[quote=AllREIT]

[quote=CIBforeveryone]

Does anyone here have a specific strategy for managing taxable money in a tax efficient way? In a fee-based format especially.



[/quote]

Muni bonds and ETF's.

Remember that qualified dividends are taxed @ 15% so dividend income is usually quite tax effecient. ETF's have zero cap gains distributions.

But seriously, you only pay tax if you have taxable income/gains, so I say bring it on!!

[quote=joedabrkr]

[quote=AllREIT]

[quote=CIBforeveryone]

Does anyone here have a specific strategy for managing taxable money in a tax efficient way? In a fee-based format especially.



[/quote]

Muni bonds and ETF's.

Remember that qualified dividends are taxed @ 15% so dividend income is usually quite tax effecient. ETF's have zero cap gains distributions.

But seriously, you only pay tax if you have taxable income/gains, so I say bring it on!!

"But seriously, you only pay tax if you have taxable income/gains, so I say bring it on!!" AllReit.

What? You never had to pay taxes on a capital gain on a Mutual Fund you were down on?

Relatively new to the business are you?

I must say that I'm surprised that I didn't hear peep one about the
Ethics" of Fee based on the bond portfolio, I mean $200+Thousand dollars to run a portfolio that a commission based broker would be happy to do for $35M and there's nary a nieghbob nattering negativism!?

Mr. A

[quote=AllREIT] [quote=CIBforeveryone]

Does anyone here have a specific strategy for managing taxable money in a tax efficient way? In a fee-based format especially.

[/quote]

Muni bonds and ETF's.

Remember that qualified dividends are taxed @ 15% so dividend income is usually quite tax effecient. ETF's have zero cap gains distributions.

But seriously, you only pay tax if you have taxable income/gains, so I say bring it on!!

[/quote]

I admit I have not spent a lot of time on it, but the ETFs I looked at did not outperform the managed funds net of costs and taxes. Is there a piece of the ETF world that you can say historically has performed comparably to managed funds over time gross of taxes, and better net of taxes?

[quote=mranonymous2u]

“But seriously, you only pay tax if you have taxable income/gains, so I say bring it on!!” AllReit.

What? You never had to pay taxes on a capital gain on a Mutual Fund you were down on?

Relatively new to the business are you?[/quote]

Or smart enough to avoid mutual funds and their latent capital gains.

[/quote]I must say that I'm surprised that I didn't hear peep one about the Ethics" of Fee based on the bond portfolio, I mean $200+Thousand dollars to run a portfolio that a commission based broker would be happy to do for $35M and there's nary a nieghbob nattering negativism!?[/quote]

I wasn't too sure how your math worked out, but if you have a decent bond ladder you will generate a fair amount of commision from buying and selling all the time and taking slippage.

Depending on the scalability it could be cheaper than holding something like AGG in a wrapped account.

[quote=CIBforeveryone]

I admit I have not spent a lot of time on it,
but the ETFs I looked at did not outperform the managed funds net of
costs and taxes. Is there a piece of the ETF world that you can say
historically has performed comparably to managed funds over time gross
of taxes, and better net of taxes?[/quote]

Oh, I'd say SPY has outperformed most managed funds.

"I wasn't too sure how your math worked out, but if you have a decent bond ladder you will generate a fair amount of commision from buying and selling all the time and taking slippage."

I explained the parameters but I'll do it again.

The guy who started this thread had a couple of high income earners and they had a windfall of $500,000 that they wanted to put away for retirement.

I mentioned that he could look for a skeleton of a bond ladder with the rungs to be filled in with $50M of their "High income" per year for the next 15 years (which was when they wanted to retire.)

The question then was which method was "best for the client, with the least wiggle room" so to speak.

So I constructed the following three scenarios.

1. that the "Fee Based Advisor" charge a mere .75% to create and maintain a 20 year bond portfolio wherein the client buys 1,3,5...19 year bonds at the rate of 50M per maturity. Subsequent years, the clients add the $50M to fill in the "even years" of the ladder such that in 15 years they have a 20  ladder (granted, a funnel shaped ladder) of bonds. (While I assume a flat 4% interest rate for all scenarios, in the case of the fee based, I assume that the 4% is NET of the 3/4% annual fees.) At retirement, we consider that the clients are taking all income and reinvesting the principal.

2. That a commission based Broker buys bonds with the same ladder and gets paid 1point for bonds purchased. All other variables are equivalent (to the detriment of this scenario versus the fees based).

3. That a commission broker builds a Zero Coupon Bond ladder that starts at the 15Yr target and grows out from there. 100M maturity value per year. The Zero buyer is being paid 2% commission to buy the bonds. At retirement the client is taking the 70+M that the other two bond funs would generate and buying the 30-M worth of long term Zeroes at 2% commission.

Surprisingly, the coupon Broker is going to make the least amount of money in this scenario (over the 30 year time frame) at something in the order of $32,304. This takes into account the fact that their are bonds maturing eventually every year and their is interest to be reinvested too. (it leaves out called bonds and the selling of any bonds mostly because, if rates haven't moved there isn't a need to call bonds. but if all bonds had 10 call protection and all callable bonds were called at the ten year mark then the additional income per year would be $500 for 20 years, or $10,000, bringing his total to $42,304.

Zero broker comes in at $32,400.

Holier than thou (I do what's best for the client) Fee Guy (assuming he didn't lose the account to a commission guy) would have hit the account for $322,482 after being given every benefit of every doubt. If I had a way to compare the pricing of Fee Based to Retail then we could see just how many basis points the pricing adds to the portfolio. I can't see it adding three quarters of a point, which means that the fees would be coming out of interest which means that the portfolio value would be lowered (which would, mean less fees, but not by enough to offset the thievery!).

Mr. A

[quote=mranonymous2u]

Holier than thou (I do what’s best for the
client) Fee Guy (assuming he didn’t lose the account to a commission
guy) would have hit the account for $322,482 after being given every benefit of every doubt

See that's the wonderful thing about Math, it's not about your opinion.

Math works even if you refuse to understand what has been written.

First of all the 322M is based on 30 years of fees.

Second, It's on a bond portfolio that starts off at $500M and the client adds $750M plus reinvests interest over the next 15 years and then reinvesting the 50M per year for the retirement 15 years.

You are right, the 322M is high, but that's because of the deleterious effect the fee based paradigm would have on the bond portfolio.

The $42M num included commissions on called paper every year from year ten out, remember?

I have no idea what you are even trying to say here. And what if you want to the SPY (for a 15 year hold) are you going to just buy it and not take fees on it?

Mr. A

So to recap, if a broker is to help a couple in their late 40s, high earners

both, who inherit $500,000 and want a bond ladder, it’s best to do so in a

commission based brokerage account. Buy the bonds, collect the

commissions, then forget they exist for the next 15 years.



OK, A. You’re right on this one. What’s your point?

No Starka,

That's not at all what was said. Not in the slightest.

Mr. A

Let's not just ignore this and hope it goes away boys!

How can you fee basers justify this disparity? Up to 10 times the costs for a .75% fee.

Mr. A

Just want to keep it near the top so that the Fee Only crowd can find it when they want to tell me why they're entitled to take an extra $10,000 per year away from the clients.

Mr. A

Mr. A,

I'm not disagreeing with your approach to the problem original posed. I'd just like to chime in that "price is what you pay, value is what you get."

By that I mean if price was all that mattered, our clients would all be driving Yugo's and living in trailers. I look for clients who perceive value in what I do. It's a free-market, so if a prospect hears the details of what my strategy and philosophy is and finds that it makes sense given the fees involved, that is a value to them.

I readily tell them that they can buy their own stocks and manage their own portfolio much cheaper at Ameritrade or Vanguard. However, what I offer clients has some value to it, whether real or perceived, and I personally believe in my approach.

We can argue the pro's and con's of various investment angles, but I have one that's right for me and I want to get paid as much as the market will bear to do it. Besides, us fee-based advisors have to continually provide value, or else our fees walk out the door...

From the perspective of this and a few other threads,if my perception is correct, we see how commission based can be better for the client.

Kind of like, I hear that, well of course any one who sells A shares would just sell them and change fund families, they would not really advise the client to exchange "best of family" forever. What a crock - more like, I'll when I change broker dealers, then I'll advise clients to sell and cover my lost book at a profit. Or I'll go RIA and liquidate all the A shares I sold to get started and learn the business and put them into wrap. (I'm sure nobody ever did that!)

In any case, fee-based has its own problems and conflicts of interest. And, in fact, the industry has problems, at least on the broker platform, with wrap accounts. If I manage money at 1 percent, and don't document conducting reviews and appropriate trades, I am not in compliance.

This must be true for registered investment advisors. So there is yet another potential for conflict of interest on the RIA side.

We can argue the pro's and con's of various investment angles, but I have one that's right for me and I want to get paid as much as the market will bear to do it. Besides, us fee-based advisors have to continually provide value, or else our fees walk out the door...

Agreed.

However, for example, Allreit, I still don't understand where your vituous attitude about being fee based comes from, other than as a selling story.

What I don't get is why commission (or commission and fee based) is attacked as being unethical.

Some of us really do keep the A shares we sold forever. We just choose fund families carefully, and we use multiple families from the start. These might be small accounts, too. Our clients are lucky to have us.

[quote=mranonymous2u]

No Starka,

That’s not at all what was said. Not in the slightest.

Mr. A

And we all know that if Starka says there is nothing left to add, then it is so!

[quote=planrcoach]Or I’ll go RIA and liquidate all the A shares I sold
to get started and learn the business and put them into wrap. (I’m sure
nobody ever did that!)[/quote]

Why not? I'd do that all the time. 

[quote]And, in fact, the industry has problems, at least on the broker platform, with wrap accounts.If I manage money at 1 percent, and don't document conducting reviews and appropriate trades, I am not in compliance.

This must be true for registered investment advisors. So there is yet another potential for conflict of interest on the RIA side.[/quote]

Planr you don't seem to understand why the caged bird sings.

Remember financial advice for a B/D is purely incidental to the business relationship.

So the question is if the fee-in-lieu account is suitable for the customer relative to a straight commision account. If no trading is going on, then it is less suitable than a straight commision account.

Remember that no one ever pays a R/R for investment advice,  since that would create an advisory relationship, and with it an obligation to act in the best interests of clients. That would be a big no no.

Unlike NASD, the SEC doesn't assume we would rip off clients as our business model. Since people are paying for advisory services and not paying a fee in lieu of trading commisions.

[quote]What I don't get is why commission (or commission and fee based) is attacked as being unethical.[/quote]

Because it is hypocritical for the B/D's to claim their employee's are "Financial Advisors" who must under no circumstances have an advisory relationship with clients.

Why not? I'd do that all the time. 

My point is, you start your career learning the business. If you sold A shares, you know, looked the client in the eye and said, "we're in it for the long term", and then you do what you say you'd do all the time - and then you attack the whole concept of the broker dealer platform... hmmm. Basically you took the upfront commission to subsidize your moralistic, "evolved" business platform.

Anyway, the way it comes across to me on these forum pages, it appears to me you are practicing polemics to ehance your business or your feeling about your business model.

Many broker dealer affiliates can charge separate financial planning fees for investment advice, can do wrap for service which aligns trading interests, and can provide a fixed commission for non trading situations.

Because it is hypocritical for the B/D's to claim their employee's are "Financial Advisors" who must under no circumstances have an advisory relationship with clients.

As a CFP broker dealer affiliate who can charge separate planning fees separate  or instead of commissions or fee based charges, I find this comment to be patronizing.

What am I missing here?

"We can argue the pro's and con's of various investment angles, but I have one that's right for me and I want to get paid as much as the market will bear to do it. Besides, us fee-based advisors have to continually provide value, or else our fees walk out the door..." EDJto RIA

Which would mean something if it weren't true for everybody. Do you think that because I don't charge my clients ongoing fees that they don't demand value added from me?

Quite the contrary, while you only have to discuss fees when they show up on the statement as having already been deducted from the account, I have to face the question of commissions each and every time I call the client with an idea. The client is one acat signature from walking away from doing business with me every day.

DPR