July 19, 2007
I am a CFP designee. My clients come to me for advice on investments as well as other aspects of their financial picture. Some aspects I'll comment on without compensation such as their 401k allocation and the quality of the investments in that 401k. I choose to specialize in investments and not write insurance products but yet as a CFP designee, I answer life and health insurance questions and make recommendations.
I provide services that I don't get paid on to be value added, a nice guy to work with and because I know that my clients can always go somewhere else and/or invest online nearly for free. When they are my clients, I know they are my clients because they do not want to invest for themselves. They expect to pay me for my work.
There has been debate on investment fees since packaged investments became mainstream.
As a businessman I believe disclosure of any business deal's details is essential to smart business. I am proud that my fees (and freebies) are discussed upfront and there is plenty of disclosure of the investment's expense ratio and the fee structure is signed off on by the client prior to any purchase of mutual funds but there is a point where it just becomes a waste of paper.
To invest a client's money into a mutual fund today I need to present a prospectus (no older than 13 months) of each investment to each client prior to that investment. I must review an "Explaination of Investment" form which is designed to single out that investment's fee structure assuring the client is well aware of any up-front, back-end (surrender charge) and ongoing expense fees. In addition I must have the client sign a "Investment Transaction" disclosure which is designed to show my compliance department where the money came from and my reasons for moving it from it's orignal investment thereby assuring that I am improving several aspects of the client's portfolio. I must further disclose on my transaction ticket where the money came from so that if I mark "mutual fund" I can be quizzed again by my compliance department as to what the original fund family lacked and/or what the newly recommended fund family provides to justify changing fund families rather than exc hanging from fund to fund.
My intent in the previous paragraph is to show that improvements have already been made to safeguard and protect the public numerous times in the past via regulations and continued scrutiny. The SEC, NASD and Congress have beat the investment profession up for years and the result is a plethera of disclosure and compliance issues regarding fees and decreased fees to advisors. I fail to see how any further governance could possibly bring more positives than negatives to my profession.
Clients come to us for a service which is an ongoing service. We get paid when they agree to the terms which include fees, some of which are ongoing. If and when a client no longer feels they like our services they switch to another advisor or they move the investments out to No-load investments in a cut rate account online and do it themselves.
This is America. It provides for freedom of choice to consumers in a capitalistic society and economists the world over think it works pretty good more often than any other economic model thus far. Lets keep it free and capitalistic. These discussions of 12b1 fees needs to be dropped!