[quote=Dirk Diggler]

mike has hit the nail on the head. also, if you price yourself low, like everyone else, you have presented yourself as a commodity. people associate high prices with high quality. why not be more expensive than everyone else? it sends a strong message.

[/quote]

I agree with your point, but how is that accomplished positioning a variable annuity, when all the fees and charges are embedded?

Dude, I have been impressed with you in the past . . but I think you are really underestimating your value.

From my experience, fair, expert, unbiased advice AND servicing the client's financial needs is worth a wrap fee.  Honestly, do you see people out there doing things with client focus?  Look at the yahoos on this forum.

I just took on a 35 year old customer who not only was sold annuities that were wrong for her THEY CHARGED HER EXTRA and put them in an IRA.

Once I get all of her assets here, I am going to do an in depth review of everything she has.  That takes time and skill.  Then I will put together a plan for her and we will monitor it together.

PLUS, I am a Financial Advisor.  I have a fiduciary responsibility to do the best for my customer.  There is liability in that.  There is value in that for the customer.  I am NOT a broker, which is a salesperson.

So, yes, I usually use a managed account.  I refund the 12-b-1 fees back to the customer.  But, I am here for them.  I care.  I am good.  I give them peace of mind.

It is like Nick Murray says.  I save 1% in time for you.  1% in worry, then I make at least 1% more than you could.  So that is 3% and I am charging you 1.5%.

Dude, I think you are good.  Just don't discount what you are worth.  And what we are all worth.

Mike Butler wrote:

You know, dude, I think this is an interesting subject ad you make some valid points, but, you seem to have completely glossed over the other side of the "what's a fair price" equation. All you've considered to this point is what would the client like to pay. (What other business considers that factor first, and pays no attention to the pricing power of competitive forces?) You haven’t considered what services have to be priced at in order to cover every expense to the firm, including paying you.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><?:NAMESPACE PREFIX = O />

When Porsche builds a car, they consider what their costs are,(from engineering, production and marketing to servicing) what return on their efforts they can live with, what buyers are willing to pay, and what force their competitors will have on those prices. Why should we be any different? Shouldn’t market forces determine what we charge, and not some “what does the client want to pay, what’s “fair” and besides, we don’t really do much anyway” equation?

Reply:

I'm not making a case for being cheap, nor am I trying to undercut the value we bring to our clients.  I believe in getting paid what I'm worth and almost never discount my fee.   

You are wrong that businesses don't consider what a customer is willing to pay first.  In fact most companies will do extensive market research to determine efficient pricing before committing to full production.  If I remember economics correctly it has something to do with the "utility curve"?

I think cowboy93 said it right when he pointed out that the problem we are facing is charging for a PRODUCT when we're really selling ADVICE.  It is the packaging that causes me some questions. 

Maybeeee wrote:

Dude, I have been impressed with you in the past . . but I think you are really underestimating your value.

From my experience, fair, expert, unbiased advice AND servicing the client's financial needs is worth a wrap fee.  Honestly, do you see people out there doing things with client focus?  Look at the yahoos on this forum.

I just took on a 35 year old customer who not only was sold annuities that were wrong for her THEY CHARGED HER EXTRA and put them in an IRA.

Once I get all of her assets here, I am going to do an in depth review of everything she has.  That takes time and skill.  Then I will put together a plan for her and we will monitor it together.

PLUS, I am a Financial Advisor.  I have a fiduciary responsibility to do the best for my customer.  There is liability in that.  There is value in that for the customer.  I am NOT a broker, which is a salesperson.

So, yes, I usually use a managed account.  I refund the 12-b-1 fees back to the customer.  But, I am here for them.  I care.  I am good.  I give them peace of mind.

It is like Nick Murray says.  I save 1% in time for you.  1% in worry, then I make at least 1% more than you could.  So that is 3% and I am charging you 1.5%.

Dude, I think you are good.  Just don't discount what you are worth.  And what we are all worth.

Reply:

Thanks for the input.  I'm not challenging anybody's value here.  Like I said, I understand the subjective nature of this topic.  I'm hoping to fuel a discussion about the relative merits and downfalls of our different compensation models from a very critical standpoint.  It's my contention that if we are all uncomfortably honest about these issues it can only help to create greater confidence in the compensation model we choose to implement. 

I often wonder that if I were to leave the business and 5 years from now seek out a financial advisor (assuming I didn't want to handle it myself), knowing what I know about the different aspects of this business, what would I think is a fair price or compensation package.  

How much would I feel comfortable paying someone to manage my $500,000 (imaginary # here), if they were going to "wrap" it up.  I don't think I'd pay someone $10,000 (or even $5,000 for that matter) a year to "manage managers".  I'd pay $10,000 a year to someone who took direct management of the funds and had a well defined, successful investment strategy.  Of course I would only own stocks, since fundamentally I don't believe in bonds (neither soes Nick Murray) and would understand the volatility of the strategy.

When we charge for the product (a fee as a % of assets) as opposed to a flat (retainer type) fee; it seems to me that it implys the value creation is in the oversight and managing of the assets not the handholding, financial planning etc.......

I'm making a distinction between asset allocation, financial planning and investment policy type services (which to me are under the category of ADVICE) and the direct management of invesments (which to me are under the the category of SERVICE).

Here's how I would prefer to pay an advisor:

A flat fee for work done on a financial plan (by the hour at perhaps $300 to $500 an hour depending on the advisors expertise)

A retainer (not based as a % of assets) for manager selection, monitoring, education and ongoing services, priced based on actual work performed (plus accounting for the advisor's profit, which is well deserved)

A fee as % of asset for direct money management.

Do I think this is the ideal solution, NO.  Do I think it's a start to challenge us to better justify our value, MAYBE. Do I think that I will learn something valuable from all of you (maybe even Mr.10% ), DEFINITELY.  Maybe y'all will learn something in the process?

[quote=dude]

You are wrong that businesses don't consider what a customer is willing to pay first. 

[/quote]

I never said businesses don't consider that. My point is that's all you're considering in your equation. There's no space in your model for covering the costs involved, including having you, to deliver those services. It's as if the only determiner of price is what the customer thinks is "fair". I think I'll go in the local Porsche dealership and tell them I think $35k for a new 911 is "fair". Wish me luck. 

[quote=dude]

I think cowboy93 said it right when he pointed out that the problem we are facing is charging for a PRODUCT when we're really selling ADVICE.  

[/quote]

I honestly don't know just what that means. We sell financial solutions and a relationship to make it work. If someone wants to simply pay for the time required to be told what mutual funds to buy, they already have that option in most every CFP's office in their town. Few, if any, want that pricing model.

[quote=dude] <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Here's how I would prefer to pay an advisor:

A flat fee for work done on a financial plan (by the hour at perhaps $300 to $500 an hour depending on the advisors expertise)

[/quote]

Already available, even at most wirehouses.... if not by the hour, by the plan, total.

[quote=dude]

A retainer (not based as a % of assets) for manager selection, monitoring, education and ongoing services, priced based on actual work performed (plus accounting for the advisor's profit, which is well deserved)

[/quote]

I assume "work performed" isn't just things the broker does personally, but everything the firm provides the client. If not based on assets under management, how's this retainer figured? If by some rate not associated with asset size, you're asking the lower sized accounts to subsidize the fees of larger accounts. The liability in dollar figures is greater for larger accounts, they're often more complex, and they usually demand more attention. They shouldn’t pay for those things? I’d like to see you further flesh out this retainer idea.

[quote=dude]

A fee as % of asset for direct money management.

[/quote]

And if they provide SMAs? What then? What does the client pay to have access to managers they other wouldn’t have large enough assets to open an account with?

[quote=dude]

….Do I think it's a start to challenge us to better justify our value….

[/quote]

I honestly haven’t found this to be an issue with clients. They either see my value and employ me, or they don’t, and I don’t have to worry about them. As to my own view of what I provide, not only am I convinced I bring value, I’m certain I’m a bargain in the process.

Value and pricing is obviously somewhat relative.  For example, I've heard from some reps in the northeast that the "going rate" for SMA business there is closer to 1.5% or so, so regardless of what one promises to deliver in value it's tough to get an account from an informed investor if you're charging 2% or more.  Providing the same services in the South or other areas of the country might encounter no investor resistance in charging 2-2.5% or so.

And, no matter what value you can represent to a client for fee-based business, regardless of price, it isn't worth anything unless you deliver on it.  Many reps who get on the fee-based bandwagon simply view it as a way to capture assets and get an annuitized income -- not necessarily always their own fault, because b/ds often promote it that way.  They fail to continue to service those clients, have quarterly reviews, etc., and clients begin to wonder what it is they're paying for, while their rep is out gathering more assets to "manage". 

When the market tanked after the dotcom bust, many reps who never experienced a bear market stuck their heads in the sand as they were afraid to call clients, yet that's the time when client contact should be the highest.  As a result, many of these clients left in droves.  But reps that continued to deliver value through client contact, hand-holding, and continued monitoring, rebalancing & reviews, for the most part were able to maintain their clients because they continued to deliver value.  These same reps were able to have a hayday in winning all those lost accounts from the clients who paid fees, but never heard from their rep.

Re discounting (fees or commissions), as several have already said, we must charge for what we're worth.  If we win a new client because of low fees/commissions, chances are we'll lose that same client when the next guy who's focusing more on price comes along with a lower price. 

[quote=skeedaddy2][quote=Dirk Diggler]

mike has hit the nail on the head. also, if you price yourself low, like everyone else, you have presented yourself as a commodity. people associate high prices with high quality. why not be more expensive than everyone else? it sends a strong message.

[/quote]

I agree with your point, but how is that accomplished positioning a variable annuity, when all the fees and charges are embedded?

[/quote]

It's not.

[quote=maybeeeeeeee]

Dude, I have been impressed with you in the past . . but I think you are really underestimating your value.

From my experience, fair, expert, unbiased advice AND servicing the client's financial needs is worth a wrap fee.  Honestly, do you see people out there doing things with client focus?  Look at the yahoos on this forum.

I just took on a 35 year old customer who not only was sold annuities that were wrong for her THEY CHARGED HER EXTRA and put them in an IRA.

Why were the annuities wrong?

Once I get all of her assets here, I am going to do an in depth review of everything she has.  That takes time and skill.  Then I will put together a plan for her and we will monitor it together.

How sweet of you!

PLUS, I am a Financial Advisor.  I have a fiduciary responsibility to do the best for my customer.  There is liability in that.  There is value in that for the customer.  I am NOT a broker, which is a salesperson.

Salesmen are good. If you take away all the salesmen, the economy comes to a screaching halt.

So, yes, I usually use a managed account.  I refund the 12-b-1 fees back to the customer.  But, I am here for them.  I care.  I am good.  I give them peace of mind.

I feel a little weepy.

It is like Nick Murray says.  I save 1% in time for you.  1% in worry, then I make at least 1% more than you could.  So that is 3% and I am charging you 1.5%.

He used to say some good things about commissions, too. Will  you still quote him when he changes his spots again?

Dude, I think you are good.  Just don't discount what you are worth.  And what we are all worth.

I agree.

You know what's really fun? When I tell a prospect that I'm gonna turn off the "broker meter" (annual fee) when he moves his account. They grin when they hear that. They like saving money. Get's 'em every time.

Me: How much are you paying?

Prospect: 1.5% per year.

Me: Would if make you mad if I turned off the broker meter and didn't charge you an additional fee?

Prospect: Golly, no, Dirk. You can do that?

Me: Yepper. What's your social security number?

Dude,

Do you have clients?  Honestly, i am not trying to sound rude, it's just that you completely forget about all the servicing, paperwork, distributions, cost basis, etc that many advisors handle for their clients.

Will the one time fee guy do all that for free?  No.

Will the fee-based guy do that?  Sure, he'll have his employees do it since he's too busy watching stocks.  Good thing you meet his $500,000 minimum (it has to be high to pay his employees to do all the stuff brokers used to do while he does the stuff money managers used to do  ). 

So what about those folks with $250,000...they get to go to the one time fee guy, then try to figure out their RMD theirselves?  Or call him up and pay him every single time they need something or have a question?  Or do you expect him to work for free?

You senarios don't work.  People have to pay for services rendered. 

[quote=BankFC]

Dude,

Do you have clients?  Honestly, i am not trying to sound rude, it's just that you completely forget about all the servicing, paperwork, distributions, cost basis, etc that many advisors handle for their clients.

Will the one time fee guy do all that for free?  No.

Are you serious? What a stupid question! I get paid a buttload of money because of my clients. Of course I do all that stuff "for free." Why the hell wouldn't I? Just because YOU lack the moral compass to help people "for free", doesn't mean that I do. Is that what they teach you during your saturday training sessions?

Will the fee-based guy do that?  Sure, he'll have his employees do it since he's too busy watching stocks.  Good thing you meet his $500,000 minimum (it has to be high to pay his employees to do all the stuff brokers used to do while he does the stuff money managers used to do  ). 

So what about those folks with $250,000...they get to go to the one time fee guy, then try to figure out their RMD theirselves?  Or call him up and pay him every single time they need something or have a question?  Or do you expect him to work for free?

You senarios don't work.  People have to pay for services rendered. 

You're a frickin' moron. Period.  

Actually Dirk, YOU ARE THE MORON.  If you had any reading comprehension skills at all, you'd realize I addressed the post to Dude, and I was referring to his post, as seen below:

[quote=dude]

Here's how I would prefer to pay an advisor:

A flat fee for work done on a financial plan (by the hour at perhaps $300 to $500 an hour depending on the advisors expertise)

A retainer (not based as a % of assets) for manager selection, monitoring, education and ongoing services, priced based on actual work performed (plus accounting for the advisor's profit, which is well deserved)

A fee as % of asset for direct money management.

Do I think this is the ideal solution, NO.  Do I think it's a start to challenge us to better justify our value, MAYBE. Do I think that I will learn something valuable from all of you (maybe even Mr.10% ), DEFINITELY.  Maybe y'all will learn something in the process?

[/quote]

We all know you don't work for free, you work "for free."  As do I most of the time.  And if you didn't have the intellectual capacity of a retarded slug, I was saying that is how it should be.  My post was PRO- COMMISSION, PRO FEES. 

But obviously you are far too stupid to realize that.

You are TRULY a MORON.        

Managing over 100 million AUM, having built my business from ZERO and coming from Jones (ten years) where fee based didn't exist, and now being indy I can offer the following perspective on this discussion:

There is not one right way to run a practice--I explain both fee based and commission based accounts to clients.  I explain in dollars what the cost will be over time and if changes are made what that will cost will likely be as well.  Most clients will choose fee based--end of discussion.  It's a value added service where the least amount of conflict of interest exists.

BankFC:

Do you truly spend an enormous amount of time doing RMD's (a very simple calculation by the way, does not require much effort at all)

Paperwork?  That's right, you work at a bank (not intended as an insult).  Much different story on the brokerage side (a lot less paperwork).  Not much paperwork other than account openning docs and ACATs, mostly a one time deal (not including a risk questionaire, if you consider that paperwork, I consider it profiling).  

Account Servicing?  This is a vague term, what exactly do you mean?  Looking at their account and telling the client they are up or down by x%?  Calling them up to wish them a happy birthday?  Asking them if anything major has changed?  Taking them out to dinner to tell them they're up or down by X% and telling them about their investments (as their eyes glaze over).  Sending them a check when they want it? 

This stuff has never taken up much of my time.  It's all pretty much automated. 

Zacko, thanks for the perspective.  You deserve respect for your sucess.

Dude,

I love your uneducated repsonses about banks.  To open a retail account at my present location I need 1 form.  At ML I needed 2 (acct app and CRA).  2 is more than 1.  Many brokerages also require a 1099...we do not. 

Do not generalize on subjects you are ignorant of (not meant derogatory), taking time to correct you takes away from the discussion.    

If you really don't think you are worth what you get paid, for pete's sake go do something else.

Here is a perspective: 



Someone starts a thread that focuses on fees and it runs for pages.  For as much as we focus on fees, is it any wonder why we have to forever face these discussions with clients and prospects?  “I can get that managed for 1.0% over there, why are your fee’s so high?” 



As a profession we have to focus on quality, service, and education
(ours) instead of fees, commissions, and fighting our
competitors. 



Someone has a question about getting some education via a CFP program and we get 5 pages of reasons NOT
for him or her to get the education.  The industry has to raise
its game, and it starts with all of us, it starts with being better at
what we do…then we can be proud and not appologize for what we
charge…whichever format that may be.

Rightway:  Great Post

Dirk:  You're still a moron.