Advising my fiancee on her investments.

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Topic Author
slopecarver
Posts: 16
Joined: Fri Aug 02, 2013 7:28 am

Advising my fiancee on her investments.

Post by slopecarver »

My fiancee got a small windfall a few years ago and wasn't sure what to do with it. At the time she went to the local branch of her bank (PNC) and they set up an individual investment account for her. The fees are too high but I'm not sure how to actually calculate PNC's fees, they are well obfuscated, and show her that is is unwise to keep her money there. I can however see the individual funds, some of which I know are high fee based.
The funds in her account of various percentages are:
ARTQX ARTISAN MID CAP VALUE
JBGIX ABERDEEN TOTAL RETURN BOND FD CL I
DDVIX DELAWARE VALUE FUND INSTITUTIONAL
FTRBX FEDERATED TOTAL RETURN BOND IS
FFRIX FIDELITY ADVISOR FL RATE HIGH INC CL I
FVADX FRANKLIN SMALL CAP VALUE ADVISOR CLASS
HACAX HARBOR CAPITAL APPRECIAT INSTL
IBFFX AMERICAN INTERMEDIAT BOND FUND OF AMER F1
MWTIX METROPOLITAN WEST TOTAL RETURN CLASS I
OIGYX OPPENHEIMER INTL GROWTH FD Y
ODVYX OPPENHEIMER DEV MARKETS FD CLASS Y
RPMGX T ROWE PRICE MID CAP GROWTH
RYOHX ROYCE 100 FUND SERVICE CLASS
TGBAX TEMPLETON GLOBAL BOND ADVISOR CLASS
TIQIX TOUCHSTONE LARGE CAP GROWTH CL Y
WSHFX AMERICAN WASHINGTON MUTUAL INVESTORS F1

I've already set up a Roth IRA for her which is partially funded at the moment. She is 27, employed, makes decent money, no employer tax advantages investments offered. With a doctor size student loan (she is a DVM) I'm trying to convince her that a simple bogle 3 or 4 fund portfolio would be best for her rather than this.

Secondly, How would she actually transfer these from PNC to vanguard? Would she need her account numbers to enter in vanguard? I'll have her call vanguard and see.
Thirdly, Should any of this money be put in her partially funded Roth Ira?
Edit: pnc fees are somewhere between 1.4 and 1.7 percent annually according to my calculations which seems absurd. I'm still learning investing, I've laid out the 20, 40, and 60 year real returns, hopefully they will convince her.
Last edited by slopecarver on Wed Aug 28, 2013 4:08 pm, edited 1 time in total.
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BL
Posts: 9874
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Re: Advising my fiance on her investments.

Post by BL »

Try to get her interested in handling her own investments as that would be the biggest favor of all.
I suggest one of the recommended books here, I like Boglehead's Guide to Investing.

She should contact Vanguard to see about doing the direct transfer. I don't know if she would have to sell some first, but ask Vanguard.
Read about the 3-fund Portfolio in the Wiki. All she really needs is that: Total Stock Market, Total International, and either total bond or other fixed income. Perhaps someone here could advise on whether just a Life Strategy Moderate or Aggressive which contains those plus a small amount of international bond would be suitable in taxable if her tax bracket is low enough. I suspect that it would be a lot cheaper than where she is now, but I haven't done the numbers for tax costs, which she probably has now anyway.
Grt2bOutdoors
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Re: Advising my fiance on her investments.

Post by Grt2bOutdoors »

16 Funds?!!!!! Holy smokes, batman! What school of financial planning did or didn't PNC financial advisor attend? :oops:
List the er's and percentages of funds own and we can calculate how much in annual er she's paying. Then provide a comparison to a similar type portfolio from Vanguard. That ought to get the mind thinking.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Bennett47
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Joined: Wed Aug 28, 2013 3:16 pm

Re: Advising my fiancee on her investments.

Post by Bennett47 »

The funds you listed are "institutional" share classes, as indicated by the class I or class Y, etc. Typically an institutional share class has a minimum investment amount of $1 million into that fund. So...unless she invested well over $16 million....most likely what she has is a fee-based account. Sometimes referred to as a wrap account...or a managed money account.

So if that is the case...what sort of fee is she paying annually for the account? Is it 1%...1.25%....1.5%? I would bet it is in that range somewhere. You can figure it out based off of the statements...do you see a line item for the fee? It may be assessed monthly or quarterly. Her total costs would be that fee PLUS the underlying expense ratios on the funds. If she saved her original account opening paperwork then the fee should be very clearly listed there, on a form she signed.

So step one...figure out if this is indeed a fee-based account that is holding mutual funds. I suspect strongly that it is exactly that. At PNC their most prevalent fee-based account is called Capital Directions....see that anywhere on the statement?
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: Advising my fiancee on her investments.

Post by JW-Retired »

slopecarver wrote:
I've already set up a Roth IRA for her which is partially funded at the moment. She is 27, employed, makes decent money, no employer tax advantages investments offered. With a doctor size student loan (she is a DVM) I'm trying to convince her that a simple bogle 3 or 4 fund portfolio would be best for her rather than this.

Secondly, How would she actually transfer these from PNC to vanguard? Would she need her account numbers to enter in vanguard? I'll have her call vanguard and see.
Thirdly, Should any of this money be put in her partially funded Roth Ira?
Edit: PNC fees are somewhere between 1.4 and 1.7 percent annually according to my calculations which seems absurd. I'm still learning investing, I've laid out the 20, 40, and 60 year real returns, hopefully they will convince her.
I looked up a few of her fund ERs and got 0.7-1.0%. If there is a 0.75% AUM fee on top of that your "calculation" would seem pretty reasonable for total fees. You could use this calculator to show her what a 1.7% fee does to her windfall account growth over long times compared to a Vanguard-like 0.1% fee. http://www.buyupside.com/calculators/feesdec07.htm
At these fee differences over the 40 years her PNC account would grow to only about half of VG. The 16 fund hodgepodge of investments would probably slash it still more.

This is a taxable account so you need to be aware of cap gains tax effects before you decide what and when to sell. You said she has decent income. If she is in the 25% marginal tax bracket she would probably have to pay 15% + state tax rate on realized gains. Some states treat cap gains as ordinary income. IMO, the best course would be to move all the funds in-kind to a VG brokerage account and then she can take her time deciding when and what to sell. As soon as you get it out of PNC the AUM fee will disappear and expenses will be cut roughly in half as a start. Most funds probably have gains but some may have losses....... if so sell them right after the move and replace them with VG index funds, or use some of the cash to max out her contribution to the Roth. You will need the current cost basis of all the funds you sell to do your Schedule D taxes correctly. Be sure you get that data from PNC before you do anything. I think it will come over to VG with the assets but not 100% sure.

You will certainly need all the fund account numbers to move things to VG. Give Vanguard a call and they will instruct her what to do. Do not bother talking to the bank or PNC about this since they will have every reason to try to obstruct it. However, they can't. Vanguard will pull all the funds over to your new account with them. This kind of move to a new investment company is highly routine stuff that I and countless people here have done multiple times. Good luck with it.
JW
Last edited by JW-Retired on Wed Aug 28, 2013 6:38 pm, edited 1 time in total.
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Bennett47
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Re: Advising my fiancee on her investments.

Post by Bennett47 »

I now see your edit showing PNC fees of 1.4 to 1.7% which is on the higher end even among managed accounts like this...and of course she has that cost plus the underlying fund expenses. The other thing to know is how did she end up with these 16 funds. Two general scenarios....either (1) the advisor "built" this model meaning he or she actually selected these funds for the portfolio. Or...what is more likely...is that (2) the firm (PNC) chose these funds....meaning this is their "growth model" or whatever they may call it...and so your fiance was placed into the model that the advisor determined most closely matched her goals/risk tolerance, etc. But the advisor didn't actually select these funds...he or she sort of "checked the box" on the form indicating the model to be used. And then your fiance gets these funds because those are the ones in that model. My hunch is it is the second one, she is in a model, that PNC builds and manages....and the advisor probably isn't doing much at all here...other than checking the box to start and getting paid a percentage of that annual fee. I am not anti-advisor at all...but paying someone 1.5% on top of fund expense ratios...to "babysit" an account that is in a generic type model...is too much. And unfortunately all too common.
Topic Author
slopecarver
Posts: 16
Joined: Fri Aug 02, 2013 7:28 am

Re: Advising my fiancee on her investments.

Post by slopecarver »

Thanks for everyone's assistance. The windfall was only $25k but hey, it's $25k. It is true they just added her funds to one of their "model" investment accounts, she wasn't advised to put her money in these funds herself.

The total pnc fees were $712 over 1.68 years where it grew from $25k to $28.6K as of yesterday.
On the high end the fees are [712*(1/1.68)]/25,000 or 1.695%,
On the low end the fees are [712*(1/1.68)]/28,600 or 1.48%
The actual pnc fees should be somewhere between those I think depending on when the next fee is debited from her account.
The average of her E/R for the funds is .69% thus her total expense is somewhere from 2.17% to 2.385% compared to an average admiral 3 fund portfolio E/R of .1% she would lose thousands of dollars in the next few years.

I went over these with here along with the actual and real values at 40 years and she agreed, the way it is now is a horrible idea.
PNC 40yr Compound Interest $392,737.58
PNC 40yr Real Compound Interest $120,396.39
VG 40yr Compound Interest $1,795,841.99
VG 40yr Real Compound Interest $550,527.65
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: Advising my fiancee on her investments.

Post by JW-Retired »

slopecarver wrote: Thanks for everyone's assistance. The windfall was only $25k but hey, it's $25k. It is true they just added her funds to one of their "model" investment accounts, she wasn't advised to put her money in these funds herself.

The total pnc fees were $712 over 1.68 years where it grew from $25k to $28.6K as of yesterday.
The average of her E/R for the funds is .69% thus her total expense is somewhere from 2.17% to 2.385% compared to an average admiral 3 fund portfolio E/R of .1% she would lose thousands of dollars in the next few years.

I went over these with here along with the actual and real values at 40 years and she agreed, the way it is now is a horrible idea.
That's great, well done. Given the fairly modest growth (14%) the cap gains taxes won't be much of a burden. She might consider just liquidating everything at PNC before you move it to VG. That will leave all the cap gains tax info provision cleanly in PNC's court. On the other hand that might require talking to them. See what Vanguard says.

Not sure of the precise date she opened the account, but if she had put her $25k in VASGX (a simple 4-fund total stock/total international/US & International bond portfolio) on 12/31/2011, it would have given her 25% total return to date.
http://quote.morningstar.com/fund/chart ... ture=en-US (you have to type 12/31/2011 into the start date box, the link doesn't preserve that.)
So much for PNC's model portfolio. Horrible idea says it all. Usually it takes longer to become totally obvious Bogleheads have it right. :beer
JW
Last edited by JW-Retired on Thu Aug 29, 2013 9:34 am, edited 1 time in total.
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medt
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Re: Advising my fiancee on her investments.

Post by medt »

What interest rates does she pay on her student loans. Are they tax deductible?

She might be better off to consider paying off some of her student loans instead of investing.

She should make sure to fully fund Roth IRA.
sls239
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Re: Advising my fiancee on her investments.

Post by sls239 »

OK 1st things first -

Get rid of the AUM fee by transferring it in-kind.
Make sure all the dividends and distributions are set so they pay cash not "reinvest." Collect those and use them to help fund the roth.

Is she maxing out her 401(k)?

If not, then what I would suggest would be to max out the 401(K) using the best low-cost options available. Then she can make up the difference in her income by selling the assets she has in the taxable account. This basically means she can convert taxable assets to tax-deferred assets and move out of the high-cost options.

The other thing I would suggest is using the funds with bonds to pay down the student loan.
Topic Author
slopecarver
Posts: 16
Joined: Fri Aug 02, 2013 7:28 am

Re: Advising my fiancee on her investments.

Post by slopecarver »

She has no employer offered 401K.
She has a take home income of about 47k
She has 180K in school loans of which payments will be ~ $2.1k/mo
She has barely 1.5K in her roth ira
She has the PNC AUM account
Cost of living is dirt cheap in rural PA, a house is an additional part of her pay of which we are tenants with no rent, I take care of utilities so her cost of living is extremely small.

In the future I will put as much information as I can in the first post.
medt
Posts: 68
Joined: Wed Apr 06, 2011 5:58 pm

Re: Advising my fiancee on her investments.

Post by medt »

It appears that her take home pay is about $32-$3400 monthly and she pays $2100 toward student loans.

Do you know interest rates on her student loans?
As she can deduct only up to $2500 of interest per tax year she might want to pay off high interest student loans.

I would make sure that she maxes Roth IRA as she is in 15% tax bracket.

Only then, I would think about investing that money.
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