@ LPL preferred companies have no ticket charges.  The company gives LPL a kickback to be on the list.  Otherwise, you pay a ticket charge of $4.50 or $26 for each mutual fund buy/sell.  SAMI platform, client pays.  SAMII, rep pays. 

Even when managing the account by him/herself, the rep still charges an AUM fee usually.  

If you were a registered investment advisor, you might charge your clients 1% for managing assets over $250k, for example. Client would be billed $15, for example, every time you traded the account.

Do fee-only advisors still charge their clients trading fees?

Of my managed accounts, I pay ticket charges on about 95% of them.  I have a few clients who are gamblers/frequent traders; I let them pick up that bill. 

Maybe I’m being naive.  But doesn’t charging your client for trading costs every time you trade in a managed account sort of defeat the purpose of having a managed account?  Wouldn’t this incent the advisor to NOT place trades?  What about re-balancing? 

Well put, ice. Does anyone’s b/d allow clients to be charged the trading fee directly, per transaction?

yes

so the question I have about “fee only” is:

What about 12b-1 fees from the underlying mutual funds that are under a wrap account? Does the FA still keep the trail on those since it is a “fee” and not a commission? 12b-1 treatment is the one item that I can’t seem to coax out of any of the fee-based FA sites and information I have poured over. These funds go somewhere - does the BD keep those as a way to reduce fees in other areas?

Do yourself a favor and resolve to use the current adversity to dump 12b1s and selling arrangements. You can do this with your broker dealer, but by staying with them you're still giving up 18% to 50% or more of your gross. It must be really fun to be wirehouse management right now.

Thanks for clarifying that for me iceco1d.

i only do a handful of mutual fund wrap accounts.  the 12b-1 fees are not paid to me.

[quote=B24]Maybe I’m being naive. But doesn’t charging your client for trading costs every time you trade in a managed account sort of defeat the purpose of having a managed account? Wouldn’t this incent the advisor to NOT place trades? What about re-balancing?

I charge 1% for the account and give a 25% discount on all option transactions. Workd great for both sides. If its a managent (damage controle) trade I disount the option by 50%.

Just to clarify, LPL rebates all 12b-1 fees for retirement accounts.  

And on the matter of objectivity and rebalancing, on small accounts, we usually bill the client (though we try to keep costs low by working with exchanges; exchanges in fund families are usually free). 

That said, with big accounts (where we pick up the tab), I have never had a moment where I thought: the cost to me outweighs the necessary changes.  LPL has also done a good job of expanding their book of preferred and low-cost fund families.  90% of the trades we do are no cost, or $4.50 a pop on mutual funds.  On an account over 250k, it’s not that big of a deal. 

At least, that’s my morality. 

No, I get it.  If our firm levied ticket charges or received 12b-1’s on the advisory accounts, then it would be a different conversation.  Since we don’t, there is no legal, ethical, or liability issue.  I just wonder if people have to consider their trades because of the fact that there are ticket charges (regardless of who pays them).

B24, most of the confusion probably stems from your perspective.  From your perspective as an individual FA, there is no real liability.  But from the firm’s perspective there certainly is.  Your b/d will be subject to review to demonstrate that they don’t trade too little in the wrap accounts.  Too little and regulators can claim clients shouldn’t have been in a wrap account, and that the wrap sponsor is potentially doing that to avoid trading costs and thereby maximize their profit. 

Same basic concern applies to RIA firms - whoever is the sponsor of a wrap program has an inherent incentive to minimize trades/ transaction costs, since they absorb them, not the client. 

OTOH, if instead of a true wrap account with one fee for everything you instead have the client responsible for all transaction costs, it eliminates the POTENTIAL conflict of interest, i.e. the firm does not make any more or less depending on how much trading there is.  This is no longer a wrap account, since all fees are not wrapped in. 

You don’t see these issues as a RR using wrap accounts for your clients.  Your firm (or whoever is the wrap sponsor) does. That’s where the confusion likely originates.

At first blush it may seem like the client pays more for this, but that entirely depends on the advisory fees charged as well as the trading and/or platform costs.  Generally they often pay less all in, but with greater transparency and less potential conflict of interest.

Hope that clarifies. 

My understanding is that the typical Fidelity RIA, for example, would have trading costs billed to the client accont. With RIA, how often you trade the count doesn’t matter, you define your relationship and you meet your documented risk and service level, and so on.

Morph, that makes sense.  I think Jones designed their advisory accounts to be true advisory accoutns, not “wrap” accounts.  They mandate a certain level of service, including performance reporting, standard rebalancing, investment policy statements, and documented annual reviews at minimum.  I think this is their way of avoiding the potential “fee-in-lieu” issue that you described.