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15 Cards in this Set

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  • Back
What is a managed account?
It is a stock or bond portfolio managed by a professional manager who has been given discretion by the account owner to buy and sell securities.
What is a wrap account?
It's another term for managed account?
How is an account manager paid?
Managed accounts are managed for a fee, generally 1 to 1.5% of the value of the assets in the account.
What's the difference between a managed account and a mutual fund?
In a mutual fund, an investor's assets are co-mingled with the funds of tens of thousands of investors. In a managed account, the investor owns a particular portfolio of stocks and/or bonds.
What are "basis points?"
1/100th of 1 percent. If an interest rate changes 50 basis points, for example, it has moved 1/2 of 1 percent.
What is the abbreviation for "basis points" and how is it pronounced.
BPS is pronounced 'bips."
What is a "trail?"
It is a mutual fund fee paid to a financial planner for providing ongoing service to a mutual fund account owner. It cannot exceed 25 basis points.
What is a mutual fund wrap account?
It is a group of no load mutual funds managed for a fee, generally managed by an advisor. The usual fee is 1% of the value of the account per year.
Can variable annuities be sold for fees, not commission?
So what are the four basic products an FA can use to convert to fees?
Individually managed accounts, mutual fund wrap accounts, fee-based variable annuities and mutual fund trails.
What kind of investor should invest in individually managed accounts?
Generally there are minimum requirements for these accounts. Some managers will take accounts as low as $50,000 but most require $100,000 or greater. To be properly diversified, an investor should have enough money to have several managers.
If the FA is not going to manage the money, why do we need him?
The FA manages the manager. If performance is not up to snuff, the FA should recommend to the client that they fire the manager and get a new one.
What is the big challenge in converting to fees?
Income reduction
Why will the FA experience income reduction in converting to fees.
Here is a simple example. A $100,000 investment into a mutual fund sold at an upfront 4% commission will pay $4000 gross commission. That same $100,000 put into a managed account will pay, say 1 1/2% annual fee. That's $1500 per year. But the fee is paid quarterly, so you get $350 today as opposed to $4000.
What are two reasons FAs want to convert to fees?
1) They can start off a year knowing they have an income and 2) They can sell the client on the idea that they are on the same side of the table and no longer have a vested interest in changing the client's investment mix.