Momentum is building in favor of fee transparency

I read with a bit of bemusement the letters to the editor that your Jan. 14 editorial on 12(b)-1 fees elicited.

I am ambivalent as to how advisers choose to get paid. However, I am passionate about fee transparency, full disclosure and serving in the client’s best interests.

Momentum is slowly building in favor of all these principles, both within the adviser community and from consumers. The contention that more disclosure is too complicated for investors or too onerous for advisers is trite and speaks volumes about why more financial professionals are leaving the brokerage world for independent practices.

Mike Palmer
Principal
The Trust Company of the South
Raleigh, N.C.

12(b)-1 fees are fair to the rep and the client

As the 12(b)-1 fee debate rages on, I feel compelled to respond to a letter that appeared in the Feb. 4 issue of InvestmentNews, “12(b)-1 conflict of interest hurts investors.”

I have been a registered representative since 1985, and my compensation model is based on commissions and trail fees. I am growing tired of the fee-based community describing my method of compensation with words like “shameless” and “self-serving,” since nothing could be further from the truth.

For example, I recently spoke with a client who retired in 1991 and rolled over his 401(k) into an individual retirement account with me. I recommended a mix of funds run by Capital Research and Management Co. of Los Angeles, and I earned a 2.75% commission.

Every year since then, I have received a quarterly 12(b)-1 service fee.

During the past 17 years, I have met with this client annually to discuss topics such as asset allocation and re-balancing, required minimum distributions and the need to maintain a long-term perspective during periods of market turbulence. Past performance is no guarantee of future results, but the client’s account has done beautifully.

And, yes, the client owns all the funds he bought in 1991.

My client would wholeheartedly disagree with the notion that I am “shameless” for earning a trail fee.

We all deserve to be paid for providing continuing, sound and ethical counsel. If a financial adviser happens to be paid via a 12(b)-1 fee, why is that a conflict?

The weighted average expense of this client’s funds is just over 0.6%, and that includes the 12(b)-1 fee that has compensated me over the years. This scenario is found countless times in my book of business, and knowing what I know about the industry, it strikes me as a wonderful value for the client.

I know of many colleagues who use this same model.

I guess I could liquidate everyone’s Class A shares, buy no-loads with no 12(b)-1 fees and charge everyone a typical annual fee.

Heck, my income would skyrocket. However, if I did that, my clients’ costs would rise dramatically, and that would indeed be shameless and self-serving.

Paul Rogers
Registered representative
Harvest Capital LLC
Wethersfield, Conn.

Dumbfounded by advice on stimulus package

I am dumbfounded by the press release issued by the Financial Planning Association advising the public to use the money that they may get as part of a stimulus package to build up their balance sheet.

President Bush and the House have decided that it is best to target spending and the velocity of money, and their plan will have little chance of success if people don’t spend it.

Obviously, if someone is at the brink of eviction and the check received from the government will stave off that event, then don’t spend it. But that applies to very few of the people who receive checks.

I think that if the [Denver-based] FPA, with all its research capabilities and teams of economists and statisticians, had said that it would prefer a different measure to have been enacted, it would have been a professional statement. As it is, the FPA has come out and said, “Hey, folks, let’s make sure that the government’s plan doesn’t work and that they have just wasted their $150 billion silver bullet.”

I am so glad that I dropped my membership.

Morris Armstrong
Owner
Armstrong Financial Strategies
Danbury, Conn.

Overpaid CEOs need to be reined in

Regarding the editorial “It’s time for greedy CEOs to do time,” which ran in the Jan. 28 issue, I am sick and tired of reading about extremely overpaid CEOs and other executives of public companies.

Where in the world do these people get off thinking that they are worth tens, and in some cases hundreds, of millions of dollars for their service? Having a title shouldn’t be rewarded by millions of dollars.

Many risk-taking entrepreneurs, both past and present, made their fortunes through ownership in their respective companies.

They took all the risks and were the creative minds and leaders, along with others, behind the businesses’ success. All they had in the beginning was stock, and that is where they should be rewarded.

They would never have bled their business at the expense of employees to pay themselves exorbitant salaries and bonuses, as is now the norm. Today, these executives think of themselves as rock stars.

They lay off thousands of employees and walk away with millions of dollars for leading a failing company or one that is losing money.

Why should CEOs and other executives who have done nothing in the way of creating the enterprise be paid so much for basically leading a successful business for a few years and then moving on?

They treat public companies as if they were their own.

Don’t get me wrong — I believe in a strong and vibrant capitalistic society where individuals can earn a good living wage by working hard and staying up to date with what their job or career demands.

Not everyone has the risk tolerance, creativity, education, etc., to build and run their own business.

Why don’t we let the CEOs earn their money the old-fashioned way if they think they are worth more than a few million dollars in salary? When they increase the value of the business they manage, if they bought the stock, they will then reap the benefits.

How about we cap total salary and bonuses for any executive at $5 million or pick a number. Then we use a ratio to determine employee compensation.

The boat, when maintained properly, will rise with the tide. If the executives are good, they should be able to increase or at least maintain the status quo.

If they bring real value to the business, then and only then should they be rewarded — but only if they were willing to put their own hard-earned money on the line by buying the public stock like the rest of us. Many businesses call this sweat equity.

Leon Rousso
Certified financial planner
Leon Rousso, CFP & Associates
Ventura, Calif.