LPL management team deserves kudos, not flak

I saw the comments from some LPL Investment Holding Inc. brokers in the Online Chatter in the Nov. 15 issue.

Having been with LPL as an affiliate for 20 years and as one of their higher producers (top 20% or so) I received nearly 10,000 shares of stock, which I look at as a great gift. For those who didn’t receive anything and have been here for less than 10 years, or didn’t have production that was high enough, two questions: What did your previous firm give you, and how many hours did you put in to be a top producer?

Although I was surprised at the amount of money that LPL chairman and chief executive Mark Casady will bring in, I am sure that there were many times when I was at home watching TV or doing something relaxing with my family when he was in a meeting or in the air on his way to a meeting. Many American chief executives make many sacrifices and put in a schedule that many couldn’t do for a week, let alone for years.

Also, these representatives who are complaining still have the same great firm to work for that gives them one of the best payouts in the industry, along with the best customer service, and that comes from the top down. It just sounds like a lot of sour grapes to me.

Although I have had some differences with LPL over the years, we have always resolved the problems, and management needs to be thanked for providing a firm that allows financial advisers to work with their clients as the advisers see fit.

Thank you, LPL, for a great 20 years. I look forward to another 20 years and the great things that management has in store for the future.

Brent M. Wilsey

President

Wilsey Asset Management LLC

San Diego

Pricing issues prove Finra shouldn’t oversee RIAs

Let us hope that the opinions of Bradford Tharp, a registered representative at LPL Financial, who submitted the letter to the editor “Finra should regulate RIAs” (Nov. 8), aren’t representative of what he tells his clients.

Otherwise, the Financial Industry Regulatory Authority Inc. needs to pay a little more attention to its existing responsibilities.

A case in point would be Mr. Tharp’s suggestion that “RIAs charge $1,500 plus for a plan that a commission-based broker provides for free.”

There is nothing free about A, B and C shares, back-end loads, surrender charges and other investment costs borne by clients who pay commissions. And it is these costs that the client no doubt will pay if they implement Mr. Tharp’s so-called free plan.

As to the suggestion that collecting less on a $100,000 account than on a half-million-dollar account is somehow unique to the registered investment adviser world, I am left scratching my head.

Does Mr. Tharp make the same amount selling a $50,000 variable annuity or a $100,000 variable annuity? And does the client not pay a higher fee to the fund company for the larger account, a fee that is then ultimately passed on to him and his broker-dealer?

And what about Mr. Tharp’s suggestion that RIAs “charge three times more over a decade than a front-end-commission investment rep?”

I suggest that he consult the prospectuses for the investments he sells. In them, Mr. Tharp would see that his A, B and C share clients, not to mention his VA clients, will pay significantly more than those of a typical RIA client holding a portfolio of no-load funds plus a 1% fee.

This isn’t intended to suggest that the fee model is the right model for all. But all clients pay and nothing is free.

A full and honest explanation of costs is central to advising clients ethically. Mr. Tharp’s misguided understanding of pricing is exactly why Finra shouldn’t be regulating RIAs.

Finra’s got enough fish to fry just making sure its registered reps aren’t misleading clients.

Oliver R. Tutt

Managing director

Randall Financial Group LLC

Providence, R.I.

B-Ds are pricier for clients than RIAs

In response to Bradford Tharp’s letter to the editor “Finra should regulate RIAs” (Nov. 8), having played for both teams, currently as an investment adviser representative and previously as a registered rep for a brokerage firm, I can say with certainty that it is more expensive for most clients to work with a broker-dealer than with a registered investment adviser firm.

He described how an investor will pay three times more over a decade working with an investment adviser rep at an RIA than with a front-end-commissioned registered rep.

Let’s look at a specific example and express those costs in dollars, a practice we use at my firm to demonstrate the cost difference between fee-based RIAs and commission-driven registered reps for our clients and prospective clients.

In a broker-dealer transaction, a client invests $100,000 through a registered rep at a brokerage firm in shares of a broadly diversified, equity Class A mutual fund with a time horizon of 10 years. Let’s even be generous and say that the client pays only a 2% upfront sales charge (load), or $2,000.

Let’s also assume that the mutual fund has an annual expense ratio of 1%, or $980 annually. If you assume that negligible capital appreciation keeps the value of the investment at original cost, the total expense to the client is $11,800 over the 10-year holding period.

In an RIA transaction, a client invests $100,000 with an investment adviser rep at a RIA firm in an exchange-traded fund with the same investment objective as the load fund described above, with the same time horizon and the same performance, for 10 years. The ETF has no upfront sales charge, but let’s assume a $9.95 trading expense and an expense ratio of 0.09%, or $89 annually.

The annual management fee that the firm charges the client is 1% of market value. The client’s cost is $10,900 over 10 years, plus $9.95 to sell the position.

Both investments have professional managers watching them. The RIA is a phone call away, while the other is a name on a fact sheet.

The ETF is more liquid, as it can be sold out at any time during the trading day, while a mutual fund can only be liquidated after the close of trading, once daily net asset value is set. ETFs are generally more tax-efficient, while investors in open-end mutual funds have no control over the timing or magnitude of capital gain or loss distributions.

So when working with a registered rep at a brokerage firm, a client pays more in fees, gets less liquidity and has little control over capital gains or losses.

Michael J. Smith

Senior vice president

of institutional marketing

Granite Springs Asset Management LLC

New York

Tax cuts should be allowed to expire

If solving the deficit problem really matters, then everyone needs to have some skin in the game and we need to get past the political sound bites and hyperbole.

We can’t afford tax cuts for anybody, including the middle class and especially the rich. President Barack Obama should let the Bush administration tax cuts expire.

In addition, if we want to fight two wars, they need to be paid for. During the Vietnam War, President Lyndon B. Johnson asked for and got a 15% income tax surcharge to pay for the expenses of the war.

Finally, the $700 billion defense budget needs to be cut. Many programs are outmoded, redundant and don’t work.

Surely, a 15% cut in a budget of that size could be found and would save $100 billion a year.

Barry Rabinowitz

Principal

BER Financial Group

Plantation, Fla.

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