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elliot

403(b) Vendor Reps

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Guest Sierra

The firm I'm joining is Lincoln Investment. They are not associated with Lincoln Financial Group.

 

With regards to the posting for the commissions, I do find it interesting there is criticism, given they disclose this on their website. My understanding is that I have great flexibility in what I offer for the 403(b), and it will not be VA. It is mutual funds, however, I can choose which ones I favor, which means I can favor no-load funds and ones with lower expense ratios. As for the advisory fee, I believe those apply to different types of accounts, and not necessarily the 403(b). The company offers many account types, and it doesn't specify these fee rates for the 403(b).

 

Also, and this is why I asked for experiences, I don't think there is an issue with the sales bonuses. The branch manager discussed this with me, and informed me it is not tagged to specific products. Rather it is overall productivity and sales, though it appears it will be involved with certain account types. However, find me any sales position for which there aren't bonuses associated with higher sales. Certainly I intend to disclose much of this to any potential clients. I figure if I'm open about it, it will enable me to have more clients.

 

I know the pitfalls about some unscrupulous firms and salespersons actions from postings on this site. I am looking to avoid them. I am also looking for experiences with Lincoln Investment. Criticizing full disclosure of potential fees from their website is not what I am looking for here. Once again, especially because it does not state these fees apply to the 403(b), but only that they are possible fees which have quite a wide range.

 

Thanks for future postings.

Elliot

 

 

Who is going to pay you if you sell a no-load fund?

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There is still a small transaction fee, even for load funds. But typically a load fund is 5%, so the no-load might be 2%. I don't know everything, as I haven't started yet. I am only stating intentions. To be honest, I plan on using the best mutual funds available, not what nets me the higher pay.

 

And for those who will read this an say it's outrageous to pay a fee for a no-load fund, even the discount brokers do this. Yes, you can possibly choose to invest directly with the fund company. However, if that's not available, or even if it is, having a rep you can contact might be worth a small price. Also, presumably, and this is how I hope to fulfill my role, a rep will have access to various information and models to help guide investment choices. So any fee should return a benefit. I intend to provide that benefit so none of my clients vent frustrations on this website.

 

Elliot

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... presumably, and this is how I hope to fulfill my role, a rep will have access to various information and models to help guide investment choices.

Elliot

 

This is the kind of advice that can make it worthwhile to have a sharp rep. If you can provide to your clients some basic education about topics like setting goals, risk/reward, asset allocation, and then guide them into appropriate portfolios, that can be of tremendous help.

 

The question is, how will you balance out the needs of your clients with your own needs? The two are not exactly aligned, and this is what worries me about advisors who are not fee only planners.

 

 

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I figure if I do right by clients on the commission side in the 403(b) contact, I can develop the relationship into a fee-only advice outside of the 403(b) environment. That's my goal - to provide advice such that I get involved in all of their financial planning. Many teachers have spouses and children, which factor into their plans and goals. Then, ideally, I will find some way of advising them on a fee basis, and having a separate structure should they also purchase securities through me for a commission structure. I will try to develop two different businesses, hopefully with plenty of overlapping clients.

 

Elliot

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Guest Sierra

There is still a small transaction fee, even for load funds. But typically a load fund is 5%, so the no-load might be 2%. I don't know everything, as I haven't started yet. I am only stating intentions. To be honest, I plan on using the best mutual funds available, not what nets me the higher pay.

 

And for those who will read this an say it's outrageous to pay a fee for a no-load fund, even the discount brokers do this. Yes, you can possibly choose to invest directly with the fund company. However, if that's not available, or even if it is, having a rep you can contact might be worth a small price. Also, presumably, and this is how I hope to fulfill my role, a rep will have access to various information and models to help guide investment choices. So any fee should return a benefit. I intend to provide that benefit so none of my clients vent frustrations on this website.

 

Elliot

 

Elliot: A broker/dealer is not an advisor. A broker/dealer gets paid for distributing product. The B/D shares with you the commission collected from the investment provider (insurer/mutual fund). If you want to get paid for rendering independent advice (rather than distributing product) to your clients then you need to become a Registered Investment Advisor with the SEC. At that point you and your client enter into an advisory contract where you will manage his money for a fee paid by him/her directly to you. You will use no-load families for investment of the client's funds. The fee will be quite transparent and Vanguard will not send you and your family to Disneyland for being a top producer. The fund family will have absolutely nothing to do with you and your client.

 

Example: I give you $100,000 to manage for an annual fee of one percent or $250 paid quarterly. We use Vanguard as the investment provider. Average fund expense ratio paid by me: 25 basis points. Assume one year later the account is worth $110,000. The advisory fee paid by me to you directly is $1100.00 and I continue to pay Vanguard 25 basis points. This is how a true investment advisory practice works. I trust you see how difficult it is to build a book of business. The difficulty is compounded by all of the commissioned salespeople going after the same finite amount of capital. It is a cut throat industry!

 

Peace and Hope,

Joel

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Elliot is trying to provide a service that many teachers will utilize because unfortunately they choose not educate themselves about their choices in their 403b program.

 

It's amazing that the same individuals who put their blind faith in these advisors are the same people who would research the price of a car prior to buying one so they can get the best deal but won't do their due diligence on their 403b. Most of these folks are getting churned and burned in their 403b's with high fees but fail to scrutinize their plans and make the necessary changes.

 

Elliot in my opinion you ought to take a look at a recent column in Money Magazine. I believe it was featured two issues ago. It was about a fee only financial planner who started his own firm with another planner, who showed his clients how to build a portfolio using only index funds to control costs and capture market returns. Afterwards he advised them that his work was done and fired himself.

 

Elliot your future clients will best be served if you act as a fiduciary even though advisors/planners are not held to this standard. This means investing a client's money like it was your own. As a fiduciary, you should place them in no-load, low cost index funds. Loaded Funds should not even be a consideration, period. The goal is to avoid LOSING your clients money and to capture what the market returns. As an advisor you should know that it is more important to be invested in the right, no-load low cost asset classes vs. being invested in the ######test fund. You do NOT have to try and beat the market, because you will more often fail and lose your clients money.Therefore,you should use INDEX funds to control costs and minimize the underperformance of actively managed funds. Contrary to what most people are told when they visit an advisors or planner, they can not and do not consistently beat the market. When they are attempting to do so they are losing money and diminishing an investors return

 

One the BIGGEST risk investors face is underperforming the market. Index Funds ensure you will capture those returns minus the low expense ratios they charge.

 

Once you have placed your clients in these funds your work is done. A benefit you can provide is to help ensure your client sticks to the plan. But the plan has to be no-load low cost index funds or actively managed funds with low cost if the indices are not available. An honest fee only planner can put together such a plan, but if you plan on working for a firm, they will want you to be a producer. We have seen many examples of how this leads to conflicts of interest with the people you serve.

 

Fee only planners are the best way to avoid many of the problems associated with going to planners that work for firms and have monthly or yearly quotas they need to maintain.

 

Consider this. If the advice you give through your firm costs an individual 1-2% of their yearly plan assets and the client has access to Vanguard and you they could construct a similiar portfolio at Vanguard with an expense ratio of approximately .25-.35 basis points would you make that recommendation to them. Knowing that this could save them thousands of dollars over the long term. If you answered yes, you ought to consider being a fee only planner.

 

The advisory fees you quoted here are pretty typical of what most firms charge including the independents, some of whom frequently post here. I fail to see how there is anything wrong with any advisor or firm charging a fee for their services. It is up to the consumer to decide whether or not the services they receive are worth the cost.

 

If you see it from the informed investor's perspective the fees and commissions are too high. I strongly believe that consumers that pay these fees do so because they are financially illiterate. William Bernstein, Charles Ellis, Burton Malkiel, John Bogle and Larry Swedroe have written fascinating books. Their research shows these fees do one thing--decrease the amount of money you will end up with. Consumers that are aware of the material contained in any of these books have done their homework and are one step ahead of the game when they follow the advice given by these authors.

 

 

 

 

 

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Elliot;

 

I appreciate the distinction between Lincoln Investment Planning & Lincoln Financial Group. In my prior post I indicated mixed experiences with Lincoln. I want to clarify that that experience was with Lincoln Financial Group. I have no experiences of any kind with Lincoln Investment Planning.

 

Lincoln Investment Planning is organized as a broker/dealer, a registered investment advisor, and also as an insurance agency/broker. This information is from the SEC's website; appears that the firm has also been investigated carefully by various regulators.

 

As a general rule - if I cannot get clear about services and fees (for any professional service) in the first 30 seconds, then there is probably soimething to be avoided. Incomplete replies to simple questions caused me to conclude that I would have a difficult time trusting you or Lincoln Investment Planning. You should know better & Lincoln should've schooled you in how to respond to questions that have been raised here. Just my 2 cents worth of honest feedback.

 

Cheers,

 

Danc

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With regards to the posting for the commissions, I do find it interesting there is criticism, given they disclose this on their website.

 

Elliot

 

Yes, fees and commissions are disclosed on the following Lincoln Investment web site for Montgomery County Public School Employees. However, I defy the average investor (and maybe some on this forum, too) to understand the gobbledygook that Lincoln provides in 14 pages of minute print. Go ahead and take the challenge. See if you can make heads or tails of the info on fees and commissions. I dare you.

 

http://www.lincolninvestment.com/montgomer.../pdf/RS_ria.pdf

 

Here is a passage in the 14 pages of microprint that I did find to be pretty clear, and telling, as well:

 

"At Lincoln, we strive to provide objective investment advice to assist you

in retiring well. There are inherent in any recommendations, however, the

potential for conflicts of interest. This conflict can come from the compensation

our FRs may receive on specific investments or advisory services,

or it may come from the compensation that Lincoln may receive from third

party providers as a result of your purchase of products, advisory or retirement

plan services."

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AP Teacher

 

The link you provided is very similiar to the one I found that listed the fees I previously posted, in fact I do not see a difference between the two.

 

I thought the literature was as clear as mud!

 

This is the beauty of Vanguard/Fidelity/TIAA-CREF, you know upfront that there are no gimmicks like this. Just no-load, low cost funds that won't fleece you.

 

These funds/companies should have a warning like the ones on cigarettes:

INVESTING IN THESE PRODUCTS IS HAZARDOUS TO YOUR WEALTH !!!

 

 

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Guest Sierra

We should all be careful of DEFINITIONS. For example if joe doe is my "advisor" at xyz broker/dealer neither joe nor his b/d are a fiduciary to me. On the other hand if I do business with a Registered Investment Advisory firm, the firm's rep as well as the firm are fiduciaries to me. This is why I have repeatedly commented on the use of the word "advisor" in the context of a pre-tax plan where investments are made 2x a month. The guy/gal that signed you up is a commissioned salesperson masquerading as an "advisor" to get you to relax and buy his/her product. The same holds true with the no-load rep on the phone, he/she is not your "advisor" but a salaried salesperson trying to get you to buy the no-load product.

 

Bottomline: YOU ARE YOUR OWN ADVISOR IF YOU DO NOT HIRE ONE THAT IS REGISTERED WITH THE SEC.

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AP-

 

Inspired by your post I actually read through the information. First there are several pages of their supervisor and executive listings. There's more like 9 pages of gobbleygook. True, it's not the easiest to understand. However, anyone who has every opened any brokerage account, or entered into any financial transaction/contract, has probably seen something like this. Some of it, if you take the time, isn't too difficult to understand. Other parts of it I can see as confusing, but may not apply to all investors. However, if you have a FR (financial rep, as they refer to it) who is worth anything, you ask questions.

 

Also, I look through the different account types available, and types of compensation. Thankfully, as I believed, there are two roles I can play. There is a commission sales role. The other is a fee-based advisory, which will receive a % of assets invested. This provides flexibility to invest in lower-cost funds, if available. There are other more complex arrangements, but those may not be proper for many investors.

 

I appreciate all of the posts. It's made me look into Lincoln further, and think about how I want to approach the position. I absolutely intend to provide value to any of my clients, and disclose all fees as I understand them. Also, where applicable, I will disclose the type of compensation I will receive out of the fees the client pays. Most important, I hope to place the client in quality investments, index funds or otherwise (likely a mix).

 

Hopefully there are some pros who post to this board who can also give some advice or ideas. And if anyone does have any experience with Lincoln Investment, please feel free to let me know. Also, especially if it's negative, please let me know if it's the firm or the rep who was responsible for the experience.

 

Thanks to everyone.

Elliot

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Guest Sierra

AP-

 

Thanks for the info. It seems like your experience is a common thing among teachers, unfortunately. I would certainly like to get info from someone involving a Lincoln rep. Funny enough, the people I've spoken with at Lincoln have informed me of your same issues. In fact, they've said that's the advantage with Lincoln, and the approach they encourage reps to take when speaking with clients.

 

Those are certainly actions I intend to avoid, which will hopefully make me a better advisor, and build a better long-term relationship with more clients.

 

Thanks,

Elliot

===================================================================

Elliot:

 

All b/d and their reps, by definition, are businesspeople that want to generate revenue like all business people. Most 403b investors who have bought and are buying every two weeks from a commissioned broker are brain dead. Most of them do not know the difference between a CD and DC. All B/D, regardless of what market they specialize in, know this is a FACT and that is why they are so G-- D--- profitable. Next time you go to your bank stop by their brokerage window. They are selling loaded funds knowing all along that the same investment is available by direct distribution from a no-load firm. They would not dare sell this crap to a family member...BTW would you? So if you would recommend no-loads to your family why would you want to make a living by pulling the wool over a stranger's eyes?

 

THIS IS THE SAD TRUTH OF THE FINANCIAL SERVICES INDUSTRY!

 

Peace and hope,

Joel

 

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Guest TR1982

Sierra,

I guess you buy your cars directly from the manufacturer? I know I do. Anyone who buys a car from a car dealership is brain dead.

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Guest Sierra

Sierra,

I guess you buy your cars directly from the manufacturer? I know I do. Anyone who buys a car from a car dealership is brain dead.

 

If one could buy a car directly from the mfg they would indeed be brain dead if they bought it from a retail dealer.

 

 

 

 

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Sierra,

I guess you buy your cars directly from the manufacturer? I know I do. Anyone who buys a car from a car dealership is brain dead.

Buying a car from the manufacturer presents far more obstacles and difficulties than directly investing in a mutual fund.

 

Consider two choices a teacher in my district has:

 

Investing in the Vanguard Wellington fund through AIG VALIC, and paying expenses of 1.61 (.36 underlying mutual fund costs plus 1.25 mortality and expense fee)

 

OR

 

Directly investing in the Vanguard Wellington fund, and paying expenses of .36.

 

The second choice is less than 1/4 the cost of the first choice, and presents no more difficulties or obstacles than the first choice.

 

The question is whether it is desirable to use option one and pay more than four times the cost of option two. In other words, is it worth it to use an AIG VALIC salesperson?

 

 

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