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Beware Assets-under-Management [AUMs]
[Dr. David Edward Marcinko MBA, CMP™]
I don’t think that doctor-colleagues realize how much more a fee-based financial planner – or financial advisor – might take from a physician-client using an assets-under-management [AUM] subscription business model; than a traditional commission-based stock broker? Of course, commissions are what stock-brokers earn; and “broker” is a bad word today. The more politically correct term seems to be “planner” or “advisor” or “vice-president” or ‘wealth manager”; and these folks earn “fees” along with their confusing nom de plumes. But should they?
Example:
Look at 1% of $100,000 which comes to $1,000 per year. If a doctor-client is in it “for the long haul,” we can see why financial advisors want this money for the “long haul.” Twenty years of this model comes out to nearly $20,000 in fees [assuming zero growth]. If a financial advisor was going to stick the doctor in some investment and leave him alone, would it not have been better to take a one-time $5,000 commission, say at 5%? This way the doctor-client keeps the remaining $15,000. If the money actually grows over time – which it should in the long run – the advisor earns even more.
False Arguments
Now, don’t try to accept the false argument that this puts financial advisors “on the same side of the fence”, as the physician-client or that it allows advisors to take better care them. First off, clients should be taken care of, well. But, it also encourages the advisor to “risk-more to earn more”, and/or to goad the doctor-client into putting more money into the subscription-based account, rather than paying off the mortgage, for example. In fact, the recent mortgage crisis and stock market meltdown suggests that this deceptive argument may have been more common than realized. So, why not ask your advisor/broker to explain both ways s/he gets paid; and then decide for yourself – fees versus commissions?
Assessment
Of course, in today’s world of “assets-under-management,” the word “commission” is taboo. No “real financial planner” takes commissions; he or she would rather manage investments for a “fee” that lasts forever.
PS: Financial advisors really don’t mange most of these accounts, anyway. They are aggregated and outsourced to other firms, for a small sub-fee [a bit less than the original 1%]. The advisor then sends a nice quarterly report to the doctor, as if they did all the work! Now, do you realize why the best name for these folks is “asset gatherers”; they often do little more than market and sell.
Conclusion
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Filed under: Ethics, Financial Planning, Investing, Op-Editorials | Tagged: AUM, AUMs, broker, commissions, financial advisor |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Are Financial Advisors Still Needed?
Does all this information obviate the need for financial advisors? For many smaller or DIY physician-investors, it certainly has reduced the need by outsourcing these functions to the doctor himself.
However, the experience and knowledge of a trusted, educated, degreed and fiduciary financial advisor is still heavily relied upon for anyone requiring “professional” assistance, complex trading, disciplined integration or higher-end services. They haven’t gone away; they just have to adapt what they do, how they provide their services, and who their physician-clients are. The entire financial planning process is in; the product sales process is out. Most importantly, the nomenclature obfuscation and verbal word parsing, for enhanced perceived credibility, must be exposed.
In essence, financial advisors have to re-engineer themselves and move up the value chain. Those who do re-educate will flourish; those who can or do-not, will die. It is no longer a business-as-usual ecosystem.
Jeff
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Jeff,
Trusted Advisors … Think Again! [More on the Madoff Mess]
Forget about the value chain … how about the integrity chain?
Did you know that according to former SEC chairman Christopher Cox, “a consequence of the failure . . . is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm?”
That’s one reason lawyer Howard Eilisofon is taking on the US government on behalf of clients.
“It is quite admirable for Chairman Cox to stand up to the plate and actually make public statements that there was credible evidence … It’s very admirable, but it is also very telling. That will go a long way to proving liability.” Eilisofon is reported to have said to NY Times reporters.
The irony, of course, is that Bernie Madoff’s record appeared unassailable, until then. For example, he was a former head of the NASDAQ. Now, recall that this is the same outfit that ordinary folks like us are told to use to investigate stock-brokers, financial planners, wealth managers, etc [now FINRA]. Still, may burned investors are blaming Cox and the SEC for the Madoff fiasco.
And so, I ask our all Medical Executive-Post readers:
1. Is this a classic case of negligence by the SEC?
2. Does the SIPC have enough funds to even make Madoff investors partially whole?
3. Do you think bank industry CEOs are intimated by governmental nationalization of banks, given the poor history of oversight?
4. Who should you trust to manager your money; if anyone?
Any other other thoughts?
Dr. Jim Stevenson
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Jim,
Great comments. Now, just think about it and extend the analogy.
The Obama administration, and many citizens, want nationalized healthdcare? Another case of the fox guarding the henhouse?
Nurse Mary
[quite contrary]
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This Ex-Microsoft Exec Will Not Sleep Until He Reinvents Investing
Hardeep Walia wants you to stop gambling on stocks and bet on ideas instead. With that goal, the veteran of Microsoft’s mergers and acquisitions team just launched Motif Investing, a new online brokerage.
Motif promises to be the kind of game-changer that the stock-trading world rarely sees, but desperately needs—we’re reminded of the launch of E-Trade in 1991, ShareBuilder in 1998, or FolioFN in 2000.
The basic concept: an easier, cheaper way to trade baskets of stocks. The bigger mission: to prevent you from getting screwed by fees and commissions.
Read more: http://www.businessinsider.com/motif-investing-hardeep-walia-2012-6#ixzz35w9urQjk
Dr. David Edward Marcinko MBA CMP™
http://www.CertifiedMedicalPlanner.org
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FEES
5 Ways to Charge The Highest Fee Possible
http://www.caproasia.com/5-ways-to-charge-the-highest-fee-possible/
Bernard
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UMA Fees and Wealth Manager Shams
The media’s obsession over AUM comes because many heavily promoted registered investment advisors don’t actually manage any investments at all.
While a traditional investment manager keeps your funds in a discretionary account and can buy and sell a mix of stocks, bonds, ETFs or mutual funds, far too many “money managers” are just middlemen who funnel client money (for a fee) to a real investment management firm.
Dr. David Marcinko MBA
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