that costs should be part of the equation and everything should be open and upfront.  Certainly now the cost is right there on confirmations and some fund families (Columbia/DWS) print out in actual dollars what the costs are to own the fund on a quarterly basis. 

 That folks do not ask is certainly not unusual.  People do not inquire as to medical costs if they have insurance nor do doctors that I go to ever tell you the cost of anything.  Recently visited a cardiologist and no place did I see his charges nor did he tell me nor did I ask.  Does he have an obligation to have his charges posted (my barber does)? 

12B-1 costs that hurley refers to I can't get too excited about.  They are part of the overall fee structure thus Fundamental charges an expense ratio of 60 basis points of which 24 basis points is the the 12B-1.  Do you really think I go through the 60 basis points line by line?  Management fee (should that be explained?), 12B-1 .24, and then other expenses 0.11. 

Most folks I work with want solid performance and service when they need it.  If they buy "A" shares the cost is discussed and shown on the confirmation.  If "B" shares there is a time period which they must hold to or  the cost is deducted from early withdrawal.  Solid performance is a result of low costs and good money management but if someone wants to explore the depths of management fees including 12B-1 no problem with me.

Good discussion!

that costs should be part of the equation and everything should be open and upfront.  Certainly now the cost is right there on confirmations and some fund families (Columbia/DWS) print out in actual dollars what the costs are to own the fund on a quarterly basis. 

[/quote]

I don't think the issue is what it costs as much as the issue is not understanding how the advisor is compensated and then finding out later and feeling like something was hidden from you.  The reason I want to know how the advisor is compensated is because I want to be able to understand if there is a financial incentive to steer me toward one investment over another. 

There is a huge conflict of interest inherent in these payment arrangements.  I am certain there are ethical advisors out there who don't place their own financial interests ahead of their client's.  I am equally certain that there are those who do, though.  One way I can begin to assess whether my financial advisor is putting his/her own interests ahead of mine is by comparing what the advisor's compensation is from one plan versus another. 

I, like Brian, expect to pay people for their services and don't begrudge them earning their living.  But I do need to be able to evaluate what is in it for the advisor so that I can assess whether or not the financial advisor is factoring in his/her income into their recommendations for my assets.

[quote user="AL Lindquist"]

That folks do not ask is certainly not unusual.  People do not inquire as to medical costs if they have insurance nor do doctors that I go to ever tell you the cost of anything.  Recently visited a cardiologist and no place did I see his charges nor did he tell me nor did I ask.  Does he have an obligation to have his charges posted (my barber does)? 

[/quote]

Medical care paid for by insurance is a totally different and non-analogous situation.  First of all, people do inquire about their copays since it comes out of their pocket.  As for the portion of the bill paid for by the insurance company, they have already paid for that and the insurance has negotiated the rate with the doctor and there is nothing they can do to change that at the point at which medical care is needed.  People sure as heck do care how much of an insurance premium they pay, but since many get their health insurance through their employers, they don't have much of a say in the matter other than to choose a cheaper plan if multiple plans are offered or pressure their employer to switch insurance companies.

[quote user="AL Lindquist"]

12B-1 costs that hurley refers to I can't get too excited about.  They are part of the overall fee structure thus Fundamental charges an expense ratio of 60 basis points of which 24 basis points is the the 12B-1.  Do you really think I go through the 60 basis points line by line?  Management fee (should that be explained?), 12B-1 .24, and then other expenses 0.11. 

[/quote]

I would have appreciated it if my advisor had explained to me how he was compensated for the reason I gave above - for me to evaluate what financial incentives the advisor had to steer me toward one fund over another.  When it wasn't explained to me and I found out through my own research, I felt like it was being hidden from me.  Others may not feel the same.  Seems like Brian felt the way I did.

Again, I expect to pay and don't begrudge anyone making a living.  I just want to know the information up front.  I never would have thought to ask about a portion of the expense ratio being passed on to the advisor so that is why I never did.  It never occurred to me that ongoing fees were passed on to the advisor.

[quote user="AL Lindquist"]

Most folks I work with want solid performance and service when they need it.  If they buy "A" shares the cost is discussed and shown on the confirmation.  If "B" shares there is a time period which they must hold to or  the cost is deducted from early withdrawal.  Solid performance is a result of low costs and good money management but if someone wants to explore the depths of management fees including 12B-1 no problem with me.

Good discussion!

[/quote]

I want sold performance, too, but I also recognize the inherent conflict of interest that exists in these payment arrangements and want the opportunity to assess if the particular advisor puts my or his/her own interests first.  Without the information on how the advisor is compensated, I can't do that.  And if it isn't present to me by the advisor, I wouldn't even think to ask about some of these types of arrangements, like the 12(b)-1 fees, because it would never dawn on me that an arrangement like that exists.

Let's not forget the historical context of the 12b-1 fee, it was never intended to be a "commission."  e.g., from Investopedia: "Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund."

I can see paying an adviser a one-time fair fee to recommend a fund (or series of fund), but the 12b-1 fee (which has apparently been bastardized from its initial intent) goes on forever. If one buys and holds a fund for decades, one pays the fee over and over again, for advice that may have been given years ago.  If one needs ongoing financial advice, I don't think a broker is the best source for unbiased advice.  Really, if a T Rowe Price product were "better" for the client, would it get offered by the broker over an Oppenheimer or AF product?

Greg

it seems one should ask questions and one should explore other avenues when investing or buying any product.  There are numerous investment magazines, radio and television programs, and the internet opens everything up for all of us.  Someone investing money has plenty of opportunity to compare every aspect of the investment.  If I sit with you I answer all the questions but will tell you these are the funds I use for myself, my family, and my clients.  If they work for you fine and if not no problem. 

In almost every case I make my recommendations, follow through with a letter (s), and then get feedback.  If you want to know how I am compensated just ask.  12B-1 is simply part of the ongoing fee structure so if 60 basis points is too much then finding a suitable investment and someone to work with is something one can do.  What if the 12B-1 was the total 60 basis points?  Would that bother someone?  If so why?  If I hired a lawyer and the fee was $1,800 do I care what % she gets, her firm gets, or the partners receive?  What if she was on retainer for $600 a year?  Do I care how the $ is split up?  Just be there when I need you!

This 12-B 1 is a joke--it's part of the expense ratio.  If the ER is too high does it make a difference whether there is a 12B-1 or not?  People care about results--poor results and low ER's would not make someone feel better. My firm requires the client sign and retain a form that explains "A", "B" and "C" shares--one page--basic English.   

If you interview an advisor then ask all the questions.  Go to the internet and and google questions folks should ask before buying a fund.  I present the plan and the cost ("A" the load--"B" the time period) if we can work together fine, and if not that's also fine.  It's not like there is no competition--no information available--or no lack of critics.

Conflict of interest?  In any relationship (marriage--join a church--belong to a professional orgainization) both sides gain something.  Who would think I would not benefit and the client would not benefit?  Is this investment best for the client?  Does this investment benefit me?  I would hope we both benefit.  With most of the client money I have with the American Funds I think we all have benefited.

What about the client that puts her interest first and my interest way back on the burner?  I can't begin to recount to you how many folks want to, and have, used me.  You know the students talk about the teacher to their peers and their parents, but the in the teacher's lounge the instructors talk about the kids.  I have run into lots of folks who have used me, taken my time and effort to fashion financial plans and then never bothered to answer calls or return E-Mails.  When you show up and sit with them the impression is they are straight shooters, but 4-5 hours of work later they prove to me something different.  It would seem to me that honesty and integrity are two way streets.  I should answer every and all the questions honestly--potential clients should be upfront and honest about intentions.

Al, when I engage my lawyer to write my will or my revoc. trust, it's a one-time fee, not ongoing.  By your analogy, the lawyer would be extracting a commission/fee for each year the will or trust is in effect!

Greg

it seems one should ask questions and one should explore other avenues when investing or buying any product.  There are numerous investment magazines, radio and television programs, and the internet opens everything up for all of us.  Someone investing money has plenty of opportunity to compare every aspect of the investment.  If I sit with you I answer all the questions but will tell you these are the funds I use for myself, my family, and my clients.  If they work for you fine and if not no problem. 

[/quote]

ITA - the problem is that many older people aren't well versed in the internet and are intimidated by it so they don't use it.  As for older women in many cultures, we are socialized to be nice and polite and it is just not considered nice and polite to ask about fees.  There are some cultures where that is not the case and they haggle, but not in my culture.  Many of us are widowed stay at home moms and had husbands who took care of the finances who didn't leave behind a plan and just assumed we weren't interested in learning about it (and indeed, many weren't).  They would have provided one if only they knew they were going to die so young, but they wrongly believed they had many more years on this earth than they ended up having.   

I am not speaking for myself here, but for many of my friends, that was the case.

[quote user="AL Lindquist"]

In almost every case I make my recommendations, follow through with a letter (s), and then get feedback.  If you want to know how I am compensated just ask. 

[/quote]

As I stated, for many women, particularily older women, we are socialized not to do this.  We are socialized not to be aggressive and asking about fees like that is not nice and polite and is aggressive.  As an aggressive female, I assure you, those of us who are aggressive are treated harshly in this society. 

[quote user="AL Lindquist"]

12B-1 is simply part of the ongoing fee structure so if 60 basis points is too much then finding a suitable investment and someone to work with is something one can do.  What if the 12B-1 was the total 60 basis points?  Would that bother someone?  If so why?  If I hired a lawyer and the fee was $1,800 do I care what % she gets, her firm gets, or the partners receive?  What if she was on retainer for $600 a year?  Do I care how the $ is split up?  Just be there when I need you!

[/quote]

It isn't about the cost as I said before.  It is about the disclosure.  I am not sure why you keep honing in on costs when the issue is disclosure.  I have already stated why the disclosure matters to me.

I don't think the case of the lawyer paid by the hour is at all analogous to a financial planner who gets paid by loads and ongoing 12(b)1 fees.  The lawyer who is paid hourly is more analgous to a financial planner who gets paid hourly.  The financial incentive is for the financial planner to bill more time, not to steer you toward any particular fund.

[quote user="AL Lindquist"]

This 12-B 1 is a joke--it's part of the expense ratio.  If the ER is too high does it make a difference whether there is a 12B-1 or not?  People care about results--poor results and low ER's would not make someone feel better. My firm requires the client sign and retain a form that explains "A", "B" and "C" shares--one page--basic English.   

[/quote]

Does it explain that the 12(b)1 fees go to the advisor?  Again (and again and again), the issue isn't cost, it is disclosure.

[quote user="AL Lindquist"] 

If you interview an advisor then ask all the questions.  Go to the internet and and google questions folks should ask before buying a fund.  I present the plan and the cost ("A" the load--"B" the time period) if we can work together fine, and if not that's also fine.  It's not like there is no competition--no information available--or no lack of critics.

[/quote]

That just isn't feasible for many older people who didn't grow up using the internet and many older women in particular who were socialized not to question men.

[quote user="AL Lindquist"]

Conflict of interest?  In any relationship (marriage--join a church--belong to a professional orgainization) both sides gain something.  Who would think I would not benefit and the client would not benefit?  Is this investment best for the client?  Does this investment benefit me?  I would hope we both benefit.  With most of the client money I have with the American Funds I think we all have benefited.

[/quote]

No one is questioning whether you should be paid, or at least I am not.  I just wanted to understand all of this better before I invested with my advisor.   I expect to pay for any advice I am given.  I also expect to be told how I am paying.

[quote user="AL Lindquist"]

What about the client that puts her interest first and my interest way back on the burner?  I can't begin to recount to you how many folks want to, and have, used me. 

You know the students talk about the teacher to their peers and their parents, but the in the teacher's lounge the instructors talk about the kids.  I have run into lots of folks who have used me, taken my time and effort to fashion financial plans and then never bothered to answer calls or return E-Mails.  When you show up and sit with them the impression is they are straight shooters, but 4-5 hours of work later they prove to me something different.  It would seem to me that honesty and integrity are two way streets.  I should answer every and all the questions honestly--potential clients should be upfront and honest about intentions.

[/quote]

This is one of the downsides of commission based sales work.  I think financial advisors should be paid by the hour.  That eliminates the conflict of interest and prevents you from being used and prevents me from paying hidden fees.  I would rather pay up front and know what I am paying for.

won't look at folks as being victims.  Disclosure seems to be your watchword and all one has to do is ask and read.  Again what difference does it make if someone is paid an ongoing fee via 12B-1 if the ER is reasonable or even far below average?  Do you want every portion of the management fee broken down for you?  Heck there is a prospectus that has on Page 5 that I am looking at now with Fundamental that has it in big bold numbers for every share class. By law everyone receives a prospectus and there are fewer pages than ever and it is written in easy to undersatnd language.    Yes, the disclosure form that my firm has details 12B-1 under FEES and EXPENSES and it says these fees are paid to my firm and me and are "service costs". 

If you think folks like me should be paid for by the hour then hire one--they exist in large numbers.  Whatever works for you!

What's the conflict of interest?  I give advice and use certain funds and you get to select.  Don't like what I do then use no load--fee for service--wrap accounts.  A myraid of ways to invest your money with endless ways of hearing about investments.  If you expect to be told-- that makes sense--just ask.  Do you ask how you are going to pay for any service you purchase?  Didn't you state that you had a free consultation?  So it was free after that?  The local health club is doing a free three days of menbership--want to bet I have to pay after that?  Heck we are all adults so let's get serious about free lunches.  Ask me how i am compensated--what brings me to your house whenever you call?

It is cultural?  Well, ok my wife is the super trusting type who seldom asks questions so I can relate to that.  But there is no excuse for not asking as I have mentioned to her in almost 40 years of marriage bliss.  At some point folks need to take responsibility for themselves because it is their money and their future.  At least interview various people, talk to friends about what to ask about, read, listen, and be as careful a buyer as you would be for anything.

You know I am picky now as to who i take as a client--not looking for more business--but nobody ever in all these years has asked about 12B-1.  If it was such a big problem I think I would have heard about it.  My direct supervisor is a woman and when we talk, which is often, not once has she ever said to me "you know 12B's are a concern so be sure to explain them."

The truth of the matter, in my mind, is you have zeroed in on this and it is a bee in your bonnet--and that's fine.  No problem it's your thing.  But if you want to really zero in on an ongoing problem that is getting lots of concern, legislation, lawsuits, and believe me new "my firm" rules and regs--it is VARIABLE ANNUITIES.  Now there is an issue that warrants real concern--an issue that the women you allude to have really been a party to.  When i go to mandatory meetings which are really "here is how you can be sued so you better be honest" it is never 12B-1's but it sure is variable annuities.

So disclosure--fine--no problem.  Ask and you will be told--grill me--no problem.  Expense ratios if cheap I can't see who would care what they are for, but even if cheap then asking will get disclosure.  I think it was Eugene O'Neill who said "some folks know the cost of everything and the value of nothing"--now obviously cost and value are not mutually exclusive, but proper perspective is always important.

won't look at folks as being victims.  Disclosure seems to be your watchword and all one has to do is ask and read.  Again what difference does it make if someone is paid an ongoing fee via 12B-1 if the ER is reasonable or even far below average?  Do you want every portion of the management fee broken down for you?  Heck there is a prospectus that has on Page 5 that I am looking at now with Fundamental that has it in big bold numbers for every share class. By law everyone receives a prospectus and there are fewer pages than ever and it is written in easy to undersatnd language.    Yes, the disclosure form that my firm has details 12B-1 under FEES and EXPENSES and it says these fees are paid to my firm and me and are "service costs". 

[/quote]

I see where it says 12(b)1 fees on page 5, but I don't see where it says who receives those.  I never knew what those were until I came to these boards.  Even on page 28 of the prospectus it isn't clear.  It would have been nice for someone to explain it to me.

I don't think prospectuses are easy to read.

[quote user="AL Lindquist"]

If you think folks like me should be paid for by the hour then hire one--they exist in large numbers.  Whatever works for you!

[/quote]

I did hire one, but part of my assets held in a family trust are with a commission based broker and stuck there for now.

[quote user="AL Lindquist"]

What's the conflict of interest? 

[/quote]

There is a ton of info about the inherent conflict of interest that exists in this form of payment arrangement where advisors get paid a commission.  If you search the internet, you can find it.

[quote user="AL Lindquist"]

Didn't you state that you had a free consultation?  So it was free after that? 

[/quote]

No, I didn't.  That was someone else.

[quote user="AL Lindquist"] 

The local health club is doing a free three days of menbership--want to bet I have to pay after that? 

[/quote]

The local health club gives you a breakdown of what you are paying that is a hell of a lot easier to read than a mutual fund prospectus. 

[quote user="AL Lindquist"] 

Heck we are all adults so let's get serious about free lunches.  Ask me how i am compensated--what brings me to your house whenever you call?

[/quote]

I never asked for a free lunch and no one ever came to my house.  And my broker has done quite well from my account on stock trade commissions and other fees he received over the years.

[quote user="AL Lindquist"]

It is cultural?  Well, ok my wife is the super trusting type who seldom asks questions so I can relate to that.  But there is no excuse for not asking as I have mentioned to her in almost 40 years of marriage bliss.  At some point folks need to take responsibility for themselves because it is their money and their future.  At least interview various people, talk to friends about what to ask about, read, listen, and be as careful a buyer as you would be for anything.

[/quote]

Sexism in this society and culture, yes, make some women very intimidated by these situations and they don't feel comfortable asking.

[quote user="AL Lindquist"]

You know I am picky now as to who i take as a client--not looking for more business--but nobody ever in all these years has asked about 12B-1.  If it was such a big problem I think I would have heard about it.  My direct supervisor is a woman and when we talk, which is often, not once has she ever said to me "you know 12B's are a concern so be sure to explain them."

[/quote]

No one probably asked because people don't know what they are and don't think to ask.  They look like some sort of legalese to most people or at least to me they did.

I too am picky about who I take on as a client and don't need more business in my line of work especially now that I am mostly retired.  It is nice to be in this situation and I am happy for you that you are, too.  But I think you are missing my point.  Explaining these fees to people up front can go a long way toward cementing your relationship with the clients you want to keep.

[quote user="AL Lindquist"]

The truth of the matter, in my mind, is you have zeroed in on this and it is a bee in your bonnet--and that's fine.  No problem it's your thing. 

[/quote]

Actually, the point I am making (and the point I think Brian was making) is that it would improve client relationships if the financial advisors would make how they are compensated more clear to the clients and not expect the clients to ask about all these details that many would feel intimidated to ask or would never even think to ask.

[quote user="AL Lindquist"]

But if you want to really zero in on an ongoing problem that is getting lots of concern, legislation, lawsuits, and believe me new "my firm" rules and regs--it is VARIABLE ANNUITIES.  Now there is an issue that warrants real concern--an issue that the women you allude to have really been a party to.  When i go to mandatory meetings which are really "here is how you can be sued so you better be honest" it is never 12B-1's but it sure is variable annuities.

[/quote]

I wasn't planning on investing in variable rate annuities nor was I planning on suing anyone.  However, I now work with an hourly rate financial advisor and wouldn't be with the commission based broker at all anymore if it weren't for the family trust.  Part of the reason I wouldn't be using him any more is because of things like these 12(b)1 fees.  It leaves a bad taste in my mouth not to have these explained to me.

[quote user="AL Lindquist"]

I think it was Eugene O'Neill who said "some folks know the cost of everything and the value of nothing"--now obviously cost and value are not mutually exclusive, but proper perspective is always important.

[/quote]

You keep responding as if what I am saying is that your services aren't worth what your client's pay for them.  That is not the issue I am talking about and I am certain I have made that clear.  Never mind, this is not a productive conversation.

productive as you have showed us that you were able to find some one who met your needs which is important to you.  I am not sure how it improves client relations if few if any have a problem.  If its your thing that's fine, but it does not seem to bother the investing public at large.

Hey--I enjoyed the discussion!  Makes me think.

what you are saying but I think we just have different perspectives.  If the cost of the fund, or anything, is 60 basis points, or XYZ dollars I personally don't care what the firm does with that money.  I am not sure that most folks discovered some truths about 12B-1's and then has this revelation about their advisor.  In my opinion problems occurred when it was learned that large firms paid advisors more for having them place clients in certain fund families, and these firms received "kickbacks".  Some firms even restricted their advisors from recommending certain fund families. To me that is not doing right by your client.

I wish I could tell you that if folks knew about 12B-1's they would be forever greateful, but when I sit with folks to discuss their accounts costs are never the issue.  Now performance is something folks want to talk about--meeting their goals is an issue--any changes that need be made that's an issue.  I believe you are saying that costs should be raised and discussed.  Management fees should be explained, 12B-1 should be discussed, additional fees related to the fund expenses should be discussed. 

Scumbag-- you know if I was working with someone, had a relationship with someone, and had good risk adjusted performance with low on going costs I honestly would not care what those costs covered.  If i asked him/her about compensation and he said part of the management fee compensated him for all my, questions, concerns,and meetings I would say "I hope they are pay you enough".  I just can't get worked up about those things in any part of my life--now I realize from these discussions that others feel differently and I respect that.

As usual-an interesting topic/discussion.  Makes me look at things differently than I have in past.

I hope you can discern through all my rambling, that I really do AGREE with you!

I dont think that costs should be dwelled upon either, the quality of the relationship should take care of this.  Once this exists, the focus should be on the service, client understanding, and ofcourse......performance.

I would be the first to agree Al, for the great service it seems you provide, you are probably not paid enough.  It amazes me that you do the 2.5% bond trick with your clients, you deserve that money, yet you save them more anyway.

The sad fact that some people have no idea how they were paying for these services does not say much for those consumers who should of made sure they understood this going in, unfortunately, that just is not the reality for many. 

I knew there was no free lunch, I wanted to pay, got no bill.  Why did I not ask about the bill?  I should of, but did not.  Maybe I was the scumbag for not reminding him to bill me?  If there are people out there who thought is was free and then found out they were paying, then they are more of an idiot than me, thats for sure!

I am glad you were able to take something from my thoughts.

One more time, I was not really blaming the advisor, just showing how my ill feelings could of been prevented at no harm to the advisor's bottom line, by him taking the initiative to inform at the onset of the relationship, not by harping on it all along, just an initial understanding.  From then on, let the client ask about costs for any particular investment.  I have no problem with that.

I was the idiot.  A grateful idiot, because now I am not dependant on him and found a great interest.

Now I have to get back to work.  Stopped home for lunch and just had to check in.  Damn forums, they are worse than crack!

Thanks Al.

Brian

Al, when I engage my lawyer to write my will or my revoc. trust, it's a one-time fee, not ongoing.  By your analogy, the lawyer would be extracting a commission/fee for each year the will or trust is in effect!

Greg

[/quote]

Unless you update your will.

Al, when I engage my lawyer to write my will or my revoc. trust, it's a one-time fee, not ongoing.  By your analogy, the lawyer would be extracting a commission/fee for each year the will or trust is in effect!

Greg

[/quote]

Unless you update your will.

[/quote]

And then it's another ONE-TIME fee.  Again, the lawyer does not extract never-ending fees for the entire lifetime of the will or trust, correct?

Greg

Hi Brian,

Do you mind sharing the funds you own after you started investing on your own?

Thanks.

Lee

Lee,

I will try to get back to you tommorrow.

Brian

I respect your opinion. As you stated, I was only curious on what you own since you decided to go solo, I wasn't going to offer any advise (wish I could), or make any comments, hey, it's your life, right?

With that said, how about instead of listing the individual funds, can you tell us about the fund company you have decided to invest with, hope that is not too personal for you.

Regards,

Lee 

Lee, 

I like Vanguard for there lowest costs and index funds.  I like T.Rowe Price for there low initial minimums, large array of active funds, albeit not the lowest costs.  I also like Dodge & Cox for there conservative, stodgy, longterm focus, long history, discipline, and not trying to be in the "spotlight".

There all no-load and below average cost.

I still love AF too, I just wont currently invest due to the load.  If I only had $1M.............

Just my ideas.

The very best,

Brian