You know, you all seem to be coming up with creative suggestions and schemes that Jones uses to “gather” and “keep” assets, and “oooh those guys at Edward Jones are just trying to make money!”  Let’s not forget, every firm out there, Indy, Wire, Regional, etc. is in this business to gather, keep, and earn money off assets.  So, whatever the methods, as long as they are ethical and in the client’s best interest, are really OK.  As we all know, in this business there are a thousand different ways to get to the same answer.  You can use fee based, fee in lieu of, wrap, A’s, B’c, C’s, annuities, stocks, bonds, ETF’s, REIT’s, shorts, spreads, zings, zangs, whatever.  Bottom line, whatever you are doing, if you are making reasonable returns for your clients with reasonable levels of risk, you should make some money doing it - and so should our firms.  Whether it be through commissions, fees, revenue sharing…it doesn’t REALLY matter.  We are all just trying to convince ourselves why what we or our firms do or believe in is best.  Do what YOU feel is best, make your client, your firm, and yourself some money, and we can all just get along (key the music…).

Agreed. A lot of the discussion seems to be, what is best from the rep's point of view?

I am intrigued by the Jones model, and I see many positive features. The simplicity, value and up front clarity of investing in A shares is beautiful from the client's point of view.

The success of Jones, which seems to be working from more small town to more urban, provides a lot of insight into the future.

I say this from the viewpoint of AMP ownership. We are both interested in the mass affluent (100k -1m investable) market. Jones has local presence, and also reps that are capable of working alone, efficiently - generalists, and well trained generalists who do good for the client.

Maybe home office, like my home office, could be more efficient, should be conscious of being more efficient, as we see margin compression affect our industry.

Also, while it is true that affluent clients (1m+ investable), are happy with wire house type broker dealers or larger botique RIAs, it is also true that there seems to be a little snobbery on the part of some wirehouse  people, I am especially thinking about the folks who have a lot of little (less than 100k) accounts - that they do a lot of transactions, market and sector timing and so on. That certain does not make you better than someone who places A shares in funds, with, in the case of the better firms, oversight to make sure that money does not change fund families often.

My point is, there is a huge mass affluent market. Throw in the average boomer who has not accumulated enough $$, that make insurance potentially a part of the solution.

I know I like to steal ideas from Jones, and respect their business model. I do think there will be more pressure on Jones and AMP managment to cut costs and take (even) better care of their established reps. Now would be a pretty silly time to move from one broker dealer to another - I could see going Registered Investment Advisor and cutting out the broker dealer's substantial cut - but, I don't want to give up the additional level of shelter from personal liability that I feel is provided by my broker dealer.

[quote=mranonymous2u] If the account was 1MM, and the manager’s
stocks that you owned corrected 15%, you were at .85MM, when the market
came back, you were at 1MM again.

If you owned 1MM of the fund and it went down the same 15% and people other than youself bought shareson the dip, the manager bought more shares of the fallen angels and when the market came back you had 1.05MM (say, it was much more pronounced in the case of Blake's discussion but it was long ago and I wasn't a growth guy until August 1999!!! So I wasn't keyed into all his nums.).[/quote]

I would have pulled clients money out on the spot if someone told me that. And if I was client, I would ACAT from a broker believed it.

Open ended mutual funds shares are priced at NAV. Buying and selling shares has no effect on the NAV of other shares.

What happened is that the manager wasn't making sure that the SMA's tracked the funds portfolio, hence the slippage. And then he relied upon the ignorance of 99.56% stockbrokers to get away with lying about it.    

====

You own 100 shares @ 10

the fund drops 15%

You own 100 shares @ 8.50

A Saudi prince invests eleventy Kabillion dollars in the fund.

You own 100 shares @ 8.50

The market rises 17%

You own 100 shares @ 10.00

====

[quote=AllREIT]

====

You own 100 shares @ 10

the fund drops 15%

You own 100 shares @ 8.50

A Saudi prince invests eleventy Kabillion dollars in the fund.

You own 100 shares @ 8.50

The market rises 17%

You own 100 shares @ 10.00

====

"OK, agreed on the case by case. Your math on the mutual fund side is

technically correct, but if you are working with a HNW client and charging

them 5.75 upfront on an A share you are doing them a disservice.   If you

are using funds you should be able to hit the larger breakpoints and drop

those charges down to say 3.5% or even 2.5%. On our list of preferred

funds we only have 6 funds that hit the 150 bps on expenses. Most of

the ones I use are under 125 bps, most of them under 100. Using

numbers like that your 125 bps will cost the clients more in the long run.

Hope you’re a better stock picker than Saul or the folks at American,

Franklin, or Goldman."



Spiff m’boy, learn to read past the wholesaler hype. How many of your

beloved 6 families have fees in excess of the 12(b)1? All of them. How

many have funds that have total fees in excess of 2%? All of them. How

many have funds that have total fees in excess of 3%? At least one.

There are valid reasons to use mutual funds, perhaps funds in your

preferred vendors. But lower expenses is not one of those reasons.



Do your due dilligence and ask the tough questions. It’s an eye-opener.

eDWards JONES is the bestest coolest awesomest firm in the whole world

ever…



What’s sad is i’ve seen EDJ give kids that want to be brokers, that talk like

that, a shot at running a book.



God help you if your that ignorant and managing people’s hard-earned

money

Starka,

Let's just make sure we're talking about the same set of circumstances

Let's say that your portfolio manager owned only 1 name in the portfolio. XYZ.

Let's say that XYZ is trading at $100 and you have 100 kabillion dollars in the fund so you own 1 KB shares.

Let's say that I have the mutual fund run by the same manager and so far I am the only shareholder, but I have 100KB in the fund and the fund's assets are 1KB shares of XYZ. I own 1 share of the fund.

 The XYZ sector zipps down half way and the shares are now worth $50.

The managed account is now worth 50KB and it holds 1KB shares.

The MF is also worth 50KB and also holds 1KB shares.

A Brazillionaire invests a 100KB into the MF.  He gets 2 shares, there are now three shares existant in the MF. The Fund's total position is 3KB shares of XYX.

Next day XYZ goes up to $100. SMA =100KB

MF=300KB/3 share =NAV of 100KB

You are right. How could it be that he was right also? Hmmm.

Same scenario except that this time he owns .5KB shares of XYZ and .5KB shares of ABC.

Both go down by 50%.

Brazillionaire buys shares, Portfolio manager decides that he likes the prospects of XYZ better than ABC. Buys 100KB of XYZ, zeroKB of ABC.

Just to be fair, we'll say that Lucky Louie Opened a SMA with the manager that day and the manager made the "right decision" to weight his portfolio the same as his other portfolios, (wait, let's hold this off for the next scenario)

He was right, next day XYZ went to $100, ABC did not.

SMA value = .5KB shares XYZ @100= 50KB + .5KB shares ABC @ 50 = 25KB total =75KB

MF vaule = .5KB shares @ 50= 25KB + 2.5KB shares XYZ @ 100=250KB + 25KB= 275KB /3 shares = 91.66KB/share a 22% outperformance.

In this case you are wrong.

Third scenario, wherein the porfolio manager adjusts the weighting of the SMA to the weighting of the MF, and adds in the fourth guy because I already typed most of it.

Two holdings 50% weighting.

50% decline, Reweight to a 75/25 weighting (XYZ/ABC)

SMA= 50KB/4=12.5KB 12.5KB/$50 = .25KB shares ABC and .75KB shares XYZ

MF (post addition) = .5KB shares ABC and 2.5KB shares XYZ

Lucky Louie = .25 KB shares ABC and .75KB shares XYZ

Next day:

SMA = .25KB ABC @50= 12.5KB + .75KB XYZ @ 100= 75KB = $87.5KB

MF we already know has an NAV of 91.67KB (which we know is better than 87.5KB)

LL's beans = 12.5KB + 75KB...OH Louie! If only you had bought the fund!

Sorry Starka, looks like Alan Blake knew more about this stuff than you do. Now about what's best for your clients, shall I pm you my info so you can start the transfers?

Mr. A

SHOOT, it was ALLReit not STARKA.

ALL APOLOGIES TO STARKA!

Allreit, "jou got a lotta 'splainin' to do!"

Mr. A

I whacked Louie, sorry.

Louie's portfolio would have been .5KB ABC at $50 and 1.5KB XYZ @ $50

LL's Beans= .5KB @ 50= 25KB + 1.5KB XYZ@ $100 = 150KB + 25KB =$175KB.

A Kabillion here a Kabillion there, next thing you know you're talking about imaginary real money!

Mr. A

[quote=mranonymous2u]

SHOOT, it was ALLReit not STARKA.

ALL APOLOGIES TO STARKA!

Allreit, "jou got a lotta 'splainin' to do!"

Mr. A

The key issue is that SMA’s must have the same percentage composition
as the underlying fund, if fund inflows cause the fund portfolio to
change the SMA’s must track that.



Any difference betwen SMA and fund performance (pre-fee’s) is the sole
responsibilty of the portfolio manager, and claiming that its an issue
of dynamic vs static money is blowing smoke. It is evading responsibility.



Having seen both sides of this, the fund manager knows that SMA’s are
sticky money and so he isn’t really as concerend with their performance
as the fund shares. Doing the trades to rebalance SMA’s is
timeconsuming and runs up trading costs. Doing group trades results in
issues with large block orders.

I thought this this was disproved with scenario three.

Even IF the Portfolio Manager rearranges the deck chairs, he's doing it with depreciated assets therefore, all other thing being equal he'll underperform the fund (at least in the short term).

That puts the lie to this as a blanket statement: "That notwithstanding, for a client to pay 5 3/4% up front, then ongoing fees of say 150 or so bps clearly shows that the client would NEVER catch up to a wrap account charging, say, 125 bps."

As to the tone. No 'blem, mon!

"Having seen both sides of this, the fund manager knows that SMA's are sticky money and so he isn't really as concerend with their performance as the fund shares."

That's like the waitress coming back to your table and saying "I'm so sorry, they burned the french fries. So to make up for it I brought you EXTRA!" Your reward for sticking with a manager is that he is less concerned with your performance? "Splain to me some more why I would want to do this? (a rhetorical request, please don't go off into the routine, I've been hearing it since Shearson bought Hutton and about Barry Berlind even before. 11kabilliondythird time is not likely to be the charm!)

Managed money is like the middle lane on the highway. Investors like to think that if they just stay there the don't have to actually drive. If you are the driver of your client's assets, you shouldn't be clogging up the highway by trying to get the furthest with the least amount of work either.

Mr. A

That puts the lie to this as a blanket statement: "That notwithstanding, for a

client to pay 5 3/4% up front, then ongoing fees of say 150 or so bps clearly

shows that the client would NEVER catch up to a wrap account charging, say,

125 bps."



You’re confusing your discussions, Mr A.



The above was not in reference to SMAs vs MFDs.

Oh...

You're right again.

I thought I had finally found something in one of these "Beating up on the Joneses" forums (they generally bore me. I wish they'd go away, really! I can't stand to read them through but I'll skim.) I could converse about. Oh well...

Mr. A

[quote=mranonymous2u]

I thought this this was disproved with scenario three.
[/quote]

Too many characters, just stick to one SMA and one fund, and if the two portfolios are different than each other, even for a moment, there will be slippage.

[quote]Even IF the Portfolio Manager rearranges the deck chairs, he's doing it with depreciated assets therefore, all other thing being equal he'll underperform the fund (at least in the short term).[/quote]

I don't understand what you mean at all. If the SMA is to track the fund, (which was the point of this whole discussion) then the SMA's need to have the same composition as the fund.

That's like the waitress coming back to your table and saying "I'm so sorry, they burned the french fries. So to make up for it I brought you EXTRA!" Your reward for sticking with a manager is that he is less concerned with your performance? "Splain to me some more why I would want to do this? (a rhetorical request, please don't go off into the routine, I've been hearing it since Shearson bought Hutton and about Barry Berlind even before. 11kabilliondythird time is not likely to be the charm!)[/quote]

Because you collect a commision/trailer for putting clients into the SMA. SMA money is sticky, so as long as performance isn't too bad (i.e too far off the benchmark) that money is staying there.

Most brokers don't manage accounts well, b/c they are too busy gathering new assets, so if an SMA is mediocre that will go unnoticed for quite a while. Same thing with EDJ brokers and thier limited palette of funds.

On the whole SMA money is much more sticky than fund money. If you really want sticky money, look at the funds that underly variable annuities.

[quote]Managed money is like the middle lane on the highway. Investors like to think that if they just stay there the don't have to actually drive. If you are the driver of your client's assets, you shouldn't be clogging up the highway by trying to get the furthest with the least amount of work either.[/quote]

But how many brokers are drivers? In the past you drove the car, today you are a taxi dispatcher. So you better watch your taxis!

By the way, for what it’s worth…

Y’all keep talking about SMA’s tracking funds.  Well I have some familiarity with this  niche, only because  a number of years ago I got to know the  folks on the SMA side at Aim(Amvescap).  Anyway-very few SMA’s actually track the funds exactly, because most larger mutual funds hold 2-300 stocks or more to meet diversification requirements.  Most SMA’s only hold 30-50 stocks.  So, what happens is that the “portfolio managers” on the SMA side mimic/follow the orders given by the lead PM on the mutual fund side.  At least in my humble observation/experience.

Feel free to correct me if you know otherwise…

[quote=Broker24]You know, you all seem to be coming up with creative suggestions and schemes that Jones uses to “gather” and “keep” assets, and “oooh those guys at Edward Jones are just trying to make money!”  Let’s not forget, every firm out there, Indy, Wire, Regional, etc. is in this business to gather, keep, and earn money off assets.  So, whatever the methods, as long as they are ethical and in the client’s best interest, are really OK.  As we all know, in this business there are a thousand different ways to get to the same answer.  You can use fee based, fee in lieu of, wrap, A’s, B’c, C’s, annuities, stocks, bonds, ETF’s, REIT’s, shorts, spreads, zings, zangs, whatever.  Bottom line, whatever you are doing, if you are making reasonable returns for your clients with reasonable levels of risk, you should make some money doing it - and so should our firms.  Whether it be through commissions, fees, revenue sharing…it doesn’t REALLY matter.  We are all just trying to convince ourselves why what we or our firms do or believe in is best.  Do what YOU feel is best, make your client, your firm, and yourself some money, and we can all just get along (key the music…).[/quote]

You are right, B24, all(or at least some) of us are trying to get paid fairly for the value we deliver.  However, as far as my experience, you are the exception that proves the rule when it comes to the Jones boys that we’ve encountered on this forum.  Most of them are pretty damn sancitmonious about how ethical the firm is, and how superior the EJ business model is.

Too, many of us have seen accounts that have been hurt pretty bad by preferred fund bias and excessive turnover and ‘revenue maximization techniques’.

For what it’s worth, there ARE quite a few ex-Jones’ers now indy on this forum who sound a lot like you…

Joe, I can’t argue any of those facts. These aren’t really discussions we

have among people in my region, as most of us are still really focused on

how to build our book (most are in the 3-7 yr. range). But with 10,000

IR’s in the system, I am sure there are plenty of them using dubious

techniques to make a few bucks. Most of us that are on the ethical side

of things focus on doing the right things in the hopes that it will pay

dividends in the long run via referrals, rollovers, etc.



I agree, though. There are many Jones people that just assume that

because Jones tells them this is the only way to do business that it is a

fact. They take a very insular view of the business. I know some people

that came from regionals and wires (and actually a few indies) over to

Jones that love it. For them it’s great because they know both sides of it

going into it and simply came here for a little more freedom from the

branch manager world. Sometimes I think Jones would be better off if

they were a little more forthright about their business model. It’s quite

funny some of the things I hear newer Jones people say. Unfortunately,

there are a select few voices on this forum that become the proxy for

many.

[quote=Starka]"OK, agreed on the case by case. Your math on the mutual fund side is
technically correct, but if you are working with a HNW client and charging
them 5.75 upfront on an A share you are doing them a disservice.   If you
are using funds you should be able to hit the larger breakpoints and drop
those charges down to say 3.5% or even 2.5%. On our list of preferred
funds we only have 6 funds that hit the 150 bps on expenses. Most of
the ones I use are under 125 bps, most of them under 100. Using
numbers like that your 125 bps will cost the clients more in the long run.
Hope you're a better stock picker than Saul or the folks at American,
Franklin, or Goldman."

Spiff m'boy, learn to read past the wholesaler hype. How many of your
beloved 6 families have fees in excess of the 12(b)1? All of them. How
many have funds that have total fees in excess of 2%? All of them. How
many have funds that have total fees in excess of 3%? At least one.
There are valid reasons to use mutual funds, perhaps funds in your
preferred vendors. But lower expenses is not one of those reasons.

Do your due dilligence and ask the tough questions. It's an eye-opener.[/quote]

Sorry Starka, I've been out sick for the last few days and unable to debate this issue with  you.  What are you looking at?  When I said that the funds I use are under 125 bps I meant it.  Thanks for making me go back to the prospectus and look at several of them.  You are correct that the fund families we use have fees in excess of the 12b-1 fees.  They generally list the other fees as Management Fees and the mysterious Other fees.  The 12-b1s are often the smallest charge there.  The most expensive fund I use routinely is Mutual Discovery.  139 bps.  Not bad actually for an international fund. 

As to your other questions:  2% - None.  3% - None.  I'm looking at the funds on our preferred list.  There may be funds that aren't on our list that hit 2% or 3%, but I wouldn't use them anyway.  OK, one exception.  New World from American.  I use that one, it's not on our list.  

Maybe you can enlighten me about the fees that are hidden in the prospectus that I don't know about.      

[quote=Spaceman Spiff]

[quote=Starka]“OK, agreed on the case by case. Your math on the mutual fund side is
technically correct, but if you are working with a HNW client and charging
them 5.75 upfront on an A share you are doing them a disservice.   If you
are using funds you should be able to hit the larger breakpoints and drop
those charges down to say 3.5% or even 2.5%. On our list of preferred
funds we only have 6 funds that hit the 150 bps on expenses. Most of
the ones I use are under 125 bps, most of them under 100. Using
numbers like that your 125 bps will cost the clients more in the long run.
Hope you’re a better stock picker than Saul or the folks at American,
Franklin, or Goldman.”

Spiff m’boy, learn to read past the wholesaler hype. How many of your
beloved 6 families have fees in excess of the 12(b)1? All of them. How
many have funds that have total fees in excess of 2%? All of them. How
many have funds that have total fees in excess of 3%? At least one.
There are valid reasons to use mutual funds, perhaps funds in your
preferred vendors. But lower expenses is not one of those reasons.

Do your due dilligence and ask the tough questions. It’s an eye-opener.[/quote]

Sorry Starka, I've been out sick for the last few days and unable to debate this issue with  you.  What are you looking at?  When I said that the funds I use are under 125 bps I meant it.  Thanks for making me go back to the prospectus and look at several of them.  You are correct that the fund families we use have fees in excess of the 12b-1 fees.  They generally list the other fees as Management Fees and the mysterious Other fees.  The 12-b1s are often the smallest charge there.  The most expensive fund I use routinely is Mutual Discovery.  139 bps.  Not bad actually for an international fund. 

As to your other questions:  2% - None.  3% - None.  I'm looking at the funds on our preferred list.  There may be funds that aren't on our list that hit 2% or 3%, but I wouldn't use them anyway.  OK, one exception.  New World from American.  I use that one, it's not on our list.  

Maybe you can enlighten me about the fees that are hidden in the prospectus that I don't know about.      

OK - I'll bite. I can't believe I actually read that post, and that I'm actually taking time to respond.

DC, you are green - and poorly informed. We get CFPs because we want to improve our skills, educate ourselves, take on a challenge and reach a goal. Most important is the ability to provide a higher level of service to clients. And I don't care about competing on performance. My clients want me - not 'just' the products that I put them in.

I don't understand if the CFP is used as you describe it... why the hell are you even studying for it? If you see value in having it (duh) I guess there could be a reason other than what you described.

I don't want to 'box out' the younger advisors - I'm not in competition with you. If you want those $200m and under accounts- you can have them. I won't waste the client's nor my time unless they can use what I provide- which it total wealth management for large sums of money.

Re: managed money. If it is right for the client, it's right for the client. Again, I'm confused at the paradox you present. You think that it's bad, but EDJ is developing a platform that you support. Wow, you are confused.

One more thing - if you can develop relationships knocking on doors, good for you. I have been very successful, and I've never walked the 'hood knocking on doors. That is just one way to meet people and grow a business.

Good luck. One piece of unsolicited advice: Zippit before you really know the business, and have some experiences to draw from. You are really making a fool of yourself - which unfortunately reflects upon the quality of people working at your firm.

OUT