Best B/D for New RIA's in terms of Mutual Fund Platform

[NFL101]

Any ideas on which B/D offers the widest fund selection and best value for start-up RIA's. Schwab and Fidelity seem to be good in terms of researching and product offering but will only service the larger firms. Any good second choices out there or other things to consider. Thanks.

[Bradly T.]

Far as I know, all indie BDs allow all funds and ETFs to be held in brokerage. there is no limiting menu. Some BDs limit fund families available for directly held accounts to the largest complexes. Your BD choice should have more to do with payouts, backoffice support, compliance, firm fees, etc. Some BDs that are with proprietary fund families may be more restrictive but these are not considered indies. Fidelity is fighting for RIA affiliates right now and provide a brokerage access to all funds.

[herbmont]

Scottrade is happy to work with startups. Ask for Joe Monteleone or Brian Davis.

[Stephen Winks]

Startup RIAs differentiate themselves from brokers by demonstrating fiduciary standing. This requires the RIA to go outside of mutual funds when mutual fund packaging will not allow direct real time access to account holdings which makes continuous comprehensive counsel necessary for fiduciary standing, not possible.


I would encourage you to start with a fiduciary construct that would allow you to immediately differentiate yourself from brokers, rather than use TAMPs and UMAs which are so pervasive in the brokerage business. They are the broker's approach to advice which treats advice as a product the broker sells rather than a prudent process the advisor manages. Thus there are at least three considerations in answering your question (1) investment vehicles used for portfolio construction which are consistent with fiduciary standing, (2) a prudent process (asset/liability study, investment policy, strategic asset allocation, portfolio construction, performance monitor and tactical asset allocation) with the necessary audit path to statutory documentation to prove fiduciary standing and a confirming expert opinion letter to assuring fidelity to the statutory requirements for fiduciary standing, (3) enabling technology necessary to drive a functional division of labor (advisor, CAO, CIO) which simplifies the advisors execution of fiduciary counsel and brings it with in the reach of every advisor.



The investment vehicles most conducive to facilitating continuous comprehensive counsel are either real time buy/sell research (models) of managers which unbundle account administration from portfolio management which can be obtained for 25 basis points. This eliminates redundant account administration at the product, client and trustee level that adds no value. This also provides direct real time access to account holdings, facilitates the timely management of an extraordinary degree of portfolio detail at a fraction of the cost. Our largest and most innovative Trust Companies are moving to this model away from proprietary funds which allows superior performance while maintaining their profit margins. There are ETFs which can be incorporated in this model for large cap mandates which cost as little as 8-9 bps. The even lower cost option is your b/d, custodian or even a group of interested RIAs creating a proxy for index funds which literally cost nothing, though this requires scale and sophistication, which are in the best interest of the consumer.



The other considerations require an explanation too lengthy for this venue.



SCW

[MLK]

I assume you are starting an independent RIA firm, and not trying to be dually registered as B/D rep.

A few years ago when I was researching a new custodian for our firm, we found that TD Ameritrade had the broadest selection of mutual funds. I am told they want to see $10 million in assets for an RIA firm.

Three years ago, I started a new fee-only RIA firm. We chose Folio Institutional as our primary custodian. They offer asset-based custodian pricing instead of transaction-based pricing. I do not know if they have any type of minimum. Their platform offers integrated trading, performance reporting, tax accounting, and much more. We use very few mutual funds anymore, but build custom-designed morally screened equity indexes using individual securities, and a few ETFs for hard-to-design sectors.

Maynard

[BD2005]

Scottrade, Shareholder Services Group and TradePMR have solid Mutual Fund offerings.

[SRIhedge]

In addition to Scottrade, SSG, and TradePMR for the under $10MM start up RIA, FolioFN and Interactive Brokers are possibilities. I hear E-Trade services some RIAs as well.

Make sure to check what kinds of accounts the custodian can handle or not, especially retirement accounts. Not all handle SEP, SIMPLE or solo 401ks for example.

I'd love to hear what experiences people have had using SSG, TradePMR and/or Interactive Brokers.

[Tad Borek]

Startup RIAs differentiate themselves from brokers by demonstrating fiduciary standing. This requires the RIA to go outside of mutual funds when mutual fund packaging will not allow direct real time access to account holdings which makes continuous comprehensive counsel necessary for fiduciary standing, not possible.

Can you cite any case law in support of this claim? You seem to be saying that someone in a fiduciary role can't use mutual funds - categorically - because mutual funds are required to disclose their holdings only quarterly, rather than providing real-time access. I'd be interested in hearing examples where that was the holding, and it led to liability for an advisor to retail clients (whether RIA or in a B/D setting).

-Tad

[Stephen Winks]

Tad,


When you establish objective criteria for fiduciary standing based on statute, case law and regulatory opinion letters as established by Fred Reish for Don Trone at fi 360, one of the conclusions drawn in providing the continuous comprehensive counsel required for fiduciary standing is that "continuous" as required by statute implies real time data monitoring and management. This is how the advisor adds value and means that some investment vehicles are by definition not well suited for continuous comprehensive counsel. If you have to wait a week or so after each quarter to explain to a client what happened in their portfolio, it is too late to take corrective action. Thus, the ability to monitor account holdings in real time is not only in the best interests of the consumer but generates superior results. Our most respected trust conpanies have moved from proprietary asset management to the use of overlay management of real time manager buy/sell research to achieve superior performance and maintain fiduciary standing.



This is the most cost effective means of portfolio construction for fiduciary accounts.



SCW

[Tad Borek]

When you establish objective criteria for fiduciary standing based on statute, case law and regulatory opinion letters as established by Fred Reish for Don Trone at fi 360, one of the conclusions drawn in providing the continuous comprehensive counsel required for fiduciary standing is that "continuous" as required by statute implies real time data monitoring and management.

See that's my point, I wonder how you've gotten to that conclusion. I'm not as interested in self-referential commentator/consultant opinions as case law. There is none...correct?

It's an interesting theory...mutual funds fail, categorically, because you don't know their holdings in real time. It sounds completely invalid but I'd be interested to see some cites proving me wrong. Not cites regarding the vague concept of continuous comprehensive counsel and what that might imply, but some cases where a retail adviser acting as a fiduciary was found liable, under a breach of fiduciary duty, because of investments in mutual funds where holdings were disclosed only quarterly.

It sounds like a completely academic conclusion that over-emphasizes an aspect of open-ended funds that is in many cases irrelevant to investor outcomes. As an example, Madoff-managed accounts passed the "continuous real time observation of holdings" standard, but an open ended index fund that uses sampling doesn't.

-Tad

[Stephen Winks]

Tad,


Acting in a client's best interest is not a matter of opinion or subjective in any way. Because you are a broker, you are certainly entitled to use extremely expensive retail products with outrageous trade execution cost which are neither transparent nor afford access to the industry's most capable managers as found by Yale's David Swenen, who can not find a way to recommend the use of retail mutual funds in portfolio construction for individuals.



To a man with a hammer everything is a nail. For you, mutual funds are the alpha and omega. There is apparently nothing I can say to direct you otherwise. So why ask the question? At least now you can no longer claim you do not know any better. What you choose to do in advising your clients as a matter of professional imperative will take you where you want to go. The sales imperative you use as a reference point render cost, transparency, accountability, technical proficiency inmaterial, all of which are fiduciary values. If you or your brokerage firm or custodian will not empower you or allow you to act in the consumer's best interests--you need to be vigilent for opportunities to do so, which I have pointed out to you. If you just don't care, then there is nothing wrong in being a broker, just don't suggest you are an advisor acting in the consumer's best interests--because you now know better.



SCW

[Tad Borek]

Acting in a client's best interest is not a matter of opinion or subjective in any way. Because you are a broker, you are certainly entitled to use extremely expensive retail products with outrageous trade execution cost which are neither transparent nor afford access to the industry's most capable managers as found by Yale's David Swenen, who can not find a way to recommend the use of retail mutual funds in portfolio construction for individuals.

To a man with a hammer everything is a nail. For you, mutual funds are the alpha and omega. There is apparently nothing I can say to direct you otherwise. So why ask the question? At least now you can no longer claim you do not know any better. What you choose to do in advising your clients as a matter of professional imperative will take you where you want to go. The sales imperative you use as a reference point render cost, transparency, accountability, technical proficiency inmaterial, all of which are fiduciary values. If you or your brokerage firm or custodian will not empower you or allow you to act in the consumer's best interests--you need to be vigilent for opportunities to do so, which I have pointed out to you. If you just don't care, then there is nothing wrong in being a broker, just don't suggest you are an advisor acting in the consumer's best interests--because you now know better.

Stephen, you're not building a very good case and, through your response above, making me wonder how fast you jump to other conclusions!

I'm reading your post not as a broker - I've never been one - rather as a) a registered investment adviser who has spent a great deal of time studying the topic of fiduciary duties, occasionally even commenting about it to regulators, and b) an attorney who knows the relative value of industry commentary about legal issues. The more radical the point, the more I'd like to see some meat behind it.

I think we have our answer..."there aren't any cases to cite, because there's never been one." Right?

It's not a complicated question and surely you should have a response to it, given the bold claim you're making (no mutual funds for retail fiduciaries). If, in all these decades, a retail adviser has never been found liable on the basis you're claiming, how credible is your point?

-Tad

[Stephen Winks]

"

-Tad[/quote]



Tad,



Thanks for using your name. I always wonder why if one is going to contribute they do so anonymously.



Can we agree that (a) cost, transparency and accountability are fiduciary principles supported by statute, case law and regulatory opinion letters, (b) that how well one protects the best interest of the consumer is the essential consideration of a prudent expert, (c) common practices utilized by fiduciaries who must meet the most scruitiny in the investment of public funds held in trust is a legitimate reference point-- if so, your point concerning Mutual Funds and my "credibility and jumping to conclusions" is without merit. Are you suggesting CALPERS is not acting in a fiduciary capacity, but you are?



If you were to test the isolated concerns of cost and transparency, no one I am familiar who understands fiduciary standing except you (I believe you said you have an extensive background in studing fiduciary issues) would conclude that mutual funds make the cut in the best interests of the consumer. I don't see how you would disagree, based on your background and apparent strong desire to act in the consumer's best interest. When non disclosed trading cost average 66 basis points and disclosed fund cost averaging 98 basis points, over and above transactions cost--do you not feel a professional obligation to act in the consumer's best interest in finding a more cost effective way to construct your client's portfolios. If you consider the fact that David Swensen's well documented experience at Yale has found that best investments can not be found in retail mutual funds for a variety of obvious reasons, it seems you too would have to cede the point that Mutual funds are not the best product choice for portfolio construction. They are ideal for sales. Thus if your point is that I am mistaken, then it is only because your perspective is that of a salesman, not an advisor.



As an advisor, I stick to my observation concerning Mutual Funds you characterize my having "jumped to" and would be glad to discuss any other "conclusions" you seem to be so interested in.



If you check my credentials, I believe you will be more than satisified as to my professional standing in the industry.



I wish you well in your sales efforts in working with clients, and hope you will continue to explore ways to act in their best interests.



SCW

[the observer]

Stephen,

I have to say, you waffled well, particularly after learning Tad is actually a CA lawyer in addition to being a fee-only RIA who doesn't "sell" anything.

I particularly loved your parting shot at Tad: "I wish you well in your sales efforts in working with clients, and hope you will continue to explore ways to act in their best interests."

Now, some here might opine that you're just a blathering blatheroon with a highly inflated, unpolished and arrogant superiority complex, but not me... these boards are for entertainment as well as serious discussion and you certainly are entertaining... in a stuck up, superior and snooty sort of way of course, but... each to his own I say!

But other than the self serving ramblings of Mr. Trone, who sells his fiduciary "designation" for thousands of dollars so that RIAs can be perceived by the thoroughly ignorant consumer as being "more" honest than other RIA's, and Fred Reish, I'm assuming this is "THE" Reish of Reish and Reicher, an L.A. law firm that also wants to peddle its wares to RIA's, among others, by bloviating on the topic as a paid consultant to Don... I'd ALSO like to hear of real world "case law" cites from you if you have any?? Yes? No?....

Or is it that you just don't understand that you have to have "actual" case law cites that have been adjudicated and appealed in order to be able to "rely" on the opinion? Letters from Fred giving his opinion about a topic to Don just don't cut it in the real world, they're just opinions and we all know what opinions are like, right, because everyone has one.

And as you look down on all us unwashed masses of fee-only RIA's with no B/D affiliation who don't want to spend thousands of dollars on Don's fiduciary "designation" because we feel the "statutory" requirement under the law, which makes us all fiduciaries anyway is probably sufficient... try not to be so snooty about it in future...

[Stephen Winks]

Dear Observer,


There is nothing wrong about being a broker, just don't pretend to act in a fiduciary capacity.



You are not gaining ground by denigrating Don Trone or Fred Reish, who have done more to advance fiduciary standing than anyone in the industry. Fiduciary standing just requires process, technology, statutory documentation, a functional division of labor, conflict of interest management and advisory services support presently not afforded by the brokerage and custody industries.



The issue the industry is wrestling with is why not provide these enabling resources. This is the antithesis of "snooty" as we argue for universal access to the enabling resources which would safely bring fiduciary standing within the reach of every advisor.



If you are concerned about "snooty" you too might ask why these important enabling resources are not being made available by your supporting broker/dealer or custodian. The absence of this support precludes you from serving in a fiduciary capacity as the best interest of your supporting firm takes precedence over the best interest of you and your clients.



SCW

[the observer]

You know Stephen,

While you don't seem to have a problem articulating, you seem to have a problem comprehending. Or did you miss the "us" in my final paragraph? I'm the second non-broker affiliated, fee-only RIA that you've labeled a "broker" in just one short afternoon (the first being Tad) I really don't mind you pontificating about "fiduciary" this and "fiduciary" that, but you might try some disclosure since you're obviously, surreptitiously peddling your "fiduciary organization" to the unwashed masses as well. Aren't you connected with an organization that offers, for money of course, the "process, technology, statutory documentation" etc. etc. you're writing about here to RIA's, or aren't you the Stephen involved with Wealth-Paths?

Oh and I wouldn't dream of denigrating Don or Fred, I know who there are... I was denigrating you... NOT for being wise and educated and long in the tooth and chairman of some fiduciary organization, and certainly NOT because you DON'T know your subject matter... although you still haven't produced a single piece of case law I can rely on. NO..., it's more because you're just SO bloody pompous and condescending about it and it comes off really snooty here on the B.B.'s...

I know you're smart, I've read a number of your articles in the past. I agree with some of your statements and concerns, but you're not writing an article and you're not providing the unwashed masses with an education, you're discussing a topic with your "peers", and some of them know as much as you do, they might just have a different opinion than you, that's all. Don't ass-u-me otherwise. If you want to argue, that's fine... in the words of Monty Python... an argument is a collective series of statements intended to establish a proposition... it's not just you talking down at us without producing the goods.

Stephen in all friendliness, just try not to be smarter than the average bear. There are some very clever people who come to these boards, like Tad, who've also paid their dues in this business and the more you talk down at people, particularly when you can't produce what you've promised as in the instant case, the more respect you lose. I've had to bite my tongue in the past for being a pompous ass and I've been called on it over the years a few times even though I may have been right, give it a try. Your pontificating leaves no room for discussion... Remember a mind is like a parachute, it has to be "open" to work. I've had to listen to and sometimes embrace other people's opinions, give it a whirl.

The fact that I think you're barking up the wrong tree with all this fiduciary nonsense as it relates to "registered representatives" has nothing to do with anything. I have my reasons, they're good ones, and before you wish me happy selling and make some flip quip, let me stress again, I don't hold any FINRA licenses, I'm a Registered Investment Adviser, just like Tad, which means I'm a fiduciary to all my investment advisory clients under the law, even without Don and Fred's and of course your help.

[Stephen Winks]

Observer,


You seem to find comfort with disparragement and thus it is foolish for me to even respond or to take you seriously.



I have no commercial interests in advancing any advisory services solution.



I have advised many advisors over the years who collectively have well over a trillion dollars in assets under advisement, who actually believe they are obligated to act in their client's best interests based on objective criteria of statute, case law and regulatory opinion letters.



You may not be aware that good intentions are not sufficient for fiduciary standing. Please be mindful that by treating advice as a product (TAMPs and UMAs, etc) you sell rather than a prudent process you manage, you are simply acting as an IAR (investment advisor representative) on behalf of an asset management product which you broker. This makes you a salesman not an advisor. The sponsor of those advice products (TAMPs or UMAs) are fulfilling their fiduciary responsibilities as money managers governed by an offering document under the 40 Act, but you as an advisor have much broader fiduciary obligations under ERISA and UPIA to the consumer, that go far beyond the fiduciary duties of the money manager sponsoring the advice products you sell.



I understand you believe that you are acting in a fiduciary capacity, as it would truely be wonderful if that were the case and you would avoid all they work entailed. There is nothing I can say or that you are willing to hear which could convince you otherwise, so I wish you well and hope your advisory services efforts are responsive to your clients needs whether you have fiduciary standing or not. Just by virtue of your questions, there is not a good understanding of what is required to act in a fiduciary capacity.



I enjoyed the conversation but this has to be my last comment, even if you choose the further disparragement of me or others who wish to bring fiduciary standing within the reach of every advisor in a safe and easy to execute and manage format.



Best Regards.



SCW

[the observer]

Stephen,

As to most of your comments, read my previous post... you're lecturing again.

You write: "I have no commercial interests in advancing any advisory services solution" with one breath, then proceed to tell us all how you have " advised many advisors over the years who collectively have well over a trillion dollars in assets under advisement" in the next. Well whoop di frikkin doo... and I'm sure you're completely broke living in a shack by the bayou because you did all that for free, right?

You've got skills, no doubt, and if you want to share that wealth of knowledge with your "peers", that's fine. No one has a problem with that. "WE", the unwashed masses, come here and utilize the boards to learn new things every day.

We don't, however, come here to have people like you tell us what we're doing wrong when you don't have a clue who we are as was the case with Tad, but instead just assume, leap to conclusions, berate us on our "mistakes and missteps" and then lecture us about how you, the "All Mighty Steve and Oracle of Fiduciaryland" think we should be doing business.

The "problem" with your posts to both Tad and me and the corresponding, condescending lecture are based on "assumption", completely devoid of fact. You assume, because we take up a contrary position or seek information you claim to possess but can't produce, that we are doing business in a certain way.... then leap forward into a lecture about what we are (salesmen) and how we should really be conducting ourselves. In short you're acting like a stuck up pompous ass without a clue, who loves to show off so I'm assuming you are and calling you on it... See what you've done, your penchant for making assumptions and jumping to conclusions is infectious... Now I'm doing it!

Here's a couple of tips for you...

1. Don't assume, or presume to know more than you actually do about another person.

2. Don't claim you have case law when it's obvious to the unwashed masses you have nothing except hot air.

I wouldn't have even posted and wasted my time (because I know you and happen to know you're a smart guy on this topic) if you'd backed off the case law thing and not made gigantic leaps about Tad's practice or his skill sets when you really didn't have a clue about him.

BE NICE HERE and treat others like your equals... Tad may be a nice guy but I'm perfectly willing to go to a different place on his behalf, or anyone else's behalf for that matter.

And on that final note, please feel free to make any assumptions and draw any conclusions about me because they're probably all absolutely spot on, then feel free to share them with someone who gives a toss.

[MS1]

I have a boutique wealth managment practice. I explored Schwab as a potential partner, but they had little or no interest in working with a start up. I would bet they would take me now!


I would recommend TDAmeritrade. Great service. No restrictions and a pleasure to work with. They also host one of the best conferences I have ever attended. Also, they do not charge you to attend.

[the observer]

As an aside on the Schwab thing... I've never really completely trusted them.

For a long time their model required 10 million AUM. Then they dropped it to 3 million AUM and got a whole bunch of small, new guys. Then they dropped it again while mounting an aggressive campaign to win clients over to their brokerage side, effectively taking clients from the small guys who were forced to find another new home and "hopefully", maintain control of their clients, many of which stayed with Schwab brokers instead.

Feel free to correct me if I'm wrong and you were with Schwab when this went down, but that's how my rusty brain remembers it.

In evaluating this, look for what you're getting out of the deal in terms of services, as well as what the client is getting. I say this because anything you don't get and have to pay for adds to your bottom line and ultimately your fees out to clients, unless you just work for free.

A simple thing like billing can be a pain. Some offer billing but charge for it, some don't offer billing and you have to do it, some like Trade PMR have a great little system, web based that puts you in control and it's completely free of charge. Look for who may offer free CRM etc... If you're paying for billing, CRM, performance reporting and a bunch of other goodies, you're either "poor" or charging your clients increased fees to cover costs so you still make your money.

NOW, Someone like Trade PMR charges for a no-load, no 12B1 fee fund... Not much but they charge. I'm good with that because when I buy one I don't expect to day trade it. It's a balancing act. Do I charge more because I'm paying for everything, or do I get more bang for the buck on the admin, charge the client less AUM for life but they pay $19.95 to buy a fund.

[Bradly T.]

Don't Schwab and TD both provide "advisory" services, either directly or by network? Why would you affiliate with potential competition when looking for custodial and execution services? Is Fidelity moving that way too - retail advisory relationships?? I understand the potential of "branding" and affiliation I suppose, but if independence and firm branding is priority, do you want a national brand....and the affiliated news and stock price analysis?


While off thread topic, Mr. Winks scares the hell out of me. He also angers me....such transparent self dealing and promotion makes me doubt his sincerity and his sense of "fiduciary". Aren't you suppose to disclose even potential conflict of interest??? His conflict is all too real here. Not even RIAs want or could execute his brand of fiduciary...it would take another whole industry to support it...oh yeah, back to that conflict!! While it is clear he believes clients' interests can only be served or protected by the "fiduciary", he offers no data to support that fundamental assumption but then goes on to say we need a whole other definition far more complex and expensive and further alleges that predictive, market timing and selection (daily position swapping) is integral to that definition, which cannot be done by using mutual funds (except pure index ETFs I presume). It's my understanding that all RIA managed accounts are a model portfolio overlay of selected funds to represent the targeted allocation model that allows some variance in any fund's exact, current positions - the advisor's role remains limited to target allocation by agreement with client and fund selection by screening due dilligence. Mr. Winks would require us to know every security and weighting in every portfolio every day for the purpose of the advisor's active management (security selection, sector rotation, cash holdings, bond laddering, ad infintum) for timing and selection. What are we to do in that not-so-distant future when public trading markets are open somewhere 24/7? The burden and liability are too much to contemplate.



While Mr. Winks may have ideas appropriate to trust companies and pension fund managers, he doesn't seem to know much about the retail advisory business. Nor does he seem to have a high opinion of our capabilities or ethics or outcomes. I hope he fails in his efforts to take over an entire industry he finds in such a low state.

[the observer]

Hi Bradly,

I was thinking about that and didn't mention Scottrade for that very reason. I've seen things happen with Schwab in the past and while Scottrade is slightly cheaper than some of the others on execution prices, it's missing on a couple of admin steps and it does go into direct competition with the RIA on its walk in business, although it says it doesn't. Guess I just don't want to find out.

As far as Stephen Winks goes... I'm not bothered about his expressing his opinions, everyone's entitled to one. I got bothered when he took what he believes, made assumptions about how another planner does business, jumped to conclusions and then applied his beliefs system to the way he perceives (but doesn't really know) the other planner does his business while telling him what he's doing wrong.

Had he merely expressed his opinion and espoused his theories without lecturing other people about how they are doing things wrong when he didn't even know the guy or his business, I wouldn't have written a word. He's entitled to say what he wants and believe what he wants.

It's a little laughable though... Insurance agents were the original whipping boys for a while, scum of the earth and thieves and liars... then came the registered reps when NAPFA lashed out at them in the 80's, scum of the earth totally conflicted and thieves and liars...

Last week it seems, even though the consumer can't spell fiduciary and around 70% of the entire financial services sector isn't yet subject to a fiduciary standard and probably never will be... we have a whole bunch of fanatics coming in and telling us that fiduciary RIA's are just salesmen who don't really understand what it means to be a fiduciary and I guess we're all scum of the earth, liars and thieves as well.

The good in all this is that as of right now, none of the new fanatics have enough cash to fight the insurance, brokerage and fee-only lobby in Washington to push this nutty new idea through in Congress or at the SEC.

[Ed in Ok]

I am moving from a B/D to Shareholder Services Group. So far, I'm impressed and happy.

[dmtdc]

Wow, I didn't read the posts in their entirety, but did they get a bit off topic...?

I recently moved from Fidelity Institutional to Shareholders Service Group. Unless things have changed in the past few months, Schwab, Fidelity, and TD all have minimums of $7 to $10 million. I narrowed it down to SSG, Scottrade, and Trade PMR. Everyone has the potential to have the same mutual fund platform; the devil is in the details...

I don't like the Trade PMR model, because I cannot get past the idea of paying a fee to buy/sell/rebalance a pure no-load fund.
Yes, Scottrade has very low equity and fund transaction fees, but the overall platform is years behind other B/Ds in terms of administrative capabilities.

My take: if Fidelity is a Cadillac (perhaps a Mercedes these days...) going to Shareholders is like going to Buick and Scottrade is Chevrolet. And those new commercials... I cringe every time I see one and think about my clients seeing one and thinking, "why did my advisor transfer my portfolio/account(s) there, I don't do my own investment research, and I don't even own any stocks!?"

Shareholders only works with independent RIAs. Your ulitimate custodian is Pershing, so on par or better than Schwab and Fidelity. With respect to your post, the details you need to look at are fees and mutual fund minimums. Shareholders has higher minimums on some funds to avoid a transaction fee.

[Stephen Winks]

Just for the record.


The question was which B/D provides the best mutual fund platform for an RIA who wishes to be held to a fiduciary standard of care. I believe I was on point to observe that mutual funds were not the best product for portfolio construction if one is interested in beingan RIA acting in the best interests of the consumer. I agree the disparraging comments that ensued in support of using highest cost least transparent investment vehicle available, mutual funds, which clearily are not in the consumer's best interests were not only way off track but completely self indulgent on the part of those contributors.



As for my suggesting a level of counsel only suited to trust companies and pensions, that level of counsel is fiduciary counsel.



It is self defeating to argue with or disparrage a higher level of counsel which can be held to objective fiduciary criteria of statute, case law and regulatory opinion letters.



It is time to bring fiduciary standing within the reach of every advisor, if one chooses to act in an advisory capacity.



My hope is that everyone would prefer to act in their client's best interests than not.



SCW

[the observer]

Dear Stephen,

Just for the record...

Nearly all the disparaging remarks came from me and had absolutely nothing to do with the topic. They had more to do with you taking your theories and specifically applying them to people like Tad even though you didn't have a clue as to whether or not they actually did business that way.

Please read my previous postings carefully because as I said before, had you not done that, I wouldn't have even posted.

If you would like to start a separate thread, as someone suggested you should on this specific topic, then why don't you? My only recommendation is that you not make the same mistake again, express your therories and not try to interpret how people do business from their postings here, since many take a contrary position merely to extend the conversation and give all other readers a deeper insight into yours and their theories.

In summary Don't "ASS U ME"

[Stephen Winks]

Observer,


What you describe as theories are factual best practices adopted by top industry advisors/institutions.



You have neither acquitted yourself well in this discussion nor are you a credit to those in our profession who wish to truely act in the best interest of the consumer.



SCW

[the observer]

Stephen,

Produce the case law or shut up and go away...

and as far as the personal jab goes... bite me...

[Stephen Winks]

Observer,


The case law is a matter of public record best articulated by fi360 prepaired by Fred Reish, both of which you disparrage.



SCW

[the observer]

You write: "The case law is a matter of public record"

Wonderful! Then you shouldn't have any problem produce the Case Cites so we can all run off, reference and Sheperdize them for our own edification.

And no Stephen, since you're obviously getting a little calcified, I'll remind you again... I've never "disparaged" (check your spelling if you want to use
polysyllables) Fred or Don... Just you for being so bloody pompous in espousing your theories here without providing the case law cites you claim to have. As previously explained to you by Tad, who is a lawyer, case law is not private letters or legal opinions by a law firm to its client, it's something completely different... I respect both Don and Fred for their opinions and I'm sure they wouldn't come here to the forums and make fools of themselves by berating lawyers and other fiduciary Registered Investment Advisers after making wild and unfounded assumptions about they way they do business, nor would they apply their theories to specific advisers without having first becoming intimately acquainted with the advisers and their practices.

May I also remind you that you promised you wouldn't comment any further about 5 boring comments ago... can't you just start a completely new thread, present your theories without trying to apply them to specific situations and let anyone who is interested in discussing this snoozer with you try to make sense of your ramblings.

For me, this discussion holds as much value as the Hadron Collider in Cern, Switzerland. It's boring theory but if the theorists actually manage to get the bloody thing working, it will create this gigantic sucking black hole which will destroy the world. Your theories do the same for fiduciary investment advice for the small business and individual...

[Bradly T.]

While it has always been by opinion that Mr. Winks has presented a severe, untenable, and flawed point of view about the fiduciary standard, it is more incredible that he now espouses the opinion that RIAs cannot use mutual funds and fulfill their client obligation. And that cost is as important as the so called transparency issue (no funds due to no current/daily knowledge of exact holdings, weightings, etc.); however, he fails to mention the RIA fees for service as a cost issue. One can only presume then that the cost of the investment itself is a critical issue but the cost charged for service is NOT an issue??? So the total cost to the client is not important?? And value received for cost is irrelevent?


Mr. Winks would put us all out of business....quick! He keeps applying standards easily accomplished by CALPERs and university endowments and pension fund managers and mutual fund managers without recognizing the impossibility of delivering such processes to the retail level of hundreds of clients and accounts - all with different entry points, cost basis, client behavioral responses, etc. And his opinion is obviously self serving since he wants to sell us a process-support service to attain this standard which I have only heard him articulate. Institutional standards should not be applied, indeed, cannot be achieved at the retail level without every account being a SMA or personally managed fund of securites for each client and each registration.



We haven't even begun to discuss his additional insistance that we have a daily obligation to tactically move money as opposed to maintaining target allocation balances. He wants proactive prediction as well cheap investments. It is not just the mechanical impossibilities he hopes to impose, it's a whole philosophy of asset/portfolio structure and management he wants to deliver. WPT - winks portfolio theory. Who is this guy anyway? I hope no one is listening.......

[the observer]

Hi Bradly,

This entire discussion is deserving of a new string. It's gotten so way off point from the original question here.

As long as Stephen pontificates elsewhere and just presents his theories without "applying them" to individuals who disagree with him, I'll certainly leave him alone... see my comments re Hadron Collider.

Perhaps you'd like to start one, you seem keener to debate this wildly insane theory than me! :)

There's actually a string open on the "fiduciary" topic right now, maybe he can bloviate over there for a bit. I'll just go with the "we're all scum and uwashed masses who just aren't being fiduciary enough for the über fiduciaries of this world" and leave it at that in the full knowledge that; some crazy lunatic ÜBER ÜBER FIDUCIARY (in all caps and using a registered trade, service, or certification mark) will one day emerge from the primordial ooze and declare Stephen to be a non-fiduciary, fiduciary not being über fiduciary enough for the ÜBER ÜBER FIDUCIARY®'S liking.

Oh and I'll sue anyone who tries to steal my idea for the ÜBER ÜBER FIDUCIARY® designation (in all caps only... please send me $2,500 in a plain envelope if you want one)

[ricka01]

I am also a new RIA. As far as I can tell, Interactive Brokers' only method of charging (fee only) is to take the annual fee (as a % of AUM) and divide it by the number of trading days in the year, and charge that amount on a daily basis. Is this what others have discovered? I thought that I would be charging a % of AUM on a quarterly basis. Do other B/D's do this also?
Thanks,
Rick

[Bradly T.]

Your comp is credited daily too?? Or client is charged daily and you're paid quarterly? I believe VAs also charge daily. My BD?RIA remains quarterly on both charges and comp. But I'd support daily!!

[Headsets]

We recently had a HORRIBLE experience with Fidelity and a GREAT one with TD Ameritrade.


Fidelity has a name but absolutely no soul and will throw yolu and your clients out for virtually no reason.



Watch out.



Check out TD Ameritrade.

[ricka01]

Yes, the fees are credited daily. I take it that this is unusual. I will be calling TD Ameritrade and Trade PMR tomorrow.

[Towbin]

Yes, Scottrade has very low equity and fund transaction fees, but the overall platform is years behind other B/Ds in terms of administrative capabilities.

I also noted that observor said Scottrade was "missing on a couple of admin steps"

Would much appreciate if either of you could elaborate on these administrative shortcomings of Scottrade.

P.S. I too was with Fidelity FIWS and am now seeking a new custodian.

[JFB]

New Advisors think that a FINRA broker dealer is their only option to begin their new Advisory practice. They overlook the possibility of using a RIA-qualified trust company that not only provides the full range of client custodial services, but also offers a broader menu of inexpensive asset trading and portfolio management capabilities without b/d restraints. If you're thinking of a re-start, try Millennium Trust in Chicago. The guy to call is John Balevic for details.

[David F. Sterling, Esq.]

Re: Fiduciary Standard and Clients' Best Interests

How could I not chime in after conducting a presentation for a Regional FPA regarding the use of insurance products in the context of the fiduciary standard? The audience was comprised primarily of CFPs and the discussion took a number of interesting turns. I would like to add my thoughts to this discussion.


First, the "fiduciary standard" as defined and promoted by Fiduciary360 is a rather narrow construct which is a product of financial industry based assumptions and basically restricted to a single asset advisory and management model. In this context I am troubled by any correllation made between the fiduciary standard and serving the client's best interests. How incredibly arrogant.



Second, it follows that all this talk of the fiduciary standard is so wrapped in hyperbole that any sense of what it actually means is lost. Though Fiduciary360 has taken strides to "ground" and "operationalize" a definition, at best it has made a worthwhile contribution to the discussion. At worse, it has convinced far too many that it has the "keys" to the kingdom.



Third, I can only imagine that as the discussion continues to weave its way through regulatory and legislative chambers, the convenience of a standardized and pre-packaged proposition will win the day. Sad.



Finally, I welcome the opportunity to be educated about how the "fiduciary standard" as discussed herein, ensures fulfillment of the client's best interests. That really is quite a claim.



David F. Sterling, Esq., Consultant

[Stephen Winks]

Bradley T,


The uber, uber fiduciary standing you push back on is simply fiduciary standing.



The common ground is we can both agree on is broker/dealers and custodians presently do not provide the necessary enabling resources to safely bring fiduciary standing with in the reach of every advisor with an audit path to the necessary statutory documentation and an expert opinion letter to prove it.



The point is if firms properly supported fiduciary standing, depending on how you approach portfolio construction, you can actually come close to doubling your income within 18 months (United Capital has the track record to prove it) with out increasing your assets under advisement.



It is simply an issue of properly supporting advisors that is difficult to execute in a conventional brokerage/custody business model.



I don't think you would argue with the solution. It is possible you you as an advisor to have it all, you are just now terribly under resourced and do not have a convenient place to turn to for a solution.



SCW

[ricka01]

Just called TD Ameritrade - they require a minimum of $10,000,000 in AUM before they will accept you.

[JFB]

Call Millennium Trust Company in Chicago. They will take you on as a RIA firm client with no specific minimum AUM and help you grow.

[Tad Borek]

Can we agree that (a) cost, transparency and accountability are fiduciary principles supported by statute, case law and regulatory opinion letters, (b) that how well one protects the best interest of the consumer is the essential consideration of a prudent expert, (c) common practices utilized by fiduciaries who must meet the most scruitiny in the investment of public funds held in trust is a legitimate reference point-- if so, your point concerning Mutual Funds and my "credibility and jumping to conclusions" is without merit. Are you suggesting CALPERS is not acting in a fiduciary capacity, but you are?

If you were to test the isolated concerns of cost and transparency, no one I am familiar who understands fiduciary standing except you (I believe you said you have an extensive background in studing fiduciary issues) would conclude that mutual funds make the cut in the best interests of the consumer.

I just remembered I heard Don Trone at a conference a few years ago and he gave out some books. (Walks into room stacked with endless piles of ^%$).

From Prudent Practices for Investment Advisors, 2006 - "written by Fiduciary 360, legal substantiations by Reish Luftman Reicher & Cohen."

Practice A-3.3
Investment Vehicles are Appropriate for the Portfolio Size
(then extensive discussion of merits of mutual funds vs separate accounts and limitation of latter based on account size; ).

So you do realize that in stating that mutual funds aren't appropriate at all for a fiduciary adviser, either you're contradicting the exact guidance you're citing, or these folks have done an about-face on mutual funds just four years after publishing what seemed to be their definitive conclusions on the topic?

As for CALPERS - no, it's an irrelevant benchmark for the duty, this is a board for retail advisers. Take bonds for example. Client has $20,000 to invest in bonds. CALPERS has a lot more zeroes. Are you aware of the impossibility of small portfolios with bonds? It's an issue with all asset classes, bonds are just the most obvious one. Diversification is a major issue for a fiduciary and it's impossible in smaller accounts with individual securities (book cited above goes into this too). Also...CALPERS is tax-exempt, not going to be evaluating 529 plans, 401ks etc against alternatives (mutual funds are the investment vehicle in these). And of course CALPERS has completely different cash flow profile than a retail investor.

But it's more than that, because let's get down to choices - I'll go out on a limb and say I've done a better job recently as fiduciary. Stuy town?? Come on, what a naive investment that was, and if you look at their real estate portfolio generally it's got a lot of trash in it that Finance 101 said was trash. And what of the agency problem?? You have heard of the issues with kick backs, the pay to play thing??? Come on!!! October 15 2009 WSJ, "Calpers Rocked by Pay to Play".

America's largest public-pension fund, Calpers, revealed that a former board member had reaped more than $50 million in fees for arranging investments that could saddle state taxpayers with hundreds of millions of dollars in losses.

Look, I'm sorry - this is headline stuff across the board, it isn't even in the realm of "the expert," and it doesn't sound like you're aware of it. So cool it with the attacks about salesmen and go back and read the Trone Tome that you're citing as gospel, and reconsider your point that we should be looking to CALPERS for ideas (except maybe for "what not to do"). And please, please, don't hit the rubber chicken circuit with this speech about how we can't use mutual funds, you're doing real investors a disservice!

-Tad

[Tad Borek]

We recently had a HORRIBLE experience with Fidelity and a GREAT one with TD Ameritrade.

Fidelity has a name but absolutely no soul and will throw yolu and your clients out for virtually no reason.

Curious about this one...I've been happy w/Fidelity and not aware of this sort of thing happening. If it's a risk I'd like to know about it, so please share what you can.

I was one of those the Observer alluded to, that Schwab yanked the rug out from under a year after getting me over. Having to re-paper and transfer dozens of accounts the month before your wedding+honeymoon leaves a bad taste! But Fidelity's been a very positive experience, since. I'm pretty small at ~$16M and certainly there are custodians who are really looking for SEC-reg only...I just wasn't thinking of Fido as one of them.

-Tad

[CherryAdvisors]

Whichever broker dealer you select you may want to consider an virtual online database, www,vpmonline.com, that quantitatively monitors the market trend of all mutual funds & ETF's and issues buy-hold-sell indicators on all tradable funds. The service supports 350 investment advisory groups with asset allocation trend indicators designed to move out of the market into cash position when downtrends develop. The technical database move advisors into 100% cash position prior to the 2008 major market correction and back into the market in March of 2009 as an uptrend developed. Marty Cohen, CFP(r)

[the observer]

A quick word to dmtdc....

You write: "I don't like the Trade PMR model, because I cannot get past the idea of paying a fee to buy/sell/rebalance a pure no-load fund"

I personally think you need to look at the bigger picture with Trade PMR. I did a lot of work on this before switching, decided upon Trade PMR myself and am very happy with the choice I made. By keeping your overheads lower you can cut costs for the clients. Clients ought to understand that brokerages RIA's do business with couldn't pay the rent if they don't earn "something". Ask a client, "If everything you buy from Schwab is free, how does Schwab pay the rent"? Then supply them with the answer and they'll start understanding things like 12B1 fees and fees paid by mutual fund platforms they never see to be there. It's very similar to Kellogs paying for prime shelf space at a Supermarket.

Now look beyond that and think about the cost savings they offer other than the $20 for a mutual fund trade on a no load, no 12B1 fee fund. You get an integrated CRM in their web based interface for FREE, you are completely in control of your billing, can bill in advance or arrears and discount, you do it all for FREE. Other services are uncoupled and offered separately such as performance reporting on a per month charge that's much cheaper than many other companies. They offer it on a flat fee basis (I think it's $99 a month) whereas some firms actually charge basis points that you need to add to the client's AUM fees. You get 100% of every dollar you earn. By not having to pay a third party for compliant billing, by having a free CRM and many other tools and features, surely you can cut your AUM fees by 5-10 basis points and more than make up for the $20 trading fees.

BTW, as a hybrid before flying solo, I was paying $32.50 per, total cost to Pershing through the B/D and $35 a month for the software to interface with their trading platform so I've also "cut" the cost of trading considerably because my cost is less on the trade and the platform is browser based. (Works on MAC too using Firefox 3.5)

If you happen to choose a no load fund that has a 12B1 fee, tell the client... You don't get the 12B1 fee anyway, Trade PMR keeps it so they can pay the rent so there's no additional incentive for you to offer the fund, these funds are No transaction fee funds and I don't think anyone's unethical enough to offer such a fund so he can avoid the $20. BTW, Scottrade and others all offer the same and do charge for the no load no 12B1 fee funds, why wouldn't they? Scottrade have slightly lower trading costs but if I remember rightly, they don't have a fully integrated, "free" CRM program and I'm not sure, but I think Scottrade didn't have the kind of flexible billing for free that Trade PMR has. Correct me if I'm wrong, but I don't think TD Waterhouse offers free billing either does it??

Big picture then, I cut my admin costs by going with Trade PMR and the clients overall had their costs cut. I may have to pay for the no load no 12B1 fee fund there, but I've lowered my % of AUM fees because of cost cutting and don't regularly "trade" in mutual funds. Since I'm currently only using a few mutual funds, less than 25% (no load no 12B 1 fee) and otherwise mostly stocks and ETF's, it's no big deal for me.

You really should look at what you're getting for free as well, not just what the client's getting, because in my case, the one definitely complimented the other and did markedly lower the cost of management for my clients.

[Bradly T.]

Mr. Winks just performed an amazing 180 pirroette....from the importance of "cost effective" to "DOUBLE YOUR INCOME IN 18 MONTHS!!!" Now you're talking.....or is it still selling??

[dmtdc]

Yes, Scottrade has very low equity and fund transaction fees, but the overall platform is years behind other B/Ds in terms of administrative capabilities.

I also noted that observor said Scottrade was "missing on a couple of admin steps"

Would much appreciate if either of you could elaborate on these administrative shortcomings of Scottrade.

P.S. I too was with Fidelity FIWS and am now seeking a new custodian.

Here were the limitations I noted as of Nov/Dec last year:


- Essentially internet based accounts - client is charged for paper statements and confirms (and that is for each trade, even if you have many trades in one account on the same day). Before the tree huggers get in a tizzy, I'm all for electronic statements/confirms and saving paper and the planet...

- No ability to household accounts in one statement.

- Cannot batch save/download client statements/confirms online - have to access each account separately and download a pdf.

- No co-branding on statements.

- No cost basis on statements (only available online).

- No money market accounts for the core/sweep account (not that anyone is earning anything today...).

- No outgoing ACH (electronic funds transfers) - think about clients with RMDs - checks only.

- No dividend reinvestment for stocks/ETFs.

- No way to monitor incoming ACATs online.

- SIPC coverage is not at the max like other custodians (let's hope we never have to test this!!).



So there's the laundry list for them to work on... I can only deal with so many work arounds in trying to streamline and create systems and scalability.

[Towbin]

DMTDC:

Thanks for the reply and for the detail, which is very helpful.

Not having a money market for the core account; having to download statements one account at a time; no outgoing ACH/EFT....I know that those would annoy me.

I see that you are now with SSG; I will definitely take a look at them.