Fee based “Advisor” accounts:

[Jo Anne]

You're making an assumption on the worth of this advisor's counsel. At my hourly fee, you would not get close to three hours for $300. So why assume that this advisor is worth any less?

And shouldn't he be allowed to charge in part to cover the liability exposure he bears in handling the money and implementing the advice? I know I would.

This is not you, Dan. This is a guy sitting in a cubicle in a TD bank branch.

[Zeide]

You said
"I'm thinking that if an adviser can set up a portfolio to perform better than the market then it would be money well spent. But I would expect some type of hands on management. Am I being unreasonable? "

If you can show me an adviser that can consistently beat the index by more
than what I pay, then I will give him my business. You seem to forget that
few if any adviser can beat the market on a regular basis over time. With
index funds you get the market returns less an average of 75bp. Why would
anyone want to pay an FA regardless if he makes them money or loses them
money? Zeide

[DanH]

You're making an assumption on the worth of this advisor's counsel. At my hourly fee, you would not get close to three hours for $300. So why assume that this advisor is worth any less?

And shouldn't he be allowed to charge in part to cover the liability exposure he bears in handling the money and implementing the advice? I know I would.

This is not you, Dan. This is a guy sitting in a cubicle in a TD bank branch.

I'll take that as a compliment Jo Anne. But from the initial post, this is not a bank branch advisor - but one from the full service brokerage arm. There are many smart people around the brokerages.

Mr. Schlenker did some time in such an environment. I began my career earning commissions from selling mutual funds. My point really is not to make summary judgements about somebody based on the feedback from a single individual. Believe me, ask the [s]right[/s] wrong person and you may not get a glowing report on me either.

(Not that boib is trashing his advisor but just that feedback from one person typically doesn't provide a full and fair picture of an advisor's competency.)

[dakota]

When I asked how they would manage the portfolio I was told that if a stock went up they would sell it and if it went down they would hold it.

I absolutely adore that line

[Norbert Schlenker]

I'm thinking that if an advisor can set up a portfolio to perform better than the market then it would be money well spent. But I would expect some type of hands on management. Am I being unreasonable?

It's not unreasonable but you should realize that you're not going to get that by walking into any bank or broker. The obvious way to structure what you want is to give the manager a cut of the alpha s/he generates, but that's against regulations.

So you can take your chances with someone who promises they'll try really hard to do well for you but without any guarantees, or you can do it yourself.

I am very curious why you don't want to do it yourself.

Mr. Schlenker ...

Oh, please! I know you're much younger than I am, Dan - better looking and more hair too - but Mr. Schlenker?

[boib22]

So you can take your chances with someone who promises they'll try really hard to do well for you but without any guarantees, or you can do it yourself.

I am very curious why you don't want to do it yourself.

A deep fear that I'll discouver that I'm not as smart as I think I am.

Once I stopped asking what to expect from an advisor and asked myself what I wanted a advisor to do for me, I have come to the conclusion that I can probably handle it myself.

After all the ultimate responsibility is mine. If I don't have an advisor I can only blame my stupid decisions on myself. I’ll take 1 ½ % out every year and treat myself to a trip to Vegas whether I make money or not.

[Norbert Schlenker]

Tacking on to an old thread ...

...The conflicts of interest that arise in transaction-based accounts are well known to regulators, litigators and those in the industry. These are minimized through supervision policies and procedures intended to expose and limit trading activities that are clearly detrimental to client interests, along with activities that benefit advisors and the dealers, without benefit to clients.

Advertisement
Whether or not the promotion of fee-based accounts has been accompanied, in all cases, by supervisory policy and procedures intended to ensure clients are being well served is debatable. Some may argue that full disclosure of the available account options is sufficient, but experience in the United States would suggest that disclosure alone is not enough.

A report prepared by U.S. regulators has called fee-based programs a best practice because the programs diminish the incentive to undertake unsavoury and abusive practices (high-pressure sales tactics, recommending unsuitable transactions or transactions of questionable benefit to clients), but it cautioned that such programs were appropriate for investors who prefer consistent and explicit periodic charges and who engage in a moderate level of trading activity.

When clients are faced with an assortment of options, they will often look to their advisor for advice, direction and recommendations. In many cases, they will accept and rely on the advice, assuming rightly or wrongly that the advisor is making a recommendation for only the most appropriate of reasons. This reliance, combined with fees that exceed, by a large multiple, the cost of having a commission-based account, would seem to be a breach of the advisor's duty to the client.

U.S. advisors have been disciplined in situations where a fee-based account has clearly been detrimental — where commission-based accounts would have been significantly cheaper for buy-and-hold investors or for those who purchased mutual funds with embedded asset allocation or rebalancing fees included in the fund's management fee. With such funds, significant trading activity is unlikely.

The associated cost is not the only factor to consider: The dealer and the advisor need to be able to demonstrate the benefit when a client chooses, or is encouraged to open, a fee-based account over a commission-based account when trading is expected to be moderate or minimal, or has turned out to be minimal or moderate over the passage of time....

http://www.advisor.ca/practice/client_r ... 10300_3716

[squash500]

Norbert, it seems that your fee for service way of doing things is the best solution for the client who doesn't want to diy .

[BRIAN5000]

boib22 wrote:
I'm thinking that if an advisor can set up a portfolio to perform better than the market then it would be money well spent. But I would expect some type of hands on management. Am I being unreasonable?

Isn't this an unreasonable expectation, isn't it a planners job to integrate rather then speculate.

[squash500]

How does one assess a broker’s competence. I am quite comfortable buying an EFT and getting market returns.

IMHO, if an investor is comfortable getting market returns with etfs then there is no need to hire a fee-based advisor . Just think of it this way; if advisors could consistently outperform the market for their clients; they would all be retired on a yacht somewhere . I think Fred Schwed wrote a book "where are the customers yachts". Fs said in his book that the only people whoever get wealthy are the advisors whereas the clients are the ones who have to take all the risk whereas the advisors get paid no matter what.

[squash500]

Isn't this an unreasonable expectation, isn't it a planners job to integrate rather then speculate.

You could also look at it another way. A planner has to speculate in order to integrate.

[parvus]

Isn't this an unreasonable expectation, isn't it a planners job to integrate rather then speculate.

You could also look at it another way. A planner has to speculate in order to integrate.

Mebbe. Mebbe not.

Why is Fee-Only Compensation of Critical Importance?
A financial planner who has a financial stake in the course of action that he/she recommends to a client faces an inherent conflict of interest and cannot be considered objective and unbiased. This is true even if the planner truly believes that he/she has only the best interests of the client at heart. Unfortunately, the vast majority of financial advisors in the United States are sellers of financial products. Some or all of their income may be dependent upon their ability to steer their clients to a limited number of the thousands of financial products available today. (Putting aside the conflict-of-interest factor, this limiting of choices, in and of itself, often is enough to impact the quality of the investment advice.)

These advisors include stock-brokers, analysts, insurance agents, accountants and attorneys, as well as financial planners. Many of their clients are not aware of their advisors’ dependence on selling products, or do not recognize its significance.

NAPFA believes that many of the problems that beset Americans today in their financial affairs – including the mis-management of debt, failure to protect retirement assets and poor allocation of savings and investments – relate directly to the conflicts of interest that pervade the marketplace.

<snip>
Comprehensive Planning
NAPFA-Registered Financial Advisors are primarily engaged in providing comprehensive financial planning. Most of the nation’s financial advisors pay lip service to comprehensive planning but few actually provide it. In recent years, largely because of the runaway stock market of the 1990s, the practice and public perception of financial planning tended to be overly focused on investments in general, and stocks in particular – a trend encouraged and reinforced by the fact that most providers of financial advice benefit from the sale of financial products.

As a result, many members of the public have received a painful reminder frequently forgotten: the value of investments can fall as well as rise. If they were relying on a financial advisor who was merely providing investment advice, they are probably surprised by and poorly prepared for the bear market.

Why? If an advisor doesn’t understand the client’s full picture, the quality of advice in any one area, including invest-ment advice, can suffer significantly. Competent and informed investment decisions must take into account all the other factors that comprise an investor’s financial profile, including tax, estate planning, insurance, risk tolerance, specific family circum-stances and ultimate financial goals. A truly comprehensive financial plan, therefore, is much more than investment advice. It is an all-purpose tool that enables planner and client, working together, to make better financial decisions because each individual decision is made within the context of the full picture.

In Summary
For too long, many Americans have relied on financial advisors who had improper motivations or a limited view of their responsibilities to their clients. NAPFA has pioneered a set of standards of advisor education, training, and method of practice that truly serve the public interest, emphasizing objectivity, comprehensive planning, and broad training and experience. Our goal is to set the bar high and make these standards commonplace in the practice of financial planning.

[squash500]

Hi Parvus, excellent link as usual . We've been over this before; this fiduciary oath or duty is a tricky ballgame. I like the comparison this article made with Doctors and Lawyers. I think one of the reasons why fee-only planners aren't more popular is that no set rules are in place. If the planner ruins the clients account; it would be hard to sue him/her for damages in contrast to an incompetent lawyer or Doctor where set rules of minimum standards of practice and fiduciary duty to the client are firmly in place. Another interesting point is that the napfa has only 1000 members . That's not very many in the general scheme of things. I also can't fathom how the napfa fiduciary oath would ever be enforcable in a court of law

[squash500]

Here's an example of a fee based canadian company that has been around since 1972.

[DanH]

From another thread, here is the list I put together for another poster interested in fee-only planners.

[squash500]

Thanks for posting that Dan .

[Bylo Selhi]

Iggy adviser is "born again." Efficient way to build wealth

When he decided to leave fund giant Investors Group Inc. to start up his own fee-only financial-planning firm, Gordon Stockman knew there was plenty of room to cut investment-management fees and still have a viable business practice.

Prospects who visit Efficient Wealth Management's storefront on Lakeshore Road in Port Credit, Ont., get a brochure titled Costs do Matter. Many are "paying too much for too little," says Stockman. "They are supporting their mutual-fund company's efforts to find new clients, not just manage the existing ones."...

However, as an independent, fee-only financial planning shop, Efficient Wealth does not sell such investments directly. If clients want their portfolios managed or trades executed, Stockman has "reciprocal support arrangements" with certain dealers, advisors, brokers and investment counsellors.

Stockman is a chartered accountant and a certified financial planner, restricting himself to creating comprehensive financial plans and investment strategy reports. "Financial planners don't manage money. We manage people, which is often forgotten in our business."...