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 donít 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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