For more visit: A Professional’s View of Ray Lucia’s Non-Traded REITs

Investor and local radio talk show host Ray “Buckets of Money” Lucia has threatened to sue me for $300,000 for defamation over a blog post I wrote last month.

Robert K. Butterfield, a San Diego attorney, is outraged that I dared to besmirch the good name of Raymond J. Lucia, who dispenses financial wisdom on a daily radio show in several big media markets. This is after all the same man actor Ben Stein recently described in an opinion piece in The New York Times as a “stock guru.”

Attorney Butterfield insists that I must stop pointing out Lucia’s relationship to San Diego-based First Allied Securities, which recently agreed to pay nearly $2 million to settle U.S. Securities and Exchange Commission charges that it failed to supervise one of its employees.

He also demands that I never again repeat the blasphemy that fees for Lucia account run as high as 2 percent, paid quarterly in advance. (Lucia Defamation Threat Letter)

Your statement that Mr. Lucia’s company has never charged a management fee of 2% is completely false and another intentional malicious act. His company has never charged a management fee of over 1% even though they have the ability to charge up to 2% — but you did not bother to check this — did you?

Even though Lucia’s own SEC disclosure plainly states “The standard annual managed fees for RJL [Raymond J. Lucia] Adviser Directed accounts are 2 percent,” Attorney Butterfield has a point. Fees for one “wealth management” program pushed by Lucia actually run as high as 2.9 percent

That is an eye-popping number. It’s about half of the compound rate of return of the Dow Jones Industrial Average for the past 50 years. That fee is assessed on the entire value of whatever you invest with Lucia, even if he loses money. It makes me wonder whose wealth is really being “managed” here.

This fee information comes from Lucia’s own mandatory SEC filing of February 2010. (Click here to read Lucia’s SEC Form Adv II.)

In a follow up e-mail, Butterfield had the temerity to insist that I disregard what the SEC filing says:

And Ray has never charged 2%. Or anything over 1% as an advisory fee. The SEC filing is a routine one and most investment advisors have similar statements. Such statements just mean someone is authorized to charge such a fee. The fact it is authorized under SEC filings does not mean he ever does. In fact is not it admirable that he could have charged 2% but never did??

It just doesn’t make sense that someone would disclose a standard fee that customers are never charged.

I asked Chicago attorney Andrew Stoltmann about this. Stoltmann is both a securities lawyer and a registered investment advisor like Lucia. Here’s what Stoltmann had to say: “Usually registered investment advisors disclose the amount they charge or a range they charge. This tends to be common practice.”

Stoltmann has been warning about the kinds of accounts marketed by Lucia known as “wrap” accounts, which charge one all-inclusive fee.

According to Stoltmann, these fee-based accounts are being marketed to retirees and seniors who don’t realize that they are getting gouged. As he wrote in a March 31 post on his website, investmentfraud.pro:

Unfortunately, financial advisors tend to jam clients into wrap fee accounts who are buy and hold investors and therefore not profitable. Often, the wrap accounts are nothing more than a fee grab by unscrupulous stockbrokers and financial advisors. If a client is buying and holding stocks or bonds (what virtually every client should do) it is extremely frustrating for the broker and brokerage firm.

This is where Lucia comes in.

Lucia’s “Buckets of Money” retirement strategy is little more than a teaser, according to his SEC disclosure. His clients typically don’t have to pay to hear the Buckets spiel. This advice is free to clients “that anticipate establishing an on-going asset management arrangement” with him and the folks he represents.

Lucia’s own buckets get filled with money — your money — when he gets you to sign up for accounts that are managed by Chicago-based companies.

Lucia gets a cut of the fees these companies charge. His cut does not exceed 1 percent (this may be what Butterfield is referring to.)

Lucia’s “policy,” as he described it to the SEC, is to recommend either:

• the RJL Wrap Fee Program or
• the RJL Wealth Management Program.

The RJL Wrap Fee Program

The “sample” fee schedule for the RJL Wrap Fee Program is as follows:

On the amount up to $250,000	2%
On the next amount from $250,000 to $750,000	1.85%
On the next amount from $750,000 to $2,000,000	1.70%
On the next amount over $2,000,000	Negotiable

The RJL Wrap Fee Program is comprised of four different strategies. Raymond J. Lucia Cos. Inc. runs one. The rest are run by Advanced Equities in Chicago — not Lucia.

Advanced Equities serves as “portfolio manager” with “discretionary authority.” That means Advanced Equities — not Lucia — will have control over your money and can buy and sell the investments in your nest egg without consulting you first.

Advanced Equities indirectly owns First Allied Securities, the San Diego firm that was the subject of the SEC complaint mentioned earlier. Advanced Equities also was the subject of a 2008 story in Forbes magazine. The story quoted an anonymous AE employee describing the company as a “prototypical bucket shop.”

The Forbes story notes: “AE has gone so far as to file defamation suits against two attorneys who represented angry clients.”

RJL Wealth Management Program

The program that Lucia markets to clients as the RJL Wealth Management Program is actually run by another Chicago-based firm called Envestnet Asset Management Inc.

The minimum account in the wealth management program is $100,000.

From Lucia’s SEC disclosure:

The maximum fee charged for Accounts that maintain equity stock as Program assets shall not exceed 2.9% annually or 2.65% annually for Accounts that maintain only mutual fund Program assets.(emphasis added)

The fee is deducted automatically, beginning on the day after you put money in the account.

This is not a wrap account because even this astronomically high 2.9 percent maximum doesn’t mean that clients won’t still have to open up their wallets for more:

Other costs that may be assessed to a client, and that are not part of the [RJL Wealth Management] Program fee, include fees for portfolio transactions executed away from Fidelity, IRA and qualified retirement plan charges, dealer mark-ups, electronic fund and wire transfer fees, market maker spreads, exchange fees and broker/dealer fees, among others. Mutual funds, exchange traded funds (“ETFs”), and alternative investments may charge their own fees (such as 12(b)-1 fees and surrender charges) for investing the pool of assets in the respective investment vehicle.

This is known as death by a thousand cuts.

It’s a real fee bonanza. Yet Lucia keeps his hands clean because because he is little more than a pitchman for these high-fee accounts. The Chicago companies deal with the complaints.

The moral of the story: If you take Lucia’s advice, you may someday find that one of your buckets has a hole in it.