A budget, like lane markers on a freeway is a basic tool to help provide guidance as to the amount or range estimate for a particular or group of expenses, fees, costs, or other cash outflows. Another way to state it, is a budget enables control of fees, costs and expenses. Yet another way to say it, is a budget is a plan; the recent vernacular is plan beats no plan.
Trustees have a legal fiduciary duty to monitor and control any and all deductions from trust accounts. Trust accounts are fiduciary accounts. And BFD stands for breach of fiduciary duty. If trustees are accused of BFD they face personal responsibility to the trust’s beneficiaries.
A recent excerpt from the NY Times states: a document circulating internally among the firm’s private banking and investment group, which will be released in the next couple of months, aims to help the firm’s rich clients budget like everyone else.
What am I referring to? A budget item which few consider including perhaps the brokerage firm mentioned in the above excerpt, which I intentionally edited out. What budget is essential to understanding investment services procured, investments themselves and whether or not the amounts make sense? The budget should include the answer to the question: How much could or should I afford to pay in commissions, fees and or expenses for my investments and investment – related services such as from a financial advisor, stockbroker, wealth manager and or anyone else who “helps” to make investment decisions for you and or your trust, pension plan, 401k plan, non – profit, foundation or endowment account you or investment committee or board of trustees are responsible for overseeing.
The NY Times gives us another useful excerpt noticeably absent however is mention of a budget for the above:
The guide proposes different frameworks to look at spending that can also be applied to the not-so-wealthy.
It starts by defining spending. It includes lifestyle expenditures like travel, cars and wine; financial gifts to friends and family; charitable contributions; and even taxes. It looks at not only impulse buys but all the stuff in our lives that we spend money on, voluntarily or involuntarily: the big expenses like the mortgage on the house or homes and insurance, and the smaller, not-so-regular costs like maintenance, repairs and occasional remodeling of those homes.
It’s the art but also the security system. It’s what people want to give to charity or have pledged to donate to organizations. It’s taxes.
In some ways, the spending plans described in the firm’s guide could be likened to a diet. They lay out a more attainable fitness plan, with the consequences of late-night snacking explained. (In addressing spending with clients, firm #1 is not alone. All of the big wire house firms, like firm #2 and firm #3 ask clients about their spending, as would many registered investment advisers. Knowing how much is going out is key to making retirement projections for the assets that are being managed. [Firm names were intentionally edited out]
Recently a high profile broker described in a headline as a “heavy hitter” at a major brokerage firm faced possible jail time. For what? For allegedly failing to discuss cheaper investment account cost options with his 800 or so clients.
I could take up several pages and elaborate on all the various legal and way more pages about improper and or illegal types of fees, commissions and expenses possible in a securities brokerage account but it would be two very extensive lists. Plus it seems sometimes reading proscriptive posts such as this is not deemed as newsworthy as the latest car chase or social media viral cat video; no disrespect of course, to the talent.
Call to Action:
All investors and TRUSTEES in particular, and advisors, such as legal counsel, business managers and or CPA’s NOW is the time to review your investment program including evidence-based conclusions that the fees paid for investments and “investment advice” are appropriate and prudent for the subject account(s). And of course, the investments are appropriate given the trust’s or fiduciary account’s intent, purpose and cash flow requirements.
A special shout out to professional athletes, artists, actors
For time – pressed professional athletes, actors, musicians and other creative – industry individuals getting a written summary of annual investment fees, costs and expenses can help to avoid nasty surprises down the road. We’ve seen first-hand the past two years having been retained on several high profile professional athletes’ claims against major banks and brokerage firms. Had the parties understood the above, provides a basis for sound decision making involving associated or linked accounts and disbursements. Including bank type accounts such as credit card, checking, MMDA’s, insured bank deposit sweep accounts, savings, loans or mortgages which very often seem to be “included or linked” to brokerage accounts or so-called wealth management accounts. Importantly, online account access enabling online transfers, wires, securities transfers, journals and agent – assisted transfers can wreak untold havoc therefore account login credentials and permissions including to 3td parties must be regularly tightly controlled.
Amounts of Fees, Commissions and Expenses over $5,000 (five thousand dollars) annually is a useful threshold amount to learn specific and exact details of the cause of any and all account deductions.
Investment Account Losses over $20,000 (twenty thousand dollars) or more annual deserve a close look into the causes of same. Including specific positions losses.
Any and all worries or concerns over poor or low or lagging account performance are cause to more closely examine and clearly understand same.
Of course, concerns stress or worries over any amount no matter account performance nor how small account losses or deductions or account-related in general are certainly valid reasons for a discussion or meeting with the financial advisor and importantly the financial advisor’s, team or group’s supervisor.
Don’t ignore the basic maxim:
Where there’s smoke there’s often fire, to be clear, don’t ignore smallish losses or deductions which may be unfamiliar, not well understood and or unauthorized.
Regular account monitoring including a FACE Audit™ can help spot mistakes, errors, irregularities and improprieties in their tracks before significant damage can take hold such as unauthorized (and or hacked) online account access causing deductions, transfers or withdrawals.
Commissions, Fees and Expenses lie at the heart of delayed Best Interest rule also known as the Conflict of Interest Rules being analyzed, challenged and blocked from multiple securities industry, pro-industry banking and lobbying groups, congressional and agency angles for over a decade now. The SEC commissioned a blue-ribbon panel in the mid-1990’s which produced the Tully report on Broker Compensation; little to not much has changed since then in what 24 years now?
The Callan Periodic Table among others is another useful color-coded tool many have found helpful in explaining and understanding investment and brokerage account performance.
Investors wishing to better understand their account performance are welcome to contact us for a FACE Audit™ which includes an audit of fees, commissions and expenses in a trust or other fiduciary account.
Sales contests? Still in 2018?
A provider (whose name will be edited out) perhaps the largest issuer, exposed a list of FA’s (financial advisors) based on their sales of the providers ETF’s (exchange traded funds). A few concerns include FA labels such as “dabblers” and “power users;” a more pressing concern includes “Club levels” see the excerpt below:
One of the spreadsheets appears to list more than 12,000 entries of advisers and their sales representatives at firm name edited out intentionally. On another, the advisers were categorized in a variety of ways such as “dabblers” or “power users.” A column noted their “Club Level” including the “Patriots Club” or “Directors Club.”
So when one sees a reference to “CLUB level” it implies recognition of the FA often including some form of remuneration (compensation, sometimes disclosed to customers and sometimes not) FOR selling the issuer’s securities. That’s cause for concern.
Investors wishing to better understand their account performance are welcome to contact us for a FACE Audit™ which includes an audit of fees, commissions and expenses in a trust or other fiduciary account. Or any other type of securities investment trading brokerage account including margin accounts.
With over 35 years’ expert including over 19 years of experience inside the securities industry (national and regional headquarters offices and multiple branch office locations) we are fully capable of assisting you with rapidly evaluating any and all aspects of your brokerage and or investment advisory experiences including all manner of brokerage fees, costs, expenses, investments or losses and risks call (310) 943 – 6509 or contact@fiduciaryexpert.com
See our unmatched, specific hands-on experience with these and more topics on the “About” Fiduciary Expert, Chris McConnell, AIFA® page here.
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