rather than all the market timing  .... which might have had you pulling out in October 08, and then not knowing when to return. Income can go up, even as portfolio values decline.
 
yeah but not to remove advising  who is suggesting that? EDJ focuses on allowing ADVSOL to do the heavy lifting, but using financial planning to do the advising.
 
you forgot to add "at Jones"  I thought it was pretty much implied.
 
FWIW ... for purposes of full disclosure, I don't swallow all the Kool-Aide and most know that I've got my issues with Jones. Advisory Solutions isn't one of them.

LSUAlum's picture
Offline
Joined: 2009-10-18

Wet_Blanket wrote:Have you conducted any analysis on your downside / upside capture ratio?
Only andecdotally with some select clients. We haven't done a broad capture ratio for all of our accounts because, while we do a fair amount of discretionary trading fee only accounts, we also have a sizeable portion of the business in transactionally based accounts. Also, we do take client's suggestions on different equities (some of them are quite interesting, both good and bad).
 
But that is a solid thought. I might talk to my business partner to see what amount of resources would make sense to allocate to that type of study.

LSUAlum's picture
Offline
Joined: 2009-10-18

AGEMAN wrote:LockEDJ wrote:
I think you've got it right. It's more expensive than holding A share mutual funds. However, you should offset that by looking at being able to buy best of breed investments, automatic rebalancing and investment selection - as well as reduction in noise (tinkering with the account).
My experiences have been that my custom models have outpaced the S&P by 150 to 250 basis points. (OK - back off Gaddock/Morean/whomever ... I'm not bragging here). I don't sell performance, but I also think that is reasonable information for the client to have with the proper disclaimers.
 
Finally, if issues surface with the MF management style we can address it. What will you do when Lord Abbett/American Funds/Hartford's investment style blows up?
And you trust the firm to buy best of breed funds??  Ha Ha--could you put one of your models on here?  How about the balanced model?

Also, a question for Lock. What makes the fund best of breed to Edward Jones? Is it performance, star rating, lipper averages, management style, etc?

Please or Register to post comments.

Industry Newsletters
Investment Category Sponsor Links

 

Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×