FCC SIMPLE IRA ticket charges on mut fd trades

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blj's picture
blj
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Joined: 2009-08-04

My regional independent firm clears through First Clearing (FCC), I've been with my current firm about 2 years and have over 25 years in the industry.
I've been placing mutual fund purchase trades in several SIMPLE IRAs monthly as my clients defer salary contributions to their accounts and in doing so, have encountered a ticket charge (TC) of $25 per fund (portfolio of three funds from three fund companies). For example, a recent purchase of $146.01 to an American Fund resulted in Gross Comm of $7.30 and Gross TC on my commission statement of twenty five bucks. Clearly, this is not cost effective.
 
Morally, I believe I have an obligation to invest the contributions monthly, as they are made. If the ticket charges continue to apply, I could go broke doing so.
 
It has been suggested that I do business direct with the fund companies (again, there are three). This is not an efficient solution from the standpoint of managing my book of business. It has been suggested that trades be set up on a periodic (monthly) basis, resulting in a pro-rated TC. This is nearly impossible because each SIMPLE plan participant is contributing a percentage of salary, which can and will vary.
 
Has anyone else found a reasonable solution to this issue regarding SIMPLE and SEP IRA or similar accounts? The parent firm actually states they waive TCs on such accounts, yet I keep seeing the charges on my comm stmt. The staff of my regional independent firm say they're passing through fees from FCC.
 
Thanks! BLJ

CashFlow's picture
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Joined: 2008-08-05

Either go to one company direct or you can use one of the fee based platforms where there are no ticket charges (minimums do apply).  Your company should have a plan for this situation as well.  You stated the parent firm states they waive these fees so you could pursue this option to get this error corrected.  My understanding with my firm is that they do not charge this fee, however, I have never set a simple up in house only direct.  Most of my SEP's make annual contributions so this situation does not apply.  Keep us posted on what you find out. 

nestegg's picture
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Joined: 2007-06-14

What about a fund of funds...one ticket

Wachbroke's picture
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Joined: 2009-08-01

Depending on the firm you work for it should work for awhile to go directly to the fund company--but be aware: most firms are beginning to put the kabosh on going directly to the fund company. This is known as "Level Zero" business.  They want you to have an account at the firm that links the funds held directly at the fund company.  They are beginning to view accounts at fund companies with the FA as advisor of record as a compliance risk-- they can't see what you are doing.

Sportsfreakbob's picture
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Joined: 2008-08-24

so how about some good ideas on balanced funds, asset allocation funds, or whatever you want to call them, IRA or not, that you guys are using. I find that I have a number of accounts say 15-20k in value, that are part of a bigger hh, that i need to service and invest, too small for fee based, but dont want to asset allocate into 3-4-5 funds and incur all those Ticket charges.
What do you use?

Mike Damone's picture
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Joined: 2004-12-01

Sportsfreakbob, for smaller accounts I've been using the asset allcoation funds by Transamerica (the old IDEX).  They use multiple fund companies and it's managed by Morningstar.

Hydeho's picture
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Joined: 2007-02-23

Wachbroke wrote:Depending on the firm you work for it should work for awhile to go directly to the fund company--but be aware: most firms are beginning to put the kabosh on going directly to the fund company. This is known as "Level Zero" business.  They want you to have an account at the firm that links the funds held directly at the fund company.  They are beginning to view accounts at fund companies with the FA as advisor of record as a compliance risk-- they can't see what you are doing.
401K and Simple IRA are exempt from the level 0 policy.

ETF_Advisor's picture
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Joined: 2009-06-07

Yes, as asset allocation "fund of funds" go, I really like those Transamerica/IDEX funds as well.  The multi-manager approach with asset allocation by Morningstar is a really nice story to tell to clients.  Plus, those funds are highly diversified, with between I think 20-30 mutual funds "under the hood".  They also make use of alternative asset classes, which I think is a big plus.
 
I also like the Nationwide Investor Destinations funds, as the underlying holdings are all index funds.  They can be a good choice for clients who are index fund fanatics, as well as for taxable accounts.  For retirement accounts, I often combine the Transamerica fund with an Investor Destinations fund, for a combination active/passive approach (although that wouldn't help you with your ticket charge problem).
 
Nationwide also has target-retirement-date funds, which are even more diversified than the Investor Destinations funds (which are "target-risk" funds), with more asset classes and holdings, and even include some ETFs as their holdings (and I'm a big fan of ETFs, if you hadn't guessed).  But I don't use those funds, since for small accounts, I prefer "target-risk" funds rather than "target-date" funds.
 
Arrow Funds (www.ArrowFunds.com) also has some interesting choices in that arena.

Jebediah's picture
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Joined: 2009-07-10

iceco1d wrote:I'll assume for the sake of this discussion, Vanguard and DFA funds are not an option, since we are talking about commission accounts.SFB - You may want to take a look at the Goldman Asset Allocation style funds...good number of underlying holdings, and they are tactical with the underlying allocations (maybe similar to what you do with ETFs, maybe not...but tactical nonetheless).

 
 
Tactical?  What bizarro world have I just entered?

CashFlow's picture
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Joined: 2008-08-05

If your accounts are 10-20k and are part of a larger household you can still buy into the fee business platform as long as the average accounts in the household meet the minimums.  So if you have a 50k fee business account in the household and the new one would be 15k it would work since the two average above the 25k minimum.  I have several accounts that we have done this for as long as you meet the bottom minimum of 10k for the extra account. 
 
Now if the other accounts in the household are not fee based then I like the IDEX asset allocation funds as well along with the Russell asset allocation funds if they are available at your firm. 

ETF_Advisor's picture
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Joined: 2009-06-07

CashFlow wrote:If your accounts are 10-20k and are part of a larger household you can still buy into the fee business platform as long as the average accounts in the household meet the minimums.  So if you have a 50k fee business account in the household and the new one would be 15k it would work since the two average above the 25k minimum.  I have several accounts that we have done this for as long as you meet the bottom minimum of 10k for the extra account.  
 
 
I think the ability to do that depends on the firm/platform.  At my firm, what you describe above cannot be done.

blj's picture
blj
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Joined: 2009-08-04

Thank you for all the feedback on this issue.  I truly feel that I'm being backed up against the wall here, and I intend to come out swinging.
 
Is it right for a clearing firm to charge ticket charges on trades placed monthly in SIMPLE and SEP IRAs in one area of the firm and not the other? It may be their policy, but the question I have is, is it right? Morally, I don't think so.
 
As advisors, aren't we all of the belief that timing the market is nearly impossible and that the theory of dollar cost averaging is a valid investment method? Dollar cost averaging is exactly the way that my 401k works, right? I put money in a qualified retirement plan each pay period and then I expect those contributions to be invested to my portfolio allocation choices within a reasonable amount of time (right away). Right?
 
I want to encourage my clients to use this same strategy of dollar cost averaging within their retirement plans. However, when I allocate the dollar contributions of my SIMPLE IRA clients to their investment portfolio monthly, I find that I'm being hit with a ticket charge that actually exceeds the trade revenue generated. Continuing to run my business this way is not cost-effective.
 
So, it appears that I can do business direct with mutual fund companies or invest contributions to these accounts whenever the dollar amount invested results in trade revenue equal to or greater than the ticket charge. In theory, if I do business direct with the fund companies, why do I need a broker dealer? If I wait to invest client contributions at a time when they have built up to the point that the sales charge offsets the ticket charge, then I'm not doing them a service because we're unable to put their contributions to work in a timely manner.
 
For the record my broker dealers clearing firm, First Clearing (FCC) is now owned by Wells Fargo. My prior phone call to FCC's trading area confirmed that Wells Fargo Advisors (WFA) reps are not charged a Ticket Charge (TC) on trades within SEP and SIMPLE IRA's. Fees on accounts are waived for WFA reps.
 
FCC is apparently assessing the TC, not someone at my broker dealer. My broker dealer firm has been advised that the telephone number I called at FCC was for WFA reps not reps from correspondent firms. Apparently, they should not have informed me of the policy of waiving TCs on SIMPLE and SEP IRA account trades. Although the Trading Dept Rep I spoke with verified he saw no TCs on the specific SIMPLE IRA account trades in question.  
 
The agreement that my independent firm has with FCC as correspondent firm, I'm told, is a separate relationship and right or wrong, while WFA SIMPLE and SEP IRA accounts are not assessed a TC, correspondent firm trades are being assessed the TC.
 
Given that the firm recognizes TCs should not apply to these types of trades in qualified accounts placed through one area of the company, they obviously believe this policy to be a benefit to their clients and therefore agree that waiving the TC is the right thing to do.
 
My moral compass tells me to question their policy. Doesn't it seem that I am being forced to make a choice about doing the right thing for my clients, or doing business in a cost-effective, sustainable manner? It just doesn't seem right to me.
 
Anyone want to recommend a good securities industry attorney?

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