Incentives for Morgan Stanley Advisors

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Mo Money's picture
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My brother has about 200k invested in a MSSB mutual fund wrap account.  I think he pays somewhere like 1% in AUM a year.  Since he has been there, he told me that they constantly switch him in and out of mutual funds, maybe 20 different funds over the past 3 years - he is invested in like 10 different funds in multiple asset classes (small/mid/large US cap, mostly int'l, emerging markets, real estate, etc).  Does the FA have an incentive to switch him in and out of funds so much?  Seems like it is prudent to pick some high quality funds and stick with them long term rather than chase performance.Also, the FA has tried to get move him out of some funds and put them in managed futures funds.  Is there is bonus that the FA gets for doing something like this - or do they just get paid a % of AUM?  My bro doesn't even know what a managed future is and its unlikely that he needs even more diversification.

squash2's picture
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Joined: 2010-03-09

My guess regarding the MF's is that like anyplace it is a general firm managed platform.. Or possibly just moving because it makes it seem like it is worth the 1%.. not familiar with MSSB..

BigFirepower's picture
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Joined: 2010-07-09

The wrap account, sounds pretty standard for the industry. Yes, I tend to agree that buy and hold tends to work when properly diversified as much or better than aggressive tactical methods. Managed futures is a profit point, and I personally don't think anyone other than the most sophisticated/aggressive customer needs any exposure to that kind of thing. Frankly, I think the odds are better in Vegas, than playing futures.

Mo Money's picture
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Joined: 2010-10-15

In these situations, not particularly MSSB, does the firm outsource someone this to someone else to in the company to move the mutual funds around?  Or is it all up to the FA?

Mo Money's picture
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Joined: 2010-10-15

BigFirepower wrote:The wrap account, sounds pretty standard for the industry. Yes, I tend to agree that buy and hold tends to work when properly diversified as much or better than aggressive tactical methods. Managed futures is a profit point, and I personally don't think anyone other than the most sophisticated/aggressive customer needs any exposure to that kind of thing. Frankly, I think the odds are better in Vegas, than playing futures. When you say profit point, is the FA getting some bonus for steering the money into this asset class?  I tend to agree that most of these funds - especially at the retail level - have fees that are not commensurate with the risk/return profile.

BigFirepower's picture
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Joined: 2010-07-09

Highest comp is going to be hedge funds, managed futures, and all that wonderful gambling $hit. I been doing this nearly 20 yrs, and I know one guy who's made any real money in that kind of stuff. Besides, the whole commodity thing has been through a once in a couple decades boom, with what can only be described as the tail end of the party at hand. Frankly, I'd say your concerns sound warranted, and that you sound fairly well versed/educated on this subject. If there's smoke, there IS fire...

palmpre's picture
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Joined: 2010-09-07

The only other answer is that he could be a "technical guy"... but those are few and far between..

I am legend's picture
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Joined: 2010-03-04

Mo Money wrote:In these situations, not particularly MSSB, does the firm outsource someone this to someone else to in the company to move the mutual funds around?  Or is it all up to the FA?It depends what type of managed mutual fund acct it is.  If it is a firm model, a group of people in the home office make the moves and they do so without consulting the client.  If it is a custom model, the advisor makes the moves after consulting the client.  If this is a fee based arrangement, the firm makes no more money by making moves.  Actually they make less since they bear the cost of the trades.  As far as the managed futures I agree with Firepower....Stay away from them.

Mo Money's picture
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Joined: 2010-10-15

Lol I should tell my bro to ACAT that account over to Fidelity or Vanguard and ETF that summofabich, but my bro -- god help him -- is a dumber than a box of rocks.  Just don't want to see him get beat, that's all.

Sportsfreakbob's picture
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Joined: 2008-08-24

Boglehead

Hacksaw's picture
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Joined: 2010-03-27

Your "brother" is not paying anything extra for the moves. I have a buddy at MS and it sounds like a typical fee based account. All his fees and the advisor's commisions are in that 1%.
20 moves over 3 years doesn't sound like a whole lot to me after the past 3 years we've had. Do the math: he holds 10 positions so that would be one change per holding over 3 years. Sounds like a tactical investor to me.
As for the Managed futures, I wouldn't touch them with a 10' pole. I don't understand them enough, and any decent advisor would make 100% sure the client understands it fully (not a simple task).

WSxAG's picture
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Joined: 2007-08-23

Uh, if you are an adherent to Modern Portfolio Theory, your client should have between 5-10% of their portfolio in managed futures. They saved many of my clients during the last market collapse. However, they are not for everybody, and should be reserved for your most sophisticated clients.

Sportsfreakbob's picture
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Joined: 2008-08-24

I think the original poster is a trollAnd this is the wrong place to ask those questions - and the wrong place to answer them

StoneColdMutha's picture
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Joined: 2010-09-04

Sportsfreakbob wrote:I think the original poster is a trollAnd this is the wrong place to ask those questions - and the wrong place to answer them Agreed.  What kind of person that isn't in our industry superflously throws around the term "ACAT the funds over"?  None that I know of! 

Mo Money's picture
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Joined: 2010-10-15

Haha not a troll, but I understand your suspicions. Let me explain. I work in financial forensics and I am a member of the CFA (call me a nerd if you want) so that's why I know these things, but I have never worked a day as a FA and that's why I defer to other's expertise and try to get their viewpoints. As for the term ACAT, I just learned that yesterday after browsing the forum.  I had never heard of that term, just the term "transfer-in kind" when moving assets to another brokerage account.I think the Boglehead philosophy is extremist, but not without merit, however I don't believe in their philosophy purely.What I do believe is transparency, open communication and plain vanilla investing for those people who do not want to take the time to learn it for themselves (i.e. the brother).  I am just trying to see what going on here from an insider.  Thanks for the comments so far.

Sportsfreakbob's picture
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Joined: 2008-08-24

As a CFA, (the designation, not the organization - i assume you meant to say you ARE a CFA? - shouldn't you be aware of something as basic as a fee based account doesnt charge sales loads or commissions?

N.D.'s picture
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Joined: 2009-07-13

Sportsfreakbob wrote:As a CFA, (the designation, not the organization - i assume you meant to say you ARE a CFA? - shouldn't you be aware of something as basic as a fee based account doesnt charge sales loads or commissions? You can be a member of the CFA without being a charterholder.  http://www.cfainstitute.org/about/membership/process/Pages/index.aspx wrote:Becoming a Member The kind of member you become depends on your qualifications. There are two types of membership with CFA Institute: 

To become a CFA charterholder you must be a regular member and pass the CFA Program Level I, Level II, and Level III exams. Once you become a charterholder you must comply with our requirements to maintain your status. No one is a "CFA", They can only be a "charter" holder.http://www.cfainstitute.org/about/membership/process/Pages/index.aspx wrote:To earn a CFA charter, you study for three exams (Levels I, II, III) using an assigned curriculum. If you pass all three exams and meet the professional and ethical requirements, you can become a regular member of CFA Institute, or “charterholder.”

Mo Money's picture
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Sportsfreakbob wrote:As a CFA, (the designation, not the organization - i assume you meant to say you ARE a CFA? - shouldn't you be aware of something as basic as a fee based account doesnt charge sales loads or commissions? It is incorrect to call somebody a CFA, you can't use it as a noun per Standard VII(B). You get in that habit after taking the exam. Sounds silly because all other designations I know, like a CPA can call him/herself a CPA (although you don't hvae a lawyer saying, I am JD).  Mostly just advanced investment theory is just covered in the cirriculum. I know sales loads are waived in advisory accounts, but I wasn't sure if there are any other motivations to influence advisor behavior to use a particular fund, for instance, to meeting a quota or get a bonus beyond fixed percentage of assets.

Sportsfreakbob's picture
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Joined: 2008-08-24

So are you saying that if you become a Chartered Financial Analyst, you can't tell anyone that you are one? Not being sarcastic, serious question, i really didn't know that, thats what it sounds like, sounds ridiculous to me.

Net Tender's picture
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Joined: 2010-10-16

Sportsfreakbob-It is the same with a CFP designation.  You really are not allowed to say "I am a CFP"- should be "I am a financial adviser with my CFP designation."You can tell someone you have a CFA designation, but noone "is a" CFA.

N.D.'s picture
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Joined: 2009-07-13

SF- Its like this:I am a CFA Charterholder & I am a CFP Practitioner.So technically one would be a charterholder or practitioner of the afore mentioned designation.

Sportsfreakbob's picture
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Joined: 2008-08-24

Does it actually say that in the CFP Practice Standards?

N.D.'s picture
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Joined: 2009-07-13

I can't remember. There are actually two terms used with the CFP, one is a "Professional" and the other is "Practitioner". Our compliance dept requires us to use "Practitioner" for email signatures and letters but only the "CFP" designation on business cards. So I would guess they can be interchanged but it doesn't change the fact that a person can not be a CFA nor a CFP they can be "charterholders" and "practitioners" though.  

Moraen's picture
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Joined: 2009-01-22

C'mon freak.  You know this is my hot button issue.  Like when Rick Ferri referred to himself as "a CFA", I lost it and went off.  And I think with the CFP, you are a certificant.The reason being, is that because CFA Institute (and the CFP Board) own the designation, they are granting you a "charter" to use their designation.And also to avoid the Kleenex effect.  After all, aren't all tissues called Kleenexes.

Mo Money's picture
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Joined: 2010-10-15

The whole usage of the CFA charter is ridiculous.  You can't use it as an noun, only an adjective.  Why?  I guess it gives some an air of authority to say that instead saying I am a CFA.  Hucking fetarded.

Sportsfreakbob's picture
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Joined: 2008-08-24

I will call myself a Certified Financial Planner (with the trademark sign of course) until i stop paying the $360 a year to have the right to use it (soon to be $720). Screw em

Moraen's picture
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Joined: 2009-01-22

I'm guessing CFAI won't do anything either.  Rick Ferri hasn't been sanctioned yet.

Bud  Fox's picture
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Joined: 2008-07-20

[quote=Sportsfreakbob]I will call myself a Certified Financial Planner (with the trademark sign of course) until i stop paying the $360 a year to have the right to use it (soon to be $720). Screw emScrew em? Sounds like they are screwing you hard if you pay em every year.  I on the other hand am not getting it as hard.  I pay every other year as I plan on getting screwed next week by em.  I assume that every year payment was a mistake or was there an agreement I missed somewhere to pay every year for an easier test?

QB's picture
QB
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Joined: 2009-01-31

This whole thread seems like one big fishing expedition....That being said, I think that those of you that are anti managed futures either just haven't taken time to learn enough about them, or are too lazy for the extra work they involve.  They are the only asset class with the characteristics of lower risk and volatility, and greater return.  The two things every client desires.  Educate yourself, and you will be doing your clients a favor, and improving their portfolios.  Just my 2 cents.   

Sportsfreakbob's picture
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Joined: 2008-08-24

No Bud - i didn't pass an easier test.Yes, it was a mistake, i pay every two years, just like you

Bud  Fox's picture
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Joined: 2008-07-20

Yeah it sucks they will probably raise our CFP union dues... They will probably start requiring 50 bips on our annual gross or something like that stating we wouldn't be grossing that if it weren't for their trademarked logo after our name.  I'm sure there is a conspiracy somewhere within the board.  I wonder if we could hire Jesse Ventura to expose it all...

Paranoid Android's picture
Joined: 2013-09-26

This thread is kind of funny looking back on, thanks for bringing it up weird spamming lady that writes forum posts in letter form.

The OP is worried about 20 mutual fund moves over a 3 year period in a wrap account, those 3 years being 2008, 2009, and 2010?

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