I would like to add here that I think this is an EXCELLENT for guys who do this sort of business (before you go thinking I just had a giant glass of Watchoverya-ade, thi is going to be a very turney worm).

Look at it this way. If you work at a wirehouse (or a regional or whathave you) and you have a book that is (I'm sort of rumor reporting here, so grain of salt it) 50% "Fee Based" (which somehow excludes mutual fund trails) Finet has a up front package that is in the 80% of T12 range... to go INDY! (even LPL guys ought to be listening up!) 

So there you are... at Smith Barney, doing Legg Mason or Lord Abbott and whacking the client for 2%. You're getting a 36% payout (cause they sliced off 4% of your compensation to pay you for your overtime settlement) at (call it) $300,000. Let's say that you are all in in the fee based. You're netting $108,000 (ugh!)

Finet gives you $240,000 in loans that are paid back by your production (as opposed to over some time table) and so we'll say they're taking 3% out of your 90% payout. 300,000 @ 87%= $261,000 ok you have to spend (call it) 100,000 to run an office, pay taxes etc etc (should be less, but ok) you're still ahead...

Then they have 4front... You're going to do the managed money anyway, makes sense to do the Envisions, you're bringing in new money so you'll hit that mark and you'll talk to your clients 6 times a year and meet face to face at least once and your households are going to be 250M+. Homerun, they give you an extra $100,000 Attaboy! (Again, I don't speak for any firm you'll have to confirm with your own research).

 Wow, now you got up to a 113% T12 and you upped you comp from 110M to 160M!

What are you waiting for? Operators are standing by! Mention my name and get a puzzled look from the recruiter!

Turn you damned worm!

This is still stupid!

It was reported in Investment News that Merrill (the 800 pound gorilla) is treating SMA (Separately Managed Accounts) like they are Samsonite luggage!

If I understand it correctly (and I'm willing to be corrected) merrill informed SMA firms that they will no longer be getting 40Beeps and they will no longer be getting the actual money to run any more. Instead, they will be getting 26Beeps and they will simply transmit their position papers to ML and ML will take care of execution and custodianship etc etc etc. As we all know, when one does it, they all do it.

The ML Beancounters will surely turn their attention next to the brokers who will be using up so mch of ML's processor power and will explain to these brokers that just because Mother has the power to spare, and just because that power was purchased with monies earned by the brokers for Mama, doesn't mean that they don't have to pay her for that service! PAYOUTS FOR SMA BROKERS ARE GOING DOWN!!!!! The percent of that 2% that you are charging your client that is going to hit your grid is going to be smaller, a lot smaller!

If you are a "Managed Money" guy at a major, that swishing sound you hear is the hammer about to come DOWN! (It's not like we didn't warn you!) 

What this means to Finet is that there is about to be a Tsunami of SMA brokers that are looking to leave the wirehouse for the Indy paradigm! 

I don't know why they should need to overpay them to go to Finet. They will be knocking on the door anyway!

That having been said, it's very smart for Wachovia, and Finet to do this so that they are the first call, and the last. Just don't use MY money to do it!    

Weren’t SMA assets always custodied and traded at the respective wirehouses?

SMA’s are waaaaaay overrated anyway.

I was matched up with a a great advisor who hand numerous years in the biz and was definalty not a rookie! he took the time to go over my investments and covered topics such as stocks and bonds and hedge funds. I was matched up by a company called leadsco and they get leads which they inturn provide to the investment advisor. they are online at http://www.leadsco.ca

[quote=Whomitmayconcer]

If I understand it correctly (and I'm willing to be corrected) merrill informed SMA firms that they will no longer be getting 40Beeps and they will no longer be getting the actual money to run any more. Instead, they will be getting 26Beeps and they will simply transmit their position papers to ML and ML will take care of execution and custodianship etc etc etc. As we all know, when one does it, they all do it. [/quote]

That would be ML considering moving to a "model portfolio" model rather than an SMA format....

[quote=Whomitmayconcer]The ML Beancounters will surely turn their attention next to the brokers ...... PAYOUTS FOR SMA BROKERS ARE GOING DOWN!!!!! The percent of that 2% that you are charging your client that is going to hit your grid is going to be smaller, a lot smaller!

If you are a "Managed Money" guy at a major, that swishing sound you hear is the hammer about to come DOWN! (It's not like we didn't warn you!)    

[/quote]

I'm not saying fees won't shrink as the marketplace becomes more competitive, but your leap from ML considering model portfolios to the "hammer" is just too large to take seriously.

I'm sure that ML will see it as absolutely fair to just keep the difference between the 40 and 26 beeps.

But they've created the language required to shave back payout %ages to brokers.

The point is that you've put yourselves into a position where you have no recourse other than walking out the door. The firm's objective is to make as much money as they can. Fees shrinking due to marketplace competition will become fees pinched as ML et al. squeeze from the bottom too. As if it needs justification, ML was justify this (to shareholders) as "we're losing income by the compression of fees due to the competitive marketplace. Therefore we will need to charge brokers for their usage of the server system for these SMAs. It's only fair they pay for our upgrades that we made so that they could do this business (not to mention the profits that we're entitled to make)."

When you are working off a 2% fee, a 50beep ding is like Wile E Coyote after finding that the "Beep beep" he was standing in front of was the horn of a semi!

[quote=Whomitmayconcer]

I'm sure that ML will see it as absolutely fair to just keep the difference between the 40 and 26 beeps.

But they've created the language required to shave back payout %ages to brokers. [/quote]

Interesting speculation, but just that, speculation.

[quote=Whomitmayconcer]The point is that you've put yourselves into a position where you have no recourse other than walking out the door. The firm's objective is to make as much money as they can.

[/quote]

Neither of the above points are news, otoh, ML realizes that people can walk out that door and with them, their revenue. It isn't completely a one-sided proposition.

 Fees shrinking due to marketplace competition will become fees pinched as ML et al. squeeze from the bottom too. As if it needs justification, ML was justify this (to shareholders) as "we're losing income by the compression of fees due to the competitive marketplace. Therefore we will need to charge brokers for their usage of the server system for these SMAs. It's only fair they pay for our upgrades that we made so that they could do this business (not to mention the profits that we're entitled to make)."

When you are working off a 2% fee, a 50beep ding is like Wile E Coyote after finding that the "Beep beep" he was standing in front of was the horn of a semi!

Corrected version

[quote=Whomitmayconcer]

I'm sure that ML will see it as absolutely fair to just keep the difference between the 40 and 26 beeps.

But they've created the language required to shave back payout %ages to brokers. [/quote]

Interesting speculation, but just that, speculation.

[quote=Whomitmayconcer]The point is that you've put yourselves into a position where you have no recourse other than walking out the door. The firm's objective is to make as much money as they can.

[/quote]

Neither of the above points are news, otoh, ML realizes that people can walk out that door and with them, their revenue. It isn't completely a one-sided proposition.

Wachovia's "Envision" financial planning tool is mentioned in the WSJ article I previously discussed. It may be of interest for AGE advisors/brokers to read thru some of the comments on this particular thread as they relate to WB and Envision.

[quote=Whomitmayconcer]

Fair enough. Thank you.

But this doesn't negate the idea that the hedge fund manager still collects a management fee for the fund even if it underperformes its benchmark. And that he does not share in the loss, only the gain of the portfolio. [QUOTE]

Except that most LP would insist on a serious amount of manager coinvestment in the funds. If you look at FIG's public statements, a fairly large %age of the firms assets are tied up in its hedge funds.

Given the leverage of the 20% cut on profits the managers cash flow is very leveraged to high performance.

[quote]As a result, his vested interest is to swing for the fences every time he's up to the plate. Now, that may be fine for the hedge fund investor who wants to add that discipline to his overall portfolio. But don't tell me that it is the "perfect" compensation paradigm for the industry as a whole (not that you did, but that she did).[/quote]

It depends on the benchmark used as well. Most absolute return strategies are going to be benchmarked to 10TSY, or LIBOR or CPI.

Myself, I tell clients that my personal benchmark is CPI.