Typicall Comissions ?

[DHK]

No. The point of fiduciary duty is knowing where your conflicts of interest are, disclosing them, and still putting together the best plan for the client - regardless of what the commissions (or other production incentives) happen to be.

There is nothing about fiduciary duty that says that you can't be paid or compensated. Financial advice is not charity work.

 

[goillini52]

Yes but isn't the whole point of fiduciary duty to do what is best for the client while being oblivious to commissions?

Hey, if you want to work for free...have at it. Not me.

 

[junkman]

@DHK:

My equity returns are kicking along somewhere between 8 and 11% depending on the time frame in question. I understand how they work and manage things so I won't get discouraged an sell when the market goes into the tank again which it likely will sometime between now and when I die. My point was that paying someone 1% to manage your portfolio is inherently giving away a large portion of the total return. Using a savings rate of $10,000/yr at 6% compounds to $367,855 in 20yrs for a gain of $167,855. Reducing returns to 5% for example, ends up with only $330,659. The seemingly insignificant 1% reduces total return significantly. The client has approximately 30% less total dollar gain at 5% vs 6% if I did my arithmetic right. Dollar amounts increase as the after tax return percentage increases. My point is that you (one) had better know the cost of advice and make sure that is worth it.

You make my point on variable annuities. A 3-3.5% expense charge is gigantic compared to 20 basis points in a S&P 500 indexed mutual fund. Yes, you gain the ability to annuitize but again, be sure that there are legitimate reasons to pass that return hit onto your client.

Indexed annuities are another animal. None of the indexed annuities that I've seen participate in the dividend stream of the index (S&P 500) which is normally between 1 and 3%. Additionally, they frequently have earnings caps. I understand how the portfolios are composed and the reason for nor receiving dividends. Just saying again, one had better make sure that there is a really good reason to pass the return hit on to your client.

Re not putting people's money at risk: There are different types of risk. The ownership of money automatically puts it at risk. Having a down market is only 1 type. Another is having a portfolio return so little that it doesn't generate sufficient income when it's needed. The investment choice is inherently a choice between different types of risk.

[quote DHK]"That depends on who you are asking for advice and what you're looking for. For this area of "college planning" through sheltering assets from the FAFSA using annuities... age plays the biggest part on whether it would really work for the person or not.[/quote]

The last time I knew anyone I trust that was operating in this arena, I was new in the business and minimum guaranteed annuity rates were in the 4% range. Times have changed and low annuity returns don't help. I'll get more accurate FASFA numbers after this tax season. Son is still a freshman but it looks like assets that don't earn income, (raw land in my case) still generate significant tuition payments. I may sell a cabin and land so I don't have to spend it on tuition.

You're right about negative DCA and I'll have to manage liquidity. I'm hoping to cash flow school and not have to spend assets earmarked for other things. Perhaps this discussion would be better in another thread not related to commission.

 

[Norwayguy]

@DHK:


The last time I knew anyone I trust that was operating in this arena, I was new in the business and minimum guaranteed annuity rates were in the 4% range.

That must have been almost 20 years ago.....I do miss those guarantees

 

[MartinJ]

Hey, if you want to work for free...have at it. Not me.

I understand that, but you're missing the point. If an insurance company offers a no-commission product then they can make that product that much better. Then if you sell the other product that pays commissions but is not as good then you've breached your fiduciary duty. Isn't fiduciary duty selling the BEST product out there?

 

[DHK]

No "fiduciary duty" law or rule will force me to work for nothing.

If there are no commissions, then I will find a way to charge a fee against the balance every year - just like fee-based asset management.

Or I will charge an annual retainer fee for ongoing financial planning. How much would that affect someone's net returns if I'm charging a $1,995 annual retainer fee? (Actually, there's not much stopping me from doing that right now, but I'd rather just enjoy the commission income that is not "hard charged" against the client's pocket or their contract.)

But I will NOT be told that I must sell a commission-free product, not be paid, and I have to "live with it" because of "fiduciary duty".

----------

Somewhere, someone, must pay something, at some time. I'd rather let it be the insurance company.

 

[goillini52]

I understand that, but you're missing the point. If an insurance company offers a no-commission product then they can make that product that much better. Then if you sell the other product that pays commissions but is not as good then you've breached your fiduciary duty. Isn't fiduciary duty selling the BEST product out there?

What DHK just said.

 

[scagnt83]

I understand that, but you're missing the point. If an insurance company offers a no-commission product then they can make that product that much better. Then if you sell the other product that pays commissions but is not as good then you've breached your fiduciary duty. Isn't fiduciary duty selling the BEST product out there?

You are not looking at the whole picture.

By Law (regulations), no-commission products can only be sold by a Fiduciary. By Law, in the financial product arena, a Fiduciary must hold a Series 65 or 66 License. Advisers who hold a Series 65 or 66 are also known as "FEE BASED ADVISERS".

Many Fee Based Advisers charge a "Wrap Fee" against the entire account value. It usually starts out at 1%-1.5% unless you have close to $1,000,000 or more. Many Fee Based Advisers have minimums of $300k-$500k just to take a person on as a client.

So a "No Commission" product does not pay commissions.... but the Adviser charges a "Fee" instead of taking "commissions".


Now that is settled...

Compensation is not what Fiduciary Duty is about. It is about transparency, disclosure, and due diligence.

It means you must make need based recommendations, vs. just being a salesman who offers any random product(s) for the customer to choose from.

 

[MartinJ]

Compensation is not what Fiduciary Duty is about.

I always thought that part of it is doing what's best for the client, for example selecting the lowest priced products. Lowest priced usually means zero commission, like Vanguard products. So you're saying that you can split hairs if another product is not quite as good and pays a little agent commission?

 

[DHK]

Costs and compensation are two very different things.

Cost is a relative value. If you believe that "lowest priced products" are always in the best interest, then I wouldn't bother with insurance products at all. Insurance makes ALL plans more expensive. Just do fee-based plans and let someone else fulfill them. (And wait for someone like me to blow them up based on the hypothetical illusions they are.)

However, I can back up any recommendation I make depending on various provisions and terms of the annuity contract that may be ONLY available in one company and not available anywhere else.

It's also possible that the SIMPLER the product, the BETTER it is for the client to understand it, therefore, it is in my fiduciary duty and client's best interest to ONLY offer the SIMPLE TO UNDERSTAND products.