You may be enticed to look at a zero commission plan. We look into some of the leaders and give you some things to concern yourself with.

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Episode 017 – Zero Commissions

Welcome to Market Insights from Southwest Investments. Joining me today, Bart Schannep. Bart, welcome to the show.

 

Bart:                 Thank you. Good morning.

 

Rick:                 I was going to take you out to lunch and buy you lunch.

 

Bart:                 Wow. That’s going to be rare, okay.

 

Rick:                 It’s free to you, right?

 

Bart:                 No. That probably means you want something.

 

Rick:                 There you go. There’s no such thing as a free lunch, right?

 

Bart:                 No. There is no such thing as a free lunch.

 

Rick:                 However, in the news we’ve got Morgan Stanley. We’ve got these bigger behemoths, if we want to call it that, are buying up free online trading companies.

 

Bart:                 Right.

 

Rick:                 What’s going on with that? Like we said, there’s no free lunch.

 

Bart:                 That’s right.

 

Rick:                 Where are they getting the money?

 

Bart:                 Alright. I’m referencing an article. The E-Trade deal reveals the new rules of the investing game. This was in the Wall Street Journal, the Saturday/Sunday edition, February 22nd. What we saw recently was that E-Trade was recently purchased by Morgan Stanley. Now, E-Trade is one of the firms that highlights free online trading. Okay. If there’s no such thing as free, then how is it they’re offering that?

Well, it’s all about trying to gather your assets. E-Trade does offer free online trading. There are some restrictions, but basically it’s free to anybody. How do they afford that? How is that possible? Well, they hide their income. Their income is soaring. By what means? Well, primarily one is money market. Any time you leave excess cash in the account, it sweeps into their money market. Well, their money market only pays between one hundredth of one percent.

 

Rick:                 That’s 0.00.

 

Bart:                 Well, it’s 0.01 percent.

 

Rick:                 Percent, right.

 

Bart:                 Right. Up to a quarter of one percent depending on how much you have in it.

 

Rick:                 That’s less than a bank.

 

Bart:                 Yes.

 

Rick:                 Right now a bank, and we’ve always told clients that we’ve spoken to that usually you only want to put very, very short-term money into your bank. Let’s invest in maybe a little bit higher performing.

 

Bart:                 Right. You have standard money markets currently paying around one and a quarter percent. You have high-yield money markets paying two percent. Okay. Well, E-Trade is putting their money at two percent and giving you a quarter of one percent. They’re keeping the difference.

 

Rick:                 That would make up a little bit of the money that they’re…

 

Bart:                 Wait, there’s more.

 

Rick:                 Alright.

 

Bart:                 The other thing they’re doing, and it’s not just them. Schwab does the same. Other firms are doing the same. That is that they are making their investment recommendations in their own proprietary funds, mutual funds that they own and run. Think in terms of Vanguard. ETFs that they own and run and other investments that they’re in fact creating where they are able to collect the fees that normally would go to an outside provider.

 

Rick:                 The trading fees and their management fees.

 

Bart:                 The trading fees and the management fees, exactly. That doesn’t mean all house brands are bad. No, some could be perfectly good performers, but the reality is are you getting the house brand because it’s the best or because that’s how they get paid? The worst offender, and this is somewhat new on the market, structured notes. Let’s talk about structured notes.

 

Rick:                 Are we going to get into my favorite thing, annuities, as well? Is that…

 

Bart:                 A lot of annuities use the same philosophy. It’s all based on what’s termed structured notes, meaning you’re not really investing in a stock or a bond.

 

Rick:                 Okay.

 

Bart:                 You’re investing in a derivative thereof.

 

Rick:                 Derivative.

 

Bart:                 That’s what you own, a derivative thereof.

 

Rick:                 Which means you don’t have it.

 

Bart:                 You don’t really have it.

 

Rick:                 Okay.

 

Bart:                 You just have the promise of what it will/will not do. That promise is only backed by the issuer of that, but the issuer, generally it’s a bank. The issuer gets to collect upfront fees of anywhere from one to four and a half percent. Plus, because it’s a complicated…

 

Rick:                 Four percent? That’s a good return just right there.

 

Bart:                 They collect, not you.

 

Rick:                 Oh, they are getting it. They’re getting it.

 

Bart:                 Your dollar just went to 96 cents.

 

Rick:                 Alright.

 

Bart:                 On top of that…

 

Rick:                 You mean if I put in $1,000 I’m not getting $1,000 from my investment?

 

Bart:                 On paper it looks like 1,000, but no. They’re collecting anywhere from one to four and a half percent.

 

Rick:                 Got it, okay.

 

Bart:                 On top of that, because it’s so complicated, they then also in their fees charge you to price it. The pricing, the promise.

 

Rick:                 I already know what the price is. I just paid it—

 

Bart:                 No, you know what you invested in. Yes, but it goes up and down, but only they know that because it doesn’t trade on the market. They get a fee for calculating that. Now, if you want out early, well, now that is going to cost you.

 

Rick:                 You need to be in for a certain amount of time.

 

Bart:                 Certain amount of time.

 

Rick:                 That’s given upfront and you know how much.

 

Bart:                 Right.

 

Rick:                 Okay.

 

Bart:                 Then at the… It’s a fee to get out early. Then when it’s time to get out, nothing actually really matured. They then create the market of what the get-out price is.

 

Rick:                 What is it based on?

 

Bart:                 Their promise to pay. Their promise to pay. When you hear the term ‘structured notes’ and the general theme is you participate in the market up to a certain level. If the market goes down, you’re protected to a certain level, but really, how is that possible?

Only by people using, companies using derivatives, putting it together and possibly selling or leveraging some of those same underlying investments in other products. The same investment might be utilized in multiple products at the same time, betting up or betting down. Who’s collecting the fee on that? Not you.

 

Rick:                 Got it. It is similar to what I was talking about my other favorite product being annuities that it’s very complicated. There are a lot of things going on at once. It’s difficult to explain to the actual end client what they’re actually getting.

 

Bart:                 Exactly.

 

Rick:                 There are a lot of promises being made as far as what they’re going to get, but it is only a promise.

 

Bart:                 The big fear is if things go bad, if things go really bad, how good is the promise?

 

Rick:  I guess that’s the risk that they’re taking. Well, thank you so much, Bart. I appreciate you explaining to us a little bit about those zero-commission trades that we’re all hearing about in the news all the time. Thank you for joining us.

SARAH SBRAGIA​

Sarah has been working at Southwest Investment Advisors since October of 2017.

Hers is the first friendly face you will encounter when visiting the office.

Sarah’s responsibilities include assisting clients with online access, processing account documents, scheduling meetings and assisting in all aspects of client services.

When she is not working here you may find Sarah on the shooting range serving as an assistant instructor and safety coach.

She has two children, son Zach is a graduate of the University of Arizona and daughter Paige who will graduate in 2019.

KATAYA PLETT​

Kataya has been with Southwest Investment Advisors since January of 2017.

She assists Alix with portfolio construction, rebalancing, and trading.

Kataya also plans our company’s client appreciation events and assists with the company website.

In her free time Kataya enjoys spending time with her family and her dog, traveling to new places, and getting involved with local events.

LACEY ROGERS​

Lacey has been with Southwest Investment Advisors since 2007 and has been the Operations Manager since 2012.

Her primary duties are assisting clients, assisting Advisors, processing paperwork, and working with our back office at LPL Financial.

When she’s not working she enjoys riding horses and spending time with her husband, Dustin, her two small children, and her dogs, Tebow and Ellie.

Lacey and her family really enjoy traveling, spending time outdoors, and watching her dad, Robert Wright, play the banjo.

ROBERT SCHANNEP​

Robert has been an Advisor since 2012 following in the footsteps of both his father and grandfather. He holds a Bachelor’s Degree in English Literature and graduated Summa cum Laude from BIOLA. After working several years in Social Services Robert has a distinct perspective when helping people create and manage their financial goals.

When Robert is not working, life is all about family. Along with his lovely wife, Robin, four beautiful children and their dog, he enjoys traveling in the family bus, which is always an adventure. He enjoys meditating, praying, journaling and plays the guitar daily to maintain his sanity!

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Licensing and Regulatory​:

Licenses: Series 7, Series 63, Series 31 held through LPL Financial and the Series 66 is held through LPL Financial and Southwest Investment Advisors

ROB WRIGHT​

Rob is an original co-founder, has been in the industry since 1994. He has degrees in English and Liberal Studies as well as a Teaching Certificate from California State San Bernardino.

Before becoming a Financial Advisor, Rob was a member of the New Christy Minstrels and he continues to perform with his banjos and other stringed instruments in concert as a member of the Wildcat Jazz Band throughout North America and as a guest artist with local symphonies and at various music festivals. Rob and his wife, Linda have one daughter and two grandchildren.

Rob has since retired and no longer has duties at Southwest Investment Advisors, Inc.

BART SCHANNEP

Original co-founder, Bart has worked as an Investment Advisor since 1983.  He was with Dean Witter/Morgan Stanley for fifteen years, serving as Branch Manager during the final four years, before moving to Piper Jaffray as Branch Manager for an additional three-and-a-half years before co-founding Southwest Investment Advisors.

In 2008, Bart become one of the first 200 professionals obtaining the industry’s newest designation, the Certified Wealth Strategist® designation, and administered by Cannon Financial Institute.

In May, 2010 Bart was selected for the distinction of Outstanding Advisor of the Year by Registered Rep Magazine, one of 10 financial advisors selected by the editors for 2010. From hundreds of nominees, the winning advisors have demonstrated both business success and leadership in serving as guides to other financial advisors and as active participants in community activities.

He is active in his church and served as President of the Board for Gospel Rescue Mission of Tucson from 2007 – 2010 and 2015 – 2018.  Bart also has served on the Board of Adjustments for the town of Oro Valley from 2002 – 2008.  Bart and his wife Marcella have three grown children and several grandchildren. Together they enjoy wine tasting, scuba diving, and travel.

Bart has since retired and has no responsibilities at Southwest Investment Advisors, Inc.

RICK ZICH

Rick is in charge of the managerial duties at Southwest Investment Advisors.  As a Financial Advisor, he meets with new and existing clients and helps with problem solving.

He has a Bachelors of Science in Business and Marketing from Purdue University and an MBA from the University of Phoenix. His past 20 years of business experience includes roles of Controller, CFO, and President of consumer goods companies with double digit growth for over a decade.  He and his wife own a local jewelry boutique, Trinity Diamonds.

Outside of the office, Rick enjoys keeping up with the latest in tech news, scuba diving, hiking, playing the electric bass guitar (well, trying to), and keeping the dogs happy with long walks.

Meet with Rick:

ALIX KUSLER

Alix’s primary roles in the team are portfolio management and client contact. She focuses on building and maintaining client relationships and reviewing and constructing portfolios that reflect clients’ individual goals.

Alix holds a BS in Business Administration from Pepperdine University, where she studied both in Malibu, California and Florence, Italy. She started with Southwest Investments in 2009 on the operational side of the business and has built her way to the sales side.

In 2014 Alix obtained one of the industry’s newest designations, the Certified Wealth Strategist® designation, administered by Cannon Financial Institute.

When she’s not in the office, Alix enjoys traveling and exercising with her husband Phil, singing at the Vineyard Christian Community, and meeting up for tea or a cold brew. She has a wonderful family and close group of friends and is excited to be a part of the team here at Southwest Investment Advisors.

Meet with Alix: