C-Shares go the way of the Do-Do Bird
62 RepliesJump to last post
<p =“Msonormal”>Nice talking in C-shares. For this he should know when to buy and sell a stock. It can
bring more profit to buy in a penny and sell it in dollars.
I would disagree. Yes, there is disparity when you are close to breakpoints. But look at it this way...why should someone with $1mm pay $50,000, and someone with $100,000 pay $5,000 (if there were no breakpoints)? There is diminishing returns on advice.IMO a client with 60k with me should pay the same loads/fee %'s/ commissons as someone with 110k. What makes my advice any less valuable to someone with a smaller account?
This is the Obama administration believing it knows better than the client.
You watch, first they will take away C shares because they are not in the client’s best interest, then they will try to dictate how you set up your asset allocation.
—
And I still don’t understand why a wrap account 1.35 management plus mutual fund expenses is better than Balanced Fund of America C shares.
I agree. I am much more ethical with my advisory clients than my other clients.
As always, they are trying to manage to the lowest common denominator (of advisor).thats the whole point though, A C share is basicly the same as an A Share + 1% for fiduciary duty. Yet C share is just suitability.
The only people this is a negative for is brokers who sold C shares as a no load fund, or dont want to, or didnt disclose the higher annual expense to the client.
In the wirehouses I knew many corner office guys selling c shares as no loads and that is their book.
Either decrease the 12b1 on a c share and live with suitability, or put the account in a load waived A share and charge your advisory fee.
I’m sure the wirehouses make more money on wrap admin fees. But I’m amazed at how willingly clients embrace, say, 1.5% wrap on small accounts if they are just paying the ETF internal fee. It’s a great story. Just like, A shares were a great story when they first came out, then the B share and C share story. Now the wrap story. Clients love stories. Advisors love to sell. A tempest in a teapot. The great leader Barney Frank probably couldn’t even explain the difference.
[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it].
[/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
I think you miss the point of the "fiduciary concept". It is not about what is best. That is "suitability". The most suitable is the best. A fiduciary standard is acting ONLY in your clients interest. There must be no financial incentive for you to make one investment over the other. I don't know if the government will try to determine what is best or not but that really has nothing or very little to do with a fiduciary standard. Under a fiduciary standard, if you have to equally "good" investments you could not pick one that paid you more. If they were equally good the only difference would be your pay and you cannot pick an investment based on your pay.[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it]. [/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
Sorry, ytrewq, "suitability" is not about what is best. An investment can be suitable without it being the best. For instance, it is suitable to sell an index fund that has a .7% ER even though one could be purchased for less.
As others have said... Suitability is not always In the Best interest.
the laymans example is....
Suitability.... Client wants transportation to go to work. Wirehouse sells a fully loaded mercedes S class that the client can make payments on.
Best Interest/fiduciary .... You find out from your conversations with the client that he needs basic transportation to and from the office, his commute is 50 miles each way, and wants something fuel efficient. Even though he can afford an $800 a month lease payment on an S class, client feels more comfortable with a $250 a month payment on a honda civic, so he can put the rest away in a retirement account/pay for college/pay off credit cards.
Suitability is can the client afford the product. It is not is it the best and most apropriate option for the client.
BH, you should probably educate yourself on what you are talking about, since this is more than likely a big part of our future.[quote=iceco1d]Well DUH B&H, it’s because with the wrap account, you are going to act in a fiduciary capacity to your clients, and with the C-share, it just has to be suitable. God, when are you going to GET IT. [insert sarcasm, in case anyone missed it]. [/quote]
I’ve seen a lot of wrap accounts where the investor hadn’t seen his advisor for years.
Anyway, I think the whole ‘fidicuary’ concept is stupid. Who is to say in the end what is best for the client and what is not? You? The government? Or the client?
If you want to lecture your clients on modern portfolio theory, put them in index funds and wrap them up with a 1.25 percent fee, good for you. But it doesn’t make you any different than the guy selling C shares. Either one of you might help the clients more in the end.
B24, I realize there is a debate about this and that at the end of it we will have more disclosure statements to ask the client to sign and we will hate our compliance officers even more.
The whole concept of the fidicuary concept – to do only what’s in the client’s best interest – well, I reject that because only the client should decide what is in his best interest.
Yeah, we shouldn’t sell China funds to widows and municipal bonds to minors – I get that. But there is an awful lot of grey in between.
If I took 100k to 10 different guys on this board I would get 10 different recommendations, some of them probably wildly different, but I bet all 10 guys would be doing their best to put me in the right investment. And all 10 guys would be doing their best to get paid. As a client, I would understand that. The idea to me that the fidicuary guy is going to take care of me the best, and be more selfless, well, I don’t see that.
So I start to read the debate, and yeah, I don’t get that far because the whole concept that you can legally require to make somebody act in your best interest and then to DEFINE that best interest seems ridiculous on the face.
BH, I don’t think the policy suggests that ther is only ONE way to structure investments. But when you get 8% on an annuity and 3.5% on a fund or 2% on individual stocks, there is plenty of opportunity for “aggressive ïnterpretation” of suitability.
When you charge a flat % fee, the chances of you recommending the right strategy in your mind are much greater. And if you think only the client can decide what is in their best interest, than you must be a pretty poor advisor. Most of my clients are so far off on what is in their best interest. I can't tell you how many people I have talked to that say "Ï want to invest in the stock market" when that should, in reality, be such a small part of their investment program. They simply don't get it. We do.[quote=B24]BH, I don’t think the policy suggests that ther is only ONE way to structure investments. But when you get 8% on an annuity and 3.5% on a fund or 2% on individual stocks, there is plenty of opportunity for “aggressive ïnterpretation” of suitability.
When you charge a flat % fee, the chances of you recommending the right strategy in your mind are much greater. And if you think only the client can decide what is in their best interest, than you must be a pretty poor advisor. Most of my clients are so far off on what is in their best interest. I can't tell you how many people I have talked to that say "Ï want to invest in the stock market" when that should, in reality, be such a small part of their investment program. They simply don't get it. We do. [/quote]You are right, most clients CAN'T decide what's in their best interest, any more than they can decide what house, school, career, life partner is in their best interests, but they SHOULD. It's their responsibility and I don't see how you can regulate that responsibility away from the client.
My job is to find out what they need, what they can do, and then give them the best option(s). I spend most of my time trying to educate prospects, so they can look at me and say, 'You know, I've got too much in stocks, don't I' or, 'That term insurance idea makes sense to me.'
[quote=iceco1d]
B&H,
It’s easier to think about this in terms of how you are paid, versus how you pick investments (because that’s not really a part of it).
Part of being a fiduciary would be the 1% you are charging. Regardless of whether you select that China fund you mentioned, or use CDs, you as the advisor don’t make more or less depending on what investment you select.
…
As Anonymous says…ethics are going to be dictated in the end by the FA, not the product, the channel, or the regulators.
[/quote]
That is a GREAT selling point. (Anybody who can do that has got an advantage on me in my business.)
I’m just afraid there are parties in the fidicuary debate who are pushing it to advance their own self-interest, and I also am wary that it allows the regulators to dictate how we run our business and how the clients pay us. Remember last year when some crackpot Congressman wanted 401ks to only offer treasuries or annuities. And you know that some fidicuary advisors just want to be able to tell prospects, ‘buyandhold is not legally required to act in your best interests like I am.’
[quote=buyandhold]
[ And you know that some fidicuary advisors just want to be able to tell prospects, ‘buyandhold is not legally required to act in your best interests like I am.’[/quote]
I LOVE doing this!
[quote=anonymous]
Sorry, ytrewq, "suitability" is not about what is best. An investment can be suitable without it being the best. For instance, it is suitable to sell an index fund that has a .7% ER even though one could be purchased for less.
[/quote] As usual you wordsmith a post to make the post say what you want not what it actually says. You left out the word "most" that I used. It changes the whole post. If you actually read my post you would not have had to point out that suitable is not always best. My typing "most suitable" as "best" is a lot different than what you typed. Save your lecturing example for a post when it actually applies. Look up the definition of Suitable then add the word MOST as my post does...Ytrewq, I'm struggling here. I'm not trying to wordsmith anything. I guess that I'm not smart enough to figure out what you are trying to say. Can you try again?
[quote=anonymous]
Ytrewq, I'm struggling here. I'm not trying to wordsmith anything. I guess that I'm not smart enough to figure out what you are trying to say. Can you try again?
[/quote] Yes I can. 1: You replied to my post that I was wrong. Suitable does not always mean best. I never stated that suitable always means best. I typed that the MOST suitable investment would be best. You made up that part of my post up (wordsmithed it). 2: You gave an accurate example of how suitable may not always be best (MOST suitable). That example had nothing to do with what I posted. You used it as an attempt to prove me wrong even though I never made the statement that suitable is best. You guess you are not smart enough to know what I am trying to say but you are smart enough to misrepresent what I actually said. If you really wanted to prove me wrong you should have set me straight on my statement that "the MOST suitable is best". This is going to be interesting. I am not sure how you are going to pick apart that statement. With a thesaurus and a microscope? I bet you give it a good ole college try.