Source of funds - Series 65

[JJ2713]

Correction: It's not a BROKER/DEALER license. It's an investment adviser license subject to the investment adviser act of 1940. It is DEFINITELY a securities license.

You are still subject to your state registration and/or SEC registration laws governing RIAs.

The DOL rule is gone. Doesn't exist. Not anymore.


You might want to check out tactical asset management strategies as a risk-based approach to avoiding significant downturns in a portfolio - subject to a risk tolerance assessment and rating. Clients CANNOT do this on their own. They need an institution to do this - even if it's a "robo-advisor" institution.

A person can implement many trading strategies on their own; no need for overly-complex strategies from institutions. But yes, if someone doesn't want to implement a trading strategy on their own, then using an advisor or institution to do so is fine.

My issue is not charging a fee for advise or investment management; it's charging a % of AUM. Especially for simple index investing. A flat fee is more logical and more fair to the client.

 

[DHK]

Retainer vs AUM Fees For Financial Advisors

Issues to Consider When Billing On Assets Under Advisement

There are some RIAs out there that ONLY do passive indexing, but I believe they charge less than the industry 1% out there - perhaps only .5% given the skill, talent, and resources needed.

 

[JJ2713]

That is great. I remember talking to a family friend once about using him. He took a list of most of my assets and came up with this portfolio, but never really could explain why that was better than what I was doing or what he was going to do for his fee. So my money still sits with a broker, not in managed money accounts.

You're correct. You can create your own portfolio. Most advisors just use index investing anyway; something you can do in 5 minutes per year.

Charging a fee for advice is not the issue; charging a % of AUM is.

And only charging a % of AUM and not giving the client another way to pay for advice. Or to just pay for advice just once in a while (like legal advice).

 

[Stephen]

No I am interpreting exactly what you said:

"Money management fees are a rip-off anyway. Money-management advisors don't do anything for the client that the client can't do themselves"

If you meant to say that some Fee based money managers are a rip off and don't earn their fees ,then I can accept and agree with that. But you didn't say that , and you didn't recommend a flat fee alternative until after the fact (which I also offer).

 

[JJ2713]

Retainer vs AUM Fees For Financial Advisors

Issues to Consider When Billing On Assets Under Advisement

There are some RIAs out there that ONLY do passive indexing, but I believe they charge less than the industry 1% out there - perhaps only .5% given the skill, talent, and resources needed.

Yes I've seen them.

It's very difficult to justify charging a 1 -2% of AUM when only doing passive index investing.

I know other advice is given, but people don't need financial advice year-round; just once in a while (like legal advice).

Grouping everything together as a year-round % of AUM charge just doesn't make logical sense.

Younger people like me (30s) don't use full-service advisors. For what? You can DIY or use a robo and pay very little. And even a robo is not necessary, especially if you're just index investing.

Again... charging a fee for advice is fine, but AUM shouldn't be the factor. The complexity of their situation is.

It's like a accountant charging someone more to do their taxes simply because they make more money, even though their situation is the same (complexity-wise) as someone making less money. That makes no sense.

 

[JJ2713]

No I am interpreting exactly what you said:

"Money management fees are a rip-off anyway. Money-management advisors don't do anything for the client that the client can't do themselves"

If you meant to say that some Fee based money managers are a rip off and don't earn their fees ,then I can accept and agree with that. But you didn't say that , and you didn't recommend a flat fee alternative until after the fact (which I also offer).

I don't think you read my post correctly.

I didn't say advisors are a rip-off, I said money management fees are a rip-off.

Let me clearer...

Yes, money management fees are a rip-off. Only charging a % of AUM makes no logical sense.

However, not all fees are a rip-off.

If you disagree with that, then fine. No need to get upset and hostile.

 

[VolAgent]

No I am interpreting exactly what you said:

"Money management fees are a rip-off anyway. Money-management advisors don't do anything for the client that the client can't do themselves"

If you meant to say that some Fee based money managers are a rip off and don't earn their fees ,then I can accept and agree with that. But you didn't say that , and you didn't recommend a flat fee alternative until after the fact (which I also offer).

I won't say ripoff, but I would say most are not worth what they are charging. I remember back at Mass, the guys who did it and the guys we ran into who also did managed money. They were simply salespeople collecting assets and offered no value for their fees.

Now, I'm not saying salespeople are bad, far from it. But if you are increasing the price and offer no value for it, then yes that is bad.

 

[DHK]

That's when you get the 'reverse-churning' problems.

The Problem With Reverse Churning In Advisory Accounts

 

[Stephen]

Yes I've seen them.

It's very difficult to justify charging a 1 -2% of AUM when only doing passive index investing.

I know other advice is given, but people don't need financial advice year-round; just once in a while (like legal advice).

Grouping everything together as a year-round % of AUM charge just doesn't make logical sense.

Younger people like me (30s) don't use full-service advisors. For what? You can DIY or use a robo and pay very little. And even a robo is not necessary, especially if you're just index investing.

Again... charging a fee for advice is fine, but AUM shouldn't be the factor. The complexity of their situation is.

It's like a accountant charging someone more to do their taxes simply because they make more money, even though their situation is the same (complexity-wise) as someone making less money. That makes no sense.

That's why there is a fee schedule. The more money that you have , the lower the fee. A client with $1mm also typically has much higher expectations of the relationship than a $50k client.

The same claim could also be made for insurance commissions. A $1k annual premium life case takes the same amount of time to issue and underwrite as a $1mm AP life case. Same for a big annuity , or a small one. Should we also standardize insurance commissions regardless of case size?

Finally , I can tell that you are not a financial *** . I would be willing to bet that if you were referred to me off of the street and asked me to look at your portfolio and what your financial life looks like , I might be able to offer a few pointers , but would ultimately tell you that you don't need me , or to pay me for ongoing services.

What your personality type seems to have a hard time grasping is that everyone doesn't catch on to financial problem solving as easily as you do . There are people with much less understanding than you possess , that have much more money and complex situations than you. Just because ongoing fees aren't a good fit for you (which I agree they are not) doesn't mean that they aren't for everyone.

What you also may not realize, is that an invoice to a client for a flat fee has to be submitted and processes just like a new account through RIA compliance. Most of the time I spend more billable time with compliance justifying the flat fee than I do solving the clients concerns.

 

[Stephen]

That's when you get the 'reverse-churning' problems.

The Problem With Reverse Churning In Advisory Accounts

I agree 100% , that is why it is so important to have a solid investment policy statement that stipulates exactly how and when investments need to be adjusted.