Monthly Archives: July 2017

More EV confirmation

I recognize this is just me finding more confirmation of my existing beliefs, but, from Zacks Investment Management...

Electric Car Announcements – two European nations gave new meaning to the phrase “plug and play” this week, when both France and Britain made announcements about new rules banning all gas and diesel vehicle sales. France’s announcement came a day after the automaker Volvo said it would phase out the internal combustible engine, and both countries have made this pledge applicable to 2040. Meanwhile, the second largest automaker in the world, Toyota, said they are working on an electric car with an improved driving range and a fast-charging battery. The Japanese automaker wants to build an electric vehicle (EV) using solid-state batteries that can be recharged in minutes, with expectations for the new model to arrive as early as 2022. It appears the question is no longer if automakers are shifting to hybrids and EVs, but rather how soon. The race to electric should be fun to watch.

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Fiduciary Rule blowback from customers

Rick Kahler recently reported that a J.D. Power survey showed that current clients of brokers are likely to leave when switched to fee-only accounts.  He envisioned a conversation like this:

Broker: “Because of the new DOL regulations I can no longer sell you a high fee and commission variable annuity to be owned by your IRA. To comply with the ruling, my company has eliminated the 7% upfront commission on this annuity; we will now charge you a 1% annual fee. They also reduced the annual management expenses from 3% to 1%. Plus, now any advice I give you or product I recommend must be in your best interests.”

Customer: “So you are eliminating the upfront 7% commission and replacing that with a 1% annual fee, which means 7% more of my money immediately goes to work for me in the investment, right?”

Broker: “That’s right.”

 

Customer:  “And instead of the upfront commission you are charging a new 1% annual fee, but reducing the annual management costs of the investments from 3% to 1%. So I’ll still make an additional 1% every year I own this, in addition to saving 7% up front, right?”

Broker: “That’s right.”

Customer: “And further, you’re now going to look out for my best interests rather than the best interests of your company.”

Broker: “Yep.”

Customer: “This is ridiculous. I’m outta here!”

Broker: “Where are you going?”

Customer: “To find a firm that will continue to sell me high commission, high fee products for my IRA and that will work against my best interests!”

Broker: “You probably won’t find any. Every financial company selling investment products to IRAs has to comply.”

Customer: “I’ll find someone, somewhere. Goodbye!”

I envision a conversation more like this:

Broker: “Because of the new DOL regulations I can no longer sell you a high fee and commission variable annuity to be owned by your IRA. To comply with the ruling, my company has eliminated the 7% upfront commission on this annuity; we will now charge you a 1% annual fee. They also reduced the annual management expenses from 3% to 1%. Plus, now any advice I give you or product I recommend must be in your best interests.”

Customer:  “So you’re telling me that for all these years, you have been taking a 7% cut right off the top, and charging me 3 times the expenses for no reason other than to take more of my  money and put it in your pocket??”

Broker: “ummmm…….”

Customer: “And further, you’ve never been out for my best interests, but rather the best interests of your company?”

Broker: “ummmm…….”

Customer: “This is ridiculous. I’m outta here!”

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