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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: hdl who wrote (125035)	11/6/2010 10:52:21 AM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

There is nothing wrong with the holdings in the portfolio, but they are obviously not capital preservation tools. One point missing is the old guy's age. If he is retirement age, part of that portfolio should be in a fixed immediate annuity. These have nice, high payouts because they are giving you your money back. Then, you outlive your life expectancy and screw the insurers. <G> The negative is that this part of the portfolio dies with you. That doesn't bother me, but it bothers some. But you should only use AAA rated insurers. There are all of 4 of them left in America: New York Life, USAA, TIAA-CREF and Northwestern Mutual. The two initialese cos. have the better payout, as they don't employ commissioned sales personnel. The other half of your portfolio will protect you against inflation erosion. I would add some Vanguard Dividend Growth Fund, some European Growth stock funds, and some international real estate.

To: hdl who wrote (125035)	11/6/2010 12:40:46 PM
From: Knighty Tin	1 Recommendation Read Replies (3) \| Respond to of 132070

The 12-B1 situation gets murkier and murkier. news.morningstar.com I remember when these boogers first got started. The idea then was that brokers received a front end load when they sold a fund. But once they got that fee, the position in the fund was non-earning assets to the broker. In theory, he had no reason to follow that position or the fortunes of the fund, as he had no monetary reward for doing so. Heaven forbid he should be grateful fot the original fee he received. But, having been in that business, a broker is like a shark. If he isn't eating all the time, he's dying. The branch manager will call him into the big office and explain that a lot of assets not earning commissions are dead money and don't pay the light bill or the big bonuses for the guys losing the firm's assets in New York. So, the industry invented a 12-B1 fee. Each year, the broker received a .25% fee on load funds, which encouraged him to pay attention. Then somebody got the bright idea, why not make the 12-B1 fee much larger and eliminate the front end load. So, they invented B shares. With B shares, a 5% load was hidden in 1% of extra fees taken annually. If the client sold before the end of five years, he owed the difference between the sum of the 1% payments and the 5%, and it was docked from his proceeds. At the end of the five years, the B shares turned into A shares and the annual marketing related fees (as opposed to management fees) were lowered to .25%. A bit confusing. Since I expected my funds to appreciate in value, I preferred that brokers sell A shares. Yes, they cost more up front, but if the fund appreciates from $50,000 to $100,000, that 1% fee is now $1000 instead of $500. Brokers preferred B shares. And, some shady ones, mostly individuals, but also some firms, called for trading the B shares after a couple of years, collecting the entire load, and receiving a new 1% a year in another fund. If you needed another fund, it just wouldn't be available at your fund co. That would mean a no cost transfer. Nope, you had to go to completely different fund co. with a new set of fees. Lots of brokers got rich this way. Then the SEC cracked down. The firms came up with C shares, which never turned into A shares and you paid that 1% extra fee forever. I never figured out how that was a solution. If a client holds on or sticks to the same fund co., the B shares are MUCH better than the C shares. If he traded in less than five years, the C shares were better. The SEC is starting to realize that C shares suck, too. But the brokers and fund cos. both want them. What the SEC wants is C shares to be limited in time horizon, without an extra fee being paid to the broker on sale if it is under 5 years. What always made me cringe is when I've heard both friends and enemies describe C shares as "no load." Some more honest ones use the term, "no front end load," which usually means zip to the client. What they should be called is "back end load." It sounds like gay porno, but so it goes. So, the fight rages on. I've always believed that an advisor has to get paid to help the client. He should be honest and unapologetic about these fees. You can buy no load funds on your own and not pay a fee, just as you can write you own will and not pay a fee. Just as you can sell your own house and not pay a realtor's commission. But, if you need advice, expect somebody to charge you for it. It doesn't have to be an arm and a leg, but he deserves something. Hiding fees builds distrust and I am totally against that.