Smith Barney wealth exec’s comments are on target

I really enjoyed the article “Independents ahead in retirement race” in the Feb. 25 issue.

It contained information of which I wasn’t aware. Great job!

The article quotes Bob Seaberg, managing director of global wealth planning for Smith Barney, a unit of New York-based Citigroup Inc., as saying, “One of the problems I’d be concerned about, if I were a consumer, is the staying power of the institution my adviser is attached to.”

Although from the context it seems that he intended to slur independents, in light of the tens of billions of dollars in capital his employer toasted recently, he is absolutely correct.

Mark Leibman
President
Leibman Financial Services Inc.
Louisville, Neb.

Independent adviser likes statistics in article

Your article “Independents ahead in retirement race” in the Feb. 25 issue was excellent.

As an independent financial adviser myself, I love those kinds of statistics.

Tisha M. Diffie
Registered financial consultant
TMD Investment Strategies
Scottsdale, Ariz.

Article on timber investing overlooked Wells REIT

While I appreciated the topic of the article “Financial advisers hope to tap timber market for growth” in the Feb. 25 issue on timber investing as a potentially valuable component of a diversified portfolio, particularly the core argument of its lack of correlation to the gyrations of the stock markets, I was very surprised and disappointed that the Wells Timberland REIT was entirely overlooked.

Whether this was just an oversight due to inadequate research or was an intentional exclusion for some other inexplicable reason, the non-public aspect of this particular timber investment should warrant at least a mention of it as a viable alternative to the publicly traded real estate investment trusts that were so rightfully downplayed as being subject to the same market dynamics of any other stock. That is certainly not meant to vilify any of the publicly traded REITs, which I have myself recommended to clients when appropriate, but the relatively low minimum investment level for the Wells product serves as a counterpoint to the observation that timber investment management organizations aren’t a realistic option for the ordinary investor.

Whether the Wells Timberland REIT of Norcross, Ga., is appropriate for any particular investors would be determined by their individual situations, as with any other type of investment. But to overlook its unique role as a relatively affordable niche product is unfortunate for a generally well-researched and balanced publication such as yours.

Ron March
Financial planner
PEN Associates Inc.
Portland, Ore.

$1 billion can garner a lot of attention during election

Re: the online opinion piece “May his words go forth,” which appeared on investmentnews.com on March 5, David Walker and Peter Peterson have their work cut out for them, but there is a long time left during the primary and presidential campaigns to force the candidates to address several of these issues.

A presidential debate hosted by Mr. Walker, who has a new job as head of a foundation created by multibillionaire Peter G. Peterson, the former secretary of commerce and founder of The Blackstone Group LP of New York, would be very interesting. I suggest you read my column on marketwatch.com, “The ultimate sell signal.”

You should support them in any way you can; your clients’ best interests demand it.

The single point [InvestmentNews] missed was the massive amount ($1 billion) of Mr. Peterson’s “seed money.” That is bigger than the budgets of the three remaining presidential candidates combined.

You can get a lot of attention before and after the election with that much money. Mr. Walker, as president of the Peterson Foundation, can do a lot to educate the best-educated generation in human history.

The problem is that they have been the most misled generation in human history, if they stick with passive buy-and-hold asset allocation strategies in a bear market which may prove worse than 2000-2002.

You know that the mutual fund you sold at a load won’t sell securities short or “go to cash” or take any defensive action to protect your clients’ assets. The success of exchange traded funds is good evidence that this gross investment shortcoming must be overcome.

That is why we manage financial advisers’ clients account in separate accounts with clients who have from $20,000 to $92 million. Asset gatherers are often too busy to be asset managers; that is where we can help.

What could advisers do to help their clients? Start learning how to incorporate inverse and leveraged Rydex and ProFunds ETFs in their investment portfolios to take at least some defensive action.

Counseling clients to downsize their expectations in retirement isn’t as powerful as making them money in all markets. We have both successful global sector rotation portfolios and power income (lowered-risk and increased-return) portfolios with or nearly with 10-year track records.

We also offer our clients and yours an ETF 401(k). If you shift from no-load funds to ETFs, you save on average 53 basis points or more; if you consider the added value of separate accounts’ 95 basispoint higher return over no-load funds, you have added 148 basis points to your clients’ returns.

You know my management fee is less than that even if we share it.

William E. Donoghue
Chairman
W. E. Donoghue & Co. Inc.
Norwood, Mass.

Objectivity has been absent from 12(b)-1 debate

Paul Rogers’ letter in the March 10 issue, “12(b)-1 fees are fair to the rep and the client,” reminded me of how the concept of objectivity has been left out of the continuing debate over 12(b)-1 fees.

Mr. Rogers is apparently a great financial adviser, and he uses mutual funds that are among the best in the industry. But has he compared the performance of those funds, net of fees, with similar funds that have no loads and no 12(b)-1 charges? If not, he can’t be objective in recommending them to his clients.

He may also have made prospective clients aware that mutual funds are available free of loads and 12(b)-1 fees. If not, it can be argued that he hasn’t made full disclosure.

Another matter that should be discussed is the fairness of 12(b)-1 fee distribution among clients. For example, does a client who acquires 10,000 shares of a mutual fund get 10 times as much service from Mr. Rogers as does a client who buys 1,000 shares of the same fund?

There are break points for front-end loads, but I haven’t heard of any such discounts for 12(b)-1 fees, and they are paid as long as the mutual funds are held.

Finally, the difference between “fee-based” and “fee-only” advisers needs to be understood.

A fee-based adviser may still receive compensation from the provider of products and services used, but a fee-only adviser is compensated solely by the client. That way, the fee-only adviser can be truly objective.

Richard Almeida
Certified financial planner Balliett Financial Services Inc.
Winter Park, Fla.

12(b)-1 fee is important for the public’s well-being

What opponents of the 12(b)-1 fee fail to see is that it is the most cost-efficient way to compensate advisers for the ongoing services they provide for each client.

Without 12(b)-1 fees, most advisers wouldn’t have time for smaller investors whose total investment may be $10,000 to $20,000. Those investors generate12(b)-1 fee compensation to the broker-dealer of $25 to $50 for class A and B shares and between $100 and $200 for class C shares, which is then shared with the adviser. Those fees would seem to be a small price to pay to have an adviser available all year to consult with them.

I think that the Securities and Exchange Commission is looking for a publicity win and knows that the 12(b)-1 is an easy target.

However, there is another situation that costs investors substantially more, which I have appropriately titled the 12(me)-1 fee. The first 12(me)-1 fee situation is the adviser who calls himself a fee-based planner and puts his clients into mutual funds, never changes the funds in the clients’ accounts and charges between 1% to 2.5% annually depending upon the size of the account.

That isn’t fee-based planning. It is self-commissioning, hence my 12(me)-1 fee designation.

The self-commissions they collect are four to 10 times the dreaded 12(b)-1 fee of an A or B share.

The second example is the managed account where the adviser passes the client’s account over to a money manager and simply tacks on the same 1% to 2.5% fee or self- commission onto the account. If you totaled up those fees they would dwarf the 12(b)-1 cost to the average investor.

In addition, what of the 12(b)-1 fees that are included in the expenses of the funds the client owns?

I want to make one thing clear, I think that advisers who manage money directly deserve to be compensated well for actively managing their clients’ accounts. However, for the 12(me)-1 fee advisers I seen no basis for the self-commissions they charge nor do I see what superior services they provide for their clients that warrant them.

Anyone who weighs in on the 12(b)-1 discussion should indicate by what method they are compensated. In my case, I am not a fee-based planner, but I do receive commissions as well as 12(b)-1 fees and am not ashamed to admit it.

Brian E. Glickman
Certified public accountant and registered financial consultant
Tuition Solutions
Smithtown, N.Y.

Related Topics: Letters To The Editor