Ishares vs. Fidelity vs. others

Water Cooler
#1

(To all the mods - please don’t move this to the investments page. That’s only one step above the feedback forum, which is only one step above Hillary Clinton WRT being totally irrelevant.)

So I’m back in the saddle being a lowly, hacksawed, retail FA. Just call me Greenman Grillo.

Nonetheless, I’m trying to figure out which fund families I want to do business with. I thought that I might give Fidelity a shot, since they have a Solo 401k platform, a 529 platform, and a SEP/Simple platform. They also have their Spartan funds, which can actually compete with Vanguard on costs (if that’s important).

Then there’s Ishares ETF’s, which are more expensive, but there’s more to choose from. (Fidelity’s fixed income options on their index funds are pretty weak.) I don’t know if I’ll ever put a client in a Micro-cap frontier financial fund, but it’s nice to have the option.

The guy I used to work for used Oppenheimer exclusively for all of his non-advisory business. (529’s, low balance accounts, Simple/SEP, etc.) Then he used an outside money manager for all accounts that met the minimum (Morningstar, Brinker, etc.). I’m trying to decide if I should just simply copy his model or develop a new one.

I kinda like the idea of having my own models, because 1.) I think using index funds/ETF’s will work just as well as Morningstar, but without all the obfuscation, and 2.) I kinda enjoy it. And if I use my own models rather than relying on an outside manager, then I need to figure out which funds I’m going to lean on.

Note - I’m not limited to index funds and ETF’s. I can use pretty much any fund in the universe. In fact, my new B-D has an agreement with DFA, so if I go to their boot camp, I can sell their funds. Or I could do my own security analysis–but I’m not going to.

#2

P.S. - we had a previous thread on this where I discussed iShares vs. Vanguard. I’m leaving Vanguard out because I just don’t want to do business with them. They’re a fine company and all, and they’re a lot friendlier to advisors than I originally thought. But I don’t want the name “Vanguard” to appear in any of my client’s statements, lest they start to google it and come across the Bogleheads website.

#3

ishares has a lot of different types of bond etfs. they even have istb which is a short term bond etf. 1-5 maturity.

full list below. tons of options

https://www.ishares.com/us/products/etf-product-list#!type=ishares&tab=overview&view=grouped&fac=43515

vanguard is the best imo, for accts with at least 500k. otherwise fidelity is comparable imo. td ameritrade was perfect for etfs before, but they recently dropped vanguard as one of the free etfs. if ur clients have more than 100k/acct, i would recommend interactive brokers.

#4

It is important. Everyone who has enough money to need a FA also knows that Vanguard has the cheapest funds. If you don’t want to deal with Vanguard, you need to be able to deal with their competition. Usually, the more money someone has, the more concerned they are about costs (first gen wealth - inherited wealth doesn’t care).

#5

^Most of the wealthy people I know don’t know what a vanguard is, nor what an expense ratio is. And I am loath to introduce it to them.

#6

Not that it really matters all that much, but did somebody edit my post? (I was internally debating the “loathe” vs. “loath” thing, but I was in the drive-thru and didn’t really have the bandwith to devote to it at the time.)

#7

Sorry, but my confusion could be because I am unfamiliar with this field. I can see why you would want to associate with an individual company, like Fidelity or whichever, to access their mutual fund products. However, won’t the ETFs be platform neutral, or would you be able to set up a brokerage account to access the ETFs, regardless of which mutual funds you choose?

Another thing I noticed is that companies like Vanguard seem to have some degree of in house advisory services. They offer special services to customers who exceed some account balance ($1 million, then $5 million). In addition to your concern above, maybe it would be worth it to factor into your decision the ability to be a “buffer” against unwanted service solicitations that might mislead your clients.

#8

No, ETFs are not platform neutral. The broker-dealer Greenie signed up with determines what ETFs are available. Some are pretty open and allow just about everything while others are pretty strict. Same goes for mutual funds.

And, as to the second bolded point, if any advisor is swayed by a free dozen Pro-V1 golf balls, they don’t have their clients’ best interest at heart anyway. However, by partnering up with the wholesalers Greenie likes from the fund companies he’s already decided to go with he can help his business. That’s how advisors pay for client education events, for example.

If he chooses to use ETFs or Vanguard, he’ll likely never see the wholesaler so he won’t have to worry about solicitation, but he also won’t receive any support for client prospecting, education, or appreciation events either.

#9

I see. I was under the impression that he was a central contact for the client, who would open various accounts on their behalf. If the client has a regular brokerage account under Greenman, obviously, any ETF would be accessible. However, it seems like he is more like a franchisee who has a prepackaged product set determined by the company.

#10

^ (edit - directed @Sweep) It sounds like you’re saying that the wholesaler is more important than the actual fund company.

I have a fairly good relationship with the Oppenheimer internal. Actually, he’s about the only wholesaler I’ve ever dealt with. But to be honest, I don’t particularly like Oppenheimer’s funds. Fees are high, they don’t offer glidepath funds, and their asset allocation funds are pretty weak. (Not that I plan to sell a whole bunch of non-advisory stuff, but they may be handy in a Solo-K plan)

That said, my B-D clears through Fidelity, and I thought (maybe naively) that it would be easier to do A-share business with the same company that we clear with. And I have never met their wholesaler, and don’t know if they’re any help at all. But I have worked with their 529 plan, and I like their fund lineup better than Oppenheimer’s.

After pondering this, I thought, “Well, if I’m using Fidelity for 529’s, A-shares, 401k’s, and everything in between, why not just use their Spartan 500 fund? How different can it be from any other 500 fund?” I just don’t know if there’s any particular risk in having that much business with one company.

#11

And for the record, the new B-D will be Cambridge Investment Research.

To be honest, HD Vest kinda sucked. They marketed themselves as the best B-D for tax return preparers. But when it really boiled down to it, they were just another B-D. They did have a couple of free proprietary tools that were useful in analyzing a prospect’s 1040, and they did schedule their national conference around the due dates. But other than that, they were weak on research, their advisory platform sucked, and their home office models were terrible.

I even had a discussion with the senior portfolio manager once about minimizing capital gains tax, and he said “Our portfolios are not managed with tax efficiency in mind.” I thought, “Man, you are killing me. You are marketing to CPA’s and EA’s, and telling us that you don’t care if you cause our clients to pay a ton of capital gains taxes? If our clients realize that we are forcing them to pay the only optional tax in the IRC, they will crucify us.”

#12

@ohai - No, financial advisors, even RIAs, have to work with what available on their platforms. Cambridge - where Greenie is now - is a very open environment so he will be able to pick whatever he wants…for the most part.

@Greenie - The wholesaler isn’t more important than the fund company, but it is important to factor in who’s going to support your business. Not saying you should determine investment decisions based on who takes you out to lunch. Those wholesalers that offer good value add material, like prospecting ideas, practice management tools, portfolio construction analysts, etc…are valuable relationships for you. It’s not all about steak dinners anymore. (Thanks Obama.)