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Am I in the right place?
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Redshark View Drop Down
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Originally posted by Sportsfreak Sportsfreak wrote:

I'm thinking it may already be too late for him to get his shit together. He's already alienated me with his dumbass Fuckowitz remark. , so he won't get any more advice from me. And that's a big deal around here, I'm not sure, I need to think it over.

Fuckstick. I like that.

Man I thought we really hit it off. Maybe I was reading to much into the emoticons.
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In theory you make a valid point. But from a practical standpoint, you do not understand the psyche of the fee paying public. Helado will vouch for that, no doubt.

And yes, sorry to disappoint the masses here, I've decided to give you a second chance to be nice, since you seem to have a good brain to go along with your Charmin like skin.
Sorry guys, no popcorn being served tonight.
If you eat an entire cake without cutting it, then technically, you only had one piece
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Guests Quote  Post ReplyReply Direct Link To This Post Posted: Sep/04/2014 at 10:47pm
Originally posted by Redshark Redshark wrote:

I love that you have to stir the pot to get you guys talking shop.

Explain this to me, and I know everyone is different and this is a generalization, when you are meeting with a potential customer, do you not explicitly tell them upfront here are the very rules on how your account will be traded. Here are the rules, and here is the frequency. Here are the conditions that we trade your account to meet your objective. To me, clarifying that upfront with the client, makes the double edged sword that you are describing less of a problem, no?

What am I missing? What would you prefer to pay for as a client, knowing what you know? 1% plus commish or 1.2 all in? Seems like a no brainer to me.

#1:  It has NOTHING to do with what you tell the client.  It has to do with your liability if a client makes the allegation.  And you would have almost no way to prove that you weren't cutting corners on trade volume in order to pad your checkbook, and that you didn't trade just because it wasn't part of your strategy.  

#2:  You keep calling it a commission.  It's not a commission.  It's a fee from the custodian for a service.  Most custodians charge a few bucks a year for an IRA fee (so do all the major full service broker/dealers, and fund companies).  Many charge a fee for paper statements or confirmations.  Some charge for checking.  Some charge to close an account.  The "per trade" fee (what we call a ticket charge) is NOTHING ELSE than an administrative fee from your custodian for processing a CUSTODY task (executing a trade, providing a tax form, sending a statement, etc.).

It is not a commission and has nothing to do with the advisor.  

This whole idea of separating it is basic, basic compliance advice on the RIA side.  It's not a thing that is up for debate.  You just don't understand (yet).  
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Points: 43188 		Post Options Post Options   Thanks (0) Thanks(0)   Quote Nathan Explosion Quote  Post ReplyReply Direct Link To This Post Posted: Sep/04/2014 at 10:50pm
Originally posted by Sportsfreak Sportsfreak wrote:

In theory you make a valid point. But from a practical standpoint, you do not understand the psyche of the fee paying public. Helado will vouch for that, no doubt.

And yes, sorry to disappoint the masses here, I've decided to give you a second chance to be nice, since you seem to have a good brain to go along with your Charmin like skin.
Sorry guys, no popcorn being served tonight.



Dude....WTF!!  I cant just sit her and watch the SeaHags win.
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HHAHAHAHA

RESPECT THOSE WITH LONGEVITY ON THE PLANET.
             --- Rip Van Winkle
If you eat an entire cake without cutting it, then technically, you only had one piece
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Guests Quote  Post ReplyReply Direct Link To This Post Posted: Sep/04/2014 at 10:57pm
Example 1:  You hold Vanguard 500 Admiral shares for your clients large cap position.  It has an ER of .05%.  Fidelity decides to go all "loss leader" on Vanguard and start charging .02% for it's SPARTAN S&P 500 index fund.  You have a $3 million client that 3 years down the road alleges that you continued to hold the Vanguard fund instead of trading to the Fidelity fund that would've saved him money, all so you wouldn't have to pay the ticket charges for the trade.  How do you defend that?  

Example 2:  You hold a 12 fund portfolio of ETFs for your clients in a 50/50 allocation.  The market tanks 2 years from now and your clients are down anywhere from 10 - 25%.  One of your clients goes to see an attorney because he is pissed that he lost money (yes, this happens ALL the time).  That attorney sees that you pay these costs for you clients, and decide to allege that you STUBBORNLY held those same ETFs, even though the market was tanking, and you should've known better and "gotten your client off the tracks" before it bottomed out.  How do you defend that?  

Example 3: You hold PIMCO Total Return fund for your clients.  The fund has been lagging the benchmark for about a year now.  You continue to hold it because Bill Gross is the bond king, active management usually wins with fixed income, and you aren't ready to give the fund the boot quite yet.  However, 2 more years go by, and Bill Gross continues to lag the benchmark by 1% annually.  You now have lots of clients that have lagged a simple bond index by 1% a year for 3 years, AND the MAJORITY of PIMCO Total Return's peer funds have not only beaten it, but beaten the index as well.  Your client then goes to an attorney, and they allege that you didn't want to dump the fund even though it lagged, and lagged, and lagged because YOU didn't want to eat the transaction costs.  

These 3 scenarios all get worse if that attorney puts an ad in your local newspaper asking your clients to contact him/her regarding a lawsuit about you taking advantage of them for your own paycheck.

In every scenario above, you have no defense.  However, if the CLIENT pays the cost of the transaction, you have absolutely ZERO conflict of interest when it comes to what fund to hold.  You can say "buying this fund over that fund, or this ETF over that fund, etc. doesn't affect me WHATSOEVER, so I am only doing what I think is best for you."

THIS IS OUR INDUSTRY.  Every other fucking cock sucking thing you do has to be document, document, document and cover your fucking ass so some jerkoff ambulance chasing attorney can't link up with some whiny ass client that thinks his advisor should pay for his losses because the S&P 500 shit the bed 30%.  

It is, what it is.  Get used to it.
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I love Helado.

No homo. Seriously.
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Redshark View Drop Down
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If you charge a client 100 bps for advisory, and 20 bps for trading cost, I don't see where the liability comes into place. The client is paying 1,000 a year in advisory fees and 200 bucks a year in trading cost per 100k.

How can you not justify that 200 dollars in trading cost in a managed account? What scenario short of buying and holding SPY and SHY over multiple years. Throw in individual equities and I and bond ETFs you could have a small turnover year and still save the client money in trading cost by only passing along 20 bps for trading cost. What am I missing?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Guests Quote  Post ReplyReply Direct Link To This Post Posted: Sep/04/2014 at 11:18pm
No, if you pay the 20 bps for trading cost it's not an issue.  If you do that, there is no other trading cost.

It's if you opt for the "per trade" setup with the custodian instead.  That is where you run into trouble by paying it on behalf of your clients (because your compensation if affected by how much you trade).

It doesn't matter how much or how little (well, it does to a degree), but it matters when a conflict simply EXISTS.  It doesn't even matter if you act on the conflict, it just matters that it's there.  And when you can avoid one, you should avoid it (hence AUM based fee to custodian OR client pays the ticket charges).  And if you can't avoid it, you must disclose it (and even then, you still have risk).  
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Sorry I wasn't clear, I completely agree. And I prefer the AUM fee charge to the client fee for what I am looking at personally because of the high potential for turnover.
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RIArules View Drop Down
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I could be wrong, but I believe when you negotiate the % for unlimited trading, you eat that and just take it under advisement when negotiating your fees.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Guests Quote  Post ReplyReply Direct Link To This Post Posted: Sep/04/2014 at 11:30pm
Originally posted by RIArules RIArules wrote:

I could be wrong, but I believe when you negotiate the % for unlimited trading, you eat that and just take it under advisement when negotiating your fees.

I am fairly certain it's better to have the custodian bill it separately, or else you have to check "Yes" to the question of "do you sponsor a wrap fee program?"  
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Originally posted by Redshark Redshark wrote:

Sorry I wasn't clear, I completely agree. And I prefer the AUM fee charge to the client fee for what I am looking at personally because of the high potential for turnover.

Got it.  Didn't realize you had a high turnover management style (most don't, which is why the AUM fee billing is less popular with RIAs these days).  

If you're doing AUM fee unlimited trading, no worries.  
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Originally posted by helado helado wrote:


Originally posted by RIArules RIArules wrote:

I could be wrong, but I believe when you negotiate the % for unlimited trading, you eat that and just take it under advisement when negotiating your fees.


I am fairly certain it's better to have the custodian bill it separately, or else you have to check "Yes" to the question of "do you sponsor a wrap fee program?"  


That's correct I believe, but it is an option. And as the OP stated, simplicity is highly desirable. Saying something like "I have negotiated trading fees and it is all part of the fee I charge" has a certain ring to it.
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Redshark View Drop Down
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I couldn't even justify a wrap fee without some kind of turnover, personally.
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So are you trading on technicals?
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I use two equity strategies. One is technical. One is fundamental. Interestingly enough, the have roughly the same turnover with completely different buy/sell rules. I have an ETF strategy on the shelf, but it doesn't fit in my current situation. I plan to add it after I make the move because it fills the gap in foriegn equities and alternatives.

Aside from that I have a simple bond strategy. Currently I combine the two equity strategies and the bond strategy into a single portfolio. The strategies are obviously weighted differently for different clients. That makes up 90% of my business, and I have some business in SMA bond accounts and some random business in mutual funds and annuities and retirement plans.
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Sounds like you are ready made for the RIA route. One of your concerns (simultaneous trading across multiple accounts) is a snap with the custodians I have looked at.
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Would you mind sharing names. Any insight as to how it works. I have used and seen really good and really bad. Honestly where I am at now has the best capabilities I have seen in that space and they use a 3rd party vendor and strip out some of the more useful parts. Some of the worst I have seen is just glorified block trading where the advisor is responsible for keeping the allocation in order from the model all the way through the trading and accounting. In fact, I interviewed a firm that I really liked, and I just couldn't get past how bad that piece was.
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Check out TradePMR. Their technology is good, ticket charges are a little high, but they are willing to negotiate your % for trading deal. Although, IIRC they will come back and renegotiate after a certain amount of time if your models are trading excessively.
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