Full Disclosure - Commissions II |
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This is a continuation of the thread "Full Disclosure - Commissions", which has grown to the point that it now takes an awfully long time to load -- even on a fast line.
well, is there anybody left who does not understand the difference between a Fee-Only advisor and a Commish Planner?
I get it!!! It's too bad that this thread couldn't be published somewhere prior to the RRSP frenzy.
Great link, Bylo
OK, the question above was do I/We recommend any load funds - absolutely, there are too few no-loads in Canada to make a proper selection for diversification purposes. We charge no FE for this and insist that the broker do likewise - as has been said in the end of the other thread, all funds thus become no-load and we can recommend anything based only on the criteria of performance relative to the market and other funds in the same category.
As for AIC, it is in fact on our list (amongst about 40 other funds) - but we do not select on any basis other than performance and access (ie, the client can buy the fund through a conventional broker or MF agent - IOW, it is not a fund closed to access such as MD Mgmt or some insurance co funds which cna only be purchased through an agent).
As for publishing the thread before RRSP season, it effectively is published in here and as more reference this thread, then the other thread might get some "lurkers" browsing it too
Warren.
Warren, thanks alot for your input et.al. Your level of expertise is pretty clear to everyone here. You have vastly increased my understanding of the FP business.
Cheers!
ooops...should have included a back reference to the original Full Disclosure - Commissions thread in the first post of this thread. That way the original thread will still be readily "accessible" even long after it drops from the thread list -- like during RRSP season.
Warren, mass exodus from MF due to whatever???? Whether load or no load. How does that affect the performance???? Altimira??????? I see on another thread (Trimark) that people will leave for bad performance even for a month or two. Of course this find I believe is DSC so they cant leave anyway.
Bylo, gummy & a few others here. Thanks a lot for your HTML knowledge & the valuable links U all provide us.
Great idea Bylo to link previous threads for others to update what has already been said without covering the same ground all over again.
Bylo, good idea,and well done.
TIM, mass exodus, huh? After a couple of months of bad performance? I don't think so.
BTW, Trimark is not just a DSC fund company.
I think we've pretty much covered the "fee-only" vs "commission" debate. Thanx to all for keeping this so cordial.
Warren, I look forward to your comments on other threads.
Warren, let me start out by saying that I agree with most of what you are saying. However, as a fee and/or commission based planner I have a couple of issues. You said " Simple, higher MERs to "amortize" the cost of the up-front payment or a heavy exit fee if the investor leaves the fund group early. Bottom line, Madelyn, "there ain't no free lunch" the investor always eats this cost - the fund co is not a charity, and they are not paying the up front commish out of their own pocket."
I disagree. Most of the load-funds, of which you already said you recommend 80% of the time, do not charge different MERs for Front-End vs. DSC anymore. The most notable exception is Trimark, and I for one agree that any FP that sells Trimark Select, vs. Trimark Front-end, is not looking out for the client, but themself,...or is ignorant, (which happens).
You also said in a response to Jurgen, ">her clients never pay a DSC redemption fee the way she handles this<
I am aware of this technique but have seldom seen it used by brokers - I would say she is the exception rather than the rule
>odd person who is looking at the client relationship on a long term basis and who would include a PHN or Bisset when appropriate, even making nothing on this part. <"
I may be the exception, but I think you must also recognize that portfolios that you see in general are from folks that are dissatisfied with their FP. Otherwise, they wouldn't be talking to you. I try to keep this in mind as I see portfolios from the "yes-we-give-advice" no-load funds, and the banks. I try to remember that there indeed are good advisors at the banks, but that the portfolios that I see are from those that are unhappy, and most likely for a reason.
I also have to say Warren, that some of us do recommend PH&N, Bissett, etc., and we also sell DSC. You haven't heard of us, because our clients don't come to you,...they stick with us.
Otherwise, I agree with and commend most of what you are saying,...just not all of it.
>mass exodus from MF due to whatever<
No Tim, I would not expect any mass exodus from load funds - DSC, FE or 0% FE - the advisor in each case should be counselling the client to "ride it out" - look, in 1987, a number of leveraged investors got "sold out" by the overly-nervous banks in the immediate wake of the crash, when they found out in Jan that they were out of the market, it was too late to get back in (apparently
To be fair, this will impact (potentially) on performance - in a serious downturn, many of the no-loads bought by "less aware" investors (ie I would include bank funds in here) could be hard hit by the newbie investor panic - perhaps PHN & Bissett will be spared as they have fairly high initial limits to get in ($25K and $10K, respectively) so by the very nature of this it represents more aware investors.
>I disagree. Most of the load-funds, of which you already said you recommend 80% of the time, do not charge different MERs for Front-End vs. DSC anymore.<
OK, Madelyn. You're entitled to your opinion. BTW, I have noticed a number of very impressive financial posts you have done in the threads in here so I guess I am uncertain as to exactly what you disagree with here?
First, do you not agree that it is the client's $$$ (or the potential return on these invested $$$ )that is paying the commissions?
If an investment pays out 4.5% up front, does this money come out of a vacuum - or thin air. Nope, someone writes the cheque and then expects to get re-imbursed. In this case the someone is the fund co, and about 60 bp is earmarked to fund this payment from the on-going MERs.
First, I don't believe that I said that I rec load funds 80% of the time, I think I said that about 80% of the funds on the list of "performance" funds for our clients are load - this does not mean that these are the ones most recommended 80% of the time - our selection is "cherry picked" on a client-by-client basis from this list. If anything I said earlier was unclear, please accept my apology on this. In fact, almost for every client we include a hefty base of the no-loads - their performance is excellent and the MER is low, so why not (and
OK, about the MER, consider this: DSC = 60 bp or so to "amortize" the up front pymt to the broker - heck, this is a business the fund co runs, and also in a DSC = 50 bp in the cost of funding (most) trailers paid to the broker. Now this adds up to just over 1% continuing commission cost to the MER. Any disagreement with this?
Now, lets look at FE. Regardless of the FE charged, in many cases, the trailer is about 1% on the FE version of the fund (this point has been made several times in this thread, I believe) - so, all-in-all, there is a cost of about 1% to the MER for the on-going commissions to the broker. Correct?
All I was saying is that however you toss it, the commission exists - in fact it was your original comment to the effect of saying (I will paraphrase, so forgive me, I am offline here
FWIW, I heartily agree with your comments on Trimark Select - OTOH, care to speculate on why T select funds (with less performance) and which have only been around about half the length of time as the original T funds (circa 1988/9 compared to circa 1981, I believe) are about twice the $$$ size of the original T funds? Hmmmm, could it be that these funds are "sold" not "bought"??
>I may be the exception, but I think you must also recognize that portfolios that you see in general are from folks that are dissatisfied with their FP.<
Funny you should mention this - I considered this very demographic issue when I made that comment. I did not raise it since I have found many clients who have 100% DSC and are frankly not consulting me because they are disaffected. The may be seeing me as a result of an outplacement, or due to a taxation issue or because their spouse has decided to use our services - almost universally, I find they have DSC funds, period. In fact, it is almost ironic but, when faced with a new client coming on board, know that in looking at their investments that I will find DSC - when I ask, they are usually surprised at the commission structure they are involved with.
>and we also sell DSC. You haven't heard of us, because our clients don't come to you,...they stick with us. <
Bravo. So they should - you sound as if you are providing a very fair service. You at least will be ready to service clients who are becoming increasingly aware of the need to be informed and aware about their investing choices.
Thank you sincerely for all your comments.
Warren.
Nope! I'm not going to apologize. You fellas may think that I'm rude. You also say I haven't contibuted, and you are correct. However, I also didn't just arrive, ...announce myself as an expert...and get kudos based on absolutely no prior contibutions.
I guess what I am trying to say is that you people seem to have embraced this Warren person, & he has done nothing to earn your trust, except to respond to this, & only this thread. I truly mean no disrespect to Warren, but I meant what I said.
I am amazed that you people believe anything you read, from someone who has not earned the right to get your trust....I believe that this must be earned.
In varying degrees, there are FP's on the site that have "earned" my trust, such as Madeline, Rob, Geoff, Screaming, Reg, etc. I have been "lurking" here for quite some time, and only now did I feel strongly enough to respond. Until Warren contributes some advice that is off the topic of commissions, and his business in particular, ...I for one don't give it much credence.
I am also happy to see Madeline respond finally to Warren. I was beginning to think she was backing off this thread. My faith has been restored, and I for one will stick with the known factors.
>except to respond to this, & only this thread. I truly mean no disrespect to Warren, but I meant what I said. <
Nope, I have comments on a couple of other threads in here (and have been SYSOP on another investment/business forum on another service for a couple of years0 - I just felt in here that some opposing voice needed to be heard on the issue - sorry Kathy, I have been in the FP industry for 17 years, have served as a National Director of the CAFP for 6 of those years, and work with the largest fee-only firm of FPs in the country - I guess I wonder where you get off impuning my credibility or professionalism.
Point is, is your definition of a "properly qualified" or "trustworthy" FP simply someone with a modem connection who has "lurked" these threads for a while, I hope not !!
One point back in the thread, someone asked for my credentials, I am not going to replay them here, suffice to say, I have been working directly with Canadians and the mangement of their investments for just over 25 years now.
>from someone who has not earned the right to get your trust....I believe that this must be earned. <
HOW?? Any particular educational criteria or other professional qualifications in mind, Kathy. Come on, I articulated my credentials - show us yours, please - CFP, RFP, CSC, CIF, CIM, FCSI, BA, MBA ?? Please reply, I'd like to know.
>there are FP's on the site that have "earned" my trust, such as Madeline, Rob, Geoff, Screaming, Reg<
I never criticized their professionalism or trustworthiness, in fact I have occaisionally praised it. All I have been doing is articulating a choice of service here and disagreeing on a couple of what I considered misleading statements made at the beginning of the original thread. What is wrong with my position? Am I incorrect? Are my statements somehow illegal or unethical? Please help me understand your perspective.
>Until Warren contributes some advice that is off the topic of commissions,<
Much of this thread has wavered on and off the topic of commissions, I believe. Management service, planning, asset mix, services of an FP have all been covered - in many cases in response to questions that have been asked
>I for one don't give it much credence. <
It's a free country and your beliefs are entirely up to you. This, I do thoroughly appreciate and respect sincerely.
TIA for any further comments you'd care to add - please take a moment to read my comments to Madelyn, as well. Warren.
well,
commish is interesting, but it is not everything.
The bottom line is what you are looking for, and I understand Warrens argument that commish has an impact on performance.
But there are other factors and of course the pick of the right investment is the most important. Without attaching this to names, if a fee only planner is recommending a fund which makes 15% and a commish planner a fund making 25% than who cares about the commish?
Are there good fee only planners? Sure. Are there bad ones: You bet.
Are there good commish planners? Sure. Are there bad ones? You bet.
Warren,
Trimark deserves a round of applause for keeping the "classic" FE load Tri and TriCan funds at their original 1.5% MER when they introduced DSC. The other MF companies simply inflated their MERs for everyone.
Kathy,
"You also say I haven't contibuted, and you are correct." ... "I am amazed that you people believe anything you read, from someone who has not earned the right to get your trust....I believe that this must be earned"
First and with respect, based on your own criteria why should we believe anything you say? What have you done to earn our trust?
Second, does your comment also apply to Jeff(FP)? If so, please let him know how you feel. If not, please let us know why.
"I guess what I am trying to say is that you people seem to have embraced this Warren person, & he has done nothing to earn your trust, except to respond to this, & only this thread."
On the contrary, Warren has earned my respect and trust (and gratitude) precisely because of this one thread. I'd consider his contributions on any other topics to be a welcome bonus (hint, hint, Warren.)
You're right that Warren has concentrated his participation on this particular thread. And I'm glad that he has. It's obvious from the size of the thread that this particular topic is of great interest to a lot of people here.
BTW Kathy, the topic of remuneration has been "addressed" many times before on this forum. However, it's never been answered as clearly and as authoritatively as it has on this thread. (And I might add with so few spurious digressions and personal attacks.)
I'd also like to thank Warren for his contributions. Based on his hrly wage rate, I'd hate to think how much he spent on this thread alone.
It is refreshing and rare treat to hear a frank and transparent discussion about loads, commissions and MER's and how they are related to one another from someone on the other side of the counter. I think he's driven home effectively the "no free lunch" issue ito deferred loads and other sleight of hand illusions.
Warren made the point that the upfront sales fee paid when someone buys a DSC fund does not come out of thin air, and it must ultimately come out of MER.
Madelyn noted that many funds offer an option between front end and DSC charge with the same MER regardless of how the fund was bought. Thus it appears that aside from the lack of flexibility caused by the charge if exit is within 5 years, there is no cost (i.e. it just about does come out of thin air.)
Really it is paid by all the people in the fund regardless of how they bought in. Isn't that right? So even if you paid separately for advice (fee only based planner) or decided to buy it through your own research, and you bought it on a 0% front end load thru some place like Mutual Fund Direct or Avantage, you are still paying for someone else's commisions thru the MER. You yourself would receive no benefit whatsoever for this payment.
I hesitate to make conclusions from this implication, until I have thought about it some more, but it seems to leave a bad taste concerning optional front-end/DSC funds.
BTW it has been a pleasure to read this thread, as many before have stated.
Bill
Sorry Warren, I guess taken out of context, it was unclear what I disagreed with. Regarding your statement," First, do you not agree that it is the client's $$$ (or the potential return on these invested $$$ )that is paying the commissions? " Yes I agree, but I don't agree with the rest of your assumptions.
Bill actually explained it above quite well.
"this is just plain wrong - the client pays, no question about it. It's the old "hold 'em or fold 'em" routine - if the investor buys DSC and broker gets the 4.5% (or 5%) up front from the fund co (or the LP) then the client who holds for 7 to 9 years pays about 6/10 of 1% (0.60%, IOW) on an increasing value of the fund for that period of time - in my calculator, that adds up to a pretty hefty cost to the client"
I didn't say the client doesn't pay,...he just doesn't pay commission. He pays through the MER, not in addition to. With most fund co.'s he also pays the same MER whether front or deferred, so if the fund is good, and is held onto, for 5-7 years(the normal DSC time frame, the guy that buys through DSC is further ahead that the guy that paid 1-2% front-end. If there is MER discrimination, as with Trimark, always front/end is better.
But I firmly believe and have proven in my practice that you can pick a good fund family, and never take a hit on DSC. I also know that not everyone wants to pay up front for fee-planning, particularly when their only investments are within RRSP's.
many funds offer an option between front end and DSC charge with the same MER regardless of how the fund was bought. Thus it appears that ... there is no cost (i.e. it just about does come out of thin air.)
Don't forget that when they introduced DSC most MF companies (with the notable exception of Trimark) also jacked up the MERs on their FE funds to equal the higher MERs that they would have to charge on DSC in order to remunerate the salesman. So those people who had already paid a FE load (of up to 9%) then had to pay for the cost of DSC without deriving any additional "benefit."
Also don't forget that the MF company continues to charge all unitholders the higher MER long after they have amortized the cost of the salesman's commission. The MF companies get an additional "annuity", not out of thin air, but out of your pocket.
So even if you paid separately for advice ... or decided to buy it through your own research, and you bought it on a 0% front end load ... you are still paying for someone else's commisions thru the MER.
Not necessarily. There are some MF companies -- PH&N and Bissett come to mind -- who pay no commissions or trailers. Not surprisingly their MERs also happen to be the lowest in the industry. For example, PH&N's Can Equity fund has an MER of 1.09% vs. the average Canadian Equity fund's 2.30% MER. Better yet PH&N's fund has been a 1st quartile performer over the past 1, 2, 3, 5, 10 and 15 year periods. Likewise Bissett Can Equity with a slightly higher MER of 1.35% has also been a 1st quartile performer over the past 1, 2, 3, 5 and 10 year periods (source PALTrak Jul97.) So yes you can have your cake (low MERs) and eat it too (top tier performance.)
Kathy, Even if Warren did not have all the credentials he claims, his knowledge shines through loud & clear from the quality and depth of his answers. I, for one, and pleased Warren has contributed to this forum.
And I'm not sure where you feel you can judge my right to judge or consider for myself whether Warren has earned my trust. I reserve that right for myself, Kathy.
Are you a FP Kathy? I am wondering where the what seems to be some hosility is coming from?
Maybe Warren is no good at the funds he recommends. Who knows? But on this thread, he has made is knowledge apparent to virtually everyone here. I am extremely glad Warren has contributed to this forum; in fact, in many of the other threads, I see some FP's "gloss over" what could be costly moves to a client. No, or limited, discussion of how this can/could impede performance of the clients portfolio.
Is this fair to the client. Maybe it's just my opinion, but I think this desire to gloss over the particulars of payment could come back to haunt th ewhole FP industry: i.e. LACK OF TRUST. And that will be deadly to your industry.
I might be Still Stupid But ... that's my opinion.
PS Kathy, we look forward to your fact based opinions and thoughtful questions.
Whew, unleashed a few more questions here, and some excellent comments.
First a brief comment to Kathy - I'm sorry, I reread my comments from 11:03PM last night and realize that I should probably be kept away from the keboard that late
FWIW, in Canada, the CAFP and now the CIFP and FPSCC is battling fiercly to establish industry standards (yessss, DISCLOSURE is one aspect of this) - these include standards of education, ethics proceedures, continuing self-development, and E & O insurance specific to the FP process. Check out the CAFP web site at CAFP.org to see more details. Sooo, many dedicated professional in the industry are spending huge amounts of time to help avoid the I-just-decided-to-be-an-FP issue. Please do not take the industry the other way by suggesting that Professional designations and standards are to be taken lightly. TIA for your consideration here.
>Without attaching this to names, if a fee only planner is recommending a fund which makes 15% and a commish planner a fund making 25% than who cares about the commish? <
Right Jurgen. That's why I have said many times that our ONLY criteria for the selection of funds is performance - BTW, care to take a stab at the answer to my question above about the relative size of Trimark Select Growth funds (at about 200% the size of T Fund (non-DSC, IOW)) and relate that to the fact they have been around only half as long, have the same managers and very similar assets and yet "feature" weaker performance (hmmm, why would so many good folks - maybe 2 or 3 times as many) buy T Select instead of T Fund (non DSC)? TS Growth: estab 89, total assets $5.7B has an MER of 2.27%, 5 year 20.8% return ... T Fund: estab 81, total assets of $3.0B has MER of 1.52%, 5 year return of 23.3% - any reason other than commission structure for the difference (IOW, comparing the two, who would buy TSG)
>The other MF companies simply inflated their MERs for everyone. <
Good point Bylo - except, a major tip of the hat to Fidelity who instituted a "Grandfathered Investment Account" (GIA) for fund holders when they made this transition (I own some FFE which if I do not redeem it to nil I can continue to hold or add to as a GIA) - these fund unit holders get, every year, a distribution of 0.5% as a MFR (management Fee Reduction), indefinately. Bravo, indeed. OTOH, it makes your point about the extra cost of selling the funds being added to the MER structure.
>I'd consider his contributions on any other topics to be a welcome bonus (hint, hint, Warren.) <
Hey Bylo, what about my "day job"
Thanks JD, just don't tell my other shareholders.
>Thus it appears that aside from the lack of flexibility caused by the charge if exit is within 5 years, there is no cost<
No Bill, first I would put quite a potential cost on the lack of flexibility, but Madelyn's comment is based on the premise that the investor pays 1% or 2% up front when the fund is sold with a FE - I have not paid more than 2% for a FE in a decade, now I regualrly get FE for myself or clients at 1% or 0%. Also, if you are investing to generate commissions for the broker (I know, they have to get a living too) then you would also pass over funds like PHN, Bissett, Scudder, Altimira and TDGL index funds - when I form an asset structure for a portfolio, many times I will have 30% or so in some of the excellent no-loads available (great performance, and low MER, why not?).
>you are still paying for someone else's commisions thru the MER. You yourself would receive no benefit whatsoever for this payment. <
Your conclusion is completely accurate - somewhere back in this thread, someone accused me of trashing the very hand that feeds this cyber machine here (ie the load funds that help pay for FundLibrary) - I ignored it precisly due to the point you have raised. I, my family, and my clients, pay higher MERs (on Load funds) to fund the costs of the load funds (including the cost of this forum). OTOH, in the US, I believe they have moved to lower MER funds that are provided through fee-only advisors (who universally elect to forgo trailers) - in Canada, I have only encountered this once recently, with one co who has suggested that they will "group" all the clients of the firm and attach a lower MER to those units for the investor (I think this will be a little bit like the GIA of Fidelity, but done on a go-forward basis). Appealing, eh.
Madelyn, >he just doesn't pay commission. He pays through the MER, not in addition to. < That's not the point - I say the higher MER is commission, it is paid over time that is all, or used to amortize the cost of the payment made to the broker up front when the DSC version is purchased - OTOH, with a no-load fund the MER is about 1% to 1.5% lower than a load fund. Also, I find it easy to buy FE for 0% right now - why would I ever want to tie myself in to a DSC of any sort, if I can pay 0% now? C'mon now, would you?
>But I firmly believe and have proven in my practice that you can pick a good fund family, and never take a hit on DSC.<
OK, I am sure it is possible but I would prefer to be "unfettered" in any future investment choice. Many times, I find that a client may need to redeem all the investments to say, purchase an new home or buy a cottage, then the client wants to mortgage the property and re-purchase the investments in order to create the portfolio on a tax-deductible leveraged basis - nice indeed to be able to do this with no exit or FE costs.
>I also know that not everyone wants to pay up front for fee-planning,<
Not really an issue here, I can work for the monitoring fee of 1% or 0.5% or I can provide the plan only (no investing if it's not required) for a fee - for the client, it is always a cost/benefit decision - frankly, if I cannot deliver at least a value of several times my fee (gross, before any tax savings) I have not done my job. In many cases the value/fee relationship is 15 or 20 to 1.
I wonder Madelyn, do commission based planners ever perform this analysis of the value of their service to their clients. Also, I wonder what do you do, if anything when presented with a client who will not or cannot do any investing, do you decline the relationship or do you charge a fee. If you charge a fee, how do you set it and approximately how much would it be??
>The MF companies get an additional "annuity", not out of thin air, but out of your pocket. <
Yes Bylo, but I heard of one MF co (who shall remain nameless)that sent their reps a note pointing out that they must have numerous "matured DSC" holdings with their clients and they could move the investment into a new position with their co and hence "earn" a commission (IOW, a new front end payment on a DSC purchase). I have no stats on the outcome of this approach - unfortunatly, I would think it happens (as Jurgen said, there are good and bad apples out there).
>So yes you can have your cake (low MERs) and eat it too (top tier performance.) <
Absolutely !!
>but I think this desire to gloss over the particulars of payment could come back to haunt th ewhole FP industry<
Well said, Still ..., I refer to this as the Bobby McFerren (sp?) school of FP - "Don't Worry, Be Happy ..." - you are right, the disclosure of fees and commissions is paramount in the relationship with the client - this is why the code of Ethics of the CAFP (published on their web site) so clearly states the requirement for full and complete disclosure. Hmmm, sounds like the topic of this thread,eh?
Warren.
I had typed a great reply to everyone here, but it wouldn't post earlier, I didn't save it, and I'm not going to type it again (besides, with my memory working as well as it has been lately, it wouldn't make any sense now anyway.)
Warren, your example of the fund company that made the "DSC matured" comment frightens me. I would be really interested to know who the offending company was. I've never heard of it, but would be interested in learning. If you feel it's improper to post it here, please email me.
Kathy, we all (I think) appreciate everyones efforts and contributions to these threads. I respect Warrens opinion because he has the knowledge (as do others) to really express where the fees are and where they go. Because so and so contributes to many threads doesnt necessarily earn my respect because of the volume of words. Its unfortunate that you can't really see the benefit of thoughful discourse. My respect for your "fave" planners has also gone up due to this thread as their responses have been equally as thoughtful and professional as Warrens albeit from a different perspective. Thks
I have a practical question regarding DSCs.
We just moved my wife's RRSP from a full-service broker to a discount broker. Her portfolio contains a variety of DSC funds that were purchased in stages over several years. We can't find all of the transaction confirmation slips so I don't have a complete history of purchases and distributions.
Now I'd like to help her to gradually convert the DSC funds to FE and NL funds, either by paying the DSC penalties, or by moving 10% out of each DSC fund each year.
How do I determine (a) the penalty fees and (b) how much the 10% is. This is non-trivial since each fund company has different rules regarding how these fees and percentages are calculated (e.g. in some cases distributions are included and in others they are not; sometimes the 10% is based on book value and sometimes market value, etc.)
Is this information something the broker is responsible for providing or do we have to request it from each fund company? Thanks.
"Madelyn, >he just doesn't pay commission. He pays through the MER, not in addition to. < That's not the point - I say the higher MER is commission, it is paid over time that is all, or used to amortize the cost of the payment made to the broker up front when the DSC version is purchased - OTOH, with a no-load fund the MER is about 1% to 1.5% lower than a load fund. Also, I find it easy to buy FE for 0% right now - why would I ever want to tie myself in to a DSC of any sort, if I can pay 0% now? C'mon now, would you? "
I say it is the point. Even with 0% F/E, after 5-7 years, the two investors are in the same position with their investment. The difference is that the guy that bought DSC got advice, that hopefully went beyond fund-picking, and the other guy didn't, without paying an additional fee to someone like yourself. I think we are talking about different things here.
"OK, I am sure it is possible but I would prefer to be "unfettered" in any future investment choice."
Most folks that I see that don't want to pay fees have most if not all of their investments in Registered Plans, where they don't usually anticipate withdrawing for many years, so this is not an issue.
"I also know that not everyone wants to pay up front for fee-planning,<
Not really an issue here, I can work for the monitoring fee of 1% or 0.5% or I can provide the plan only (no investing if it's not required) for a fee -"
It is an issue. .5% or 1& is a fee that some don't want to pay, as is the fee for the plan, which kinda defeats the statement that they don't want to pay a up-front.
"I wonder Madelyn, do commission based planners ever perform this analysis of the value of their service to their clients. Also, I wonder what do you do, if anything when presented with a client who will not or cannot do any investing, do you decline the relationship or do you charge a fee. If you charge a fee, how do you set it and approximately how much would it be?? "
I do not speak for commission planners, but only for myself. As I mentioned before, I am a fee and/or commission planner. And yes, I have many clients that don't invest through me. I charge a fee based on an hourly rate, which I am not going to discuss in this public forum. My clients know my hourly rate, and frankly I don't care how I get paid, as long as I get paid. I also do contract work for outplacement firms that foot the bill.
My days of "free" financial planning ended in 1984 when I left a large "financial planning" organization.
"but I heard of one MF co (who shall remain nameless)that sent their reps a note pointing out that they must have numerous "matured DSC" holdings with their clients and they could move the investment into a new position with their co and hence "earn" a commission (IOW, a new front end payment on a DSC purchase)"
I don't believe this for a minute. The only situation I see could see this happening is with a captive salesforce, otherwise the fund company would also be pointing out that the funds were free to go to another company.
Bylo, it is in the prospectus, under redemptions.
Madelyn, you're right that the rules are in the prospectus. (They're not always easy to understand. I know, I've tried!)
But in any case, the prospectus does not have the client's unit purchase, distribution and redemption history. Since I don't have that history, how do I determine what the DSC penalty fee would be?
BTW, at last week's NL fund conference Duff Young in his keynote speech asked the audience how many had actually read a prospectus. Maybe one or two hands went up. I understand the attendance was around 750. Scary!
(I realise my DSC redemption question is a bit off-topic. In retrospect, it should have been made in a separate thread. Sorry to those I am inconveniencing.)
Hi Bylo, yes you're right, it is hard to determine. If you bought through a full-service broker, I think they should call the fund companies for you and get the answers. If you bought through a discount broker, I suspect you'll have to call the fund companies yourself. Most have the information readily available.
And yes, it is scary, and doesn't surprise me in the least.
Good luck!
Okay, okay, I apologize to Warren. You guys were all right, and I was wrong.
No, I'm not an FP, but I have an FP that I very much trust and admire. I also have DSC funds that I bought,..and I do say bought from the FP, as in I was not sold.
If I appear hostile, perhaps is it because I truly resent the statement about NEVER buying DSC , and the implication that we have been taken in buying them. I made a conscious decision to buy DSC. I also got, and continue to receive advice from my FP. I also have Front-load funds that I purchased many years ago from the same FP, and believe me I didn't pay 1-2%. Do I regret it? NO! I was directed to excellent funds.
Has the FP suggested that I sell & buy new funds with a new load? NO! In fact, I had one holding that I originally purchased in 1987, on a front-load, and he suggested a couple of years ago that I move to another company, to protect my assets and take profits. What was the fee? 0%, as he said he already made his commission 10 years ago on that money, not to mention trailers. He just wants to do what's best for me, to protect my money, and his trailers. He is quite upfront about this.
Sorry if I appear to be ranting. I just feel quite strongly that I have not been taken, and I guess I resent someone telling me that I was.
Kathy, your planner is doing exactly what we all expect from a professional. Unfortunately, some of us have had bad experiences and Warrens approach is different than most and I appreciate the candidness of all contributions. Stick with your planner- sounds like a good one. Regards
>My respect for your "fave" planners has also gone up due to this thread<
Tim, my respect of others was always there but I'd like to take this opportunity to express my thanks for the other frank and open comments in here, too.
Bylo, your wife's fund cos should have this info readily available - BTW, watch out for the "foreign content trap" on a transfer of a S/D RRSP - the "book" value of the assets can change and place your wife's plan offside at the end of the month - but, I digress and this is taking the thread in a different direction. Pardon me
Madelyn, with respect, I hafta disagree again with your comments on MER, DSC, FE and commissions. First, let's put on the table the fact that DSC or FE, there is an additional cost to carry for the investor of about 1% to 1.25% per year in MER cost (that increases as the value of the fund rises due to growth or distribution) - a no-load fund OTOH has no such additional cost since no commission (or only minor trailers)is paid. Here, I am agreeing with your point, that is after 5 to 7 years, the "cost" of the MER is the same, DSC or 0% FE - IOW, there is a commission paid by the client's investment returns - back to the original point, in fact there are commissions paid on DSC funds even if they are held for the "required period". OK, so far, I think.
Madelyn, here's a little example I quickly put together on a spread sheet. A fund has a 1% cost to the MER, the fund (and the MER) increases by 10% per year over a 10 year period, and inflation is 2% (for PV calculation purposes). The calculation I did shows that the cumulative PV of the MER to 5 years is a PV cost of 5.73%, to 7 years the PV cost is 8.7%, and to 10 years the PV cost is 14%. I did work this out quickly, so why don't you give the calculation a try - in any case, I'm sure you will find it is a big number. OTOH, buying a no-load with a MER that is that much lower, and has comparable performance, you would be that much better off.
OK, now back to our regular programming
Now, you say that the 0% FE and the DSC are the same cost over 5 to 7 years - I again disagree - the loss of flexibility has a potentially tremendous cost (in fact you use the example of an RRSP, a long-term investment program, I would argue that the issue here is actually WORSE, due to potential lock-in to slack performance):
Ranga Chand's excellent book "World of Mutual Funds" (IMHO, required reading for ANY MF investor) breaks fund performance into heavy hitters, underachievers and unrated (usually, too new to warrant consideration) - you say fine, you switch from one fund to another and no-one has ever paid an exit fee. I say, an exit fee is a cheap way to cut losses and enter a better performing fund at a different company: here's a couple of stats from Ranga's analysis - large load co # 1, 29 funds, 1 heavy, 1 underachiever, 2 rookie up-and coming (IOW, 25 out of 29 are not worth mentionning) large load co #2, 60 funds, 7 heavy, 3 underachievers, (IOW, 50 out of 60 don't count) now, here's P H & N's numbers 13 funds in total, 6 heavy hitters, NO underachievers (wow, what a ratio, only 7 are too new to count). My question is where do you transfer to if your fund is a dud and you are in LL # 1 - into the only fund out of 29 that is any good, what if it is a class of fund you already ahve covered elsewhere? The cost of underperforming for a number of years would potennially harm an RRSP worse than a taxable account due to the long term nature of the account and it's tax deferred status.
I have never had a problem with a client paying a fee for the service - if they like what we do, they will pay, if they appreciate the impact of the no-loads we can help them get, they will pay, if they understand how cheap (say 150 bp) our service is as a total MER (for an investment counsellor based program) they pay for access to this expertise, willingly.
>I charge a fee based on an hourly rate, which I am not going to discuss in this public forum. My clients know my hourly rate, <
Too bad, I posted my hourly rate, as well as the range of rates for some of my associates as well and some of the more common "flat fees" we charge. Is your hourly rate a trade secret? Why not post it?
>The only situation I see could see this happening is with a captive salesforce, <
No, this could occur with a new fund that was trying to get investment volume at the expense of other funds. In fact, this would not work with a captive sales force since, in theory, the transfers from one fund to another should be free, and incurr no new fee structure or exit fee.
Warren.
>Sorry if I appear to be ranting. I just feel quite strongly that I have not been taken, and I guess I resent someone telling me that I was. <
Sorry Kathy, I don't believe I said that you or anyone had been taken by DSC - I just said we never recommend DSC - rather, we recommend paying 0% up front or a negotiated up front commission or a no-load fund.
I do understand that the natural process of the market dictates that a commission will be the more attractive option than a no-load (why would the FP do the work to place the investment and get no income?).
>He just wants to do what's best for me, to protect my money, and his trailers. He is quite upfront about this. <
Sounds better than perfect to me - all this and you are obviously happy too. He sounds very professional and dedicated. BTW, I really like the comment about the switch to another fund co and 0% FE (he having earned commish and trailers over 10 years). Excellent.
FWIW, 10 years ago, commissions were totally different in Canada - the first ever DSC fund was only about 9 months old (Industrial Horizon)- and it was really tough to get down as low as 2% FE (you needed leverage and significant dollars) - the normal FE was more like 4% to 6%. See, we could easily "add value" with our service by negotiating down the FE - today, it is harder, since the FE "universe" is much lower now - this falls in line with my prediction somewhere above in the thread that the FE will go to 0% and many more FP's will simply run their business on a combination of trailers and/or fee-for-service (some of this trend is already appearing in the US).
Warren.
I think we are going in circles here Warren. As I said before, I think we are talking about 2 different things. I am not comparing the MER of a load fund to a no-load fund. (However one must keep in mind that many no-load funds have MERs quite comparable to load funds, so it appears to me that you are comparing specifically to funds that are low MER, not no-load in general.) I am comparing the situation of a client buying DSC vs Front end, and holding the fund. Nothing more!!I am also suggesting that if clients are buying the front load fund at a discount-broker, and paying 0%, ...they are not getting advice! Period. If they buy through an FP and pay DSC, they hopefully got some advice.
Or they can pay a fee upfront, and end up with funds like PH&N & Bissett in their portfolio. Are you suggesting that clients never buy funds like Templeton Growth, since they are paying for commission in the MER? Even if they pay 0% frontload?
I also believe that if folks are going to pay MERS that some of the no-load companies charge, they ought to get some quality advice for it. Unfortunately, we don't see this much. P H & N's numbers 13 funds in total, 6 heavy hitters, NO underachievers (wow, what a ratio, only 7 are too new to count). My question is where do you transfer to if your fund is a dud and you are in LL # 1 - into the only fund out of 29 that is any good, what if it is a class of fund you already ahve covered elsewhere?
First of all, I am not a fan of Ranga Chand and his analysis, so we differ here again. Secondly, I don't need Ranga Chand to tell me how good PH&N is. I have many clients invested in PH&N funds. Thirdly, I would not have any clients in LL#1,...it's that simple.
"Is your hourly rate a trade secret?" Yes!:-) Where I come from we don't talk about sex and salaries in public.
As I said before Warren, "choices are good"! Thanks for the lively discussion.
watch out for the "foreign content trap" on a transfer of a S/D RRSP
You mean where the foreign content magically jumps from 17.2% to 28.3% because the jilted broker didn't bother to pass along book values to the new broker? Yup, we now know all about that. :-(
Also how about the $100 (plus GST) transfer fee that they took directly out of the RRSP. We would have gladly paid it outside the plan if offered the choice.
(Clue to the identity of the jilted broker's firm: a "full" service broker with head office in First Canadian Place.)
many more FP's will simply run their business on a combination of trailers and/or fee-for-service (some of this trend is already appearing in the US).
Check out National Association of Personal Financial Advisors, "a non-profit organization which advances the practice of Fee-Only® financial planning".
Madelyn, as I'm rapidly finding out, every DSC plan has different rules re hold periods, early and free redemption calculations, etc. It's a dog's breakfast. I don't envy the FP who has to help a client clean up a mess that was created by a previous FP. The statement I'm looking at has 6 funds at 5 different families!
Bylo, yup. They are all different. And since it looks like you already pulled out of the full-service broker, you aren't going to get any help. By the way, I think that most of the full-service brokers charge that exit fee, even if you are moving to the discount broker owned by the same bank.
Warren, I forgot about this part: >The only situation I see could see this happening is with a captive salesforce, <
"No, this could occur with a new fund that was trying to get investment volume at the expense of other funds. In fact, this would not work with a captive sales force since, in theory, the transfers from one fund to another should be free, and incurr no new fee structure or exit fee."
I misread the first comment on this, and understood it to mean the company sent them a list of "matured" DSC clients. Ahhh, communications. Anyway, just because a fund company, that obviously doesn't have the interest of the clients in mind, sends out a stupid marketing suggestion, doesn't mean that an ethical financial planner takes them up on it. (I can take a good guess at which company did this.) In fact, I think this whole discussion boils down to dealing with an ethical financial planner, vs dealing with a fund flogger.
WOW! This sure has turned into qyite a debate.
Anyway, I'm off to Myrtle Beach Sunday for a couple of weeks golfing so I don't have the time to get into this much (I haven't even packed yet) but I did want to make one comment here.
I just remembered a message I sent one of my clients that (at least to me) was not too complicated &, I hope answers some questions here. I try not to get too complicated about things like this because our focus needs to be on what an investment pays, far more than what it costs. Being myopic about fees will distort a clear perception of what the bottom line is.
Anyhow here's my short e-mail to one of my clients awhile back .
Hi Richard,
I'm back from Florida. In case U didn't know it, I do help people plan & develop their financial goals. I have two excellent programs to do this. Until recently, I was unable to charge a flat fee for this service if that is all people wanted.
I am still waiting on a couple of answers to this issue. However, in the meantime, if people come to me & want a plan put together, I will do that & charge a flat fee that will be agreed upon b4 we start.
If they invest with me according to what the plan reveals within 30 days, then I will refund the financial planning fee. This helps people to get over the barrier of costs & at the same time, they get completely independent unbiased advice. They can take the plan & go to whoever they want to, to set up an investment portfolio. There is NO discussion of any particular funds until they R ready to invest.
Is that what U mean?
Regards,
Reg
BTW, he is one of my long-time clients who started investing with me in the mid 80's.
Madelyn, circles? OK, perhaps some part of this is, but my main issue is the level of commissions and the disclosure of it - then, now that we understand the amount investors are paying their reps, I would want to address the point you raise about advice.
You may not compare no-load MER to Load MER, but I sure do - and so does the potential investment return of a client's portfolio. In a recent post above I applauded your comment that a DSC MER and a FE (regardless of level of FE commission charge) MER ended up being much the same due to the difference in trailers. However, if this is the case, and you said it, and I agreed with it, then, here's the premise: the broker/rep is making the same level of income from the client either way. Right? The only difference is that in the case of the DSC, the "skew" of the cash flow is heavily weighted up front.
Therefore, I would ask for your comments on two simple observations. First, given the payments to the rep are the same, then why would not every rep do the "reasonable" thing and simply sell 0% FE? Second, given equal $$$ being paid to the client's rep, then why would the client not expect to get the same level of advice? BTW, you did suggest that the client only purchases funds through a discounter, and gets no advice - with the large shops out there, designed to "wholesale" funds (MF Direct, Versus, etc) this could be true. However, I have met many FP's who sell 0% FE - are you suggesting they provide no advice?
You suggest I am only looking at low-MER no-loads. Not really, just the ones I tend to use. I am aware that Altimira's MER is on the high side (yep we do use them from time to time .... except for the last few years
>Are you suggesting that clients never buy funds like Templeton Growth, since they are paying for commission in the MER? Even if they pay 0% frontload? <
No, in fact we recommend Templeton, Trimark, and funds of many of the other load cos - we do only arrange them through our program as 0% FE. You are correct in saying the client then pays the MER, but the flexibiltiy is important to me and the client (ie no DSC). Eventually, fund cos will provide FP's like us with access to 0% FE and a discounted MER as well - I would say this is only a few years away. Once one does it many of the others will follow.
I wonder why you do not like Ranga Chand - I agree that I would not place a client in "Load Fund #1" and I suspect, neither would you. Just, BTW, however
>"Is your hourly rate a trade secret?" Yes!:-) Where I come from we don't talk about sex and salaries in public. <
A good philosophy, no doubt, neither do I. OTOH, I am not asking you about either. We are in a thread on disclosure, I was just asking you what is the HOURLY RATE you charge your fee-based clients. You mentioned that you have an arrangement like this available, and I appreciate that this has nothing to do with either your sex life
> In fact, I think this whole discussion boils down to dealing with an ethical financial planner, vs dealing with a fund flogger. <
Perfect. If the client is aware of the charges and is comfy with the cost/benefits of the realtionship, I couldn't agree more.
Bylo, nice link to NAPFA - this is an excellent group - they did a really aggressive piece on the "name game" in the FP industry, Commission-based, Fee-based, Fee-only, and the like - so good in fact, that we have reproduced (with permission) sections of it on our site here in Canada: www.tefinancial.com
>Being myopic about fees will distort a clear perception of what the bottom line is. <
Hi Reg, have a nice trip. Only one thing before you go - myopic means "short sighted" IMO, and I am actually suggesting the opposite. The combination of high MERs on Load funds, lack of flexibility with DSC (OK,OK limited flexibility), will diminish the return from a portfolio. A properly crafted "mix" of investments will, to me, include low-MER no-loads, super-low-MER bond funds (50 bp or less) or strips, and load funds. If I was myopic bout MERs, I'd say avoid em entirely, and simply buy TIPS & HIPS, etc.
Yes, I like your approach on fees. Care to disclose the amount of the hourly rate you charge or the flat fee and what it would include? TIA if you do.
Warren.
Warren, that's a real compliment coming from you.
AS far as my hourly fee goes. Very competitive.
Financial plan fee depends on the client. How far do they want me to go? I am very flexible & listen to what people say. I try to accomodate those who contact me but am also very selective in building my clientele.
Reg, always remember to keep your eye on the ball!!!!
Hmmmm,Reg, still no hard numbers on those fees yet, eh
>but am also very selective in building my clientele. <
Interesting, how so, what are the criteria, $$$ to invest, borrowing/leveraging capacity, age, income
BTW, both you and Madelyn have declined to disclose hourly rates. Perhaps since I live with this all the time as do many other fee-for-service types (like lawyers, accountants, mgmt consultants, etc) I am less circumspect about the issue? Sorry, but to me it's no big deal, it's simply the published rate for the cost of working with me or one of our other consultants. We have nothing to sell but our time, the service is what the client needs and gets and he or she pays us as they would any other professional - simple.
As usual, I look forward to more of your comments.
Warren.
Warren, U wrote: Interesting, how so, what are the criteria,
Reply: Mainly ATTITUDE. I want a client who is someone I can communicate with freely both ways. I want them to feel comfortable with me and confident in my advice? You have to develop a comfort level where you feel you can freely communicate your needs and wants. It's like selecting a doctor. Financial advisors don't manage your money, they merely suggest what to buy and sell and when.
Investing in mutual funds should be part of an overall financial plan. Therefore, part of the secret to developing a comfort level with a financial planner is to establish one's clear investment needs and goals. If one does not take responsibility their share of the relationship, the planner will, and one may not be happy with the result. I consider it like hiring an expert. It is a two way street. Remember, the expert is also "hiring" you, and is more likely to do a good job if you fit into his or her notion of a quality client.
In dealing with financial advisors, honesty is clearly the best, the only policy. I can't do anything right for my clients if I don't have all the facts. The perfect client tells me everything and that includes feelings as well as financial facts and figures. Preferred clients share another trait, an attitude of trust and confidence in their advisor's ability and integrity. However, the experts do not recommend you come to your advisor expecting to have all financial cares lifted from your shoulders. No money specialist wants to work with someone who abdicates personal responsibility.
A willingness to be educated by reading necessary information is another client trait that I appreciate. The client has to do his or her share of the work. Those who haven't spent any time in sorting out and organizing their records are not greeted with open arms. A financial arrangement with a client is like a marriage in that it should be long term. This long term relationship is an important factor for all financial experts. I want a loyal customer and a returning customer who is more than happy to refer me to his friends and relatives. Another trait I look for in a client is someone who is open to new ideas and new products. One last and important characteristic I look for in a client is an appreciation for my efforts. It's surprising how easy it is to work for some people and how difficult it is to work for others. Happily, my clients help to make my job a lot easier most of the time.
U see, it's a bit like a marriage. I want it to last. I hate divorces.
I hope that satisfies your professional level of concern.
Reg, great answer, it should be required reading for all CLIENTS and for all FP's out there -
>I hope that satisfies your professional level of concern. <
I had no "concern" .... rather, it was a curiosity .... now about the hourly rates ... ??
OK, here's a thought about a further little spin on the issue of the DSC. If you recall, the first has been the question about DSC or negotiated (aka, 0%) FE. I would postulate that the fund cos have a significant vested interest in perpetuating the DSC system as long as they can - from one aspect of the DSC (the dreaded "exit fee"), they benefit handsomely since investors are reluctant to move out of their funds and this will then continue to generate a continuing stream of management fees for them (the cost of the trailers or amortization of DSC front payment is of course in the meantime carried by the MER, so no out-of-pocket for them on these aspects). Also, the fund cos benefit from having a system that pays a chunk out as an immediate commission for the "vesting" of the client into the fund family (IOW, the fund group is almost guaranteed a 5 to 7 year shot at keeping the funds in their "managment pool").
Now, consider also this aspect: with a DSC fund, the client is reluctant to exit form the fund (due to the cost) and brokers will often be reluctant to suggest exiting within the "required period" since the client may complain about the exit fee as if it was the broker's fault (correct me if I am wrong here - BTW, I had a broker tell me and her/our client (all 3 of us in the same room) that the performance for 1996 on a DSC fund she had sold the client was "pretty good, it did 17% for the year"
Now consider that the DSC fund, being "insulated" against a wholesale withdrawal is less "on the edge" of the performance equation than a no-load fund. By this I mean that a no-load will be hit by heavy redemptions much quicker than a DSC fund and therefore might one expect that the no-load manager is more sensitive to keeping the performance numbers up? An interesting, if somewhat exaggerated, article in a recent Cdn Business set out to show that there is an inverse relationship between MER and the performance of the fund (IOW, the higher the MER, often the lower or weaker the performance).
Soooooo, perhaps the commission structure and the MER have some relationship to performance. Nonetheless, as Reg said, an educated investor is important, so I would say to all you ("lurkers" included) still reading this humble prose, if you have followed this thread (both parts - see Bylo's excellent links above for the x-ref) you have taken a long step towards better long-range investment returns, and financial options. Hmmm, now on the commission-based FP's hourly rates
Warren.
Hmmm, the mischevious side of me says I should approach all of the fee-only planners using my real name, get their hourly rates, and then post the numbers here. ;-)
See, sometimes there is a value in using pseudonyms out here in cyberspace.
*sniff* I wish I could charge an hourly rate - some of my clients would be paying me aLOT more than I make on commission!! (And they're the ones I would LIKE to charge more 'cause they're a pain in ... )
Bylo, Bylo, Bylo
OK, why are the hourly rates important - well, for me, it goes to the cost of the service - that is, as a FEE-ONLY palnner, I only charge an hourly rate, or a pre-agreed flat fee, or, an asset-based charge on an ongoing basis for an in-depth monitoring service. Fine, enough about fee-only.
When commission-based planners charge an hourly rate, they must communicate the per hour cost to their clients - let's assume that a commissioned planner tells the client that the hourly rate is, say, $150 per hour (BTW, this is not overly high, but not cheap, either) - certainly this is more than an auto mechanic here in a Toronto dealership is charged out at ($65, per hour).
Now, say the same planner spends 5 hours in total with the client in 2 meetings to intake data, and to deliver the analysis that had been prepared based on the data provided by the client
OK, lets add this up so far .... a total of 15 hours involved (let's charge everyone out at $150, including the assistant who crunched the data into the FP program to produce the report) - bottom line, we have a bill for the client in the range of $2,250 (ahem, plus GST, where applicable).
Now if we assume the FP normally sells DSC with only a 4.5% payment up front (and the customary 0.50% trailers), then if the pool of investments exceeds $45,000, by the end of the first year the fee is more than repaid.
My point about "disclosure" is this, now that I have estimated a cost for the service, what about the other part of the commissions, if the account is say, $100,000. In this case, the FP has put out $2,250 of service in the analysis and the advice but her or his commissions in the first 12 months adds up to $5,000.
Funny thing, but in fee-offset FP (sometimes referred to as fee-based), the FP contracts to offset the fee that would be charged against the commissions earned on implementation. What always causes me to wonder about this is if clients are so fee/cost-adverse, then why does somone not approch this in the obvious fashion - IOW, ask for the fee-based approach, get the bill estimated up front, have the amount confirmed after the service is provided, and then ask for the written confirmation of the calculation of the offset that would be forthcoming and suggest that any excess of the up-front commissions over and above the fee that would have been charged anyway be reduced by providing access to either a portion of the portfolio in no-load funds or in the 0% FE version of some of the funds that had been recommended. A neat comproimise, eh?
Warren.
Welcome to my world Warren. Neat eh?
Madelyn, neat is not the word I'd use for this "estimate" I put together above - I would think "worrisome" is a better descriptive - taken to it's logical conclusion, I would think that the commission side of the business could find itself under some pressure in the next few years - following in "David's Foote-steps"
What do you think of this hypothesis? Is this indeed your world?
Warren.
I seem to be having a communication problem here. Warren, I was referring to your "neat" compromise. That is my world. The only difference is that folks don't have to try to outsmart me to get the compromise,...it is all upfront in the beginning. Like I said, I don't care how I get paid, as long as I get paid.
I also agree that fee-only will be the way of the future. Doesn't bother me in the least.
>Like I said, I don't care how I get paid, as long as I get paid. <
Right. Good comment - I think this is how we will all be doing business in the FP future - more fee-only FP's will offer asset-monitoring (for a fee-only structure) and more commission planners will offer fee-based alternatives.
Hmmm, will we all eventually be the same?? Sounds like it. Like I think you said, "choice is good" and also we should never forget that an informed & aware consumer will make his or her choices on their own terms, and, in the end, the competition that is thus fostered in the marketplace will be to the long-term benefit of all consumers of investing services
Warren.
Warren,
I have a problem with some of your assumptions regarding the comparison between your fee-for-service bill vs the commissioned fp's DSC 4.5+0.5 percent charge for the hypothetical $100k portfolio.
The arithmetic isn't the problem - $5k paid to the fp vs $2.25k for your services - however it is the attribution of costs with which I am unclear. As far as I know, Trimark is about the only major fund company to make a distinction between their DSC and front-load fee funds by charging differential MER's. All the others charge equivalent MER's irrespective of their load choice, right?
So how does the individual investor who buys, say, Templeton Grth from Rob or Madelyn on a DSC charge end up paying more than one of your clients who buys the same fund on your recommendation and using one of your retained 0-FE-load brokers? Whether they buy DSC or FE the MER for either client is identical, isn't it?
All the others charge equivalent MER's irrespective of their load choice, right?
I didn't do an exhaustive search, but one other such fund company is Guardian. But before anyone gets too excited about that, check out these MERs (source PALTrak): Global Equity 1.2%FE vs. 2.91%DSC
I must be in the wrong business -- even I could figure out how to roll over 90-day T-bills for less than 1.56%!
And I sure hope the FPs actually get most of the difference between FE and DSC fees ;O)
One more observation/question: with MMFs now yielding well under 3%, why would anyone buy (and why would any FP recommend) Guardian MMF on DSC? Soon Guardian unitholders will be giving up more than half of their return to the MER! :o(
Hi jd, an investor who buys Templeton Growth at 0% through me or through anyone else at 0%, pays the same MER as the guy that paid DSC. I asked Warren about this before:
>Are you suggesting that clients never buy funds like Templeton Growth, since they are paying for commission in the MER? Even if they pay 0% frontload? < His reply: "No, in fact we recommend Templeton, Trimark, and funds of many of the other load cos - we do only arrange them through our program as 0% FE. You are correct in saying the client then pays the MER, but the flexibiltiy is important to me and the client (ie no DSC). Eventually, fund cos will provide FP's like us with access to 0% FE and a discounted MER as well - I would say this is only a few years away. Once one does it many of the others will follow. "
Aside from Trimark, as Bylo pointed out Guardian has a two-tiered system, as do several segregated funds.
Guardian has recently revamped their system, and those A units will now be called "classic", and will require a minimum of $50,000 to get the lower MER. So you see Warren, the discounting has already started. Trimark has been doing it as well for accounts over $500k I think.
Bylo, I can't imagine anyone selling the Guardian Money Market Fund. It would only be used truly as a temporary parking spot, for a DSC client in other Guardian funds.
Hi gang!! I'm a newby to this thread and find it very informative, professional and sometimes long winded (that's OK). I too am a FP. My philosophy is to provide the best service and advice to my clients reguardless of the commision. ( ie. I have to make a living but will not churn a client etc. to make one). As a question ,may be off topic, what do the FP's on this thread use to determine what's best for the client? Sometimes I wonder if we are not just spinning our wheels discussing MER's DSC, FE. etc when the concern to the client is : how much money did I make! If a fund has great returns, a good long term track record, and competent fund managers etc the commisions should be of little importance to the consumers? I am totally up front with my clients on fees, etc. my goal is to establish a life long client - FP relationship!! Bye for now.
I don't understand why so many here (except Warren) are hesitant to tell their hourly rates. No one is asking what your T-4 slip reveals, or how much money you make. Simply what your posted rate is.
I can go to a lawyer, accountant, mechanic, etc. and be told. I don't think this is like talking about sex or how much money you personally make.
As a fee-based consultant in a different business, I had no problem revealing my posted rate. I can't understand why all the secrecy. (PS nor an a adverse to ad valorum pricing: whichever system is chosen, the potential costs should be made clear to the client)
As a consumer, secrecy leaves a very bad taste in my mouth. I don't think many of you really understand how much your industry depends on TRUST and how secrecy undermines that.
Anyone care to respond?
Still Stupid, does your lawyer have a shingle posted on the office wall like a mechanic does? I think not. Do you? While we are at it, just what is your hourly rate? Come on...you can tell us.
Jeez, we have some long-time contributors like Reg & Madeline here, who have not posted their rates. Frankly, I consider it in good taste. It's almost like your neighbors telling you how much they charge an hour. Warren is not a neighbor, Reg & Madeline are.
Warren popped into this thread, and posted a rate. Bully for him. Do I think more highly of him? No. In fact I think his obsession with finding out what his competition is doing is a little disarming, not to mention unprofessional in a public forum.
You said :" whichever system is chosen, the potential costs should be made clear to the clients." Fair enough, but don't you see that you are not a client of Reg's or Madeline's. As Madeline said, her clients know what her rate is. Apparently there is no secret.
I fully understand, support & commend their choice in this matter.
Warren, with all due respect for your excellent posts, pleeease get one name right:
It is Altamira, not Altimira.
There were quite a few times you misspelled it.
Otherwise, I enjoyed your comments a lot.
Bravo Samuel!!! I agree whole-heartedly! (sp?) Maybe the spell-checker could help me out here. :-)
Hey, did anybody else notice that Call me Stupid, Stupid ,and Still Stupid but... did not exist until Warren started contributing to this thread.
Did you also notice that he, she, they, whatever, only seem to support Warren? ...and did you notice that they/he only kinda pop up when Warren doesn't get an answer that he wants?
I'm not paranoid...people only THINK I'm paranoid!
Parnoid: no, no, no & QED
Well I had a great weekend in Toronto, sunny, warm, Canoe was closed but North 44 was great, so was the roast beef at Ed’s and the Schnitzel at Moevenpick. And now I check the messages and try to update myself and read the same and the same again and it seems that I didn’t miss anything here. Circles? Small circles! Move on guys.
I hear you wag, I'm just not sure what you mean. "Which was the thing that had to be proved?" hehehe.
Fairly apparent to me...yourself?
JD, the fee-for-service was an estimate only, not actually a fee that I charge - I was guessing at the fee a commissioned FP might charge, if they needed to.
>Whether they buy DSC or FE the MER for either client is identical, isn't it? <
Yes this has been discussed in detail above.
>So you see Warren, the discounting has already started. Trimark has been doing it as well for accounts over $500k I think. <
Yep. So has Templeton, I believe.
M.BOB, I have said all the long that service and satisfaction is critical - but this thread originally started on fees/commissions/costs - I joined the discussion to offer another voice to some of the original comments that suggested that no commissions were paid if a DSC fund was held for over the "required period".
>Stupid, does your lawyer have a shingle posted on the office wall like a mechanic does? I think not. <
Well Samuel, some of the lawyers in Toronto do, and why not - are you suggesting that by "keeping it a secret" we who charge an hourly rate would vary the rate according to what we might think the "traffic might bear"?
>Warren popped into this thread, and posted a rate. <
Frankly Samuel, I was asked the details of all my rates, and the requirements to work at our firm and even my own educational and professional qualifications - I provided these answers quite readily. You may consider keeping the "price" of service quite to be "comforting" - I am quite concerned about the very issue this begets about openness and disclosure - IOW, if the perhour cost is off-limits to a discussion such as this, then why? (BTW, it is not like discussing sex, or anything directly related to the professionals T4 slip, etc). I am not trying to find out what the "competition" makes - I have asked about their hourly charge, that's all. What commission is made off a transaction in a load fund sold via a DSC is a matter that is articulated in the prospectus.
>It is Altamira, not Altimira. <
Thanks spell checker
>Circles? Small circles! Move on guys. <
Thanks Jurgen, glad you had a nice weekend here in Toronto. As for circles, you're right, I don't seem to get any answers from the other FP's in here on hourly rates, too bad ..... this might have made for a nice break out from the circle. Perhaps that's part of the concern, eh. OK, let's stick to the thread on commissions
Warren.
uh, show me Warren, where someone asked you to post to rate.
Sorry, still paranoid.
Paranoid,I'll save Warren the work.Here's the request for his hourly rate;
"Subject: RE: Full Disclosure - Commissions From: Curious Date: 18-Sep-97-09:53 PM
Warren, as long as we are talking about full disclosure, how much per hour do you charge, and what is your monitoring fee?
FYI, I do know fee& commission planners that recommend PH&N and TD...oh, & I here that TD pays trailers. "
Paranoid,maybe you should learn to read.It might do wonders for your paranoia!
Okay Rick. You are right. But I still believe that there is no need to press for the rates of the competition.
Also, I wonder if Stupid, Still Stupid and, and Still Stupid but..., will still be around when Warren is long gone. I suspect not...
Paranoid, your conclusions are not only unfounded but border on insulting, not just to me but to your own intelligence. You said:
>Also, I wonder if Stupid, Still Stupid and, and Still Stupid but..., will still be around when Warren is long gone. I suspect not... <
If you knew (or had chosen to read the rest of the thread
Frankly, if you can't add a civil comment to the thread, then please refrain from any further drivel.
BTW, thanks Rick for the post quoting the request for fees.
Warren.
Sorry, Warren, but I have. That is read the entire thread. I also see that Stupid et al have been here for about the same time. Perhaps you could call me Stupid or Paranoid...but.....
I also believe that I am adding something to these threads. Apparently you do not. That's your opinion.
I believe I have been quite civil. Perhaps you do not.
" I am not trying to find out what the competition" makes - I have asked about their hourly charge, that's all. "
Excuse me, but I would consider this to be trying to find out what the competition makes.
Hellooo....am I alone here!!!!
Sorry, "hehem" you misunderstood:
>I have asked about their hourly charge, that's all. " <
The subtle difference between what someone "charges" which should be disclosed - the price of a good or service in a local shop, for example, and what the shopkeeper or service provider actually makes as income/compensation/remuneration are two different things.
To be clear, I regularly discuss my hourly rate with clients and those who inquire about the service - OTOH, I have never in 17 years in this business had anyone question what my T4 says - clearly what someone "makes" is not the question I asked.
>I believe I have been quite civil. Perhaps you do not. <
Well, Paranoid, I do not feel that public unfounded insinuations have merit, nor are they anything that would rank as civil, in my book. However, it's a free country and as several have commented, it's amazing that this thread (both parts of it) has lasted so long without deteriorating into the sophmoric
Warren.
1. I am NOT Warren. If you want to be paranoid, that's OK. Some call me Stupid. But I'm not Warren. (By the way, Paranoid, I have posted to many other threads, something I haven't seen Warren do)
Actually, I took on the alias, as I felt it would save some of the more venomous here, from feeling bad about being rude, an experience I suffered through when I first posted to this forum.
I'm just an investor & curious. Warren has contributed unbelievably to this discussion, but all he faces is attack. Well, until the cost of this apparently "free" service (FP's) is properly out in the open, I believe that people like Warren are clearly (read "transparently") out for their clients best interests. The other FP's won't even reveal their rates, something that Warren did; as all who have read this thread and its predecesor know.
(Sorry Warren: $250 an hour).
I don't think alot of you FP's get it. It's about transparency. I believe that a lot of clients simply wouldn't care about their fees, SO LONG AS COMMENSURATE VALUE IS ADDED.
What's all the secrecy about?
In fact, The Title to this thread reads what?!!!!
Warren is the only one transparent enough to reveal his commissions, rate, etc.
Well, from the way this discussion is coming down, I don't expect to learn much more here. Warren seems to be the only one revealing much, and if no one else does, well then I have a had time learning anything new. (And the tenor of this discussion has taken a decidedly negative tone).
Call me Still Stupid But ... that's my opinion.
... dropped by to see what this looong thread is about ... replete with sour grapes, massive shoulder chips and ill manners ...
sour grapes, massive shoulder chips and ill manners ...
Yeah, sadly it's degenerating into a typical thread. Only on FundLib you say? Pity.
we who charge an hourly rate would vary the rate according to what we might think the "traffic might bear"?
That's just a crass way of saying "law of supply and demand."
Have you tried to engage a programmer to rework your systems to make them Year 2000 compliant? (Just a few years ago those same COBOL programmers were called dinosaurs and were being laid off in droves. I say good for them!) And if you want someone to do your income tax return on April 30th wouldn't you might expect to pay them more than in February?
There's nothing wrong with setting one's hourly fee commensurate with the complexity of the project, the scarcity of the resource or the tightness of the deadline. That's a matter for private negotation between the client and the professional. Stating one's normal fee range is not.
That's a matter for private negotation between the client and the professional.
Bravo!
Most FPs on these threads are easily accessed.
P.S. The FP Association sez (among other things):
A financial planner may be compensated in one of three ways:
The first is on a fee only basis. The fee is based on the value of the client's assets and/or income, or on an hourly rate.
*... not with the world at large.
You da man gummy !
I'm a software developper an I will not make my fee public. Actually my fee will vary based on many factors in the contract and what demand is out there.
Why should I expect anything else from an FP?
My fee-only FP charges me a hefty amount but that doesn't matter because of the little time I need for advice every year and the cost relative to my portfolio. Plus his advice is worth every penny I pay him. :)
As was said before, the important thing is that the fee structure is clear to the client. Nothing else matters.
Wellll, thanks "Stupid" for confirming that the rumours that you are me are greatly exaggerated
As for rates, mine is actually $270 per hour, but I agree with your point: >SO LONG AS COMMENSURATE VALUE IS ADDED. < ..... someone recently was discussing fees with me and asked if I would add value equal to the amount of my fee - my answer was that if I did not add value worth several times my fee, then I was not doing my job.
Bylo, you said >crass way of saying "law of supply and demand.< not really, I was referring to a variable rate structure - that is one rate for one client and a different one for another client - both "rates" based on a hourly number. In our firm, the client has the choice of a flat fee or an hourly rate (all agreed in advance) - the difference in the level of the service is reflected in the hourly rate (of course, this is irrevelant if a flat pre-agreed fee is chosen) - those of us who charge the higher rates have more experience and a higher level of qualifications than some of the others. From this base, the higher cost per hour consultant will bring more "instant expertise" to an issue and usually will have significant value in a shorter period of time than someone with a lower hourly rate. In the real world, this seems to be quite true.
As for stating publically a range of fees - I don't believe I did this - my rate is clear - it is one number, others in my firm have different rates, as one might expect. The variation in total fee charged comes with the amount of time required to complete the assignment, and the resources applied to the issues.
Using your tax return example, yes, the hourly rates are all the same March 15th or April 25th. OTOH, a simple tax return might be completed by a person with less experience (say it takes he or she 2 hours) and then a review is conducted by the senior (say, 1 hour) - total fee for the return might be about $500. But, a more complex return might require 3 hours of "senior time" and another "senior" to review for 1 hour - total fee could be more like $1,100.
I do agree with the "private" aspect of the ultimate discussion of the total fee structure - you and others are 100% correct on this. However, as one who helped write some of the disclosure rules for the CAFP (quoted by Gummy, above), I see nothing wrong with having a consistent rate of charge to use as a base from which to compute the total fee.
I would only add to what Gilles said: as long as the fee/commission/cost is clear to the client and the client is happy with the cost/benefit of the relationship, then all is well.
Warren.
Well, it was a nice civilized thread. Now it is not. Time to wrap it up. Paranoid, et al... grow up! Gee, can't we have a conversation without folks getting paranoid.
Warren, thanks for the ride, but I for one have had enough of the circles, and this thread has deteriorated.
Hope to catch you on another thread Warren. It has been a welcome challenge.
Warren you wrote
>as long as the fee/commission/cost is clear to the client and the client is happy with the cost/benefit of the relationship, then all is well. <
It is exactly this free market concept that makes the world go round. Whether or not people want to buy DSC funds, pay fees, pay front end loads, or be do-it-yourselfers and try and and reduce advisory type expenses wherever possible, it is not really for anyone else to judge.
Different people are looking for different things in a relationship with their FP or the financial institutions that they do business with. What represents value to some would seem a waste to others. Who is to say.
The market for Financial Services is ever evolving and is indeed very different today than even just a few short years ago. The market will decide over time the best way for financial products to be delivered. Maybe it will be yours. Maybe not. For sure however it will never be just one way. There will be many different strokes for many different folks.
In so much as you have provided information about the fee only approach, you have contributed positively to this thread. Your view ( and that of your founder ) however, that this is the best way, is just that. Your view. Seen only from your perspective. And why not. It's a free country, and your perspective is where you live.
Just keep in mind that not everbody else lives there, or wants to.
Regards
Warren, your comments have been appreciated.
The easiest way to discredit someone is to draw them into a heated discussion on a subject which is outside their expertise.
Forget the fee structure discussion, others may be more street smart and you have nothing to prove.
Be tall in the saddle and ride off into the sunset of this thread. Happy trails.
Yep. Now that the tone has changed and now that further disclosure seems to have stopped, I see no real benefit to anyone to continue too much longer on this thread - too bad, I thought we were going to get somewhere on the fee-for-service front. While my service has been a fee-for-service world with my clients for 17 years, I guess others need some time to get used to the concept a bit more before any detailed discussion is opened.
Happy trails indeed ......
Warren.
Happy trails Warren and thanks ...
Warren,
I'd like to clarify some of my comments.
In my tax return example I was trying to say that if a CA's normal rate is $x/hr, if a client drops a shoebox on their desk on April 30th and expects the CA to drop everything to work on this return, then the client should expect to pay a premium for the disruption in the CA's life. (I assume there aren't too many idle CAs on April 30th!) I most definitely did not mean to suggest that if two clients engage the same CA earlier in the tax season that the hourly rate should vary.
stating publically a range of fees - I don't believe I did this - my rate is clear
By "range" I meant that in an office with multiple practitioners, the juniors charge less than the seniors, hence the firm -- not a particular person -- may be said to charge a "range of fees" from say $x to $2x per hour. That's the "range" that the firm may choose to make "public".
I understand that if I were to engage you on an hourly basis I should expect to pay significantly more per hour than if I engaged one of your juniors. I certainly agree with the observation that your "instant expertise" ought to reduce the number of hours required to complete the engagement compared to a more junior person.
Finally, since this thread seems to be petering out, Warren thank you again for your participation here.
Just one further point. Warren, I don't understand. You said, " further disclosure seems to have stopped, I see no real benefit to anyone to continue too much longer on this thread - too bad, I thought we were going to get somewhere on the fee-for-service front."
It believe that all that could possibly be disclosed is what your competition charges on an hourly rate....that would be the end of discussion. Honestly, I don't consider that a discussion.
I would also like to thank Warren, but also Madelyn, Reg, et al, that added to the discussion, & in my mind, disclosed as much as Warren did..
Dale, I think you miss the point here - the issue is in fact just the opposite of your comment
>It believe that all that could possibly be disclosed is what your competition charges on an hourly rate....that would be the end of discussion. Honestly, I don't consider that a discussion. <
The point is what does a commission-based FP charge for the "FP service" in the event there are no commissions to be made - will they simply refuse the business (IOW, no money to invest, then no plan is done) or, as others above have admitted they would charge an hourly rate.
If indeed they would admit to an hourly rate, the discussion would be rekindled. As someone above pointed out, the other FP's on the thread are too "streetsmart" to get trapped by this one - the obvious issue, as I have "estimated" above, is if an hourly rate charge for a plan and analysis results in a bill for fees of $XXX (from the commissioned FP) then if the investments are over, say $45,000 then what is the justification for the commissions that are made and paid in any amount in excess of the fees that would otherwise be charged under the hourly rate.
OTOH, if the FP is using the "fee" as a loss leader - that is an experienced FP billing him or herself out at $35 to $50 per hour, then in my book this is even more questionable.
BTW, as for the comment about what the "competition" charge, while we both (fee-only and commission-based) are in the FP business, we do not usually "compete". I know the amout of time it takes to do a plan and present it to a client (I have been doing exactly that for 17 years) - I can guess the high and low fee for the situation with my eyes closed and the calculator turned off
Just to be clear, I do not think it is valuable to compare hourly rates on a head-to-head basis - IOW, I am not suggesting that FP 1 is any better than FP 2 just because of any difference in hourly rates - in fact, they may be in different markets, or in fact in the same market (region) but providing different services (comprehensive FP vs outplacement, for example).
Perhaps hourly fees should be a separate thread, but, IMO, it is all the same issue - what does the client pay and what service do they get?
Bylo, thanks for your comments. I do agree that if a tax preparer is dumped on by a client on the 30th they should charge more. FWIW, I have not generally done this - I am ususally quite busy on April 30th but the returns are usually all done a day or so before that - if a regular client arrives with material like this, I would try to help - a new client might get the work done OK but I would not guarantee meeting the filing deadline. However, FWIW, I know someone in the US who has a certain different fee for when you bring him your material (and, he DISCLOSES this in the tax mail out: material in before March 15th, $x per hour ... between March 15 and March 30, $y per hour .... and April 1 to April 15 $z per hour (filing in the US is due, usually, by April 15th)).
Warren.
I think the 2 treads should be sent to DUFF YOUNG who is not ranting about fees .
Good reading here.
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