Provocative Musings

Our style is very different from other firms. We are completely objective and unbiased. Yet, we have a definite point of view. That point of view is: "The math says X." It's up to you to put the proper perspective around the results. We're not big on caveats. If we can send a man to the moon, surely we can determine which share class to buy, if a 529 makes sense, or if refinancing a mortgage is a good idea.

If math easily can provide the way to enlightenment, why do investors make so many "curious" decisions? For example, they often put capital gains-generating investments (e.g., growth stocks) in an IRA instead of a taxable account. They pay down a mortgage before paying down their credit cards.  

Why do financial advisors make so many "curious" decisions? Many still fear fee-based business, yet fee business pays more than commission business over time. It also increases the value of their book. They fret over asset allocations, but permit some clients to put variable annuities in an IRA. 

Why do executives make so many "curious" decisions? They create sales campaigns that don't address an advisor's bread and butter: the value of their business. They over-price managed accounts to the point that C-shares are cheaper and easier sell. 

These are issues that Broker Village can address. If we can help your firm in these areas, give Stu Speckman a call.

 

Compliance & Product Development Issues

   B- or C-shares are better than A's (when a load is paid) for many trades under $50,000 

   Investors benefit more by reductions in a load or CDSC, not management fees

   Promoting the tax deductibility of 529 plan contributions may cause investors to buy the wrong 529

  More C-shares should flip like B-shares to be fair to investors 

  Many broker/dealer "bright line" share class sales limits are too low

  More sales decisions should be made with an eye to the marginal impact on ROI

  Fund firms easily can affect a product's competitive profile through comparative modeling (but don't)

   Most on-line calculators are inaccurate, particularly share class calculators 

   Many fund prospectuses have errors in the expense and performance examples

   Many sales brochures are misleading because the math examples are wrong



Advisor Business Issues

    More advisors can move to fees by selling level-load variable annuities

    Working the back of a book leads to a huge increase in GDC and practice value

    Selling funds with low expenses actually pays the advisor and B/D more

    Sales assistants can pay for themselves many times over within a year

    Independent advisors sell their assets for far too little

    Wirehouse advisors could negotiate far better offers when they move

    Wirehouse branch managers could make much more compelling offers to recruits

    Going from a wirehouse to an independent firm is not nearly as lucrative as it appears

     Those 100% payouts are a lie; it's 100% of 80% of a smaller trade

 

Investor Issues

    Conventional wisdom about mortgages is wrong. You should refi for as little as 0.25% to 0.5%

   Do not pay down a mortgage early if you have credit card debt or a car payment

    The older you are, and the less you earn, the more valuable a refi is to you

     Investors should not use the same asset allocation in taxable and tax-favored accounts

    Married people benefit more than single folks from a refi

    More people should use 529 plans

   UGMAS still make a ton of sense because you can control fees and the investments

    Few people should fund an IRA before they fund a 529

   Nobody should fund a 529 before they max out their 401(k)'s match

   Set up irrevocable trusts and fund them with tax-managed funds and muni bonds

   Never pay a load for a very high quality muni bond fund

   Rebalancing a portfolio hurts performance, not helps it

   Monte Carlo modeling does not improve performance

   Most retail-oriented Monte Carlo models are grossly wrong or misleading



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