Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
15 Cards in this Set
- Front
- 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?
|
Yes.
|
|
|
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.
|
