Amen to letter taking issue with 12(b)-1 column

Having read the letter “If disclosed, 12(b)-1 fee is legitimate charge for honest service rendered,” written by Alan Peters, president of Alan Peters & Associates Inc. (March 1), I can only say, “Amen and right on.”

His stance on 12(b)-1 fees is absolutely correct.

My immediate reaction to the Fiduciary Corner column “Let’s say goodbye to 12(b)-1 fees,” written by Blaine F. Aiken (Jan. 18) was certainly that this guy has never run a financial practice long-term. 

Personally, I think that 12(b)-1 fees support the moral high ground of being there for clients on a long-term basis. Finding the lost dividend check, providing basis data, etc., to a client’s certified public accountant, setting up systematic withdrawals and other service work ad infinitum represents a time investment, the cost of which must be offset somehow.

I think that clients would prefer a 12(b)-1 fee rather than get a bill.

Ronald G. Pray

Principal

Ronald G. Pray Co.

Gilroy, Calif.

12(b)-1 fees allow advisers to serve middle America

I agree with Alan Peters’ letter “If disclosed, 12(b)-1 fee is legitimate charge for honest service rendered” (March 1).

This is the only way we will be able to continue to serve middle America’s teachers, firefighters, salespeople, etc.

Carolyn Linnard

Retired certified financial planner

San Rafael, Calif.

12(b)-1 fees should be fully disclosed to clients

The recent exchange of letters regarding the appropriateness of 12(b)-1 rule charges is both unseemly and embarrassing.

Both sides make their points, but lost in the discussion is whether these fees are justifiable. If they are justifiable, then they should be fully disclosed, which would allow the investor to make a decision with respect to whether they are of any value.

To pretend that they are now fully disclosed is disingenuous.

Anyone familiar with the original 12(b)-1 rule as written wouldn’t recognize the permutations of that rule in effect today.

Two points should be emphasized: The major beneficiaries of 12(b)-1 payments are the investment managers who have effectively offloaded shareholder expenses that they formerly absorbed as legitimate business expenses. Other than certain insurance products with built-in trail commissions that have been loaded into the premium costs, are there any securities products that include continuing annual “service” charges?

Perhaps the best way to illustrate the issue involves the answer to this question: When a client buys stock in General Electric Co. or The Procter & Gamble Co., do either of those companies assess an annual service charge that is paid to the selling organization forever or use it to offset their printing/marketing costs? Does any public company do so?

It seems to me that the answer lies in the principle of “full disclosure” — let the public know the exact cost of this annual, never-ending charge in the form of a separate line item on their year-end annual account statements so that they can make an informed decision.

Dan Calabria

-Retired mutual fund industry executive

South Pasadena, Fla.

Mulling 12(b)-1 fees, RIAs, compliance issues

The letter “Takes issue with opinions on 12(b)-1 fees, performance fees” from Harold Evensky, president of Evensky & Katz Wealth Management (March 29), is very interesting — and very wrong in some spots.

In the second paragraph, he wrote that the 12(b)-1 is a commission, not a fee. In the third and fourth paragraphs, Mr. Evensky wrote that it is a fee.

When we had the original 8.5% maximum sales charge, there was no 12(b)-1 fee. But then when the charge was reduced significantly, the uproar caused the 12(b)-1 fee to be created.

So it is a fee, though it came from the sales charge reduction.

In the fourth paragraph of his letter, Mr. Evensky wrote that the advisory fee can be terminated at any time, without liquidation. He should have added that the 12(b)-1 fee can be removed from the broker’s income too, and without liquidation.

In my 44 years of experience, that happened to me, but only once and because a client’s relative wanted to take over.

Registered investment adviser fees can be a real rip-off. I have a very bad impression of them.

One of my clients lost over $300,000 in less than a year because there was no help from the RIA — who still collected his fee. There have been several other cases, too, in which my clients’ RIAs just collected the fee, but fortunately with less of a loss to my clients.

It is a license to steal. RIA activities are a ripe area for surveillance by authorities.

Broker-dealer compliance and due diligence are other areas for study.

And then there is risk-adjusted return. That is a vague term meant to impress clients.

I would like to see the record of someone who has done that reliably. Suppose a client says that he or she wants a yearly return of 5%. Is that before or after taxes or fees? Is it fair to seek only 5% when inflation is at 4% and taxes are at 25% plus ?

Mr. Evensky also said that a planner’s track record includes how well the client sleeps at night. Hmm, is that measurable?

L.R. Gutstadt

-Retired investment adviser and insurance agent

Long Beach, Calif.

Greece’s travails offer lessons for everyone

I read the editorial “U.S. is on path to its own Greek tragedy” (March 8) with keen interest, and I agree with it.

Greece, as measured by the size of its economy, isn’t very meaningful. It is, however, a telltale sign of coming attractions and offers lessons for everyone. Spend-and-tax policies need reality checks.

Peter A. Sullivan

President

Arlen Capital LLC

Warwick, R.I.

Exorbitant pay is basd on excessive services charges

I read the Just Thinking column “Put teeth into pay-for-performance” by Jim Pavia (Feb. 22) with interest.

The problem with the way the issue has been framed by many is that the compensation being paid is excessive. A better way to frame the discussion is to ask the question: Are all the firms that are making these huge bonus and compensation payments overcharging for their services?

It would appear that the services being provided may be based on excessive charges to the investing public, not that the brokers and others should be entitled to the bonuses.

W. Thomas Curtis

Managing partner

FSP & Associates LLC

Gaithersburg, Md.

Succession planning needs to be a priority

I was really surprised to read the article “A delicate situation: Acquiring practices of the deceased” (March 15).

Recently, I finished a chapter as a contributing author for a book about starting, running and exiting a business.

Having purchased a practice from a retiring financial adviser without a formal succession plan, I understand that it is a time-consuming process, but we advisers need to take some of our own advice.

As an example, I came across another practice last year in which the adviser had died and the estate was holding on because the fee revenue was still coming in. In less than a year, the practice went from a value of $1 million to being virtually worthless because there was no succession plan, and the estate wouldn’t make it a priority to get a transaction done.

Clients were leaving in droves, and even the business broker listing the practice told me I shouldn’t even waste my time.

Andrew E. Oster

President

Oster Financial Group LLC

Edmond, Okla.

Related Topics: Letters To The Editor