[quote=AllREIT]

[quote=Ashland] Allreit - why would a client mgr want a cert for the investment mgr’s job? Isn’t that why we hire investment mgrs?[/quote]



So that they can evaluate and understand what the investment managers are doing. And so they can do that job themselves and have real value over other less eduacated competators.



Also the rigor of the CFA process is such that it tends to screen out the obviously stupid/fraudulent/dangerious such as the Chartered Senior Annuity Advisors etc floating about.



My $0.02 cents as a non-CFA.



[/quote]



Let me understand. So, there’s more value to my client in my creating a portfolio that is forever on the efficient frontier(or being inefficient in ways that hopefully make more money) and not have the time to let the client know that he’s got a 50% probability of running out of money in 19 years if he doesn’t change his spending habits or if a $50,000 emergency hits in the next 2 years his 30 year retirement plan is cooked.



Can’t I hire a group of 20 or 30 CFA’s to handle the investment management & collect a 1% fee for taking care of both.

[quote=Ashland] Can't I hire a group of 20 or 30 CFA's to handle the investment management & collect a 1% fee for taking care of both.[/quote]

Yes, that would be founding an investment management practice.

The only relevant question is what designation is more valued and whether they enhance your money making- in the aggregate. This is simply answered by looking at the relative incomes of the average CFA and the average CFP and then looking at the average income of people holding both credentials.

I know that average CFA holder makes considerably more than the average CFP. What I don't know - but suspect, is that the average holder of both makes more than the average holder of just one of either.

Maybe the standard should be not which, but rather whether you should be getting both credentials.

Actually managing securities is a fairly complex task, but you don't have to make it a time consuming one. Most good money managers don't spend ours a day barking into a trader's turret and pouring through annual reports. Information technology and the popularity of fundamental factor approaches have made money management basically an easy job - if you know what you're doing. Most evidence suggests that the less you actually do - the better your performance. Accordingly, one does not have to choose between client development or portfolio management, the two can co-exist in one practice and one person - if you know what you are doing. Problem is, its complicated. This is where the CFA comes in.

Now, depending upon what kind of clientele that you have, you can generally find that 1% of assets under management is what you can get paid for being a financial advisor. If you run the money yourself - you don't need to pay for a sub-advisor - whether its a fund, separate account, ETF - whatever. All things being equal, this means greater margins for your business or better performance for your clients (if you tend to pass the costs of the subadvisor along to them).

If you are getting paid less than 1% AUM you are selling yourself cheap.

Are you saying, 1% times payout, minus expenses, or 1% net?

you can generally find that 1% of assets under management is what you can get paid for being a financial advisor.

This is generally sort of a useful benchmark statement, and I am wondering if that is 1% from the clien'ts point of view.

Of course haircut, admin, office costs are going to cut that number down.

Do you think greater that 1% from client's view is competitive?

[quote=rollinrock]

Do you think greater that 1% from client’s view is competitive?

[quote=Ashland]
Let me understand. So, there’s more value to my
client in my creating a portfolio that is forever on the efficient
frontier(or being inefficient in ways that hopefully make more money)
and not have the time to let the client know that he’s got a 50%
probability of running out of money in 19 years if he doesn’t change
his spending habits or if a $50,000 emergency hits in the next 2 years
his 30 year retirement plan is cooked.


Can’t I hire a group of 20 or 30 CFA’s to handle the investment
management & collect a 1% fee for taking care of both.[/quote]



Ashland, if you stick to just what I say you’ll have plenty of grist for the mill.



I never said that you spend all your time doing investment management,
just that you can pinch hit if call to and have a working BS detector
as well. A CFA helps with all of that, but much much more on the
investment management side.

I'm sorry if I was unclear on my previous post. I am simply tiering in terms of the average client size and production, not necessarily quality of personnel. But, I would suspect that the average level of competence at Northern Trust or Credit Suisse is a bit higher than Merrill Lynch, or LPL or Edward Jones.

Thanks for the clarification. When you are talking about pure intelligence and competence, it gets interesting. If you want to serve the CEO of a F500, you better match educational styles, be a type A, whatever.

If you just want to make a lot of money, maybe work 25 or 30 hours, spend a ton of time with your family, whatever, you need to own your office.

Doing one or the other does not make you smarter or better. That's why I say, if we appreciate our common strengths, it is a lot more fun to be a financial planning professional.

[quote=AllREIT] [quote=rollinrock]

Do you think greater that 1% from client's view is competitive?

[/quote]

No it's high. but unsophisticated clients will fall for it.

It should be 1% to the client, which groses about 80-75bp to you.
[/quote]

I operate from the assumption that 1% is acceptable based on the guidelines provided by the CFA institute on hiring a financial advisor ( http://www.cfainstitute.org/aboutus/investors/pdf/FinancialA dvisor.pdf)

This was also the number given as the "general rate" by Jonathan Clements in a WSJ piece a while back. But, he argued that he thought the fees were high and that the client should expect comprehensive financial advice for a 1% fee. (I keep a reprint of the article for my prospect marketing kit.)

"High" is a relative phenomenon and its important to consider that the number really only matters from an Advisor's standpoint. What should (at least theoretically) concern a client is not the percentage, but the after-tax return on their portfolio and the actual dollars paid; interestingly Bessemer Trust - one of the most highly respected firms on the street -charges 1% on accounts that are $25 million and more on accounts smaller than that. They make more money off of the private equity funds in which they place their clients and will charge hourly for "extraordinary" services. Its reasonable to expect that many of their clients - which include many sophisticated investors - pay more than $500k a year in investment management fees.

To me, I would agree that paying $500k a year for financial advice seems outrageously high, but when I was opening $250k IRAs not too long ago, I can remember clients giving me a hard time. Due to the views that are expressed by some financial advisors like rollinrock, a large number of very middle class people seem to feel that 1% is high regardless of wealth level. (Admittedly this perspective is supported by the fact that due to their excellent advertising of the discounters as well, they were well aware that the Vanguard 500 charges 9 basis points and Brown & Co charges $6 per trade). Now, considering that each client gets an annual financial plan, all of their trades included, their advice included all aspects of their financial picture, and performance that has generally outperformed the S&P 500, it seems to me like anyone with less than a million dollars got a pretty good deal.

The turning point for me was when I opened a $5 million account for an elderly gentlemen that I met at a local organization meeting. Naturally, as I was three years in the business, I was thrilled. (I'm still thrilled when I open a $5 million account, of course). He ACATed the funds and after about a month we sat down to chat. After he had me run an investment proposal for him (which I spent hours on), he balked at the notion that I wanted to charge him 1% per annum. When I explained that the mutual funds that I was trying to sell him out of had higher expense ratios than that - he expressed shock that there were ANY expenses in those funds - he had never had that explained to him. After another six months or so of "still thinking about the proposal" and us run all kinds of little tasks for him (helping him figure out the website, DTCing shares to various children and charities, sending documents to his accountant, etc), he finally called and agreed to sell 5,000 shares of a crappy closed end fund that he bought from his previous broker (naturally, at the IPO). When I had the audacity to charge him $750 for the trade he started arguing that he had no idea and that the trade would have cost him $10 at E-trade. At that point I fired him (boy, was he pissed). When I looked at how much I had grossed for the account over the previous 12 months, it was a whopping $1,250. The guy still called me "to get my opinion" on what his Charles Schwab broker was recommending (a series of Charles Schwab mutual funds, actually) and I very politely told him that I was very busy right now (again, very offended). Since then, I am primarily concerned with whether a client is willing to pay me. What is so ironic is that he'd probably paid more than 1% of his account in most years, but because they had all been hidden in sales credits or internal expense ratios, he was outraged at my transparent structure which was actually lower.

I almost feel an obligation to the profession to express (an admittedly slightly arrogant) total lack of interest in a person who doesn't think that they should pay any more for full service than a discounter. It really is an insult. Now, on the very rare occassion when a prospect suggests that 1% is too high, I simply wrap up the meeting ASAP ("Well, I think I have a pretty good idea... I have another meeting coming up in about half an hour... we'll be in touch to set up another meeting...), have my SA return their documents and in an unsigned letter addressed to "Dear Prospective Client" have her politely indicate that I am so very sorry that my schedule was so busy and that I simply cannot take on any new accounts for the forseeable future. Any inquiries they might have should be directed through email (Where elsewhere should they go? Well, why not look up their alternatives at Vanguard?) and we "wish them the best of luck as they proceed in this very important decision." If they don't want to pay me - fine, but simply having a few million dollars does not entitle them to ANY more attention and I think they should know that.

However, if I ever got a $25 million account, I can't imagine charging them 1% (well, maybe its a pleasant fantasy...) My gut is that an excellent financial advisor should be paid about $250-400 an hour (similar to an attorney) and that it takes between 5-30 hours a year to really serve a client well. But by that reasoning, it seems reasonable that no one should really expect to pay more than $12,000 a year or so - but I have clients that pay much more than that and I certainly start to become uncomfortable with those numbers, as this would mean that probably the top earning potential of an FA would be about $600k a year (billing 1,500 hours a year would be impressive for an attorney). This certainly isn't scratch, but it starts to make me think that I'd be smarter to get in the asset management business and start a hedge fund if thats the best I could ever HOPE to make was $600k...

I like 1% because its simple and I've never gotten much push back from clients for it. Also - who decides how much we should be paid for delivering solid relative returns? The evidence suggests that most self-directed investors do quite poorly. And mutual funds charge more than that on average.

I think where 1% is excessive for accounts less than $5 million is when all a financial advisor does is run MoneyGuidePro for a client every couple of years and places all of their clients in three mutual funds with a 50% bond allocation. But for someone who comes to their clients' homes and offices, who engages in dynamic financial planning, is a proactive financial advisor and who is constantly educating themselves on the available new investment alternatives, it seems reasonable to expect that their clients' portfolios should outperform their appropriate benchmarks by 1% per annum and that they should feel comfortable with that rate. Particularly for those who aren't millionaires.

Just my opinion...

[quote=san fran broker]

I almost feel an obligation to the profession to express (an admittedly slightly arrogant) total lack of interest in a person who doesn’t think that they should pay any more for full service than a discounter. It really is an insult.

[quote=san fran broker]I like 1% because its simple and I've never gotten much push back from clients for it. Also - who decides how much we should be paid for delivering solid relative returns? The evidence suggests that most self-directed investors do quite poorly. And mutual funds charge more than that on average. [/quote]

I enjoyed your post, and thanks for the link to the CFA pdf.

I also feel that the overwhelming evidence suggests that DIYers as a whole don't do all that well as compared to professional management.  What do you think of the BCT paper, touted by Donald Moine from Morningstar (who uses it to sell his products), and, if you can, please link to some substantial information or reputable studies showing the performance of DIYers as compared to clients who invest with a professional.

[quote=san fran broker]This was also the number given as the “general
rate” by Jonathan Clements in a WSJ piece a while back. But, he argued
that he thought the fees were high and that the client should expect
comprehensive financial advice for a 1% fee. (I keep a reprint of the
article for my prospect marketing kit.) [/quote]

That's a very long post.

[quote]interestingly Bessemer Trust - one of the most highly respected firms on the street -charges 1% on accounts that are $25 million and more on accounts smaller than that. They make more money off of the private equity funds in which they place their clients and will charge hourly for "extraordinary" services. Its reasonable to expect that many of their clients - which include many sophisticated investors - pay more than $500k a year in investment management fees.[/quote]

1% is pretty typical in upper limits, but the level of service you get is very high as well. Since you have an AE with a team who works on only a few clients. But that is a family office model which very different than an ML POA sweating out his first 15M in AUM.

The fee's charged on alternative investments are very high and a big money maker. It's not uncommon to have fee's on fee's so you get a 1% account fee on top of 2/20 in a hedge fund etc.

[quote]To me, I would agree that paying $500k a year for financial advice seems outrageously high, but when I was opening $250k IRAs not too long ago, I can remember clients giving me a hard time. Due to the views that are expressed by some financial advisors like rollinrock, a large number of very middle class people seem to feel that 1% is high regardless of wealth level[/quote]

It's also a good deal for people with more money, as you pay for the wisdom/experience not to make big foulups. However in general your not offering that much in objective terms over vanguard except for the personal service.

Another way to explain it, is that you keep yourself to a limited client base, vs a whorish broker who wants max AUM, and therefore fixed costs are higher.

[quote]I almost feel an obligation to the profession to express (an admittedly slightly arrogant) total lack of interest in a person who doesn't think that they should pay any more for full service than a discounter. It really is an insult. [quote]

It's a rational response on the customers part. It means they arent convinced of the value proposition.

I explain what we do, why it is valuable, why other people have found it valuable, and leave it at that. If clients are receptive they will be.

Also, I have a niche of high income and risk averse investing, so you won't find too many people who specialise in investing in our target assets.

[quote=Bobby Hull] [quote=Philo Kvetch][quote=Big Taco]

[quote=Philo Kvetch]I certainly wouldn’t put Merrill in with those also-ran firms. Merrill is the class of the field, while Jones and Ameriprise represent firms that are, well, bottom tier.[/quote]

I think it’s funny that to you, a bottom tier firm is a firm with the most CFPs of any firm, period. I guess that after all those CFPs get their designations, they head for the “lowest tier” firm they can find?

[/quote]

In the absence of anything else, that many CFPs would, in itself, make your firm bottom tier. As you might guess, I don’t hold the CFP trademark in very high regard.

[/quote]

CFP’s sell something that most people don’t want - asset allocation. It forces people to buy the worst performing asset classes at all times. In short, cfp’s don’t make people money. Go look at the ADV’s of some of those losers on financial-planning dot com. Many have been in business for years with less than $10mm under management. All they do is sit around and whine about all of the dishonest salesmen who make it impossible for them to acquire or keep clients.

[quote=san fran broker][quote=AllREIT] [quote=rollinrock]

Do you think greater that 1% from client's view is competitive?

[/quote]

No it's high. but unsophisticated clients will fall for it.

It should be 1% to the client, which groses about 80-75bp to you.
[/quote]

I operate from the assumption that 1% is acceptable based on the guidelines provided by the CFA institute on hiring a financial advisor ( http://www.cfainstitute.org/aboutus/investors/pdf/FinancialA dvisor.pdf)

This was also the number given as the "general rate" by Jonathan Clements in a WSJ piece a while back. But, he argued that he thought the fees were high and that the client should expect comprehensive financial advice for a 1% fee. (I keep a reprint of the article for my prospect marketing kit.)

"High" is a relative phenomenon and its important to consider that the number really only matters from an Advisor's standpoint. What should (at least theoretically) concern a client is not the percentage, but the after-tax return on their portfolio and the actual dollars paid; interestingly Bessemer Trust - one of the most highly respected firms on the street -charges 1% on accounts that are $25 million and more on accounts smaller than that. They make more money off of the private equity funds in which they place their clients and will charge hourly for "extraordinary" services. Its reasonable to expect that many of their clients - which include many sophisticated investors - pay more than $500k a year in investment management fees.

To me, I would agree that paying $500k a year for financial advice seems outrageously high, but when I was opening $250k IRAs not too long ago, I can remember clients giving me a hard time. Due to the views that are expressed by some financial advisors like rollinrock, a large number of very middle class people seem to feel that 1% is high regardless of wealth level. (Admittedly this perspective is supported by the fact that due to their excellent advertising of the discounters as well, they were well aware that the Vanguard 500 charges 9 basis points and Brown & Co charges $6 per trade). Now, considering that each client gets an annual financial plan, all of their trades included, their advice included all aspects of their financial picture, and performance that has generally outperformed the S&P 500, it seems to me like anyone with less than a million dollars got a pretty good deal.

The turning point for me was when I opened a $5 million account for an elderly gentlemen that I met at a local organization meeting. Naturally, as I was three years in the business, I was thrilled. (I'm still thrilled when I open a $5 million account, of course). He ACATed the funds and after about a month we sat down to chat. After he had me run an investment proposal for him (which I spent hours on), he balked at the notion that I wanted to charge him 1% per annum. When I explained that the mutual funds that I was trying to sell him out of had higher expense ratios than that - he expressed shock that there were ANY expenses in those funds - he had never had that explained to him. After another six months or so of "still thinking about the proposal" and us run all kinds of little tasks for him (helping him figure out the website, DTCing shares to various children and charities, sending documents to his accountant, etc), he finally called and agreed to sell 5,000 shares of a crappy closed end fund that he bought from his previous broker (naturally, at the IPO). When I had the audacity to charge him $750 for the trade he started arguing that he had no idea and that the trade would have cost him $10 at E-trade. At that point I fired him (boy, was he pissed). When I looked at how much I had grossed for the account over the previous 12 months, it was a whopping $1,250. The guy still called me "to get my opinion" on what his Charles Schwab broker was recommending (a series of Charles Schwab mutual funds, actually) and I very politely told him that I was very busy right now (again, very offended). Since then, I am primarily concerned with whether a client is willing to pay me. What is so ironic is that he'd probably paid more than 1% of his account in most years, but because they had all been hidden in sales credits or internal expense ratios, he was outraged at my transparent structure which was actually lower.

I almost feel an obligation to the profession to express (an admittedly slightly arrogant) total lack of interest in a person who doesn't think that they should pay any more for full service than a discounter. It really is an insult. Now, on the very rare occassion when a prospect suggests that 1% is too high, I simply wrap up the meeting ASAP ("Well, I think I have a pretty good idea... I have another meeting coming up in about half an hour... we'll be in touch to set up another meeting...), have my SA return their documents and in an unsigned letter addressed to "Dear Prospective Client" have her politely indicate that I am so very sorry that my schedule was so busy and that I simply cannot take on any new accounts for the forseeable future. Any inquiries they might have should be directed through email (Where elsewhere should they go? Well, why not look up their alternatives at Vanguard?) and we "wish them the best of luck as they proceed in this very important decision." If they don't want to pay me - fine, but simply having a few million dollars does not entitle them to ANY more attention and I think they should know that.

However, if I ever got a $25 million account, I can't imagine charging them 1% (well, maybe its a pleasant fantasy...) My gut is that an excellent financial advisor should be paid about $250-400 an hour (similar to an attorney) and that it takes between 5-30 hours a year to really serve a client well. But by that reasoning, it seems reasonable that no one should really expect to pay more than $12,000 a year or so - but I have clients that pay much more than that and I certainly start to become uncomfortable with those numbers, as this would mean that probably the top earning potential of an FA would be about $600k a year (billing 1,500 hours a year would be impressive for an attorney). This certainly isn't scratch, but it starts to make me think that I'd be smarter to get in the asset management business and start a hedge fund if thats the best I could ever HOPE to make was $600k...

I like 1% because its simple and I've never gotten much push back from clients for it. Also - who decides how much we should be paid for delivering solid relative returns? The evidence suggests that most self-directed investors do quite poorly. And mutual funds charge more than that on average.

I think where 1% is excessive for accounts less than $5 million is when all a financial advisor does is run MoneyGuidePro for a client every couple of years and places all of their clients in three mutual funds with a 50% bond allocation. But for someone who comes to their clients' homes and offices, who engages in dynamic financial planning, is a proactive financial advisor and who is constantly educating themselves on the available new investment alternatives, it seems reasonable to expect that their clients' portfolios should outperform their appropriate benchmarks by 1% per annum and that they should feel comfortable with that rate. Particularly for those who aren't millionaires.

Just my opinion...

[/quote]

That was long. Sure glad I didn't read it.

[quote=bankrep1]


Bobby just rubs his crystal ball and knows what asset class will
underperform next year. Then he removes it from client portfolios,
what a genius.[/quote]



Bobby is a troll, probably lives alone in his parent basement, and the
only person he sells financial products to are his socks in his drawer.

His point of view is valuable, in that it is always concise.

[quote=rollinrock]His point of view is valuable, in that it is always concise. [/quote]



No its not, it has zero informational content. That is what would make his perspective valuable.



The gullability around here is staggering some time. People will bend
their heads into a preztel to assume that Bobby, is adding something to
the discussion or anything other than a troll.

Obviously San Fran's post above provides a lot of insight based on experience, which I for one appreciate. Bobby's comment is just funny and in character, as is your little pretzel head image.  Just my take.

[quote=AllREIT]

[quote=rollinrock]His point of view is valuable, in that it is always concise. [/quote]



No its not, it has zero informational content. That is what would make his perspective valuable.



The gullability around here is staggering some time. People will bend
their heads into a preztel to assume that Bobby, is adding something to
the discussion or anything other than a troll.









[/quote]

Not always  zero, but frequently.  Sometimes he is entertaining, sometimes because he has the guts to call someone out on their bs.

[quote=AllREIT] [quote=rollinrock]His point of view is valuable, in that it is always concise. [/quote]

No its not, it has zero informational content. That is what would make his perspective valuable.

The gullability around here is staggering some time. People will bend their heads into a preztel to assume that Bobby, is adding something to the discussion or anything other than a troll.




[/quote]

You've overestimated my level of interest in adding value and information to your life. I suggest you go find a new hero because I'm alway going to disappoint you.

[quote=rollinrock]

Obviously San Fran’s post above provides a lot of
insight based on experience, which I for one appreciate. Bobby’s
comment is just funny and in character, as is your little pretzel head
image.  Just my take.