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jdc1987
Rookie Joined: Apr/17/2017 Location: New Jersey Status: Offline Points: 8 |
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Posted: Apr/17/2017 at 12:08pm |
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Hi everyone, I'm new to this business, just over a year in. I want some perspectives on other firms. My firm tells me that the industry standard is 1.5, and I have to ask permission to charge less. Isn't 1 percent enough to make a profit for the company, get the advisor an adequate paycheck, and remain fair to the client? What do other firms charge? I understand that we add value by keeping the client invested in the right things, and by recommending the right insurance products with the appropriate coverage. But isn't there a way for us to make a living without charging so much? I'm looking forward to hearing from you? Thanks.
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Spaceman Spiff
Gold Member Joined: Mar/11/2010 Status: Offline Points: 10546 |
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You'll see lots of differing opinions on this, but I think most of us would agree that 1.5% is pretty high.
I'm not sure what other firms are charging, but at Jones our fees max out at 1.35%. And I think that's on the high side. What else are you offering besides investing their money and slinging annuities at them?
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PEACH_cm
Senior Member Joined: Jan/16/2013 Status: Offline Points: 7184 |
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It's all relative to performance and offering. If you have a shitty track record or wrap a bunch of funds it it too high. On the other hand it could be too low if the opposite.
If you do not want to make money you could always join the peace corp |
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jdc1987
Rookie Joined: Apr/17/2017 Location: New Jersey Status: Offline Points: 8 |
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Hey Spiff, thanks for the input. I do every type of insurance including P&C. I don't sling many annuities, which is why I'm not making as much as some other reps. They have their place, but it's hard to make a living when commissions were just lowered across the board. It's supposed to help us to be compliant under the DOL change, but the client's cost hasn't gone down. Just our pay. The minimum wrap fee was raised to 1.5, but A share commissions were lowered substantially. Doesn't add up to me.
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Spaceman Spiff
Gold Member Joined: Mar/11/2010 Status: Offline Points: 10546 |
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So, you're primarily an insurance guy, but you also have some people who do investments with you. Is that accurate? You work for State Farm or Northwestern Mutual or someplace similar.
Is it a firm model type of program? You don't have any input on the investments, just which model your client uses? If that's the case, 1.5% isn't unusual, but it is excessive. The rationale for the fee is that there are actually three layers of expenses in the model - the funds, the firm, and the FA. Everyone wants to get paid. And when you add the firm and their costs for running the model, the costs naturally go up. The firm isn't going to cut what they make, so they adjust your pay to compensate. I think your firm telling you the industry standard being 1.5% is a load of crap. If I were to guess, I'd say the industry AVERAGE is 1.25% maybe even a little less.
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jdc1987
Rookie Joined: Apr/17/2017 Location: New Jersey Status: Offline Points: 8 |
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I work for Prudential, so yes there is a strong focus on selling insurance, especially life insurance. I don't think many advisors would argue against being properly insured, but the incentive is much higher for selling UL and annuities than it is for selling term life or A shares or even wraps. I actually would have control of the investments, but there are model portfolios, and management programs with fees even higher than 1.5. I do appreciate your insight here as I was doubting that the average was so high. I'm sure the rest of the "industry standards" we're given are also exaggerated.
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missionshooter
Senior Member Joined: Feb/12/2014 Status: Offline Points: 6136 |
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You are worth so much more than 1.5% given your training and experience. Charge 2% brah!
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RIArules
Platinum Member Joined: Mar/15/2010 Status: Offline Points: 36495 |
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Coinstar charges 11%.
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Is it too late to exhume Ken Starr?
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wiredup
Platinum Member Joined: Mar/11/2010 Status: Offline Points: 22776 |
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Prudential is easier to get into than Harvard, which is why they can't charge the fees that Edward Jones charges. Plus when you set up your annual review with Edward Jones, they can help fix your vacuum while they're there as well.
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Guests
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Is that 1.5% "all in" including all fund management expenses? Or is that just your advisor %?
If that's "all in", then that's fine. Look up some RIA firms and their fees in their ADV. Some go as high as 2.5%, but I believe that's "all in". If that's just your advisor %, then that's high - as Spaceman Spiff mentioned. 1.25% or less is usually the norm.
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Spaceman Spiff
Gold Member Joined: Mar/11/2010 Status: Offline Points: 10546 |
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That's going to be just what Pru charges for management. My guess is you add 75bps or more for fund expenses on top of that.
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jdc1987
Rookie Joined: Apr/17/2017 Location: New Jersey Status: Offline Points: 8 |
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Yes that's just the advisor fee, not counting fund expenses.
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You can do better than this. I've seen it |
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Sportsfreak
Platinum Member Wise Old Perv and CTO of AH Joined: Mar/09/2010 Status: Offline Points: 25704 |
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Just so you know, I had two clients retire (from the same municipal job) and they had 401ks with Pru. Your firm, that same firm that says you need permission to charge less than 1.5% (which is more like 2..5% including MF expenses) offered these two clients the opportunity to roll their 401k balances in retirement, into an IRA at Pru, which they would manage for 25 bps.
So I'm guessing it's your agency that doesn't want you to charge less than 1.5% Which just proves that most insurance focused guys don't know jackshit about the real world of investing. Edited by Sportsfreak - Apr/18/2017 at 8:09am |
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If you eat an entire cake without cutting it, then technically, you only had one piece
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jdc1987
Rookie Joined: Apr/17/2017 Location: New Jersey Status: Offline Points: 8 |
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That may be true about the low fee IRA, but Pru Retirement and Pru Advisors are separate entities. And it is the agency that won't allow. Sorry for not being specific. No offense, but the Jets are a Mickey Mouse organization just like Pru. And most firms for that matter...
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Omar
Senior Member Joined: Mar/10/2010 Status: Offline Points: 2286 |
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1.5% is not too high if you are using low cost ETFs an/or funds and you can justify it with other planning activities you provide to the client. If you do an actual financial plan yearly, and advise on things like LTC, debt management, etc than you are ok in my book. But, 1.5% plus fund expenses to just manage and account in an industry where fees are pressured will likely lead you to losing that account down the road. Clients must see your value beyond portfolio management. Otherwise they can head to Vanguard, Fidelity, etc for a fraction of your fee.
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The game is out there. Either play or get played.
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B24
Moderator Joined: Mar/09/2010 Status: Offline Points: 25749 |
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What I find funny in this business is that the firms that charge the MOST tend to be the most investment-focused, and provide the least amount of "planning". You typically see 1.5% on investment "platforms" (wrap accounts, SMA's, etc.) like wirehouses, insurance-based brokers, etc. that do nothing more than wrap up your investments and move on. Many planning-focused firms that have investment professionals, planning professionals, client-service teams, etc. often charge in the 1% range. Now, a certain degree of that is attributable to account size. If you have $3mm and are at a higher-end, planning-focused firm, then they are happy to have 1% and provide tons of service. If you have $75K at Prudential, then you're getting 1.5% and quarterly account statements. That's one of the difficulties of this business. I find myself spending more time with smaller clients than with larger ones. Partly because my larger clients have their shit together, and don't really need as much hand-holding all the time.
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Omar
Senior Member Joined: Mar/10/2010 Status: Offline Points: 2286 |
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Amen to that. It's funny how smaller clients get squeezed. If you have a minimum fee per client that you prefer in order to business with them you often have to charge a higher percentage. My B/D has a managed platform with no program fee (in terms of basis points), just a flat annual dollar fee of $250. It's a problem with small accounts at say $100K as that works out to be 25bps to me or the client before adding a wrap fee. So, if I want to get $1000 a year in rev to justify my time I have to charge over 1.25% considering my grid and ticket charges. If it's a younger client who will build assets I have no problem cutting their fee for the long term future revenue, but if that's all the money they have because they are older I'll usually pass. Yeah, I know the account is still profitable but I've just set the bar higher at this point in my career. And my biggest clients are always the easiest to deal with so they certainly pay less than 1%.
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The game is out there. Either play or get played.
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