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Old 06-12-2010, 04:22 PM   #21
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So Koolau's acquaintance could learn about asset allocation and some other things, but implement them for his clients while using non-index funds.
If he works for the ‘big firms’ then he is directed/trained to follow their recommendations and push their products. Which is to get the most assets as possible under the 2% annual fee plus commissions. He is probably not allowed to give ‘his’ recommendations or the DIY FIRE approach (i.e. Buy products with the lowest expenses). Plus it would probably lower his annual salary.
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Old 06-12-2010, 04:36 PM   #22
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Our 401(k) advisor worked for MorganStanley. I'm not sure if that counts as a 'big firm' in your eyes or not. My impression is that the approved list includes high-fee funds in just about every asset class.
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Old 06-12-2010, 05:04 PM   #23
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A financial planner from one of the Big Firms who really want to learn asking for advice... from a DIY non-pro (no offense to the OP of course). What about the Company training, the MBA, CFP, etc.

Reassuring isn't it... I hope he learns before he engages clients.

Just shows you what your likely to be dealing with.
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Old 06-13-2010, 10:52 AM   #24
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A financial planner from one of the Big Firms who really want to learn asking for advice... from a DIY non-pro (no offense to the OP of course). What about the Company training, the MBA, CFP, etc.

Reassuring isn't it... I hope he learns before he engages clients.

Just shows you what your likely to be dealing with.
Usually they just parrot the sales pitch that they are given.
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Old 06-13-2010, 02:24 PM   #25
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In theory it would seem that an FP could be a "good guy" and do okay.
...

Okay, here's how I intend to rebalance your investments to put things back into the same risk category we started with last year. See you next year--that'll be $300."

An FP doing business like this would gross over 60K per year if he met with just 4 clients per week. To make big money, this would have to be a higher-volume operation, but,
A 200 active client base, I wonder how many calls you'd need to make to get 200 clients to say "Yes"? (plus replace those who leave, die, or realize they can do this themselves). I think that's the rub. I think it could be done, but it would need some kind of Costco, or WalMart type mass access/credibility to get it off the ground.

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Old 06-13-2010, 03:00 PM   #26
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A 200 active client base, I wonder how many calls you'd need to make to get 200 clients to say "Yes"? (plus replace those who leave, die, or realize they can do this themselves). I think that's the rub. I think it could be done, but it would need some kind of Costco, or WalMart type mass access/credibility to get it off the ground.
-ERD50
Yep, and even a presence in Costco probably wouldn't be enough. The problems with this service are:
1) There's never a "crisis" or a driving event to make people need it--until it's too late. People go to H&R Block because April 15th is looming. They go to the dentist because we tell everyone to have their teeth checked annually--and if they blow it off, they get a toothache and they get an exam that way. But there's no built-in driver to prompt folks to set up their finances so their money can work for them.
2) There's no good way for a typical client to judge whether he got competent service. Once you know enough to tell whether it's being done right, you could do it yourself.
3) You're competing against a lot of glitz, hope, and implied promises. That's a big uphill battle. The plain, quiet, intelligent gal who'd be the "best" choice overall usually attracts less interest than the busty, flirtatious blonde who will break your heart (and your bank account).

It's too bad that a service which could do so many people so much good, and at such a reasonable price, is a non-starter from a business perspective. Which leaves us all to roll our own.
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Old 06-14-2010, 08:14 AM   #27
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Old 06-14-2010, 09:21 AM   #28
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In theory it would seem that an FP could be a "good guy" and do okay.

Meeting one: "Let's talk about your goals and risk tolerance. After that, I'll show you how I'm going to construct an asset allocation and how I'm going to find investments that meet that allocation at very low cost to you. I'll explain why I'm putting certain investments in particular places to help minimize your taxes. I'll also give you a short exposure to the academic research behind what I'm doing, and the very solid case against trying to constantly guess what the market will do next. I'll also show you the historic returns of a portfolio like the one we're building, though there's no guarantee the future will be like the past. I can't guarantee that you'll always make money, but I can guarantee that the things we've chosen to invest in will always perform within 1% of "the market" of similar things. And, any year that you don't do as well as the average investor, I'll refund my fee. For this I'll charge you $300--let me show you what you'd pay, total, if you went to a commission-based financial planner."

One year later: "Let's look at your returns for last year and compare them to the indexes [they'll be within 1%] and to the returns of the average investor [the client will almost certainly do better]. . , and I'll show you what your account balance might have been if I'd put you in investments favored by commission-based FPs.

Okay, here's how I intend to rebalance your investments to put things back into the same risk category we started with last year. See you next year--that'll be $300."

Most investors would be far better off with an arrangement like this than if they used a commission-based FP or if they tried to do it themselves. An FP doing business like this would gross over 60K per year if he met with just 4 clients per week. To make big money, this would have to be a higher-volume operation, but, in theory the potential is there. And, he could sleep soundly knowing he was doing well by doing good.
$60K gross. how about net? Say he's an independent. Even if he works out of his house, after paying work-related expenses, FICA, etc, he would net about $30K a year. A great job for a FIRE's person like yourself, not a business model that works in the real world. I personally know 8 people who tried this model and none of them are in the business anymore..........

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Or the FP's who charge "nothing" . . ."I get paid by the fund companies, I offer this service at no charge to you." Ugh.
Sounds like a commercial for Adam Bold and "The Mutual Fund Store".......
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Old 06-14-2010, 09:23 AM   #29
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If he works for the ‘big firms’ then he is directed/trained to follow their recommendations and push their products. Which is to get the most assets as possible under the 2% annual fee plus commissions. He is probably not allowed to give ‘his’ recommendations or the DIY FIRE approach (i.e. Buy products with the lowest expenses). Plus it would probably lower his annual salary.
Do you know this from personal experience, or are you making the numbers up?
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Old 06-14-2010, 11:32 AM   #30
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$60K gross. how about net? Say he's an independent. Even if he works out of his house, after paying work-related expenses, FICA, etc, he would net about $30K a year. A great job for a FIRE's person like yourself, not a business model that works in the real world. I personally know 8 people who tried this model and none of them are in the business anymore..........
Yes, I can see why. I suppose you could maybe charge more ($500?), and it would be no trouble to see 8 clients per week with this type of setup (those measures would bring you to $200k gross) but how and when would you be able to recruit that many clients and replace the quitters?

It's a market failure. In a rational market, the low-cost provider of these services and John Q Customer should be eager to meet for a mutually beneficial transaction. Instead, the "friction" is so high that the only sellers who can stay afloat are those who can successfully market a product (generating demand that rightfully should exist without need for marketing) and charge a lot more to cover the marketing costs.
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Old 06-14-2010, 01:38 PM   #31
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This is all tilting at windmills. Our entire economy is built on marketing goods and services that strictly speaking are manufactured wants, not even native wants let alone needs.

It takes lot of gumption and brass to get people to do things that are perhaps in their best interests, but not particularly fun, glamorous, or urgent. So if you have the needed qualities, of course you want to get paid and paid well for them.

There are maybe selling jobs where product knowledge is paramount, but mostly that is topped by persuasive skill, prestige, titty and the like.

Ha
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Old 06-14-2010, 02:19 PM   #32
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Yes, I can see why. I suppose you could maybe charge more ($500?), and it would be no trouble to see 8 clients per week with this type of setup (those measures would bring you to $200k gross) but how and when would you be able to recruit that many clients and replace the quitters?
People would not pay the $500, particualrly with everyone promising a "free financial plan", whether it be Vanguard or Fido or Ameritrade or whomever. A lot of those "plans" aren't put together by a CFP or reviewed by one at all. Most CFP's I know are either fee-based or are CPAs who do tax work as a primary source of income.

Certainly almost NOONE on this forum would pay $500 a year for financial advice, regardless of how many letter were after a person's name, yet the demographic of this forum are the kind of folks most FPs would like as clients. Notice I did NOT say "ideology", but "demographic"........

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It's a market failure. In a rational market, the low-cost provider of these services and John Q Customer should be eager to meet for a mutually beneficial transaction. Instead, the "friction" is so high that the only sellers who can stay afloat are those who can successfully market a product (generating demand that rightfully should exist without need for marketing) and charge a lot more to cover the marketing costs.
I don't know about that. Vanguard has a trillion dollars under management and are low-cost. However, you are not going to get full-service unbiased financial advice from any CFP working there.....he or she can't go outside Vanguard's platform, which is how it is set up.

The ETF market has a lot of mutual fund companies nervous, and rightly so...........
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Old 06-14-2010, 02:21 PM   #33
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It's a market failure. In a rational market, the low-cost provider of these services and John Q Customer should be eager to meet for a mutually beneficial transaction. Instead, the "friction" is so high that the only sellers who can stay afloat are those who can successfully market a product (generating demand that rightfully should exist without need for marketing) and charge a lot more to cover the marketing costs.
It's not just financial markets. In all sorts of areas, I'm often looking for the simple, 'it just works' variety, but the market is filled with the 'bells and whistle' versions. I guess the majority are enticed by the bells and whistles, and since the providers can charge more, they encourage it.

Us LBYM types are left in the cold far too often.

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Old 06-14-2010, 02:23 PM   #34
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This is all tilting at windmills. Our entire economy is built on marketing goods and services that strictly speaking are manufactured wants, not even native wants let alone needs.

It takes lot of gumption and brass to get people to do things that are perhaps in their best interests, but not particularly fun, glamorous, or urgent. So if you have those qualities, of course you want to get paid and paid well for them.

There are maybe selling jobs where product knowledge is paramount, but mostly that is topped by persuasive skill, prestige, titty and the like.
Ha
Mostly, the financial services industry was invented to serve two groups: Those who don't want anything to do with own finances but want someone else to blame when things go awry, and those who are either too lazy or overwhelmed to do it themselves. Turns out there are a lot of folks in those two catgories. A much smaller category is the client who was doing things themselves, but through a large inheritance or selling of a business or something extraordinary now feel they need more expertise. Once you get above $10M or so, those folks pretty much all have advisors.........
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Old 06-14-2010, 02:25 PM   #35
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Us LBYM types are left in the cold far too often.-ERD50
Maybe the industry knows LBYM folks won't pay for advice no matter how cheap it is?
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Old 06-14-2010, 02:42 PM   #36
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Maybe the industry knows LBYM folks won't pay for advice no matter how cheap it is?
Plus, they make overwhelmingly annoying customers/clients.

Ha
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Old 06-14-2010, 03:50 PM   #37
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Plus, they make overwhelmingly annoying customers/clients.
Ha

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Old 06-14-2010, 04:09 PM   #38
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Your friend is stuck. The big firms won't let him advise on anything - they handle the analysis in their analysis department and send that info to the sales staff (which is what he is). I once tried to get info on a NYSE traded stock from a Merrill Lynch advisor and she couldn't give me any - "we don't cover that one".

If he wants to get into the FP business, he needs at a minimum a CFP. I personally am much more inclined to use a fee-for-service financial planner for advice, and then implement it if I want. He might get that certification on his own time, and then work for an independent firm. If he stays with the big firm he is in sales and they will tell him what to push.

This is based on personal experience and also stories from people who worked at such firms.

I like the books suggested. Good reading list!
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Old 06-14-2010, 05:02 PM   #39
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Old 06-15-2010, 03:01 PM   #40
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If he wants to get into the FP business, he needs at a minimum a CFP. I personally am much more inclined to use a fee-for-service financial planner for advice, and then implement it if I want. He might get that certification on his own time, and then work for an independent firm. If he stays with the big firm he is in sales and they will tell him what to push.
Sounds like you want him to go to Amerprise? Only thing is, they will double-dip you, charge you a monthly fee and put you into proprietary products.........
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