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Old 02-07-2011, 07:28 PM   #21
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We were talking about over aged financial planners, not under aged ones.
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Old 02-07-2011, 07:30 PM   #22
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This thread got me thinking about all the people who make insane amounts of money before the FA client gets a dime. Here's a partial list for a new stock offering . . .

1) 7 figure investment banker and a host of 6 figure underlings get their share of "advisory fees" on a new issue
2) 7 figure capital markets bankers and a host of 6 figure underlings get fees for specific advice related to market timing, structure, and the like
3) 7 figure syndicate bankers and a host of 6 figure underlings get fees to execute the IPO
4) 6 and 7 figure institutional salesmen get commissions to sell the new issue to mutual funds, insurance companies, etc.
5) 6 and 7 figure traders take bid-offer spreads on the new issue to "stabilize" the market of the new issue
6) 6 and 7 figure portfolio managers at mutual funds look at recommendations from 6 figure stock analysts as to whether to buy the IPO
7) 6 and 7 figure financial advisers sell 5 figure J.Q. Public on the financial products that keep the whole thing afloat.

Nice.

Which raises a question I've never been able to answer: Why are their so many millionaires between an institution that wants to sell a product (stock, bond, etc) and the person who wants to buy it?
Thanks, I've wondered the same thing. I'll show my ignorance by saying I'm not sure what some of these people do. Numbers 4, 6, and 7 make sense to me, I think I've even bumped into all of them. Your explanation of 2 gives me some idea. But I don't understand what 1 and 3 do. I think I always lumped 1, 2, and 3 together and called it "investment banking".

Then, I've never understood exactly how money is made in 5. Okay, I understand bid vs. offer from a buyer's perspective, I don't know the economics (including risks) on the trader's side.

Can you help me out?

(Warning, the next question will probably be "Why doesn't a competitive market squeeze these incomes down?")
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Old 02-07-2011, 07:35 PM   #23
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I don't suppose FA's are any different than any other profession. If you went to any big NYC law firm, you would find a number of partners/of counsel in their late 60's and 70's who come to the office everyday, and its usually not because they need the money. Generally, it's because they spent all their life's energy in the practice and have nothing else to do.
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Old 02-07-2011, 08:13 PM   #24
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kumquat, my older boss was like that. He sold the business 6 years ago and stayed on, both to keep in touch with the clients but also, based on simple reality, that if he had some sudden illness, he wouldn't be able to help them. Philanthropy, probably not, but the same kind of succession planning as ANY business would do.

I don't say it too much, but you folks sure have a broad ass paint brush for a profession that one of your hard-working moderators spends all damn day doing. I'm just saying...
Well Sarah,
You may be right as far as the general population of the world goes. I doubt that the average member of this forum agrees
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Old 02-07-2011, 08:21 PM   #25
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(Warning, the next question will probably be "Why doesn't a competitive market squeeze these incomes down?")
You've identified the heart of my question, and the reason for the post. Why doesn't a competitive market supply enough labor and competitors to bring salaries and fees in financial services down to a level consistent with other services in the economy?
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Old 02-07-2011, 08:41 PM   #26
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I don't suppose FA's are any different than any other profession. If you went to any big NYC law firm, you would find a number of partners/of counsel in their late 60's and 70's who come to the office everyday, and its usually not because they need the money. Generally, it's because they spent all their life's energy in the practice and have nothing else to do.
This is becoming less common.

While there are exceptions, as a generalisation most partners in the large law firms will know when its time to move on, failing which they will be told to move on. For many, that time will arrive well before any retirement age stipulated in the partnership deed. Simple economics will not allow people to remain as partners if they are not contributing. What you do see is some partners staying on as consultants (usually working less than full hours for substantially reduced incomes).
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Old 02-07-2011, 09:32 PM   #27
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Wouldn't someone buy the book?

Or are they just so philanthropic that they can't abandon their clients?
It's much harder to sell your book than it sounds. Despite what most people here think, this business is very personal, and requires a lot of dedication. When you work with people for years, watch their families grow, mourn with them when family members die, you take a very personal stake in their well being. It is a hard business to leave.
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Old 02-07-2011, 09:39 PM   #28
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I understand. I have gobs of money, enough to last several generations, but I'm so dedicated to my clients (for whom I've sacrificed my life) that I must toil on until death. Please honour my passing.
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Old 02-07-2011, 09:48 PM   #29
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kumquat, my older boss was like that. He sold the business 6 years ago and stayed on, both to keep in touch with the clients but also, based on simple reality, that if he had some sudden illness, he wouldn't be able to help them. Philanthropy, probably not, but the same kind of succession planning as ANY business would do.

I don't say it too much, but you folks sure have a broad ass paint brush for a profession that one of your hard-working moderators spends all damn day doing. I'm just saying...
The smartest investor I ever knew was a 75 year old broker who owned a small firm. The money he made from me was meaningless to him, as he was very wealthy. The most successful people in the world love their work, and generally are in no great hurry to retire.

We have a tendency to narrowly interpret actions of those who appear to make different choices from those chosen by us.

Ha
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Old 02-08-2011, 07:42 AM   #30
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Nicely said, Ha. I'll have to remember that a great euphemism for "tool" is "narrowly interpret actions".

I think those members who have worked in businesses where they didn't interact with clients may not understand the mentality in adviser-type jobs is to help people. These aren't the same folks as what you'd find in a typical sales job.

Just like I couldn't be a nurse (too much personal interaction), those jobs where I can contribute to the well-being of a family and their goals are where my best skills are utilized.

Saluki, my older boss is working on a book, and if it is ever finished I suspect we'll just be handing them out to the clients rather than him actually selling any!
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Old 02-08-2011, 07:57 AM   #31
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I think those members who have worked in businesses where they didn't interact with clients may not understand the mentality in adviser-type jobs is to help people. These aren't the same folks as what you'd find in a typical sales job.
Everywhere is different, and broad brushes usually paint badly, but my experience has been that when conflicts of interests arise between what's good for the employer and whats good for the client, the client often loses. It's so bad in some places (read industries) that if you want to do right by the client, you sometimes have to do it on the sly and then only with trusted clients who you know won't blow you up. But of course, in those instances, doing right by the client means putting yourself in a hole relative to your peers and the good graces of your employer who sees your peers selling more, or generating more fees, than you are. Most people can't survive long doing that.

There's a reason why the brush is broad. And it's not because the financial services industry employs bad people. It's because the incentive structure often times pits the interests of those selling financial products against those who buy them.
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Old 02-08-2011, 09:09 AM   #32
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Everywhere is different, and broad brushes usually paint badly, but my experience has been that when conflicts of interests arise between what's good for the employer and whats good for the client, the client often loses. It's so bad in some places (read industries) that if you want to do right by the client, you sometimes have to do it on the sly and then only with trusted clients who you know won't blow you up. But of course, in those instances, doing right by the client means putting yourself in a hole relative to your peers and the good graces of your employer who sees your peers selling more, or generating more fees, than you are. Most people can't survive long doing that.

There's a reason why the brush is broad. And it's not because the financial services industry employs bad people. It's because the incentive structure often times pits the interests of those selling financial products against those who buy them.
Exactly. My previous FA is a great guy, who works hard and is convinced he can do well for his clients. However, returns don't bear that out. Also, just like nearly every other human being, he has a significant blind spot regarding what I see as conflicts of interest. He could justify putting me in a 5.75% load fund that does the exact same thing as a Vanguard fund because it's one year return was .7% higher. It had nothing to do (in his mind) with that big commission he was going to get. Seriously, he just didn't think that way. Great guy, good intentions, but just wrong. He was adding no value at relatively high costs.
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Old 02-08-2011, 09:42 AM   #33
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Most financial planners that have done it for awhile are FI, but prefer to work. If they have built up a book of business and haven't found someone they trust or a family member to take over their book they don't just want to abandon their book and leave.........



I would not assume everyone wants to "get their work life" over as fast as possible.... Based on the many posts I have read on here, a lot of retired folks on here had crappy jobs and wanted out years before they were able to, but put the hammer down and made it to FIRE. Maybe some of us like our jobs?

I have no attentions of quitting when I turn 50, I have control of my hours and my life and my business, so why should I, when I enjoy what I am doing?


It's the popular thing to believe that all financial advisors are crooks...just like all salespeople are shysters..sigh. (Not that some aren't, of course, just not all.)
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Old 02-08-2011, 09:48 AM   #34
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Getting back to the OP, if I was introduced to an older (65+) FA, my first assumption would be that he wasn't frugal and still needed to work. My second assumption would be that he was on autopilot, and didn't need to work very hard since he just handed the appropriate recommendations based on the template for the client's needs. So he didn't need to retire, he was sort of retired in place. The concept that he loved his job and just couldn't bring himself to quit would be a far distant third assumption, since it's so foreign to my way of thinking. These would all be my assumptions, however, and would likely not have any relevance to his thinking. Or hers (sorry, Sarah).
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Old 02-08-2011, 09:58 AM   #35
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But then my parents tell me that they are concerned for him and his wife, as they didn't think he and his wife had much money to live off in retirement. He was about 60 or so, and had been an FA for as long as I could remember.
Your parents "didn't think" the FA had money, that's not a material fact.........
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Old 02-08-2011, 10:03 AM   #36
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I don't say it too much, but you folks sure have a broad ass paint brush for a profession that one of your hard-working moderators spends all damn day doing. I'm just saying...
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Old 02-08-2011, 10:06 AM   #37
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He could justify putting me in a 5.75% load fund that does the exact same thing as a Vanguard fund because it's one year return was .7% higher. It had nothing to do (in his mind) with that big commission he was going to get. Seriously, he just didn't think that way. Great guy, good intentions, but just wrong. He was adding no value at relatively high costs.
How was he wrong? If he put you in Vanguard funds was he giving value? No he was not..........
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Old 02-08-2011, 10:21 AM   #38
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You've identified the heart of my question, and the reason for the post. Why doesn't a competitive market supply enough labor and competitors to bring salaries and fees in financial services down to a level consistent with other services in the economy?
Are you aware that MOST FAs are not paid a salary? How is comparing a TD Ameritrade, Schwab or Vanguard salaried advisor who is given a book of business to manage, comparable to an FA who has to build a book of clients from scratch? I get calls from Schwab and Ameritrade every couple months wanting me to work there. As soon as I want to take a 70% paycut and get micromanaged, I'll be there..........

Most VG "advisors" are lucky to make $35,000 -$40,000 a year........sorry, I didn't get a degree in finance to only make that..........
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Old 02-08-2011, 11:03 AM   #39
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Are you aware that MOST FAs are not paid a salary?
Did you actually read the original post? There was a list of six groups of highly paid people before the product even comes to the FA. And the list wasn't even complete, just for starters it left off the six to seven figure sell side analysts who help sales people market new deals. The comment wasn't only directed at FA's, but whatever the FA takes out of the equation is in addition to what all these other folks take.

The question remains, how can it be that there are so many millionaires between an institution who wants to sell a product and someone who wants to buy it? Can you think of another industry where this is true?

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Are you aware that MOST FAs are not paid a salary?
Maybe while we're re-reading posts, you can look at this one about conflicts of interests. Having an FA who has to sell me something, anything, to put food on his table is the worst possible arrangement I can imagine.

And it's telling that the salaried folk make far less than the commissioned folk. What it tells me is that the value of providing non-transaction related advice is less than the value of a motivated sales person. How is that good for the customer?
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Old 02-08-2011, 11:15 AM   #40
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Having an FA who has to sell me something, anything, to put food on his table isn't a good place to start.
I never thought about this, but now I know that I should have been way more suspicious of that realtor who sold us our land! And all those other people in my life who benefit when I buy something! Yikes! This conflict of interest thing has some far reaching implications...
Even that so-called farmer I buy grass-fed beef has been influencing my purchases...maybe even convincing me to buy pricey steaks instead of ground beef.

lol...and yeah, I get it...we've got the SEC requirements and all that jazz to disclose conflicts of interest...and so did my realtor...but not my farmer.
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