Does anyone do this? IRA selling

[equinecpa]

I found with my clientèle there was a need for financial advice and if I wasn't willing to do it they wouldn't follow through. I joined HD Vest and acquired my series 6 and 63 and 65 licenses. A year later I wasn't thrilled with HD Vest restrictions and fees so I formed my own RIA. It is still a fledgling practice but the clients I am serving seem very happy that I can provide the extra service.

I am fee only so no commissions. I don't plan on actively seeking clients outside of my tax practice. I really hummed and hawed about adding these services (to the tune of 2 years sitting on the fence). I'm glad I finally took the plunge as I find I can now add that extra value to my services.

Carolyn

[Roberts]

Each of my investment clients has a different time horizon, risk tolerance, experience level and goal. Seeing one mutual fund or one mutual company as the sole solution to all of their needs would be rather simplistic.

Plus, investment products are only a small portion of what a financial adviser does. The rest revolves around education, hand holding, execution, administration and developing a plan. If my clients aren't willing to invest 6 months in tax education, why should I reasonably expect them to invest 6 months in learning financial planning, investment planning and portfolio allocation just to name a few? (wow, sounds like how punching numbers into some software isn't all we do either huh?)

I had a tax client (like all of you have had) who did all of the finances for he and his wife. He handled the taxes (he came to me just last year when he was confused by it), investments, banking, insurance..... I met the wife once to have some forms signed and that was it until he was diagnosed with progressive alzheimers and was dead within 6 months. Imagine if she didn't have someone to help with all of that? I guess the ethical thing would have been to tell her about the Vanguard website and send her on her way. After all, TSMI is all anyone really needs right? When she's worried about her portfolio or how to file her estimated tax payments, I'm sure that website will comfort her and answer all her questions.

[Black Bart]

Agree with sea-tax.

...Conflict of interest- This one I am not really sure how to respond to other than to say I disagree. Who better positioned to offer these services than a person who is knowledgeable in both tax and finance as all financial decisions have a tax ramification associated with them...It is hard to count how many times on this board we have had to answer questions for some tax preparer about how to fix some stupid mistake the client or there broker made , like putting money into a ROTH instead of a IRA. My clients that use me for both tax and investing never have these problems, and they are better off for it.

Some of us seem to feel that it's almost sinful to want to make money. The thing is, we're not social workers, we're businesspeople. If a person feels they shouldn't make any money off a client because he might find a better deal elsewhere, then maybe he/she should get out of the tax business altogether and go work as a full-time volunteer for VITA. Sure, it's possible (interstellar space travel is possible) they might stumble onto something better, but meanwhile, all of us (clients included) have to take our chances and use our best judgment.There's nothing wrong with us not selling the cheapest IRA around as long as we sell them a good IRA. Maybe other companies have cheaper IRAs than tax preparer/security dealers -- maybe not (and no load doesn't necessarily mean no problems). It's the same with tax returns -- TurboTax does them cheaper, but I'll bet every man-jack here will argue that we do them better.

We want to help clients by putting them in good IRA mutual funds and make a reasonable profit for our time and trouble. What's wrong with that? In fact, who can argue with that?

"We must have access to those politicians Don Corleone keeps in his pocket...Certainly he can present a bill for such services. After all, we are not Communists." -- Don Barzini

[veritas]

You are correct

I"'m sure you do a fine job for your clients, but for every one of you there are thousands of financial advisors out there who don't have a clue, and neither do their clients."

However someone as knowledgeable as you would be a good candidate for a securities license. I thought the same as you for a long time but finally it became apparent to me that I could do a better job than most of my clients and their advisors.

[veritas]

Two more recent examples

First client has been deducting a traditional IRA contribution for several years with a local (no load) mutual fund company directly.

About a year ago he gets letter from the IRS disallowing the contribution for 2004. He was making a traditional IRA contribution to a SEP IRA. He lost the deduction and has to withdraw the funds for at least two years.

Second client makes a traditional IRA (no load) contribution for his new wife. She is covered by a pension at work and since he makes a large income the IRA is not dedcutible. What does he do? Takes it out and doesn't tell anybody. Now I have another letter to deal with.

[erchess]

Don't Fee Only Financial Planners

and if that is tax work, do that and not dabble in another business.

IMO, it's a conflict of interest. IF I were "selling" an IRA to a client, and knew that
he could get a higher rate of return with no load mutual funds (which he can of course)
how could I with a straight face "sell" him an IRA on which I got a commission?

put people in low load and no load funds or else put them in what are ordinarily load funds but arrange for them not to be charged the load?

Furthermore if you sell him a CD with an insured rate of return then it is not surprising that an investment that could have lost money made more than the guaranteed investment. After all, the greater the probability of loss and the greater the maximum possible loss the greater the potential gain needs to be in order for the investment to make sense.

[erchess]

Danny Think Back

If I could just hook up with someone locally to recommend clients to that would help me.

I bet you have had clients who were doing well relative to the market, who had good statements including basis information and who had brokers who were courteous and helpful when you needed to call on them. These are the brokers you want to ask to send you cards. I have never been turned down when I asked to be mailed twenty business cards.

[erchess]

Question for Sea Tax

[QUOTE=sea-tax;60216]Wow I am not even sure where to start with some of the comments and ideas I have read here.
I guess I will start with Vanguard, wonderful tell the client to go to VG and buy a no-load low cost index S&P 500 and you can then trick the client into thinking they have gotten the equal return of the index. Unfortunately they will pay a expense ratio and actually get the S&P return less expenses, so basically they are settling for a C-, when in actuality they can pay a little more and have some professional advice and get a fund that is in the B to A range which more often than not will outpace the benchmark.

Suppose you buy diamonds and spiders and such from a low transaction fee broker. Will you not match the performance of the index minus a trivial amount?

[sea-tax]

[QUOTE=erchess;60254
Suppose you buy diamonds and spiders and such from a low transaction fee broker. Will you not match the performance of the index minus a trivial amount?[/QUOTE]

My point is that you will be settling for mediocrity and barring any advice or knowledgeable input that is the best you can hope for. When one goes to see a professional whether it be a tax prep person or advisor it is not to get mediocrity but rather better than average. They should expect and demand better performance. What it really boils down to is the professional with the cost included adding enough value. As Roberts stated why do your clients pay you when they could use TT to get there return done. Because you add value, you ask them questions the computer won't, you hunt for deductions the computer won't,so on and so on. Well my investment clients get the same type of advice and counsel that my tax clients get.
Prime example I had two clients who with the down turn in the market had the initial reaction to sell! sell! sell! , I showed them that this was a mere hiccup and was nothing to be worried about as they are long term investors, there account values are now back up and outpacing all the relevant benchmarks. Had they been on ther own they would have sold and certainly lost that I am sure of. In that conversation alone I had earned my fee, 10 times over.

[JohnH]

I disagree with your definition of mediocrity, but I understand why you bring it up because this is the closest thing to an argument one can try to advance against a good index fund. The word has emotional meaning, but it I suggest that it is misused in this context.

Mediocrity consists not in being the average, but rather in failing to consistently beat or even equal the average. Depending upon how one does the math, the lowest number of mutual funds who fail to outperform the broadest index is 80%, and the highest number is 92%. To me mediocrity is found somewhere within that group, maybe within one standard deviation.

Furthermore, no actively managed fund can guarantee anything, whereas one can be 100% certain that the index fund will equal the average, minus a tiny management fee. And it is unwise to bring up management fees when trying to criticize index funds, since management fees are the achilles heel of all actively managed funds. In order to pay for their management and marketing, they must charge fees that are 10-30 times higher than the fees for true index funds. ( I should mention that not everything that has "index" in its name meets my definition of an honest index fund).

Since most people's long-term retirement security is tied to what happens in the US economy, having an absolute guarantee that the equity portion of their retirement portfolio will do no better or nor worse the the average of the US stock market is a pretty good safety net. The US Stock market is a consistent long-temr winner, so being guaranteed the average of a winner is a very smart bet.

Furthermore, for funds held outside an IRA, mutual fund owners are tagged with taxes on their Capital Gain Distributions because the managers are constantly having to trade in an attempt to pump up performance. Index funds are much more "tax efficient" because there isn't this constant flurry ot trading activity. This phenomenon becomes even more important in a declining market, when fund managers find themselves frantically trading to improve results (or simply to meet cash calls as jittery investors bail out), thus producing capital gains distributions while the value of their fund shares is likely to simultaneously be going down.

Finally, your clients are certainly fortunate to have you holding their hand and preventing them from making emotional decisions about buying and selling. I'm grateful for people who think like that, because when they lose money someone else makes money, thus propping up the entire system and further stabilizing the value on my index funds. But I would contend that once an investor truly comprehends the value of indexing, a side benefit is that they stop being so emotional about the market in general because they know in advance what they have, where it is going, how it derives its value, and why trying to time the market or make guesses about mutual fund managers is at best a zero sum game, and at worst a terribly costly mistake.

Or, stated slightly differently, investing in anything other than the Total Stock Market Index carries with it a proven probability of 80% - 92% of choosing a net loser after expenses, even allowing for one's having the best advice avaliable. That math is inescapable, and definitely meets my definition of mediocrity.