I said "say the position was worth $25,000 and I was charging 2% management fee = $500/year to hold, vs. a $400 commission if I sold it in a regular account. "

You said, " In the case of a flat-fee account you're going to make that $500 if you hold (although your compliance dept will eventually make you close a flat-fee account where there aren't any tranactions)"

Which, presumes that this transaction is the sum total of the account, it was only a position, of many. I could hold the position and trade around it (just like I could have in the commission account) My vested interest in holding it was that it was moving higher (at the moment) and that upward motion meant that I was going to get paid more for the asset in the future.

In one scenario, I have a vested interest in thinking that the growth had slowed to a point where I thought that I could do better elsewhere (or in cash) and in the other I had a vested interest in thinking that the stock price was going to continue higher. It so happened that the former turned out to be right and the latter was not.

"I assumed your compliance department would do what mine would/does." NOW! They didn't do it then. Keep in mind, we're talking 1998, 99 somewhere in there, prebear market. They had verbiage about making sure the account was suitable for the client (and in my cases it was, it was for traders) but the BOM would surely give someone an attaboy for every one of these that got signed up because NY was all over him trying to make this product work, which meant getting it funded up to critical mass such that it supported the salaries of the buerecrats/clerks assigned to it. 

The business prevention units were told to stand down on this product. Or so it would seem.

Mr. A

 "say the position was worth $25,000 and I was charging 2% management fee = $500/year to hold, vs. a $400 commission if I sold it in a regular account.

" In the case of a flat-fee account you're going to make that $500 if you hold (although your compliance dept will eventually make you close a flat-fee account where there aren't any tranactions)"

Which, presumes that this transaction is the sum total of the account, it was only a position, of many.

It presumes nothing. I simply used your example.

 My vested interest in holding it was that it was moving higher (at the moment) and that upward motion meant that I was going to get paid more for the asset in the future.

That's the first time I've ever heard of a holding something because it's going up (something the client wants) a "vested interest" as if it's a bad thing and a slight against fee based accounts. Hopefully everything you're doing in a client's account is because you want it to increase in value, fee or commission account.

In one scenario, I have a vested interest in thinking that the growth had slowed to a point where I thought that I could do better elsewhere (or in cash) and in the other I had a vested interest in thinking that the stock price was going to continue higher.

You realize that makes zero sense, right? Even in a fee account it's in your interest to trade if you think you could "do better" elsewhere, and it's in the client's interest as well.

Do you think you're telling me something I don't know? You have another think coming.

And if you don't think that every person acts in their own self interest, you're a fool!

What is in my self interest is often aligned with the self interest of my clients. What is in my self interest is keeping my clients as clients for as long as possible and to do that I have a self interest of "alturism."

This all may be new to you and your first reaction is to parrot what you have heard so many times before, but that's ok, you're not the first person not to have thought things through for yourself.

It's obvious that you have never considered your own motives in brokerage transactions, I don't know if this is because you are amoral or unconscious of the fact that you have motives.

Every professional salesman knows that before you can sell anything to anybody, you must first sell it to yourself. That goes for buying and selling in our business. When you call a client with the intention of taking a profit in a position (or a loss, or a rebalance or which ever of the millions of reasons there are to sell out a position) you must first convince yourself that this is the proper course.  It is also true when you are deciding NOT to sell. You must convince yourself that it is wiser to let your profits run (in which case you have convinced yourself that this will happen), or to wait for the stock to "come back" in the case of a loss (we all know how often this is a bad idea, but we still do it because of those times when we didn't and the next day there was a takeover offer). In making this determination it is important for every salesman to know what his vested interests are such that he keeps them in proper perspective vis a vis the other factors around the decision.

The idea that a fee based paradigm takes this conflict of interests away is false. It only replaces one conflict with another. This is what I learned by having used the product in the real world. This is why I don't use these products anymore.

Is that clear enough?

Mr. A

And if you don't think that every person acts in their own self interest, you're a fool!

Oh, my mistake. I thought I was talking with a professional. Sorry..

This all may be new to you and your first reaction is to parrot what you have heard so many times before, but that's ok, you're not the first person not to have thought things through for yourself.

It's not uncommon to come across someone here who has a slight difficulty expressing themselves in a logical manner. OTOH, you're exceptional in just how difficult it is to follow you…

It's obvious that you have never considered your own motives in brokerage transactions, I don't know if this is because you are amoral or unconscious of the fact that you have motives.

Ever consider that my motive are to make my client money? That keeps them with me and far more likely that they'll refer others to me.

Every professional salesman knows that before you can sell anything to anybody,…

The idea that a fee based paradigm takes this conflict of interests away is false. It only replaces one conflict with another. This is what I learned by having used the product in the real world. This is why I don't use these products anymore.

Sorry, but there’s just no logic to what you’re saying. Even if you’re lowlife enough to be driven solely by self-interest and have no concern about the client’s results, your interest and theirs is served simultaneously when you act to make the account larger via solid performance.

The only exception is something we haven’t touched on, and that’s when an advisor takes on far more risk (undisclosed to the client) than is appropriate in an account in order to juice up the returns, to make the account and thus the fee, larger.

You see, that's what your problem is, Mike.

No matter how often it is repeated that self interest is a PART of the decision making process, you still say "driven soley by self interest". Forget that you are repeating what I had said " What is in my self interest is often aligned with the self interest of my clients. What is in my self interest is keeping my clients as clients for as long as possible and to do that I have a self interest of "alturism." and claiming that it is the opposite of what was said "Sorry, but there’s just no logic to what you’re saying. Even if you’re lowlife enough to be driven solely by self-interest and have no concern about the client’s results, your interest and theirs is served simultaneously when you act to make the account larger via solid performance."

You are too busy claiming the moral highground to bother understanding what has been said to you.

Self preservation is hardwired into the human being, pretending that you don't, or not understanding that you do act in your own self interest is infantile. If you really know this little about human psychology, you really are a danger to your clients and should remove yourself from the business.

""

No, Mike, it's not about acting against the clients best interest. The fact is, you don't KNOW whether you are acting in the client's best interest or not. Because you do not KNOW what tomorrow will bring. If you think you do, then you are delusional and your clients would be best served if you were hauled off to the looney bin!

Did you know that someone was going to fly two planes into the twin towers? Do you know when the next big earthquake is going to hit California?

So holding a stock because you have convinced yourself that it going to go higher is not always in the client's best interests. You must convince yourself, and you must know that your own self interests weigh on your decisions.

Just like you must know if you are by nature a Bull or a Bear. Bulls always think things are going up and bears always expect the worst to happen. It is important to temper this enthusiasm/pessimism when making investment decisions.

You can't and you don't stop being a human being when you take this job. Humans are complex critters. None of them are perfect.

Mr. A

[quote=skeedaddy2]

[quote=Starka]The root problem, as I see it, is that leeches like Spitzer wanted to make
political hay out of something for their own aggrandizement, so they made
fees and costs more important than profit, at least in the mind of the public.

The result? A trade is a bad idea if there’s a commission involved. Paying a
fee is a bad idea if there’s no trading going on, even if the prudent course at
the moment is accumulating cash for a correction. Clients are not
responsible for their own follies.
[/quote]

My sentiments exactly. Spitzer’s only motivation is self-promotion. In January he’ll be sworn in as NY’s Governor and won’t see this lawsuit through. Frankly, I don’t see a strong case. Here’s why:

UBS has a strong internal review process in place to flag inactivity, high cash positions, big losses or excessive day trading. In my experience noted earlier, a letter was automatically mailed to clients of flagged accounts from HQ with copies to me and my BOM.

In my opinion, I should have been able to address the issue with management as to client suitability, preference or supporting  documentation.  I felt it was wrong to send a mixed message to clients: one day we recommend a fee-based account and the next day its not the best program we offer.

Like someone else said, Spitzer has never put any money into my pocket or my clients after all the multi-million suits and settlements, on the contrary.

[/quote]

Skee you better believe that UBS initiated that stringent review process after they realized that they were in deep doo-doo with some of the accounts for inactivity…

[quote=mranonymous2u]

So holding a stock because you have convinced yourself that it going to go higher is not always in the client's best interests. You must convince yourself, and you must know that your own self interests weigh on your decisions.  [/quote]

Anyone else want to take a crack at this?

[quote=mikebutler222][quote=mranonymous2u]

So holding a stock because you have convinced yourself that it going to go higher is not always in the client's best interests. You must convince yourself, and you must know that your own self interests weigh on your decisions.  [/quote]

Anyone else want to take a crack at this?

[/quote]

No thanks Mike...that's like drunk logic.....

[quote=joedabrkr] [quote=mikebutler222][quote=mranonymous2u]

So holding a stock because you have convinced yourself that it going to go higher is not always in the client's best interests. You must convince yourself, and you must know that your own self interests weigh on your decisions.  [/quote]

Anyone else want to take a crack at this?

[/quote]

No thanks Mike...that's like drunk logic.....
[/quote]

It's nice to know it's not just me thinking that....

You guys never bought and sold stocks did you?

You guys are "asset gathering, buy and holders" geeks aren't you? You sell mutual funds and "managed money" and Annuities and whole life policies, right?

I had a client the other day and his position in this stock was up 20%, which is my target return (I get 20% and I get out)... But in this particular case I was about to start buying this position for other clients, so I din't sell it for him. I convinced myself to go against my rule and hold for this client, this position. In fact, if I think it has 20% upside from here for my other clients, why don't we add to your position mr. Jones?

Did I do what was in the client's best interest?

Straight yes or no is all you get.

Mr. A

[quote=mranonymous2u]

You guys never bought and sold stocks did you?

You guys are "asset gathering, buy and holders" geeks aren't you? You sell mutual funds and "managed money" and Annuities and whole life policies, right?

I had a client the other day and his position in this stock was up 20%, which is my target return (I get 20% and I get out)... But in this particular case I was about to start buying this position for other clients, so I din't sell it for him. I convinced myself to go against my rule and hold for this client, this position. In fact, if I think it has 20% upside from here for my other clients, why don't we add to your position mr. Jones?

Did I do what was in the client's best interest?

Straight yes or no is all you get.

Mr. A

[/quote]

I do plenty of work with specific stocks.  An arbitrary target of 20% and get out is illogical and just plain silly.  What happens when the stock ends up being a double, and you're out because you got your 20% and moved on(not to mention the implications of taking largely short term gains in taxable accounts....that must hurt your after-tax returns).  Certainly it doesn't hurt to review stocks once they get to a certain level above your entry point, but the issue under consideration should NOT be what you paid(which is a "sunk cost" and essentially irrelevant) but rather what, in your estimation, the stock is NOW likely to do going forward compared to other viable alternatives-including cash.  Just my 2 cents.

Yes or No?

Mr. A

"in your estimation, the stock is NOW likely to do going forward compared to other viable alternatives-including cash."

Thank YOU!

So what you are doing is convincing yourself that the stock is going to go higher, and in making that decision you must understand that your self interests are a part of the the mix! Are you making a dispassionate assessment or are you falling prey to your own greed?

You've heard of fear and greed, right?

Mr. A

Sorry Mr A, I have to agree with Mike that what you've written is not very clear.

I agree that broker payout, no matter how it is structured, will shape our advice at some level.  However, my interpretation is that your actively traded accounts outperformed your "buy and hold" accounts.  But this is strategy, and you don't clearly explain why you couldn't use this strategy in a fee based account.  If fee based accounts promote growing assets, aren't you motivated to use whatever strategy you believe to work the best?  This would then be in both your best interest and the clients.   

[quote=mranonymous2u] <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

You guys never bought and sold stocks did you? [/quote]

 

Wrong. BTW, ever heard the term "non sequitar"?

[quote=mranonymous2u]

You guys are "asset gathering, buy and holders" geeks aren't you? [/quote]

I gather assets, I don’t “buy and hold” and “geek”? Well, I donno about that one…

[quote=mranonymous2u]

 You sell mutual funds and "managed money" and Annuities and whole life policies, right? [/quote]

1. No

2. Yes

3. Yes

4. No, not that I’m opposed

Sorry, but none of the above seems to have anything to do with why you wouldn’t, as a matter of basic business practice, regardless of account type, act in the client’s best interest.

[quote=mranonymous2u]

I had a client the other day and his position in this stock was up 20%, which is my target return (I get 20% and I get out)... But in this particular case I was about to start buying this position for other clients, so I din't sell it for him. I convinced myself to go against my rule and hold for this client, this position. In fact, if I think it has 20% upside from here for my other clients, why don't we add to your position mr. Jones?

Did I do what was in the client's best interest?

Straight yes or no is all you get.

Mr. A

[/quote]

If you held because you thought it would go up, you acted in his best interest.

 

I’m not trying to give you grief here, Mr. A, but your posts seem to be written by someone struggling with a second language. Is that the case?

[quote=mranonymous2u]

So what you are doing is convincing yourself that the stock is going to go higher, and in making that decision you must understand that your self interests are a part of the the mix! [/quote]

Again, this makes zero sense. There's no need for your "self interests" to be part of an estimate on where the stock price will go next.

Make a decision based on the best info you have, your methodology and make whatever's required happen in the appropriate accounts, whether they're commission or fee based. It isn't really very complicated.

[quote=mranonymous2u]

“in your estimation, the stock is NOW likely to do going forward compared to other viable alternatives-including cash.”

Thank YOU!

So what you are doing is convincing yourself that the stock is going to go higher, and in making that decision you must understand that your self interests are a part of the the mix! Are you making a dispassionate assessment or are you falling prey to your own greed?

You've heard of fear and greed, right?

Mr. A

[/quote]

In the end it all boils down to fear and greed.  If you are running a fee-based account, the decision to hold involves potentially earning a higher fee.  In a commission based environment, one is deciding to delay gratification(realizing gain and getting paid) in hopes of a potentially larger payday down the road.

With all this “self interests” talk….<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

[quote=joedabrkr] In the end it all boils down to fear and greed.  If you are running a fee-based account, the decision to hold involves potentially earning a higher fee.[/quote]

Again, even in the seamy world of broker self interest, higher account value = higher fee, and since the client's aim is also a higher account value (unless, as I mentioned before, the FA takes more risk to get that higher account value than the client would knowingly accept or more than  is appropriate) both aims are aligned.

 [quote=joedabrkr]  In a commission based environment, one is deciding to delay gratification(realizing gain and getting paid) in hopes of a potentially larger payday down the road.
[/quote]

Here’s where, imho, things can get dicey. The FA thinking “broker self interests” has an incentive to trade often, regardless of the effects on account growth, since that’s the only source of his income. There’s no natural or default alignment of interests there. An unscrupulous FA can find a way to make more by way of trading even if the end effect is that account size declines and he therefore as less to trade with.

BTW, I'm not assuming we disagree here, joe. Just trying to make my position clearer.

And yet the stock went down 20+ percent the next day. Sandisk.

Why do you asset gather for money managers?

Why do you buy money managers and not mutual funds?

Have you ever called a client and said "I think we ought to take some profits off the table, let's sell 15% of this money manager's position!" ?

Why are your clients paying YOU for work that the money manager is doing?

No! I've never heard of a non sequitar. I've heard of non sequitors and the statement that I can only assume you are referring to is far from the definition of non sequitor. Since you have no idea of the process that goes into trading stocks, it is a reasonable sequence of thought to say that you have little to no experience in doing it (trading stocks). Further, since you are blathering in a forum ostensibly made up of people in the financial services industry, I give you the benefit of the doubt that you are in the industry, and since you obviously don't know anything about the process of trading stocks, you must be a hawker of product. You see, it does follow.

"your posts seem to be written by someone struggling with a second language. Is that the case?"

I'll let this pass, but just know that you've left yourself wide open.

"

Sorry, but none of the above seems to have anything to do with why you wouldn’t, as a matter of basic business practice, regardless of account type, act in the client’s best interest."

Mike, I can not make this any clearer. We ALL, ALWAYS, THINK that we are acting in the client's best interests. Even the guy who loads up the old lady in tech stocks THINKS that he is acting in her best interests. And if she profits from it then he did act in her best interests. When Tyler whathisname for the Alliance Growth fund bought all that Enron, he thought he was acting in his investor's best interests. The clients best interests are a given. What you need to know is what ALL of your motivations are before you can KNOW that you have weighed them against each other and come to an unbiased conclusion.

What I found with the fee based trading account was that I traded one conflict of interest for a different one. Given that, I decided, that, FOR MYSELF, I was more comfortable with the commission based self interest.

That's as clear as I can be and it ONLY pertains to ME.

Mr. A

[quote=mranonymous2u]

And yet the stock went down 20+ percent the next day. Sandisk.

Why do you asset gather for money managers?

Why do you buy money managers and not mutual funds?

Have you ever called a client and said "I think we ought to take some profits off the table, let's sell 15% of this money manager's position!" ?

Why are your clients paying YOU for work that the money manager is doing?

No! I've never heard of a non sequitar. I've heard of non sequitors and the statement that I can only assume you are referring to is far from the definition of non sequitor. Since you have no idea of the process that goes into trading stocks, it is a reasonable sequence of thought to say that you have little to no experience in doing it (trading stocks). Further, since you are blathering in a forum ostensibly made up of people in the financial services industry, I give you the benefit of the doubt that you are in the industry, and since you obviously don't know anything about the process of trading stocks, you must be a hawker of product. You see, it does follow.

"your posts seem to be written by someone struggling with a second language. Is that the case?"

I'll let this pass, but just know that you've left yourself wide open.

"

Sorry, but none of the above seems to have anything to do with why you wouldn’t, as a matter of basic business practice, regardless of account type, act in the client’s best interest."

Mike, I can not make this any clearer. We ALL, ALWAYS, THINK that we are acting in the client's best interests. Even the guy who loads up the old lady in tech stocks THINKS that he is acting in her best interests. And if she profits from it then he did act in her best interests. When Tyler whathisname for the Alliance Growth fund bought all that Enron, he thought he was acting in his investor's best interests. The clients best interests are a given. What you need to know is what ALL of your motivations are before you can KNOW that you have weighed them against each other and come to an unbiased conclusion.

What I found with the fee based trading account was that I traded one conflict of interest for a different one. Given that, I decided, that, FOR MYSELF, I was more comfortable with the commission based self interest.

That's as clear as I can be and it ONLY pertains to ME.

Mr. A

[/quote]

How exactly has he left himself wide open?  I'm curious?