[quote=Starka]Another observation:  If I show your client the service fees of your Putnam funds vs my models, you'll see the ACAT.  You see, I can't justify those fees to approximate the returns of the various indices.[/quote]

Again, I am not suggesting that fund.  What I am suggesting is there are precious few mutual funds where you can run a side by side comparison of A, B, and C shares over an extended period of time.  I like demonstrating the effects of C-share fees through good and bad markets, stocks and bonds significantly outperforming one another, and foreign assets outperforming US and vice-versa.  In other words, I am not stacking the deck to make my point.  If you lost money for the entire 10 years and paid the load, B and C shares look great.  If you shoot the lights out in years 1 and 2 you overcome the load much more quickly.  I try to set realistic expectations with slightly below average fees and slightly above average performance while illustrating C-share fees over a time horizon of greater than 10 years.  I do not encourage clients to buy this fund.  I only use it for a useful set of talking points about fees.

[quote=rightway]Advisors who build a book a business on the premise of C shares are asking for trouble.  The issue is both the level of fee's and the lack of disclosure to the client. 

Most reps choose C shares because they act like a fee based account without having to have the fee discussion...this is wrong and the SEC will stop it....period. 

The arguement of "well, I have the flexibility to move out to better funds every 12 months or so..." is hogwash.  You don't manage a book that way, especially when the number of clients grow. 

Choosing a C share is a compensation and ease of sale issue, NOT a "flexibility" issue.  Be honest with yourselves.

"This is how I get paid?"  For those that feel this way, you better change your tune.  Guess what....the regulatory bodies that control our lives DO NOT CARE "HOW YOU GET PAID"!   Especially when your choice of compensation is not visibly disclosed to those that are paying you!

We can fight this all day long but it is coming.  There will be reps that have $150 mil books of C share portfolios that will find themselves getting one giagantic pay cut...soon.  Go in a direction of full, visible disclosure of fee's charged.  25 years ago spreads were 5 points, loads were 8%, and stock brokers were respected...things change so you better change as well.
[/quote]

Rightway--

Easily the best post on this forum in probably 60 days or more.  You laid out the issue exactly as it exists, and then nailed the truth.  Very, very well said.

Well....excuse me for not standing in line to kiss Rightway's ass....It's not so much the content, but the delivery. Yea......we use "c" shares among other things. There are parameters....and WHEN things change, I imagine we'll change also.  C share details are disclosed at point of sale and in the prospectus, so... I am compliant.  

Anonymous ....you don't flip "C" shares........that's the whole point of the trail....( I personally do not "flip" anything).  

"Long term investor" - It's broker folklore. I know what the term means, I don't see it in practice. It's very debatable...but I think it's a dead concept, leaving investors with marginalized returns. Besides If a client was going to employ a "Buy and Hold" strategy,......why would they need us?

As far as C shares being an "ease of sale issue", it's a ridiculous statement. Of the components inside client accounts, funds have performed phenomonally well. And, we are 3-5 % points ahead of the A share option.

For the record, I am happy to use other types of fee based programs, if my prospect is on board with me. But, I sure as hell am not going to lose opening an account, if I know the guy would be happier with C share mutual funds.  

[quote=moneyadvisor]

Well…excuse me for not standing in line to
kiss Rightway’s ass…It’s not so much the content, but the
delivery. Yea…we use “c” shares among other
things. There are parameters…and WHEN things change, I
imagine we’ll change also.  C share details are disclosed at point
of sale and in the prospectus, so… I am compliant.  

Anonymous ....you don't flip "C" shares........that's the whole point of the trail....( I personally do not "flip" anything).  

"Long term investor" - It's broker folklore. I know what the term means, I don't see it in practice. It's very debatable...but I think it's a dead concept, leaving investors with marginalized returns. Besides If a client was going to employ a "Buy and Hold" strategy,......why would they need us?

As far as C shares being an "ease of sale issue", it's a ridiculous statement. Of the components inside client accounts, funds have performed phenomonally well. And, we are 3-5 % points ahead of the A share option.

For the record, I am happy to use other types of fee based programs, if my prospect is on board with me. But, I sure as hell am not going to lose opening an account, if I know the guy would be happier with C share mutual funds.  

[quote=moneyadvisor]

"Long term investor" - It's broker folklore. I know what the term means, I don't see it in practice. [/quote]

Well, it isn't folklore to the regulators. They explictly say that mutual funds are a longer term investment. As to your claim that, these days, brokers flip folks regularly out of one A share fund family to another, picking up another load based commission, that's folklore as far as I'm concerned.

"As to your claim that, these days, brokers flip folks regularly out of one A share fund family to another, picking up another load based commission, that's folklore as far as I'm concerned."

Of the past 6 prospects I have met with, they would probably disagree. The acitvity runs across annuities ( every 6 years) or funds ( every 18 months) or equities ( monthly), it STILL happens all the time. Of the 6, 4 are now clients, 1 is still on the fence, and 1 was a shmuck and I didnt want him.

ok…i’m wrong…Have a good weekend all!

[quote=blarmston]

"As to your claim that, these days, brokers flip folks regularly out of one A share fund family to another, picking up another load based commission, that's folklore as far as I'm concerned."

Of the past 6 prospects I have met with, they would probably disagree. The acitvity runs across annuities ( every 6 years) or funds ( every 18 months) or equities ( monthly), it STILL happens all the time. Of the 6, 4 are now clients, 1 is still on the fence, and 1 was a shmuck and I didnt want him.

[/quote]

What compliance department allows people to flip funds and pick up a load based commission every 18 months? Dewey, Cheatham and Howe?

Seriously, the equities thing every month could have good cause, the annuities every 6 years could be fishy or it could be reasonable given features available on new annuites (and if the 1035 doesn't require some pretty high-level management sign-off for suitability I'd be shocked) but funds swapping? If the firm allowing that is publically traded, I'd short it, right now.

Not to call out firms because I have seen it happen at every firm, but recently I got a client from AMEX who had about 300K in various funds. The FA was moving him out of A shares every 21 months into another fund family and was not giving him breakpoints. The FA was only moving about 40K at a time, but this was on a rolling basis and was being done for the past 4 years or so ( maybe longer but the client only had statements going back that far)… Needless to say the client has moved about 280K ( 20K were JUST purchased and are actually decent funds so we transferred in kind), and when he leaves his employer at the end of this year, is moving about 460K from his 401K ( which is being manged bythe AMEX FA team as well…). Not a bad account, and with the referral potential it could be huge ( client has 17 years with his firm and knows everyone from Executive to lowly)…

[quote=blarmston]Not to call out firms because I have seen it happen at every firm,...

[/quote]

You're among friends here, feel free to name the firms with compliance departments so asleep that they would allow this.

 [quote=blarmston]

but recently I got a client from AMEX who had about 300K in various funds. The FA was moving him out of A shares every 21 months into another fund family and was not giving him breakpoints. [/quote]

And you're sure this wasn't a load waived account? Because on the face of it, this AMEX guy was getting away with the very sort of thing the regulators have been watching very, very closely for about the last two years, at least.

By the way....nobody here is advocating swapping mutual funds. To discuss it, does'nt mean we do it. And as my friend Rightway said, you could beat this topic to death! But, when guys start debating A shares and c shares, using hypotheticals based on 15  - 20 year holding periods.....it's kind of a joke. (Do I have to explain why?) 

Additionaly, not all funds are suppose to be held long term. Who out there has clients in Real Estate funds, that have made good gains for your clients over the last 2 1/2 years........Iv'e been pulling profits from these, as well as Natural Resource funds. In both cases, am using the same fund families - doing exchanges.

I also think using one fund family for breakpoints is dumb. Are you telling me that I should invest all my clients money in one fund family, even though they only excell in managing Mid Cap Value. I should subject the client to mediocre performance in other areas, in exchange for the cheapest method possible???? Why would I be killing myself studying this industry, educating myself on managing money for people, if at the end of the day - we decide to put it all in "A" shares becuase it's cheaper?? I simply like the flexibility of C shares for that reason.....I am fully aware of the boundaries concerning compliance - and work within them.  

For those of you that have your panties in a bunch, regarding compliance and the use of “C” shares. The deal at ML is up to 1 Million bucks per household (not in one fund family). This covers my needs in most cases.

[quote=moneyadvisor]

By the way…nobody here is advocating
swapping mutual funds. To discuss it, does’nt mean we do it. And as my
friend Rightway said, you could beat this topic to death! But, when
guys start debating A shares and c shares, using hypotheticals
based on 15  - 20 year holding periods…it’s kind of a joke.
(Do I have to explain why?) 

Additionaly, not all funds are suppose to be held long term. Who out there has clients in Real Estate funds, that have made good gains for your clients over the last 2 1/2 years........Iv'e been pulling profits from these, as well as Natural Resource funds. In both cases, am using the same fund families - doing exchanges.

I also think using one fund family for breakpoints is dumb. Are you telling me that I should invest all my clients money in one fund family, even though they only excell in managing Mid Cap Value. I should subject the client to mediocre performance in other areas, in exchange for the cheapest method possible???? Why would I be killing myself studying this industry, educating myself on managing money for people, if at the end of the day - we decide to put it all in "A" shares becuase it's cheaper?? I simply like the flexibility of C shares for that reason.....I am fully aware of the boundaries concerning compliance - and work within them.  

RW - If you are talking about employing a process, and following a service model that justifies an ongoing fee, these two elements have to exist. Not only to keep a book of business scalable, but to obtain max performance,......so we can get new clients, and yes... to protect ourselves in the face of the regulators.

I honestly don't know what is going to be, or not be under fire in comming years, other than from updates I get from the firm regarding current concerns. I am fully aware that it does not matter what "I" think......and yes there are land mines we can avoid, but this business changes so frk'n often as it is. My business today, could look very different 10 years from now. Who knows what the next bug up some authorities ass is going to result in!?!?!? There are so many other much worse offenses out there, other than advisors using "C" shares. .....The whole thing just makes me a little crazy.

Enjoy your cocktail.

The sum of all fears lies in what motivates legislators and regulators.  Is it a genuine concern for investors?  No.  The driving force is that they all want to make a splash.  The easiest way to do this is to find some new “abuse” in our industry, with no thought as to how their rules and regs can kill the goose that laid the golden egg.  They won’t be happy until we’re all working for $7/hour, and taking personal responsibility for market losses.

Scorpio - after re visiting your original post, I have to add........The purpose of C shares should not be interpreted as "the idea of getting paid, to do nothing more than monitor performance". You still have work to do......the ongoing fee you get in your clients C share mutual fund portfolio, covers the cost of your service (I honest think a bigger arguement could be made against A share advisors taking fat commissions, and then abandoning clients). You will need to make adjustments to this portfolio annually if not more. It's what keeps you incented to continue contact with your client. To call them when there is nothing to sell. Yeah it's about monitoring there portfolio.....but also knowing when they have a grandchild, or their wife goes in for surgery. It's those conversations that will create stickiness.....not the free credit card you send them.

Rightway.....after re reading the OP, I now think I understand the motivation behind your posts.

echoing some past sentiments that is why I like using a mutual fund wrap program.

since it's considered an "investment advisory" product requiring a 65 to present I am required by my firm  to have, at the very least,  an annual meeting with my clients.   This has to be documented and forwarded to my compliance department.

If anything it will increase the "stickiness" of my relationships, similar to using C shares.

Since my clients also get automatic rebalancing, quarterly performance reports, client newsletters, etc. for their fees I am hoping that I can avoid any regulators questioning my advisory fees in the future.

Scrim