E. Jones Wants to Manage My Assets?

[LGilmore]

As Biggy pointed out and what I thought of too was isn't this just a wrap account? In other words fees wrapped around fees..... not a big fan of this concept. It's up there with an annuity in a 401(k) (Please explain the need for double tax defferal?) In some cases it might make sense, but not generally as a rule. I know I could be wrong, but about every wrap I've seen has a couple layers of commissions(fees) that I have trouble with the justification. I could be totally wrong, but no one has yet to show me where the benefit is.

When you deal with a house, the house will push what's best for the house. I would approach this with the same level you approach winter on many issues here.. in other words "show me how this is better for me?", in writting of course.

I know I want all my clients to stay put with their funds. If they were good ideas before, why aren't they still?

Obviously, something's not right with your gut on this one or you wouldn't be posting here. Trust your gut. Let em show you. Tell him you asked your interenet forum pals and he needs to show us too. I mean, if it's a good idea for you, shouldn't it be for me too?

Good luck and I could be totally wrong, but my "spidey sense" is tingling. It's the memmories of being a captured agent coming back.

For you it should come down to "why is this good for me?"

 

[GetInsurance]

Stick with what you have Al. An asset allocation fund like the ones you have is already being managed. They DO trade and change positions on a regular basis. You would just be moving funds to another fund after already having paid into it since you are class A.

 

[CHUMPS FROM OXFORD]

"exiting the market completely and putting your 100K into a diversified portfolio of nontraded REITs, Timberland, Oil & Gas assets, Leasing, etc"

Not me.

 

[sman]

Al,

If your advisor stated that your account would "bounce back" quicker in a managed account, then shame on him. None of us have a crystal ball. With that said, sometimes individual fund companies have a few decent funds, but not across all asset classes. So it's hard to get the best of all asset classes with any one fund company. The advantage to a wrap account is the fact that you can choose from virtually any mutual fund out there (assuming EJ's program allows this). Thereby potentially maximizing the chances of you getting a better return than trying to cover all asset classes with one or two fund families.

The downside in a wrap account is the fact that the wrap fee (1.30% - which is on the low end by industry standards) is in addition to the fund expenses themselves. Generally you are looking at north of 2.00%-2.50% in total cost. But with the ability to replace funds at no additional cost, this can potentially more than make up for the cost. For example, let's say that you have a small cap fund that isn't performing well, you can replace that with another small cap fund at no cost. Additionally, a wrap account does not give an advisor discretionary authority over your account.

As for what the advisor is getting out of it, it will be some ongoing percentage of the 1.30%. It really depends on his payout. In the long run, the advisor definitely has the potential to make more money off a wrap account than just a transacational mutual fund sell.

Make no mistake about it, there is added cost to you compared to what you are currently paying. Your current funds have a management expense that goes to the nutual fund comapnies. Since you state these are A shares, EJ is getting a 25 basis point trail and the advisor is getting a percentage of that 25 basis points. As I said before, with the wrap account, you pay an additional 1.30% of your assets over and above the funds management expense.

This is probably somewhat off-topic and if so the mods should delete it.

Some of you are registered reps or have worked at wire houses.

My Edward Jones broker is suggesting that I sell two of my fairly well allocated/diversified A-share fund families (Templeton and Goldman) and put the proceeds (about $100k give or take) into a (Jones run) managed account. They want 1.3% a year as a fee.

OK, the funds have taken a pounding, but so have all funds. When the market comes back, the funds will come back (the rising tide lifting all ships, etc.) Broker claims I'll "bounce back" faster in a managed account than by just waiting for the funds to rise with the general market.

I'm not asking if this is a good idea or not as no one can say for sure (unless they know the future!)

My question is this: What exactly does my broker have to gain from me doing that? Why is he suggesting I do this... from his point of view (i.e. gain or loss.) What does he get out of this deal, since he is giving up "control" of the assets to another group of brokers who will do the balancing, trading, etc. (at no added cost to me, I'm told.)

 

[moonlightandmargaritas]

Since you state these are A shares, EJ is getting a 25 basis point trail and the advisor is getting a percentage of that 25 basis points.

For the ignorant (like me), 100 basis points = 1%, yes?

So 25 basis points equals .25 (a quarter-of-a-percent for the oldtimers), no?

 

[sman]

My apologies. That is correct.

For the ignorant (like me), 100 basis points = 1%, yes?

So 25 basis points equals .25 (a quarter-of-a-percent for the oldtimers), no?

 

[Pandorian]

Well the obvious reason why he is asking you to do that is that he makes a commission. In house accounts he makes an even higher commission.

 

[bluemarlin08]

If he hits your objectives, who cares how much is charged. Obviously, his recommendation does have an element of increased revenue, but some of the AUM teams do quite well. I would be more inclined to "roll my own". With a small amount of study, IMO one can understand asset allocations, and choose low cost MF such as Vanguard, and do quite well. Visit Bogleheads.com and read some posts, I think you can hit your objectives with less risk, ie minimizing expenses.

 

[BiggitySwat]

If he hits your objectives, who cares how much is charged. Obviously, his recommendation does have an element of increased revenue, but some of the AUM teams do quite well. I would be more inclined to "roll my own". With a small amount of study, IMO one can understand asset allocations, and choose low cost MF such as Vanguard, and do quite well. Visit Bogleheads.com and read some posts, I think you can hit your objectives with less risk, ie minimizing expenses.

Just curious - are you a fan of Suze Orman or Dave Ramsey?

I can't see how one can simply instruct a layperson to read a couple of websites then go out and buy Vanguard index funds just because they're cheap. The folks who followed the advice of "just do it yourself" and "buy index funds" are getting creamed from the S&P 500 this year and actually just broke even from the late nineties (look at the history of the S&P for the past 15 years)

I do this full time as my career, and I still am learning new things every day from ongoing training, seminars, classes, etc. I cannot see how this is good advice for a layperson with 100K of retirement money and limited experience in the securities industry. Anyways, my two cents
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I understand your POV, but I tend to agree with the Jones investment philosophy. They are not perfect by any means, but I have some level of "peace of mind" that when they suggest a fund or a stock that it has been "vetted" by people who are honest and who follow the Jones paradigm of safe, secure, holdings.

Besides, I simply don't know any RIAs in my area whom I feel have the same, conservative approach that I do. The ones I know are all cowboys... who follow the latest hot-pick of the day and who are going to make money on their wrap fees and not actively be looking at what is best for me. I'm sure not all are that way, but those are the ones that I know here... or who are probably more suited to a younger, less risk-adverse client than myself.

Yes, this type of RIA irritates me too, the type that just gathers assets, charges a wrap fee then goes to the golf course. However, you don't have to be a fee-only RIA to be an independent financial advisor - you could look for an indy advisor who also has the 7/66 licenses held at an independent broker-dealer. That's a shame, though, that there are no independents in your area that you feel can offer conservative solutions.

I have a very low risk-tolerance. I'm not the kind of client who is going to do any speculative investing.

My idea of Oil & Gas/Timberland was speculative, but there are many non-traded REITs and Leasing DPPs that are rock solid as far as preservation of capital. Granted, some are doing quite terribly along with the rest of the market, but then again, it's the advisor's responsibility to do "due diligence" and research on the security before selling it to a client. My firm actually specializes in alternative investments, so we screen these programs very carefully.

Anyways, it's just a good idea to keep an open mind, as we have clients 90% into alternative investments and their rate of return since the recession began has been 8%......not bad, considering most of the wirehouse/mutual fund crowd is wallowing somewhere in the range of ~ -25%.

I just thought of something - it seems that your risk tolerance is extremely low, and given your situation, warranted. You don't have to be in the market if you don't want to.....how about short surrender high-cap indexed annuity? (5 year surrender, 9% annual cap, etc). It will guarantee your principal but allow for some market participation, so you can have a chance to get your money back from the latest correction.

If not that, and if not alternative securities, I don't know how one would give you the "peace of mind" you mentioned and restful nights while keeping ahead of inflation and earning a decent return. If you were my client, I would definitely not be pushing a market traded security if you were looking to sleep well at night - reason being, the stock market is.....unpredictable! And to put an ultraconservative investor's retirement money into the market, period, is more speculative to me than even investing in our most aggressive REIT.
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"exiting the market completely and putting your 100K into a diversified portfolio of nontraded REITs, Timberland, Oil & Gas assets, Leasing, etc"

Not me.

Alright, I maybe exaggerated a bit with that statement, but I cannot see how having a conservative retiree 100% in mutual funds is any better...?

Unless you're in fixed insurance products, in which case I would agree that is a viable solution if all you want is preservation of capital and a conservative return?

 

[SportsNut]

If you are tempted to employ the Broker's advice, why not do so with exactly 1/2 of the acct value of the existing fund. As time goes forward, you will always have a comparison of which decision was best; theirs mg'd fund or your existing mg'd fund. If after 5 or 10 yrs their approach is better, then consider moving the rest of it... (or moving that portion back to whince it came).

Now if the Broker tells you it is not available for piddly amounts like 50K, then I would likely pass.