12b-1
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Again, we’ll have to agree to disagree. Certainly I’ve not investigated
anywhere near all of the outside money managers, but what I have seen,
generally, I haven’t liked. Therefor, I don’t use SMAs.
OHHH MYYYY....... Mr. Advisor, You mean that I have to pay for your service when I could of invested for free in this no-load investment over here????.... I AM OUTRAGED!!!!
Yes that is right Mr. Client, NOTHING IN THIS WORLD IS FREE!!!!!
PLEASE, PLEase, please, stop condemning others for getting paid for their services. Fees, commissions, etc. boil down to getting paid for what we do. Fees are not right for everyone just as commission is not right for everyone, but tell me this, it we eliminate one how long until that 1% avg fee is widdled down to 10bps, because after all why should someone have to pay for their service. Or on the other hand if we eliminate fees, how long until the commissions are 10bps for the same reason.
Now don't get me wrong, I think everything should be fully disclosed, but this attitude that my sh*t does not stink because I do fee only or commission only, or whatever is only because your sh*t hasn't been in the sun as long... but give it time and the flies will come.
Just my 2 cents
[quote=doneWjones]
OHHH MYYYY....... Mr. Advisor, You mean that I have to pay for your service when I could of invested for free in this no-load investment over here????.... I AM OUTRAGED!!!!
Yes that is right Mr. Client, NOTHING IN THIS WORLD IS FREE!!!!!
PLEASE, PLEase, please, stop condemning others for getting paid for their services. Fees, commissions, etc. boil down to getting paid for what we do. Fees are not right for everyone just as commission is not right for everyone, but tell me this, it we eliminate one how long until that 1% avg fee is widdled down to 10bps, because after all why should someone have to pay for their service. Or on the other hand if we eliminate fees, how long until the commissions are 10bps for the same reason.
Now don't get me wrong, I think everything should be fully disclosed, but this attitude that my sh*t does not stink because I do fee only or commission only, or whatever is only because your sh*t hasn't been in the sun as long... but give it time and the flies will come.
Just my 2 cents
[/quote]
WTF are you talking about?
[quote=Philo Kvetch][quote=doneWjones]
OHHH MYYYY....... Mr. Advisor, You mean that I have to pay for your service when I could of invested for free in this no-load investment over here????.... I AM OUTRAGED!!!!
Yes that is right Mr. Client, NOTHING IN THIS WORLD IS FREE!!!!!
PLEASE, PLEase, please, stop condemning others for getting paid for their services. Fees, commissions, etc. boil down to getting paid for what we do. Fees are not right for everyone just as commission is not right for everyone, but tell me this, it we eliminate one how long until that 1% avg fee is widdled down to 10bps, because after all why should someone have to pay for their service. Or on the other hand if we eliminate fees, how long until the commissions are 10bps for the same reason.
Now don't get me wrong, I think everything should be fully disclosed, but this attitude that my sh*t does not stink because I do fee only or commission only, or whatever is only because your sh*t hasn't been in the sun as long... but give it time and the flies will come.
Just my 2 cents
[/quote]
WTF are you talking about?
[/quote]PK- at a minimum this guy has some serious issues as far as being able to communicate clearly. Perhaps he should also hold himself to ONE bloody mary with breakfast.
Here's a wild and crazy idea. Why not let the free market dictate what the fees will be?
Did you know that Hershey pays Wal-Mart a placement fee (revenue sharing?) to be placed in a better location than say, a zagnut? That doesn't bother me at all. If I'm willing to pay $.75 for a candy bar, then I'm wiling to pay $.75. I don't care if $.15 went to Wal-Mart, or if $.05 went to the sales guy, I don't care. I want a candy bar, I'm ok with the cost to me, what's the problem? It should be the same with investments.
I do believe that there should be a "fee sheet" that is a one page document that the client has to sign (kind of a like a prospectus receipt). It would be very simple, and have all the fees in 18 point font, laid out as straightforward as possible. ALL the fees (back-end, front-end, annual, surrender schedule, etc.).
If the client is ok with the fee, I don't see a problem.
Now, if the client ever sues the broker, the broker better be able to justify putting the client into firm-owned (or revenue shared) funds, or the high commission product. But, if the advisor is keeping good notes (don't we all), and actually does have a valid reason for using that VA, non-traded REIT, preferred fund, etc., then there should not be a problem.
[quote=Philo Kvetch]
[/quote]
We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'
investment portfolios run through outside money managers. They're
generally little more than glorified mutual funds, albeit somewhat
cheaper. I maintain that the client is best served in house, provided that
he/she is philosophically aligned with the F/A insofar as investing is
concerned.[/quote]
+1
[quote=now_indy]
Here's a wild and crazy idea. Why not let the free market dictate what the fees will be?
Did you know that Hershey pays Wal-Mart a placement fee (revenue sharing?) to be placed in a better location than say, a zagnut? That doesn't bother me at all. If I'm willing to pay $.75 for a candy bar, then I'm wiling to pay $.75. I don't care if $.15 went to Wal-Mart, or if $.05 went to the sales guy, I don't care. I want a candy bar, I'm ok with the cost to me, what's the problem? It should be the same with investments.
I do believe that there should be a "fee sheet" that is a one page document that the client has to sign (kind of a like a prospectus receipt). It would be very simple, and have all the fees in 18 point font, laid out as straightforward as possible. ALL the fees (back-end, front-end, annual, surrender schedule, etc.).
If the client is ok with the fee, I don't see a problem.
[/quote]
The problem isn't paying 75 cents for a candy bary. The hidden fees in a mutual fund are like agreeing to pay 75 cents for a candy bar only to find that Wal Mart took 78 cents from your bank account. Except they didn't really debit you for 78 cents, they just took the extra 3 cents off of the interest credit the bank was going to give you that month. The didn't really charge you 3 extra cents...
You're spot on with the fee disclosure in 18 point font. The problem isn't at all with 12-b1 or any fees for that matter. The problem is in the disclosure.
I have been using C shares for several years now and always explain the fees just as I do with fee based accounts. Clients do not complain as long as they understand.
I think the fee disclosure idea is good. Even though I would not look forward to more paper!
[quote=BondGuy][quote=Philo Kvetch]
[/quote]
We'll have to agree to disagree, BG. I, too, dislike the 'cookie cutter'
investment portfolios run through outside money managers. They're
generally little more than glorified mutual funds, albeit somewhat
cheaper. I maintain that the client is best served in house, provided that
he/she is philosophically aligned with the F/A insofar as investing is
concerned.[/quote]
+1
[/quote]
Not sure what you're trying to say there, Big Guy!
[quote=ManagedMoney]
I’m on the other side of the ledger on this
one. If I was a client, I would want as many brilliant minds and
specialists working on my behalf as possible. I see it as
intellectual diversification.
[/quote]
But in reality, too much diversification dilutes any manager specific
alpha. And of course if its questionable if persistant manager
specific alpha exists.
[quote=ManagedMoney]
Only with clients who don’t have enough
money to buy a diversified bond portfolio would I put them into a bond
fund (or an SMA) For almost everyone else, I have them buy bonds
outright in a standard brokerage account (no fees)[/quote]
See the recent IPO of Vanguard’s bond ETF’s makes owning single bonds
obsolete for most people. For 11bp a year, you get the entire Lehman
Aggregate in one share.
No SMA, or bond ladder is going to beat that.
If for whatever reason you must have longer maturities, you buy longer term bond ETF’s.
[quote=AllREIT]
[quote=ManagedMoney]
Only with clients who don’t have enough
money to buy a diversified bond portfolio would I put them into a bond
fund (or an SMA) For almost everyone else, I have them buy bonds
outright in a standard brokerage account (no fees)[/quote]
See the recent IPO of Vanguard’s bond ETF’s makes owning single bonds
obsolete for most people. For 11bp a year, you get the entire Lehman
Aggregate in one share.
No SMA, or bond ladder is going to beat that.
If for whatever reason you must have longer maturities, you buy longer term bond ETF’s.
[/quote]
What about clients who want guarantees?
Exactly what guarantees of principal and interest are provided by this new ETF?
[quote=joedabrkr]
[quote=AllREIT]
[quote=ManagedMoney]
Only with clients who don’t have enough
money to buy a diversified bond portfolio would I put them into a bond
fund (or an SMA) For almost everyone else, I have them buy bonds
outright in a standard brokerage account (no fees)[/quote]
See the recent IPO of Vanguard’s bond ETF’s makes owning single bonds
obsolete for most people. For 11bp a year, you get the entire Lehman
Aggregate in one share.
No SMA, or bond ladder is going to beat that.
If for whatever reason you must have longer maturities, you buy longer term bond ETF’s.
[/quote]
What about clients who want guarantees?
Exactly what guarantees of principal and interest are provided by this new ETF?
[/quote]
It’s the Lehman Aggregate of all investment grade bonds. If want TSY only ETF’s those exist as well.
While the fund itself is not guarantee’d its assets are, etc etc. Joe, you are much too smart for this.
[quote=joedabrkr]
[quote=AllREIT]
[quote=ManagedMoney]
Only with clients who don’t have enough
money to buy a diversified bond portfolio would I put them into a bond
fund (or an SMA) For almost everyone else, I have them buy bonds
outright in a standard brokerage account (no fees)[/quote]
See the recent IPO of Vanguard’s bond ETF’s makes owning single bonds
obsolete for most people. For 11bp a year, you get the entire Lehman
Aggregate in one share.
No SMA, or bond ladder is going to beat that.
If for whatever reason you must have longer maturities, you buy longer term bond ETF’s.
[/quote]
What about clients who want guarantees?
Exactly what guarantees of principal and interest are provided by this new ETF?
[/quote]
Exactly. “Maturity” doesn’t exist in a bond fund.
[quote=Greenbacks]
I have been using C shares for several years now and always explain the fees just as I do with fee based accounts. Clients do not complain as long as they understand.
I think the fee disclosure idea is good. Even though I would not look forward to more paper!
[/quote]
I utilize asset allocation C shares too, for clients with less than $50,000. We have to present a "mutual fund disclosure form" where we explain the differences between A, B, & C shares, break points, LOI, etc. Then the client chooses which share class they want, and sign the form. Even when fully briefed on the fees, and how "B" converts to "A", typically clients don't want to pay an upfront load, not a backend, and choose "C".
Then, if it's C shares, we have to present another form, "Cost Calculator". This is a spreadsheet style form, where the prospectus expense ratios are already embedded for each share class of the fund, and you show them their hypothetical rates of return if they held the fund for "X" amount of years, and if they received "0%", "5%", or "10%" avg. return in that timeframe. I always tell clients that given a longer time horizon, A and B shares will make them more money. They also sign this form.
Yes, full disclosure of fees makes sure no one gets their feelings hurt, IMO.
[quote=AllREIT]
[quote=joedabrkr]
[quote=AllREIT]
[quote=ManagedMoney]
Only with clients who don’t have enough
money to buy a diversified bond portfolio would I put them into a bond
fund (or an SMA) For almost everyone else, I have them buy bonds
outright in a standard brokerage account (no fees)[/quote]
See the recent IPO of Vanguard’s bond ETF’s makes owning single bonds
obsolete for most people. For 11bp a year, you get the entire Lehman
Aggregate in one share.
No SMA, or bond ladder is going to beat that.
If for whatever reason you must have longer maturities, you buy longer term bond ETF’s.
[/quote]
What about clients who want guarantees?
Exactly what guarantees of principal and interest are provided by this new ETF?
[/quote]
It’s the Lehman Aggregate of all investment grade bonds. If want TSY only ETF’s those exist as well.
While the fund itself is not guarantee’d its assets are, etc etc. Joe, you are much too smart for this.
[/quote]
No sir, in this case I think to some extent you are outsmarting yourself. Your suggestion is thought-provoking and something I think I might implement. But-there are those clients who want specific bonds with guarantees. Rock solid promises with a date attached. For those types of clients, your suggestion is just not going to work. No disrespect, just my strong opinion.
[quote=joedabrkr]
No sir, in this case I think to some extent you
are outsmarting yourself. Your suggestion is thought-provoking
and something I think I might implement. But-there are those
clients who want specific bonds with guarantees. Rock solid
promises with a date attached. For those types of clients, your
suggestion is just not going to work. No disrespect, just my
strong opinion.
[/quote]
Joe, As I see it, the deal is this.
0. Any bond has exactly three attributes that matter, coupon rate,
credit rating, and durration. Maturity is normally not important unless
you need to defease obligations. I.e you need exact cash at a known
time in the future.
Investing for defeasance is one thing, and investing in fixed income
for cashflow and diversification is something else. If you need to
defease then performance and cost doesn’t matter vs getting the timing
right.
If you are investing for fun and profits, then you are going to have a
damn hard time beating the Lehman Aggregate on a risk adjusted basis,
unless you take on serious risks (agressive bets on interest
rates/credit) that put you far out of the benchmark.
Now some people can make these bets, and others cannot, and
survivorship bias skews what we see. I.e Bill Gross/Dan Fuss are still
around, LTCM is not.
So the conservative view is that the investment grade bond market is correctly priced, and future interest rate movements are unknowable, so a passive indexing approach is best.
Bond funds let you pick durration and credit risk, without have to
do the scutwork of constructing and maintaining portfolio’s. If you
are on a commision basis, earning 1% on any motion, then it makes sense
(from the brokers perspective) to manage fixed income portfolio’s
construct bond ladders etc.
A bond ladder is just a portfolio designed to have constant
(semi-constant) durration. Amazingly, bond funds are managed to do
exactly the same thing.
For myself, I’d just as soon pay Vanguard/BGI 11bp/20bp to do it for me.
The argument that bond funds lack maturity is mostly irrelavent. You have daily (constant for ETFs) liquidity. Unless you need deterministic cash flows, then that is enough.
Based on transaction costs and management costs, its going to be
very difficult for active managers to beat their benchmarks in fixed
income. Investment grade fixed income is a game of inches and
milimeters, not home runs. If you can find a better bond fund () than BND, buy it!
() After adjusting for credit risk and out of index durration.
[quote=AllREIT]
[quote=joedabrkr]
No sir, in this case I think to some extent you
are outsmarting yourself. Your suggestion is thought-provoking
and something I think I might implement. But-there are those
clients who want specific bonds with guarantees. Rock solid
promises with a date attached. For those types of clients, your
suggestion is just not going to work. No disrespect, just my
strong opinion.
[/quote]
Joe, As I see it, the deal is this.
0. Any bond has exactly three attributes that matter, coupon rate,
credit rating, and durration. Maturity is normally not important unless
you need to defease obligations. I.e you need exact cash at a known
time in the future.
Investing for defeasance is one thing, and investing in fixed income
for cashflow and diversification is something else. If you need to
defease then performance and cost doesn’t matter vs getting the timing
right.
If you are investing for fun and profits, then you are going to have a
damn hard time beating the Lehman Aggregate on a risk adjusted basis,
unless you take on serious risks (agressive bets on interest
rates/credit) that put you far out of the benchmark.
Now some people can make these bets, and others cannot, and
survivorship bias skews what we see. I.e Bill Gross/Dan Fuss are still
around, LTCM is not.
So the conservative view is that the investment grade bond market is correctly priced, and future interest rate movements are unknowable, so a passive indexing approach is best.
Bond funds let you pick durration and credit risk, without have to
do the scutwork of constructing and maintaining portfolio’s. If you
are on a commision basis, earning 1% on any motion, then it makes sense
(from the brokers perspective) to manage fixed income portfolio’s
construct bond ladders etc.
A bond ladder is just a portfolio designed to have constant
(semi-constant) durration. Amazingly, bond funds are managed to do
exactly the same thing.
For myself, I’d just as soon pay Vanguard/BGI 11bp/20bp to do it for me.
The argument that bond funds lack maturity is mostly irrelavent. You have daily (constant for ETFs) liquidity. Unless you need deterministic cash flows, then that is enough.
Based on transaction costs and management costs, its going to be
very difficult for active managers to beat their benchmarks in fixed
income. Investment grade fixed income is a game of inches and
milimeters, not home runs. If you can find a better bond fund () than BND, buy it!
() After adjusting for credit risk and out of index durration.
[/quote]
You’re still missing the point. Since there is no maturity date, bond funds have no protection against interest rate risk. They can have all the liquidity in the world, but bond funds can not guarantee against interest rate risk, while owning bonds outright can.