$850, 000 portfolio, hates fees, now what?
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Tell the client to go to Vanguard. He will pay less than 30 basis points a year.
As usual, you are giving good information.
Right now, I think I will use as many American Funds as I can. But, personally I would not put all of my retirement funds with any one company. And, he has to see the long term impact. The sales fees upfront will be made up for in a great portfolio.I have to say, I agree. Especially when the fee based accounts don’t hold up or have some stinky mutual funds.
We will see where fee based accounts end up a couple of years from now. Everything old is new again.“stinky funds” in fee based accounts? have you looked at any. they do normally contain fidelity, vanguard, franklin-templeton, american, dodge & cox, etc etc. they are not programs where the red headed stepchild goes to hide. those are just the fund based programs.
i think the whole transparency issue puts fee based guys behind the 8 ball. can you guys seriously show people a .25 fee on their AF and feel like you disclosed all their fees? no matter what Jones says about THEIR clients holding periods, i don't buy it. How many clients do you think will actually hold funds 10+ years. I would bet the % is pretty low. moving the guy from A share to A share because of long term lower costs is comical to me. in a vacuum it works, but in real life it hardly ever (ok, not normally) happens. i see the same damn thing with VA's. surrender charges come through insurance companies everyday. client buys under the long term hold guise, then gets "new" advice to change.[quote=iceco1d][quote=kirkyboy]
15% is what Mr. Market has lost since October '07. Most client's risk tolerance is nice and high...until the inevitable correction in the market. Tend to agree it's not the fees but the loss incurred. Perhaps he/she needs to be re-educated in terms of risk tolerance and asset allocation. That should help sooth the beast and help put the loss and fees in perspective, not to mention help you re-position his funds and close the deal. [/quote] Sounds like a BJQ reincarnated post...any half arsed advisor should be able to tell if a client is fibbing about their risk tolerance or has unreasonable expectations.[/quote] I don't believe he is BJQ personally.. But I do think the person that started the "sponsorship" thread is BJQ. Miss JJust perusing this board. New to board, not whatshisface. Agreed (i.e. any half arsed…) but some clients can delude/lie (to themselves) and no one would ever know.
Here’s how I’d do it:
Invest large cap portion in Wash Mutual, Fundamental, Growth Fund
Invest mid cap portion in mid cap index fund (value, blend, growth)
invest small cap portion in small cap index funds (value, blend growth)
Invest International in Vanguard total Intl (it’s lower cost and it’s outperformed Europacific growth and captial world growth)
or you could break it out into Eur index fund, pacific and emerging
I’d also add a very small amount of commodites for more diversification (smoothe out ups and downs)
For fixed income
Emerging Debt
High Income
Long term bond
I’d have a pre specificed % for each fund and rebalance anually. This will force you to buy low and sell high.
You don’t know a thing about the client and you already have recommendations. I see that you add a lot of value to your clients.
Ok, without knowing anything about the guy, how do you know what funds should be used? How do you even know that he should be in funds? People who "hate fees", yet come from a fee-based account, probably don't hate fees. He hates losing money. The fact that he wants to make a change after losing money may indicate that a VA is in order. (I don't have a clue because I don't know a thing about the guy.)
Does your firm have a selling agreement with Vanguard that would allow you to sell Vanguard funds?
[quote=josephjones107]That’s the reason I didn’t break it down into percentages dummy. [/quote]
Atta boy - when all else fails, why not try name calling? It’s so much easier than resorting to actual reasoned discourse.
Or maybe - using your apparent logic - it’s not name calling if you don’t actually specify what percentage of a dummy you think he is?
I’m not going to be an order taker and basically ask the client what they would like to invest in.
80% of my clients have similiar goals and I know what needs to be done to get them to those goals. I control the client relationship and not vice versa. Sure I ask them their goals, but in the end I can guarantee I’m investing them into a very diverse portfolio.
At this point, I don’t need any one prospects business, so I just sell what I believe in
Wow, that's really good!!! Do you mind if I use that for my clients? I would have never have thought of combining American Funds and Vanguard, that is genius!! I feel like I am reading straight from Benjamin Graham when I read your posts.... Tell me more, please......Here’s how I’d do it:
Invest large cap portion in Wash Mutual, Fundamental, Growth Fund
Invest mid cap portion in mid cap index fund (value, blend, growth)
invest small cap portion in small cap index funds (value, blend growth)
Invest International in Vanguard total Intl (it’s lower cost and it’s outperformed Europacific growth and captial world growth)
or you could break it out into Eur index fund, pacific and emerging
I’d also add a very small amount of commodites for more diversification (smoothe out ups and downs)
For fixed income
Emerging Debt
High Income
Long term bond
I’d have a pre specificed % for each fund and rebalance anually. This will force you to buy low and sell high.
[quote=Northfield]I rode through the '98 and 2001-2 markets while building a fee-based practice. Both times added several dozen new fee-based relatinships and lost less than 3-4. This January alone, I have added 4 new fee-based accounts from clients deciding they’d rather have me running the investments on a professional basis, rather than us doing it together on an ad-hoc basis. So this is an environment that is terrific for adding to your fee-based account base. You’re building the leverage for the next bull mkt.
For the clients who were with me during the past bear market they know as well as I do how the movie ends. It ends well if you don't panic, and if you don't try acting like a hedge-fund manager or market timer. Remove anything toxic or exotic from the portfolio, check the allocation (60/40 or whatever) and ride it out. If this strategy seems insane to you, then you should consider getting your own TV show with a bright yellow backdrop and noisy props. Cramer needs competition. For the $850k prospect, is he going to be a client or a customer? Clients want your ongoing advice and counsel regardless of market conditions, and would rather pay you on a fee bassis. Customers realy only want to do business with you while times are good, and you may as well do transactional, brokerage business with them. At least you'll get paid.[/quote]Great post, you can tell it comes from the frontlines.
The client is not upset with the fees, but with the performance. You should first show a hypo of what he would have lost had he been in a low cost S&P 500 fund or ETF, so he can see fees had nothing to do with it.
Second, if you choose to charge fees, you need to explain WHY YOU DESERVE the fees, meaning, what services you will provide him in exchange for the fees. Investment services alone does not justify 1-1.5% in fees on top of MF wrap accounts or 2-2.5% in stock trading accounts.
Depending on the client's age, you can either:
(1) Do a VA to "lock in" the floor as lifetime income and invest in MF within the annuity. High cost but you're paying for insurance.
or
(2) Do a mix of 30% Cash and CDs, 30% Short-Intermediate Bond Ladder, 30% in Actively Managed Diversified Mutual Funds, and 10% in Alternative Investments. Use the large cash position to ease into the market over the next 6-12 months depending on market conditions.
Explain that his natural intention of going to CDs/Cash will make it very difficult to get back to even considering today's low interest rates.
My 2 cents.
American Funds has been very successful outperforming, but they’re mostly a large cap manager.
Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.
Not a bad baseline. My only concern with using indexes is that they can't do anything strategic or tactical. That's what you pay AMF for. However, you are right - AMF is terrible in the small cap space. They are great in large, mid/large, and international. They are average in bonds. But they really manage to objectives, not style boxes or Morningstar Categories. So if you are looking for consistency of income and growth of income, they are lights out. They probably have the top core funds out there (I am partial to CapIncBuilder, CapWrldGI, FundInv, IncomeFund). However, some of their satellite funds leave something to be desired. Though I do like the strategy in New World Fund - lower volatility exposure to emerging markets (they use indirect exposure for much of that portfolio). Yes, returns are lower, but "lower" is a relative term. And it reduces volatility comapred to many EmMarket funds. I tend to use FranklinTemp for satellite funds.American Funds has been very successful outperforming, but they’re mostly a large cap manager.
Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.
[quote=josephjones107]American Funds has been very successful outperforming, but they’re mostly a large cap manager. Vanguard index funds are good for mid cap and small cap areas because investment managers have had alot of difficulty beating their benchmarks in those areas. Additionally the index funds are a heck of alot cheaper than most actively managed funds for mid & small.
Not a bad baseline. My only concern with using indexes is that they can’t do anything strategic or tactical. That’s what you pay AMF for. However, you are right - AMF is terrible in the small cap space. They are great in large, mid/large, and international. They are average in bonds. But they really manage to objectives, not style boxes or Morningstar Categories. So if you are looking for consistency of income and growth of income, they are lights out. They probably have the top core funds out there (I am partial to CapIncBuilder, CapWrldGI, FundInv, IncomeFund). However, some of their satellite funds leave something to be desired. Though I do like the strategy in New World Fund - lower volatility exposure to emerging markets (they use indirect exposure for much of that portfolio). Yes, returns are lower, but “lower” is a relative term. And it reduces volatility comapred to many EmMarket funds.
I tend to use FranklinTemp for satellite funds.[/quote]
I think Capital (am funds) is very smart and they know it’s extremely hard to beat mid & small indexes, so they don’t get involved in those. (outside of sm cap world which is a differnt game)
Your concern with indexes not being strategic or tactical: this is where the advisor comes in. When you rebalance to predetermined levels for asset class you buy low & sell high automatically.
As for Volatility, the focus should be the overall volatility of the entire portfolio, not so much on the fund level. Case in point: many advisors/clients had a very large % invested in large caps (since they are less volatile) in 2001 and 2002 and got destroyed (growth fund of america was down 22%) Had you been more diversified and had clients invested in Emerging (only down 2% in 2002) and mid cap (down -14.61) your portfolio volatility was a lot less.