Need an Article Discussing Fee-Only Benefit to Client

[FIM]

I am trying to find an article that contrasts Fee-Only RIA's with more traditional business models (brokers, fee-based, etc.). We are a fee-only firm and would like something independently published that we could distribute to clients (with permission, of course).


Can anyone point us toward such an article?



Thanks in advance.

[debaser]

What do you feel is the benefit of fee-only vs. other channels?

[Bradly T.]

Be sure to illustrate how it is the MOST expensive form of relationship for all time periods longer than 7 years! It's really better to offer ALL forms of engagement and recommend the client diversify across platforms products, not merely markets. After all, you can't offer total wealth management solutions in a one size fits all outfit. It's so good to be RIA w/ an indie BD, and be appointed with life, annuity, and mutual fund companies. Doing what's best for the client is not an eternal management fee going up, up, up. You better be doing some comprehensive financial planning and sending client $$ away from your firm to banks, annuity cos., life and LTC providers, etc. The new fiduciary standards coming are going to hit the so called fiduciary bunch hardest - you CANNOT act in the client's best interest as a one trick pony!!


Now that's off my chest....suggest you visit (and join) NAPFA. They have 20 years of literature purporting the myth you hope to sell to prospects. Best of luck.

[Vig Oren]

IMO, "Fee-Only" (FO) financial planning is not a complete panacea for clients because they are still left on a limb with regards to buying insurance products (including annuities, LTCIs, etc.), i.e. how the fee- only advisor handles recommendations and commissions involved with insurance agents? If you reply that you, as a financial planner, will do the "needs analysis" for the risk management, and send the client home with it, then such a client was NOT treated fairly. If, on the other hand, you recommend insurance agents, then you're not an unbiased advisor.

[the observer]

Hi Vig,

I read your reproduction of Larry Swedroe's blurb and while I don't know Larry or his company and do not desire to in any way criticize his business practices... Point three did interest me though...

3.We are a fee-only advisor—avoiding the conflicts that commissioned-based compensation can create.

While this may be true for his "investment advisory" business, how can he say the same for his risk management business, after all, isn't BAM Risk Management licensed as an insurance agency in MO (don't bother to check, I did) and doesn't he sell insurance for a commission?

Which brings me to points 2, 4 & 6.

2.We provide you with a fiduciary standard of care— the highest legal duty that one party can have to another.

4.We fully disclose potential conflicts.

6.We are client centric—we don’t sell any products, only advice.

To point 2.... As an agent of the insurance company obligated by contract to represent the insurance company's products to the client not the other way around, I'm just wondering how he meets his stated "fiduciary" obligation to the clients? I'm not sure the insurance company would agree that you can serve two masters equally in a fiduciary capacity and, after all, an agent for a company is a fiduciary... to the company, right?

CFP® Certificants can only call themselves fee-only when 100% of their income comes from fees.. I guess Larry can make the fee-only claim because?

Well, to point 4... Because he has three different companies and does all his commission business through a separate entity?? If so, are all the conflicts inherent with running commissioned business through a related entity fully disclosed as promised under point 4 and isn't it disingenuous at best to run insurance business through a separate entity to keep the lucrative commissions in-house while calling the other side of the business "fee-only" because it makes a great selling point with gullible consumers?

To point 6... if you sell insurance through a closely related company, does point 6 REALLY hold water?? To quote from his web site: "When we explored the insurance industry for the highest quality products to implement our recommendations, we determined that the vehicles that match or exceed our strict criteria come in the form of commissioned products. Therefore, BAM RM receives compensation via commissions we earn when delivering the solutions that we feel best meet a client’s unique needs." Kudos to Larry, most of the fee-only crowd believe commissions are "just plain evil", right??

So, all we have to do is create a separate entity for the insurance business and we can call ourselves fee-only and write in point 6 to our resumes? Hey... wait a minute, I already do this because my RIA is a separate entity and I sell insurance under an individual license, not an agency license and certainly not under the name of my RIA...

Yoo Hoo... I'm finally "FEE-ONLY"! Suck on that you lowly commission guys!

I just wonder whether point 3 tells the "whole" story... but the 11 points ARE a great marketing tool, that I'll grant you Vig!

[Vig Oren]

Hi Vig,

I read your reproduction of Larry Swedroe's blurb and while I don't know Larry or his company and do not desire to in any way criticize his business practices... Point three did interest me though...

Sorry that I rather not associate with posters who don't have or don't want to reveal their valid financial planning designations. Why should I? There are thousands of such posters and impostors on the Web.

**********************

Larry Swedroe's outfit is amongst the best financial planning advisory group in the US of A, including in St. Louis, MO.

Larry himself is a super investment books' author, participate in dozens of discussion websites where he helps posters (free), and a real mench.

See about him here:

https://bamweb.bamservices.com/bam/

Larry is also one of my investment heroes, next to Mike Kitces.

Vig Oren, CFP(r), MBA


p.s. Gems by Larry:

http://www.bestwebbuys.com/Larry_E_Swedroe-mcid_2961033.html?isrc=b-authorsearch

[Bob H]

Sorry that I rather not associate with posters who don't have or don't want to reveal their valid financial planning designations. Why should I? There are thousands of such posters and impostors on the Web.

Yet you had to add your $.01 worth for the OP "FIM." And they either don't have or haven't revealed their valid financial planning designations that you "insist" on.



Is it possible you're just an old man getting cranky as Observer pointed out the hypocrisy of your "hero"?

[the observer]

Come on Vig, read the post properly...

a couple of months ago I wrote a piece you agreed with and you were absolutely fine supporting my position. I own an indie Registered Investment Adviser, have been a CFP® Certificant for 16 years and have held a life agent license for over 23 years.

BTW, nobody's criticizing Mr Swedloe's ethics or business model here, least of all me. It's the same business model I use. Fee-only on the investment side using my separate RIA and fully declared commissions for the insurance under a separate, individual license.

I won't repeat myself so please refer back to my original post for my comments on the 4 of 11 points that don't seem to jive properly with this business model and just accept the criticism.

Remember, as a CFP® Certificant even though my business model is exactly the same, CFP Board in their idiocy has deemed my practice NOT to be fee-only on the investment advisory side, which places me at a competitive disadvantage when advertising against Mr Swedloe so of course I'm annoyed that he obfuscates the facts IMHO. Level playing fields for identical services offered should be permitted and CFP Board creates confusion and animosity when they allow their standards to be directed by NAPFA, for example, whose interests are wholly aligned with NAPFA's membership (as they should be) but NOT CFP® Certificants.

[Bradly T.]

FIM - Old or not, I guess we're all a little cranky and wore out on this subject. First point is you need to be careful about feeling or sounding superior to any and all competition, especially and simply due to your form of compensation.


Next, a little history lesson....The AUM fee only model began decades ago as a competitor to wirehouse distribution where brokers earned commissions (only) for selling securities from "inventory" (already owned by their BD) and by quota. This was also the era of captive insurance agents who only sold what their proprietary parent allowed. Ed Jones and AG Edwards were a hybrid, indie BD who distributed through a traditional BD channel but NOT from inventories. From their model, a third industry boomed - the indie BD channel which also allowed insurance sales and "managed" or fee-based AUM compensation.



Pure RIA only firms were not required to deal with FINRA (we can all understand the benefits of that) and needed some competitive advantage to advertise...thus, the birth of the propaganda that fee only "aligned" client and firm interests. The fallacy and conflict of interest is this model is that the firm is ONLY paid by AUM so payouts of income, cash reserves, protection premiums, and debt acceleration ALL diminish AUM - the firm's only source of revenue. So, fee only has an automatic conflict of interest with the client and is NOT the best aligned with client's best interest!!!!



Many of us are NOT wirehouse, inventory driven brokers. Many of us deliver full spectrum solutions including professional planning and consulting services. And most of us, regardless of channel or comp. try hard to work on behalf of the client's best interest. How that is defined and disclosed is getting complicated, even rediculous. None of us fears the intent, we should all fear the form of execution (pun intended). And RIAs should have NO comfort for what may come because they CANNOT demonstrate superior morality or client outcome alighnment with the indie BDs.

[Bob H]

Come on Vig, read the post properly...
.

Observer:

This is his typical response. If you agree with whatever he cut and pasted... fine.

If not, then he ignores you based on petty, childlike things.

Bottom line is.. He is a failure in the biz as he never once had a single person on this planet pay him for his advice. But he is quick to sit in judgment of the professionals here.

Why waste your time? He isn't worth it. And you certainly will not have an intelligent give and take on any subject.

Bob

[Vig Oren]

The Observer, yes we do agree that your and Larry's approach to handling the risk management (RM) activity is the worst at best, with regards to mingling fee-only with being a pseudo insurance agent too. Notice that Larry lets clients go to any RM place with no obligation or any sharing of interest.

[the observer]

Hi Vig,

Mr Swedloe, from your latest posting here writes:

"BAM Risk Management, LLC helps Registered Investment Advisor firms and their clients manage risks that can lead to a loss of control over carefully constructed investment policies."

I'm not sure whether you know this Vig, but this is "code" speak that we Registered Investment Advisers all understand, particularly the ones with no insurance licenses... allow me to translate. What this actually means is, insurance agents, (who may also be registered investment advisers and able to offer "more comprehensive" services than the traditional Fee-only RIAs with no insurance license, might become an attractive alternative to clients if they get a foot in the door for insurance business. After all, full disclosure, I always tell anyone I meet everything I do. Clients need one point of contact with me. So BAM is basically saying, let our "separate entity" handle the life, health, disability and long term care, we earn a bucket of commissions on that, and we promise we won't go after the investing dollars unlike some other all round planners, who might end up with your clients. It's all paranoia on the fee-only planners side who refer clients in, but it's great marketing on BAM's part.

BTW, I also specifically state that all my clients can go elsewhere for anything they want, couldn't care less. I want clients that are not going to be a pain in the ass, listen to good advice and implement with me so I know the job will be done well. If they decide not to, more fool them because after so many years in the business, I'm pretty good at what I do.

I disagree that Larry and I are "worst at best" (I'm assuming you mean worst of the best?) I think my model is just right for my clients and they agree.

[debaser]

True professionals and students of the industry recognize that the method of compensation is, nor should ever be, a central concern to the business of financial advice. Rather, it should be on the periphery. What truly matters is the client understand their options and be allowed to choose what they feel is best for them. AUM fees for some, commissions for others, hourly or contingency for another group, or a combo of the three. As long as we are upfront and consistent with our delivery, we will do well for our clients and ourselves. It is when one talks about "conflicts of interest" (which all modes of advisor compensation have) do we lose sight of what truly is important - the well-being of our clients.

[the observer]

debaser...

While I agree with you on the main issues, unfortunately, the disparities begin when RIA's are required by law to disclose all conflicts and "must" therefore talk about them, while other financial professionals such as insurance agents have no such obligation to disclose. There will always be this discussion, no matter what we do or say.

[debaser]

Observer,


I understand the inherent differences between RIA, insurance, and B/D sales activities. My concerns and ire get raised when one channel claims moral superiority over the other channels. My experience is that the RIA channel is the one to champion the 'no conflict of interest' BS, when we know there are conflicts of interest no matter how an advisor makes a living.

[fujica]

Getting back to the original topic...you can hire a writer to author an original article on the topic. We did that with an outfit called Advisors Friend. You can use a writer with expertise in financial services to create client communications, marketing materials and articles. Let the writer do the research.

[the observer]

However, if you do hire a writer be very specific about disclosing this. I have written numerous articles in the past and had them published and last year when audited, the regulators asked me to produce the articles and prove I had authored them because my name was on them.

This seems to be a bug they have up there right now, ghost writing and planners taking credit for things they didn't write. If it's ghost written you should also disclose that the co-authors were compensated for their work and keep meticulous records.

Also if you are affiliated with a FINRA member, you'll need to run everything through their compliance, if not, through your own CCO will have to sign off and take the liability because your RIA will be ultimately responsible for the content and any omissions.

In other words, if you have the knowledge, you should consider writing the article yourself, it may be cheaper and cleaner in the end.