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Originally Posted by Boomer
Hey, retiredguy123, longtime TOTV poster, always read by me.
AHA! I saw in post # 21 here that you took CFP training. I did something like that, only not as involved. For me, I got a real estate license. That was many years ago and I did not keep up the license or ever do much of anything with it BECAUSE I never intended to quit my day job. I just wanted to know stuff. 10 houses later, it was well worth knowing stuff. My guess is you just wanted to know stuff, too. I get that.
So, about those CEFs, they sure are smoke and mirrors — to me anyway. So? If an advisor claims to be working only on a percentage of AUM billed to the client, can said advisor claim that he or the umbrella under which he operates is not receiving anything back from those CEFs, as in kickbacks, payola, trailer fees, bonuses, whatever?
In other words, can an advisor putting a client in CEFs, look a client straight in the eye and say he gets nothing back from those CEFs — without his pants catching on fire, that is?
(Of course, I know a lot of people have fireproof pants, which is too bad.)
To simplify: Does using CEFs when claiming only AUM as cost to clients always require the advisor to wear fireproof pants?
Boomer
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When I took the CFP program many years ago, it was a 2-year program that included general principles of financial planning, investments, insurance, taxes, retirement, and estate planning. Being a financial advisor was a subset of CFP, but many graduates made a living by being an advisor. It is hard to make a living just selling financial plans.
I don't see anything wrong with selling products for a commission as long as the client knows how you are being compensated, and combining commissions with an AUM percentage is okay. But, again, the client should know how you are being compensated. Personally, I don't believe in closed ended funds because the fund is designed as a high commission product and marketed by a select group of advisors. I much prefer open ended funds where any advisor can sell them. But, I guess there are some honest advisors who, in some circumstances, could recommend a closed ended fund if they really believe it is a good investment even though they are receiving a high commission.
Personally, I have always invested in index funds because I think they will perform as well or better than actively managed funds. I have never purchased an individual stock, but, many years ago I bought shares in the Magellan fund that was managed by Peter Lynch. It made super returns for awhile, but when Peter Lynch retired, it became an average fund managed by some young whippersnapper. I remember when that happened because the fund reported to the IRS about $30K in taxable gains that I had to pay tax on when the fund sold off a lot of stocks. I still own the fund and many of my index funds. I have held them so long that it would be a capital gains tax disaster to sell them now.