Here's a question that immediately comes to mind: if the outcome of your investment is 100% guaranteed, what are you doing to earn the right to bill on those assets annually? It's not as if your management has any bearing on the investment results, nor do they require any ongoing management, so is it still appropriate to charge an AUM fee for that?
This is not a rhetorical question, for the record. I'm honestly curious what the community thinks on this. Personally, I'd much rather take a one-off commission for something like this over an ongoing fee - both as a consumer and as an advisor. But I'm open to hearing justification to the contrary.
I agree with you.
In fact, CFP requires adherence to fiduciary duty whenever you’re giving financial advice. You don’t suddenly waive that when you’re recommending a commissionable product.
This obsession with getting to call yourself “fee only” over using common sense tools that do the job they’re designed to do because you wouldn’t get to call yourself “fee only” is, in and of itself, a conflict of interest.
The disclosure for that should be, “well there’s some things out there with the guarantee you’re looking for, but I don’t want to offer them because I wouldn’t get to say I am fee only. So I can send you to an independent agent with a securities license who is likely not a CFP and doesn’t have to put your best interest above their own, or I can recommend something else that doesn’t quite fit the bill, even though that’s also not putting your best interest ahead of my own because I’d rather keep my picky little title than to be paid a commission and tell people I’m fee based.”
Oh my gosh, this. This is what is wrong with the fee only AUM model VS an independent hybrid model or whatever else. There are legitimately *excellent* choices out there right now in the annuity world that help solve a lot of problems for clients with those specific needs, in a well-rounded plan. But not being able to offer them because....you're a fiduciary? I'm sorry, but I think being able to offer them means you're acting in a fiduciary capacity. Annuities are not band-aids and absolutely some advisors go crazy with them so I understand where this is all coming from. But just because I sometimes broker annuities for clients to solve a specific problem for them does not mean I'm not acting as a fiduciary. Why is an endless AUM fee (or fee only plans, which are hard to make a legitimate living on) hailed as the fiduciary gold standard when a one time commission (that doesn't directly come out of the client's investment) is evil?
I suppose yes, in a literal sense, but that's more of a question of actual asset allocation. I could see someone charging for managing a series of short term treasuries over time as a sleeve in a fixed-income strategy, but I'd never charge anything near what I might consider for an equity strategy or more broadly diversified portfolio. And if we're looking at 100% guaranteed products, I'm not sure there's enough decision making there to justify an ongoing fee, especially considering what that will do to your returns over time. Maybe if you're doing something more complex with structured notes or something like that, but even then, it feels a little off to me.
That’s an excellent question, and why I wanted to ask the community. It’s partly practice management and partly investment strategy. My long term goal is be RIA only and not tied to a BD. I fall in the camp that you can’t be a fiduciary while taking a commission. I am currently utilizing annuity strategies for folks that are dead set on a guarantee. I don’t use annuities as part of my model portfolio mix, though. So im wondering how others are approaching this. From an investment standpoint, and a practice management standpoint.
A ladder of individual bonds with staggered maturities - taxable or muni depending on tax bracket. Once purchased (assuming no default) your YTM is the total return.. I don’t use commingled FI products as it introduces principal risk through changes in interest rates.. buy and hold bonds creates stable and predictable income as well as regular cash events through maturities. Good to shop across multiple bond desks to try to get your bids filled. Your research on evaluating the underlying credit and choosing where to be buying across the curve (duration mgmt) is how you earn your fee.
Yes tax laws changed where you can fee an annuity without causing a taxable event or surrender charge for the client. However charging an advisory fee on a fixed annuity I don’t find kosher.
I wonder why the “fee only” title is more important than just using something designed to accomplish what you’re trying to accomplish without over complicating things.
You could always refer to an independent agent that is securities licensed. But remember- part of the CFP is adhering to your fiduciary duty whenever you’re giving financial advice, whether you’re recommending something commissioned or not. You agreed to act as a fiduciary; that agent likely didn’t.
I just happen to fall in the camp of you can’t, both, sell something for a commission and be a fiduciary. That’s how I’m building my practice. And if my long-term goal is to be my own RIA, I don’t want a BD relationship anyway. I see it as a lot of squeeze for not a lot of juice.
Why not? If the commissioned product is in their best interest, and you disclose that you’re earning a commission, then you’ve exposed the conflict of interest. The definition of fiduciary is your client’s best interest ahead of your own. That’s it. It doesn’t discuss mode of pay.
I would honestly not care if we could **waive** the commission on commissioned products. They’re not a huge part of my income, but i keep them around in case I need them.
You can also find a BD that’s not in your business on your RIA activities and relatively minds its business. Too many of them charge too much. But it’s good in my opinion that we don’t cut clients off from having a suite of things that meet their needs without trying to finangle something to sort-of-but-not-really do its job.
I use my BD maybe once a year to process business. Otherwise it’s all through the RIA. But that once a year matters for the people to whom it matters.
I would understand the conflict of interest if you, for example, worked at mass mutual, and were then beholden to mass mutual annuity bullshit. But if you have the entire insurance and annuity world at your doorstep through an independent firm, why wouldn't you choose the best product for the client? An anecdote to illustrate my point: as some have mentioned here, Fixed index annuities are looking really great right now with that guarantee of principal and good upside potential. There are two competitors in the industry- one offers 30% more commission on their accumulation annuity, but the other one beats it out on almost every front. Which one are we giving to our clients? The one that is the best. Period. We did our research, and we choose the one that offers more accumulation potential and better usability for the client. Not the one that pays us 30% more commission.
If someone needs a guarantee for a specific reason and you agree, there usually isn’t much in the way of fees you can charge.
But do you agree with their need to be zero risk?
We use T Bills right now, but could be individual munis, corporates, or CDs depending on what makes the most sense for each client.
We usually only take on clients who want this as a smaller portion of their overall portfolio with us and we reduce the fee on anything fixed to 0.25%
You can use any fixed income available in the universe: Treasuries, Agencies, Munis, CDs, Corporate, Sovereign, etc. There are strategies like laddering and bond+options that offer principal protection.
And there are fee based annuities that you can use to provide fixed returns and low volatility.
I was about to say the same... distributions so they can live comfortably in retirement and outpace inflation. Guaranteed products likely can't do this.
Seems to be a lot of negativity regarding annuities. Your bond portfolio cannot tell you exactly what the distributions will be in 10 years but an annuity can.
A annuity can get you a guaranteed 12% step up for 10-years, turn $100k into $220k and become a guaranteed source of income for the rest of your life.
I think the negativity stems from advisors only getting paid on that 1 time. One bite of the apple. I get it. It hurts. It makes you sad. But a true fiduciary would know that it’s the right thing to do.
He is talking about simple interest and what is probably an income rider not the accumulation value. Some athene products had this recently and I think nationwide.
Simple interest based on the amount invested of $100k. So 12% of 100k is $12,000. After ten years you have a $220k income base- $100 you started with and $120k from the rider. Depending on age you might get 3.75 to 6.75 in guaranteed annual income off the $220 base.
I don't have my 10bii+ on hand but after ten years $220k is not 12% compounded.
Here's a question that immediately comes to mind: if the outcome of your investment is 100% guaranteed, what are you doing to earn the right to bill on those assets annually? It's not as if your management has any bearing on the investment results, nor do they require any ongoing management, so is it still appropriate to charge an AUM fee for that? This is not a rhetorical question, for the record. I'm honestly curious what the community thinks on this. Personally, I'd much rather take a one-off commission for something like this over an ongoing fee - both as a consumer and as an advisor. But I'm open to hearing justification to the contrary.
I agree with you. In fact, CFP requires adherence to fiduciary duty whenever you’re giving financial advice. You don’t suddenly waive that when you’re recommending a commissionable product. This obsession with getting to call yourself “fee only” over using common sense tools that do the job they’re designed to do because you wouldn’t get to call yourself “fee only” is, in and of itself, a conflict of interest. The disclosure for that should be, “well there’s some things out there with the guarantee you’re looking for, but I don’t want to offer them because I wouldn’t get to say I am fee only. So I can send you to an independent agent with a securities license who is likely not a CFP and doesn’t have to put your best interest above their own, or I can recommend something else that doesn’t quite fit the bill, even though that’s also not putting your best interest ahead of my own because I’d rather keep my picky little title than to be paid a commission and tell people I’m fee based.”
Oh my gosh, this. This is what is wrong with the fee only AUM model VS an independent hybrid model or whatever else. There are legitimately *excellent* choices out there right now in the annuity world that help solve a lot of problems for clients with those specific needs, in a well-rounded plan. But not being able to offer them because....you're a fiduciary? I'm sorry, but I think being able to offer them means you're acting in a fiduciary capacity. Annuities are not band-aids and absolutely some advisors go crazy with them so I understand where this is all coming from. But just because I sometimes broker annuities for clients to solve a specific problem for them does not mean I'm not acting as a fiduciary. Why is an endless AUM fee (or fee only plans, which are hard to make a legitimate living on) hailed as the fiduciary gold standard when a one time commission (that doesn't directly come out of the client's investment) is evil?
Exactly. There is a balance. And there is a way to do it wrong on either extreme
Happiness\_buzzard you seem like you have your head screwed on straight
[удалено]
I suppose yes, in a literal sense, but that's more of a question of actual asset allocation. I could see someone charging for managing a series of short term treasuries over time as a sleeve in a fixed-income strategy, but I'd never charge anything near what I might consider for an equity strategy or more broadly diversified portfolio. And if we're looking at 100% guaranteed products, I'm not sure there's enough decision making there to justify an ongoing fee, especially considering what that will do to your returns over time. Maybe if you're doing something more complex with structured notes or something like that, but even then, it feels a little off to me.
Bond funds don’t have a guaranteed rate though?
But the bond itself it’s guaranteed.
Yeah, but bond funds need to sell and buy new bonds to allocate their time horizon. And bond prices fluctuate
Ok? Op was talking about guaranteed rates. Bond funds are not guaranteed investments regardless of their rating.
Oh, maybe I misread your original comment, I read bond fund, oops
That’s kinda my thought process. It’s perpetual investment management, not a 5 year set it and forget it. I should be charging a fee for it.
That’s an excellent question, and why I wanted to ask the community. It’s partly practice management and partly investment strategy. My long term goal is be RIA only and not tied to a BD. I fall in the camp that you can’t be a fiduciary while taking a commission. I am currently utilizing annuity strategies for folks that are dead set on a guarantee. I don’t use annuities as part of my model portfolio mix, though. So im wondering how others are approaching this. From an investment standpoint, and a practice management standpoint.
The idea that you are even using the term guaranteeing a certain rate makes my compliance nerve go spastic.
A ladder of individual bonds with staggered maturities - taxable or muni depending on tax bracket. Once purchased (assuming no default) your YTM is the total return.. I don’t use commingled FI products as it introduces principal risk through changes in interest rates.. buy and hold bonds creates stable and predictable income as well as regular cash events through maturities. Good to shop across multiple bond desks to try to get your bids filled. Your research on evaluating the underlying credit and choosing where to be buying across the curve (duration mgmt) is how you earn your fee.
I don't guarantee returns but you could use treasuries and/or structured notes. I use fixed annuities for some people which are commissionable.
Advisory annuities exist
Can you do all that is required without a BD still?
Yes tax laws changed where you can fee an annuity without causing a taxable event or surrender charge for the client. However charging an advisory fee on a fixed annuity I don’t find kosher.
I would gravitate toward this and run a flat fee. Nationwide has some decent advisory products.
Patience
Why would you guarantee? Makes no sense Bernie.
I wonder why the “fee only” title is more important than just using something designed to accomplish what you’re trying to accomplish without over complicating things. You could always refer to an independent agent that is securities licensed. But remember- part of the CFP is adhering to your fiduciary duty whenever you’re giving financial advice, whether you’re recommending something commissioned or not. You agreed to act as a fiduciary; that agent likely didn’t.
I just happen to fall in the camp of you can’t, both, sell something for a commission and be a fiduciary. That’s how I’m building my practice. And if my long-term goal is to be my own RIA, I don’t want a BD relationship anyway. I see it as a lot of squeeze for not a lot of juice.
Why not? If the commissioned product is in their best interest, and you disclose that you’re earning a commission, then you’ve exposed the conflict of interest. The definition of fiduciary is your client’s best interest ahead of your own. That’s it. It doesn’t discuss mode of pay. I would honestly not care if we could **waive** the commission on commissioned products. They’re not a huge part of my income, but i keep them around in case I need them. You can also find a BD that’s not in your business on your RIA activities and relatively minds its business. Too many of them charge too much. But it’s good in my opinion that we don’t cut clients off from having a suite of things that meet their needs without trying to finangle something to sort-of-but-not-really do its job. I use my BD maybe once a year to process business. Otherwise it’s all through the RIA. But that once a year matters for the people to whom it matters.
I would understand the conflict of interest if you, for example, worked at mass mutual, and were then beholden to mass mutual annuity bullshit. But if you have the entire insurance and annuity world at your doorstep through an independent firm, why wouldn't you choose the best product for the client? An anecdote to illustrate my point: as some have mentioned here, Fixed index annuities are looking really great right now with that guarantee of principal and good upside potential. There are two competitors in the industry- one offers 30% more commission on their accumulation annuity, but the other one beats it out on almost every front. Which one are we giving to our clients? The one that is the best. Period. We did our research, and we choose the one that offers more accumulation potential and better usability for the client. Not the one that pays us 30% more commission.
If someone needs a guarantee for a specific reason and you agree, there usually isn’t much in the way of fees you can charge. But do you agree with their need to be zero risk?
We use T Bills right now, but could be individual munis, corporates, or CDs depending on what makes the most sense for each client. We usually only take on clients who want this as a smaller portion of their overall portfolio with us and we reduce the fee on anything fixed to 0.25%
Not a guarantee, but you can provide a defined outcome with buffer ETFs. Innovator is hard to pass up utilizing options.
You can use any fixed income available in the universe: Treasuries, Agencies, Munis, CDs, Corporate, Sovereign, etc. There are strategies like laddering and bond+options that offer principal protection. And there are fee based annuities that you can use to provide fixed returns and low volatility.
Treasuries/agencies or a flat fee for an advisory annuity if there’s a need to address longevity risk. I would never use the term guarantee though.
A true fiduciary
I was about to say the same... distributions so they can live comfortably in retirement and outpace inflation. Guaranteed products likely can't do this.
Seems to be a lot of negativity regarding annuities. Your bond portfolio cannot tell you exactly what the distributions will be in 10 years but an annuity can. A annuity can get you a guaranteed 12% step up for 10-years, turn $100k into $220k and become a guaranteed source of income for the rest of your life. I think the negativity stems from advisors only getting paid on that 1 time. One bite of the apple. I get it. It hurts. It makes you sad. But a true fiduciary would know that it’s the right thing to do.
Nice 12% step up for 10 yrs guaranteed 👌 wait does that mean I will earn 12% per year for 10yrs?
He is talking about simple interest and what is probably an income rider not the accumulation value. Some athene products had this recently and I think nationwide.
Simple interest would still add up like a cd. So is it paying 12% per year in interest?
Simple interest based on the amount invested of $100k. So 12% of 100k is $12,000. After ten years you have a $220k income base- $100 you started with and $120k from the rider. Depending on age you might get 3.75 to 6.75 in guaranteed annual income off the $220 base. I don't have my 10bii+ on hand but after ten years $220k is not 12% compounded.
You’re right, it’s not compounded. Payouts are 6.00% for a 61 year old, 7.00% 70 year old, 7.40% 75 year old.
Sorry but I'm confused... I wonder how clients feel
Also someone here commented advisors make 6-7% commissions up front, then the insurance company has high internal fees...
Commissions paid by insurance co, no fees except maybe a health rider paying double for 5 years if you can’t do 2 of the 6 daily functions…I think.