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 it. 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 us a call.


Compliance & Product Development Issues

·      DoL-Friendly” shares like clean and T-shares cost FAR more than traditional shares over time 

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

·      B/Ds that view trades with the same optics as regulators get in less trouble

·      Conflicts of interest should be measured over time, not at the point of sale

·      Investors don’t realize that holding funds in wrap accounts costs far more than in brokerage accounts

·      If regulators focused on account value over cost reduction, fines would be much higher

·      If B/Ds focused on account value over cost reduction, fines would be much lower

·      Fixation upon funds’ 12b-1 fees leads to wrong conclusions and unsuitable policy

·      12b-1 fees help to increase asset retention and lower unnecessary turnover

·      For load shares, 12b-1s are the 5th biggest cost. So, why do regulators fixate over them? 

·      Fines would be rare if firms used the total cost of ownership, over time, for comparisons

·      Promoting 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

·      B- and C-shares create more account value (if a load is paid) for many trades under $50,000 

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

·      Reverse churning of fund shares easily can be identified and stopped

·      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

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

·         Advisors who focus on account accretion over cost reduction set themselves apart

·         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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