Financial advisor wants me to roll a 401(k) into an IRA?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 8:41 pm

My wife left her job about six years ago, leaving her $100k 401(k) in her employer's Fidelity-managed plan. Fees are low, and there are plenty of options to choose from.

We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

I'm a natural skeptic when it comes to money--I assume everyone's always out to get me. So naturally, I'm already assuming this is a scam. Surely my financial advisor fees plus TD fees will be more than the Fidelity fees alone, right? Or is this normal?
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Jack FFR1846 » Sun Mar 02, 2014 8:57 pm

Can she leave the 401k in place? My wife has a 401k from a job 14 years ago and it's still there with Fidelity. There is no management fee and the Vanguard Total Bond Fund has a lower rate than my rollover IRA account has for some reason. We're not moving it.

If she did want to move it, why not move it from Fidelity to Fidelity. This could be done on line or with a call to their 800 number. Go with spartan advantage index funds for a 3 fund portfolio and then you're done. I see no reason to fund some advisor's retirement account with management fees when you can absolutely do it yourself.

If you want to go with Vanguard, they have similar funds in their Admiral shares. They're also known for great service and invented low fee investing.
Jack FFR1846
 
Posts: 940
Joined: Tue Dec 31, 2013 8:05 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby tfb » Sun Mar 02, 2014 8:59 pm

TwoKidsOnePaycheck wrote:We recently hired a fee-only financial advisor. ... I'm a natural skeptic when it comes to money--I assume everyone's always out to get me.

So why did you hire this advisor? Hire one who doesn't manage your money or sell any product. You pay for advice. That's all.
Harry Sit, taking a break from the forums.
User avatar
tfb
 
Posts: 6685
Joined: Mon Feb 19, 2007 6:46 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Jack FFR1846 » Sun Mar 02, 2014 9:03 pm

I just opened up my spreadsheet so you can check the funds directly in your wife's 401k account.

spartan advantage bond index FSITX 0.1 er

spartan advantage international index FSIVX 0.12 er

spartan advantage total stock index FSTVX 0.05 er

Each requires $10k to get into the fund, which with $100k should not be a problem with just about any AA.
Jack FFR1846
 
Posts: 940
Joined: Tue Dec 31, 2013 8:05 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Twins Fan » Sun Mar 02, 2014 9:04 pm

Of course he does... he wants as many 1%'s as he can get. :D

Rolling it over to an IRA may not be a bad move, but doing so to take on those fees is a bad move. As mentioned, Vanguard or Fidelity would be good options and you can do it all on your own.... or, just leave it where it's at.

Hang out in here enough and your natural skeptic side is likely to think you don't need a financial advisor at all. :beer
Twins Fan
 
Posts: 1465
Joined: Fri Mar 08, 2013 2:02 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby dbr » Sun Mar 02, 2014 9:06 pm

What is the connection between this adviser and TDAmeritrade? Something smells about this or the man is just plain incompetent.
dbr
 
Posts: 14323
Joined: Sun Mar 04, 2007 10:50 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 9:13 pm

She doesn't have to move it. Nor have either of I thought about moving it. I have it invested three-fund style in Fidelity's funds. It can stay there as long as we'd like.

Jack FFR1846 wrote:Can she leave the 401k in place? My wife has a 401k from a job 14 years ago and it's still there with Fidelity. There is no management fee and the Vanguard Total Bond Fund has a lower rate than my rollover IRA account has for some reason. We're not moving it.

If she did want to move it, why not move it from Fidelity to Fidelity. This could be done on line or with a call to their 800 number. Go with spartan advantage index funds for a 3 fund portfolio and then you're done. I see no reason to fund some advisor's retirement account with management fees when you can absolutely do it yourself.

If you want to go with Vanguard, they have similar funds in their Admiral shares. They're also known for great service and invented low fee investing.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 9:18 pm

I'm paying him a fixed fee for 12 months of advice. Additionally, his firm can manage my investment funds through a TD Ameritrade account.

tfb wrote:
TwoKidsOnePaycheck wrote:We recently hired a fee-only financial advisor. ... I'm a natural skeptic when it comes to money--I assume everyone's always out to get me.

So why did you hire this advisor? Hire one who doesn't manage your money or sell any product. You pay for advice. That's all.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby livesoft » Sun Mar 02, 2014 9:19 pm

I will be blunt. You are wasting 1.35% of your portfolio every year. Folks say that in retirement, the sustained withdrawal rate is about 4% although some think it is lower. 1.35% out of 4% is a 34% tax on your portfolio usage. And that does not include the expense ratios on your funds.

Many folks get their average expense ratio below 0.15% and don't pay 1.35% on top of that.

So I see you are paying a fixed fee and not the 1.35%, so don't go that way. Presumably the fixed fee is less than 0.2% of the amounts involved. Example might be $2,000 to work up plan for a $1,000,000+ portfolio.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 34182
Joined: Thu Mar 01, 2007 9:00 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby JW Nearly Retired » Sun Mar 02, 2014 9:24 pm

TwoKidsOnePaycheck wrote:My wife left her job about six years ago, leaving her $100k 401(k) in her employer's Fidelity-managed plan. Fees are low, and there are plenty of options to choose from.

We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

I'm a natural skeptic when it comes to money--I assume everyone's always out to get me. So naturally, I'm already assuming this is a scam. Surely my financial advisor fees plus TD fees will be more than the Fidelity fees alone, right? Or is this normal?

This isn't exactly a scam but he is out to get you. This "advisor" is just doing what all such advisors do. Setting you up so he and TD Ameritrade will be draining off 25% or 50% of the money your investments might make. Surely you didn't expect him to look out for your interests over his did you?

Please leave it in the 401k until you have a good understanding about how this stuff works.
JW
Retired Summer 2013
JW Nearly Retired
 
Posts: 4055
Joined: Sun Dec 16, 2007 1:25 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby dbr » Sun Mar 02, 2014 9:26 pm

TwoKidsOnePaycheck wrote:I'm paying him a fixed fee for 12 months of advice. Additionally, his firm can manage my investment funds through a TD Ameritrade account.


In short his first move is to try to sell you something you don't want that takes your money and puts it in his pocket. Surely you can see there is a conflict of interest and that nothing this man suggests can be trusted.
dbr
 
Posts: 14323
Joined: Sun Mar 04, 2007 10:50 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 9:27 pm

This is exactly what I'm concerned about. The whole reason I wanted a "fee-only" advisor is so they had my best interests at heart. His suggestion that I establish my investment account, and roll our Roth IRAs and my wife's 401(k) all over to TD Ameritrade so they can manage it all at 1.35% does not seem to my advantage.

livesoft wrote:I will be blunt. You are wasting 1.35% of your portfolio every year. Folks say that in retirement, the sustained withdrawal rate is about 4% although some think it is lower. 1.35% out of 4% is a 34% tax on your portfolio usage. And that does not include the expense ratios on your funds.

Many folks get their average expense ratio below 0.15% and don't pay 1.35% on top of that.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby NorCalDad » Sun Mar 02, 2014 9:35 pm

Your instincts are good. Trust them. If that's your advisor's first move, maybe your first move should be out the door. I get that they have to make their money somehow, but it seems like you have enough financial knowledge that you can do without the advisor.
NorCalDad
 
Posts: 585
Joined: Mon Mar 26, 2012 12:14 am
Location: Northern California

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby dbr » Sun Mar 02, 2014 9:37 pm

TwoKidsOnePaycheck wrote:This is exactly what I'm concerned about. The whole reason I wanted a "fee-only" advisor is so they had my best interests at heart. His suggestion that I establish my investment account, and roll our Roth IRAs and my wife's 401(k) all over to TD Ameritrade so they can manage it all at 1.35% does not seem to my advantage.


You call this merely ". . . not seem to my advantage." ? :oops:
dbr
 
Posts: 14323
Joined: Sun Mar 04, 2007 10:50 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 9:51 pm

dbr wrote:
TwoKidsOnePaycheck wrote:This is exactly what I'm concerned about. The whole reason I wanted a "fee-only" advisor is so they had my best interests at heart. His suggestion that I establish my investment account, and roll our Roth IRAs and my wife's 401(k) all over to TD Ameritrade so they can manage it all at 1.35% does not seem to my advantage.


You call this merely ". . . not seem to my advantage." ? :oops:


Well, I was trying to overcompensate for my emotions right now by tempering my response. But I just put a hold on any rollovers until my advisor and I have a chance to talk further.

I ran every background check I could on this financial advisor and his firm. Everything checked out. Is it really considered "normal" for an advisor's first piece of advice to be so off-base?
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Twins Fan » Sun Mar 02, 2014 9:53 pm

The advice is not at all off base.... for them!! :D
Twins Fan
 
Posts: 1465
Joined: Fri Mar 08, 2013 2:02 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Twins Fan » Sun Mar 02, 2014 9:55 pm

OP, you seem pretty Bogleheadish talking three fund portfolio, thinking low fees, and being skeptical of this advisor stuff. You may have found the right place just in time. Seriously, hang out in here and read up, and you will probably see that you have no need for an advisor.
Twins Fan
 
Posts: 1465
Joined: Fri Mar 08, 2013 2:02 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Minty » Sun Mar 02, 2014 10:03 pm

In fairness to the advisor, there are people who do not have the ability or inclination to make their own investment decisions. For someone who is actively trading individual stocks based on tips or intuition, even someone who knows what they should do but does not do it, a 1.35 percent fee to get into a reasonable set of low-cost funds could be money well spent. And TD Ameritrade has a number of no-commission/transaction fee funds and ETFs. But I myself prefer to pay about a twentieth of that in expenses for my Fidelity and Vanguard funds.
Minty
 
Posts: 2
Joined: Sun Mar 24, 2013 4:19 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby dbr » Sun Mar 02, 2014 10:05 pm

TwoKidsOnePaycheck wrote:
dbr wrote:
TwoKidsOnePaycheck wrote:This is exactly what I'm concerned about. The whole reason I wanted a "fee-only" advisor is so they had my best interests at heart. His suggestion that I establish my investment account, and roll our Roth IRAs and my wife's 401(k) all over to TD Ameritrade so they can manage it all at 1.35% does not seem to my advantage.


You call this merely ". . . not seem to my advantage." ? :oops:


Well, I was trying to overcompensate for my emotions right now by tempering my response. But I just put a hold on any rollovers until my advisor and I have a chance to talk further.

I ran every background check I could on this financial advisor and his firm. Everything checked out. Is it really considered "normal" for an advisor's first piece of advice to be so off-base?


It is normal. It is the standard model in the industry. I can't defend the estimate exactly, but it might not be out of line to suggest that 99% of the people one would randomly identify as advisers would do exactly the same kind of thing this guy is doing. In fact their careers depend on it. There is nothing illegal about it and no grounds for an ethics or suitability complaint, so everything would check out. You have done well to suspect this is not in your interest.
dbr
 
Posts: 14323
Joined: Sun Mar 04, 2007 10:50 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Novine » Sun Mar 02, 2014 10:25 pm

I hope it's clear to you now that your "fee only" advisor isn't strictly fee only. He may be fee only for advice but he's directing you to take steps that directly benefit him and his firm on an ongoing basis. Really, it doesn't seem like there's much difference between this advisor and the salespeople at Merrill Lynch, Edward Jones, etc. You really need to ditch this guy but I would love to hear how he spins this into being a good move for you.
Last edited by Novine on Mon Mar 03, 2014 2:49 pm, edited 1 time in total.
Novine
 
Posts: 801
Joined: Mon Nov 17, 2008 10:07 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby cwied » Sun Mar 02, 2014 10:37 pm

He may just be assuming that you have no interest in managing your own money. To give him the benefit of doubt, just tell him you would like to do your own management and are not interested in paying "asset under management" (AUM) fees.

If his firm offers both services, he clearly would like to upsell you to the more expensive one. This doesn't necessarily mean his advice would otherwise be bad. Just make sure he doesn't have other conflicts of interest such as offering to sell you life insurance or annuities that he gets a commission on.
cwied
 
Posts: 17
Joined: Wed Aug 15, 2012 12:35 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Robert The Bruce » Sun Mar 02, 2014 10:41 pm

The laws / regulations for 401(k)s are different than those for IRAs. Just for the sake of diversity you should consider keeping it. If I try to list those differences, I will get them wrong but they have to do with access to stable value funds, ability to take out a loan, protection during bankruptcy and option to withdraw early.

Who's advising the advisor? (Dr. John) - I agree with what everybody else has said about this so called advisor.
The stone age didn't end for lack of stone.
User avatar
Robert The Bruce
 
Posts: 66
Joined: Fri Mar 16, 2007 8:49 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 10:45 pm

I asked him the other day why he thought moving the 401(k) was right for me. He cited a tale of corporate woe: a company went bankrupt, tying up employee's funds for years before they could access it. In his words, "you want to always be in control of your money." Not a great justification, I know.

I hired a financial advisor because I had no good role models in my youth who knew how to manage money. Grew up on welfare, with the bank foreclosing twice on my family's home. Nobody I knew "invested"--or even saved, for that matter. I'm now incredibly lucky--I make more than I could have ever dreamed of, and I want to finally break the cycle.

I hired an advisor because I don't know if I should be investing some of my emergency fund instead of it sitting there doing virtually nothing. I hired an advisor because I don't know if I'm investing in the right 529 plan for my children--or if I'm investing the right amount. I hired an advisor because I'd like to semi-retire at 55, and want to know if I'm on-course. And I hired an advisor because I overthink everything and I don't have months to research every financial decision I make--I'm indimidated that I'll make the wrong move, so I want to put those decisions in the hands of someone I can trust.

Looks like the only person I can trust to look out for my finances is the one typing this reply.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby livesoft » Sun Mar 02, 2014 10:50 pm

Mo' money, mo' problems.

What he says about 401(k)s has truly happened to some folks.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 34182
Joined: Thu Mar 01, 2007 9:00 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Jeff7 » Sun Mar 02, 2014 10:54 pm

Does this person work on his own, or does he work for a company?

If they've got a website, maybe they have some documents buried there concerning revenue sharing arrangements with mutual fund companies.
(And I'll emphasize "buried.")

So in such a case, this advisor's paycheck, or his manager's paycheck, would be indirectly improved by getting your assets into some of those profitable mutual funds.

For example, the company that handles the 401k plan where I work has a document that states:


LFA receives additional compensation, sometimes called revenue sharing, from many of these funds. These payments are paid out of the fund’s distributor’s, investment advisor’s or other fund affiliate’s assets, not from the fund’s assets and therefore would not appear as an item in a fund’s expense table. None of the payments received by LFA are paid or directed to any financial planner who sells these funds. In addition, LFA planners do not receive a greater or lesser commission for sales of mutual funds for which LFA receives these payments.

The mutual fund families that participate in the program described above are:

American Funds, JP Morgan, Columbia Investments, Lord Abbett, Delaware Investments, MFS, Fidelity Advisor Funds, OppenheimerFunds, Franklin Templeton, Pacific Life, Hartford, PIMCO, ING Annuity and Asset Sales, Principal Funds, Invesco, Putnam Investments, John Hancock, Sammons Financial

While the arrangement with each fund family may vary, each fund family may pay up to 25 basis points (0.25%) of the gross amount of each sale, and/or up to 5 basis points (0.05%) annually of the assets held at the fund family.


My own choice would be to roll over my 401k into an IRA (myself, an inexpensive one of my own choosing), and yes, for a reason you cite: Control over the assets. I'd also like to get that money out of the high-fee 401k plan as soon as I'd be able to; getting lower-cost options there seems unlikely. But getting the money into an IRA would mean that I'd eliminate more layers that insulate me from my money: My employer and the financial management/insurance company that sold the plan.
Last edited by Jeff7 on Mon Mar 03, 2014 12:04 am, edited 5 times in total.
Jeff7
 
Posts: 286
Joined: Sat Nov 24, 2012 3:30 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby placeholder » Sun Mar 02, 2014 10:54 pm

I'd ask for my money back because in my mind you didn't get what you paid for.
placeholder
 
Posts: 3137
Joined: Tue Aug 06, 2013 1:43 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Random Musings » Sun Mar 02, 2014 10:55 pm

Simply put, the advisor at 135 basis points (plus fund ER's to boot) will make it longer for you to achieve your financial goals versus your low cost 3-fund portfolio. He could take more risk to attempt to get higher returns, but you could do the same (for example, by small-value loading) at a lower cost.

Did you know that those 135 annual basis points of cost, if invested in low cost index funds year after year, will end up being larger than the $100K portfolio in under 40 years? That is the magic of compounding, but in this case, magical for the other side.

At the costs described, I would not utilize this advisor. You can do your own rollover very easily without his help.

The fixed fee is a sunk cost, absorb that pain and move on. Start reading the wiki. If you really want an advisor, there are more lower cost, ethical advisors out there.

RM
User avatar
Random Musings
 
Posts: 5035
Joined: Thu Feb 22, 2007 5:24 pm
Location: Pennsylvania

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby kerplunk » Sun Mar 02, 2014 11:01 pm

I'd say you could also trust most people on this forum. Most of us are here to altruistically share knowledge, advice, opinions, experiences and to learn.
kerplunk
 
Posts: 636
Joined: Sun Apr 17, 2011 10:58 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby pkcrafter » Sun Mar 02, 2014 11:16 pm

We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

You seem surprised. Didn't the FA tell you the fee and requirement to move funds? Advisors usually have a set-up with a particular brokerage where all their managed accounts are located. All of this should have been disclosed in the 1st meeting.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
pkcrafter
 
Posts: 8256
Joined: Sun Mar 04, 2007 1:19 pm
Location: CA

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby dbr » Sun Mar 02, 2014 11:23 pm

It could in fact make sense to roll over the 401K. There is some rationale for not leaving an "orphan" account at a former employer for decades as suggested. The right way to do that is to put the money in cost effective investments which means not paying a management fee to do it.

A 401K may be a very good one worth keeping or a very bad one that you should be glad to escape. It sounds like you have a good one.

There are differences between 410K's and IRA's. I would not be the one to write a dissertation on the issue. I think one thing to consider would be the conditions for rolling over to a Roth rather than a Trad IRA, and I am not very familiar with that.

Another difference which depends on the state is the relative immunity to non-bankruptcy liability judgements which might be an incentive for a person with a lot of money in a 401k in some states to not roll over. That probably does not affect you.

Another technical nuance which probably also does not affect you is the tax treatment of company stock in 401K plans under Net Unrealized Appreciation rules. These are just nuances that should be addressed in the general process.

As far as advisers, the Catch-22 is that for you to know enough to know if your adviser is any good, you will have to know enough that you could do the job yourself. That does not mean it makes no sense to hire a good adviser, but it does mean that the first step no matter what is self education.
dbr
 
Posts: 14323
Joined: Sun Mar 04, 2007 10:50 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby BL » Sun Mar 02, 2014 11:31 pm

I see various Wiki topics to the right of this page that would be worthwhile to look at.

Try Recommended Reading for some great books that will help you. I have only read the two Bogleheads books but the others come well recommended: http://www.bogleheads.org/RecommendedReading.php

See the three-fund portfolio (and links on the right for Lazy portfolios): http://www.bogleheads.org/wiki/Three-fund_portfolio
The wiki has all sorts of good stuff!

You sound very aware of things and can easily do this on your own. You can buy advice from Vanguard for around $250 or better yet, ask here using the format in Asking Questions, and you will get some excellent advice from seasoned contributors here who won't have a conflict of interest in what they are suggesting. Your odds of doing better on your own with a single fund such as Target Retirement or Life Strategy are much better than paying someone a portion of your portfolio and high ER rates on suggested multiple funds.
User avatar
BL
 
Posts: 2378
Joined: Sun Mar 01, 2009 3:28 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Sun Mar 02, 2014 11:36 pm

pkcrafter wrote:
We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

You seem surprised. Didn't the FA tell you the fee and requirement to move funds? Advisors usually have a set-up with a particular brokerage where all their managed accounts are located. All of this should have been disclosed in the 1st meeting.

Paul


To be fair, he did advise me of all of their fees immediately—and I recognized that I'd be paying those fees for my investment account. But perhaps I was naive in assuming that he wouldn't suggest moving my retirement accounts over to TD if it wasn't in my best interest. (You know, since I'm paying him for that advice.)
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Random Musings » Sun Mar 02, 2014 11:41 pm

TwoKidsOnePaycheck wrote:
pkcrafter wrote:
We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

You seem surprised. Didn't the FA tell you the fee and requirement to move funds? Advisors usually have a set-up with a particular brokerage where all their managed accounts are located. All of this should have been disclosed in the 1st meeting.

Paul


To be fair, he did advise me of all of their fees immediately—and I recognized that I'd be paying those fees for my investment account. But perhaps I was naive in assuming that he wouldn't suggest moving my retirement accounts over to TD if it wasn't in my best interest. (You know, since I'm paying him for that advice.)



The "fee only" and 135 basis point recommendation is quite a disconnect. Doesn't that make you question his advice?

RM
User avatar
Random Musings
 
Posts: 5035
Joined: Thu Feb 22, 2007 5:24 pm
Location: Pennsylvania

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby tj » Sun Mar 02, 2014 11:44 pm

TwoKidsOnePaycheck wrote:
pkcrafter wrote:
We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).

You seem surprised. Didn't the FA tell you the fee and requirement to move funds? Advisors usually have a set-up with a particular brokerage where all their managed accounts are located. All of this should have been disclosed in the 1st meeting.

Paul


To be fair, he did advise me of all of their fees immediately—and I recognized that I'd be paying those fees for my investment account. But perhaps I was naive in assuming that he wouldn't suggest moving my retirement accounts over to TD if it wasn't in my best interest. (You know, since I'm paying him for that advice.)



Just roll it over to Vanguard if you are concerned about the company going bankrupt.

The "fee only" and 135 basis point recommendation is quite a disconnect. Doesn't that make you question his advice?
fee only does not mean what most people think it means.
tj
 
Posts: 954
Joined: Thu Dec 24, 2009 1:10 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby BL » Sun Mar 02, 2014 11:48 pm

Vanguard has a 0% annual fee + a 0% custodial fee and mostly low-ER funds. Fidelity has the same, I believe, if you avoid their advisers, but stick to their Spartan Funds.

If I were looking for a fee-only adviser, I would expect a one-time fee and no AUM or 12b-1 kickbacks in high fund ERs, and no funds with loads. I would want a nice portfolio of a few low-cost index funds with ERs below 0.20%.

You might do a search for this company's name here or Google it along with Boglehead to see if anything comes up to read about. You can mention the company as someone here might have a better idea of what you are dealing with.
Last edited by BL on Mon Mar 03, 2014 12:54 am, edited 1 time in total.
User avatar
BL
 
Posts: 2378
Joined: Sun Mar 01, 2009 3:28 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby MikeDenver » Sun Mar 02, 2014 11:58 pm

Hi Twokids,
One thing to consider before you roll your wife's 401k into an IRA are the tax implications. Since she left her previous company, she would be able to take withdrawals without the 10% penalty at age 55, even though she go a job with a new employer. If she rolled it into a IRA, she would pay a 10% penalty if she made withdrawals before age 59 1/2, with certain exceptions, e.g. 72t substantially equal payments. If you anticipate needing to withdraw from her 401k before age 59 1/2, you may want to consider leaving the funds in the 401k, assuming the 401k offers decent funds. I believe what I'm saying is correct. You may want to search this board for 401k and IRA early withdrawals.
Mike
MikeDenver
 
Posts: 95
Joined: Wed Feb 18, 2009 3:28 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby cwied » Mon Mar 03, 2014 12:02 am

AFAIK, "fee-only" is generally recognized as being either AUM or fixed fee, with the former being more common.

However, he should not be getting commissions or other kickbacks. That's what the "fee-only" implies.

I don't think this guy is necessarily as evil as the impression you may get from this thread. However, it's clear that he is also looking out for his own interests. I think that people are thinking this guy may be like an Ameriprise "financial advisor" who is really a salesperson who gets hidden kickbacks and commissions for selling you certain financial products. There's no evidence in this thread that he's doing that, as far as I can tell.

I'll reiterate: just tell him you're not interested in his managing your portfolio. If he still suggests moving the 401k you can do it to your own rollover IRA at whichever firm you prefer. Since you're paying him a fixed fee, he should be willing to give you a roadmap on what to do that you can then follow yourself.
cwied
 
Posts: 17
Joined: Wed Aug 15, 2012 12:35 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Mon Mar 03, 2014 12:04 am

fee only does not mean what most people think it means.


Everything I read about "fee only" suggested an advisor who has a fiduciary duty to act in my self-interest. That seemed straightforward to me, which is why I looked for a NAPFA-listed advisor in my area. I first looked at a "fee-based" advisor, but the relationships he had seemed like too much of a conflict of interest.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby ogd » Mon Mar 03, 2014 12:10 am

TKOP: run away from this particular advisor. Not only are the fees very high, but the recommendation to roll over was a) made on mostly false premises and b) has a host of negative consequences that he apparently did not mention. See http://www.forbes.com/sites/financialfi ... to-an-ira/ , to which I would add the inability to do backdoor Roth contributions going forward.
User avatar
ogd
 
Posts: 2568
Joined: Fri Jun 15, 2012 12:43 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby TwoKidsOnePaycheck » Mon Mar 03, 2014 12:11 am

cwied wrote:AFAIK, "fee-only" is generally recognized as being either AUM or fixed fee, with the former being more common.

However, he should not be getting commissions or other kickbacks. That's what the "fee-only" implies.

I don't think this guy is necessarily as evil as the impression you may get from this thread. However, it's clear that he is also looking out for his own interests. I think that people are thinking this guy may be like an Ameriprise "financial advisor" who is really a salesperson who gets hidden kickbacks and commissions for selling you certain financial products. There's no evidence in this thread that he's doing that, as far as I can tell.

I'll reiterate: just tell him you're not interested in his managing your portfolio. If he still suggests moving the 401k you can do it to your own rollover IRA at whichever firm you prefer. Since you're paying him a fixed fee, he should be willing to give you a roadmap on what to do that you can then follow yourself.


Delving into his firm's documents (specifically, the "12b-1" that was referenced above), there was no evidence of any commissions.

This is great advice, all. Thanks for your help. I've asked him to hold off on any rollovers until we've had a chance to talk. I'll be sure and reply back here with the outcome.
TwoKidsOnePaycheck
 
Posts: 18
Joined: Sun Jan 20, 2013 2:08 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby tj » Mon Mar 03, 2014 12:12 am

TwoKidsOnePaycheck wrote:
fee only does not mean what most people think it means.


Everything I read about "fee only" suggested an advisor who has a fiduciary duty to act in my self-interest. That seemed straightforward to me, which is why I looked for a NAPFA-listed advisor in my area. I first looked at a "fee-based" advisor, but the relationships he had seemed like too much of a conflict of interest.


Fiduciary duty is a pretty loaded word. Obviously these people need to support themselves and nobody is going to work for free. You'll find some people who charge hourly rates, but they are very expensive horuly rates. You'll also find people who charge only 25 bps to manage the assets, but you need 7 figures to invest with them.

Would you be willing to use someone who does financial advising on the side and charges less, or would you think they are not as qualified?

It's a serious question as the barrier of entry for charging a fee for financial advice is high four-figures to low five figures and while I personally dig investing and enjoy helping people, I don't see how it could be viable as a career without lynching people...that's just my opinion, and it's why I haven't invested in an investment advice side biz. :-D
tj
 
Posts: 954
Joined: Thu Dec 24, 2009 1:10 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby JohnBevacqua » Mon Mar 03, 2014 12:32 am

I think you are getting some very good advice from the responses. This advisor is following the standard playbook for most financial advisors - the vast majority of "fee-only" advisors get compensated on a percentage of assets managed, so he/she isn't doing anything wrong or improper - I agree that financial advisors should be compensated for their time and the value of their advice, but I also feel that getting paid as a percentage of assets managed is not aligning the interests of the financial advisor with yours. For example, if your financial advisor is getting compensated on a percentage of assets and you ask them if tell him/her that you are going to pay off your mortgage I am sure that they are not going to be happy - and a financial advisor should not have their compensation negatively affected by a decision like this, but this is what happens and is an example of why it is a bad compensation model for an advisor. As stated by others, the 1.35% is a hefty charge, especially for what your primary concerns are.

Did you interview any other financial advisors before selecting this one? If not, you should probably back up and look around. I would also suggest looking for a fee-only advisor that is willing to work on a flat fee basis or on an hourly fee basis, hiring them to do exactly what you want them to do. You may have to look hard for these advisors, because they are a very small minority of the overall financial advisor community.
JohnBevacqua
 
Posts: 4
Joined: Sat Nov 24, 2012 11:58 am
Location: New York

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby stilts1007 » Mon Mar 03, 2014 1:02 am

TwoKidsOnePaycheck wrote:Looks like the only person I can trust to look out for my finances is the one typing this reply.


My early experiences in adulthood with financial advisor-type people is similar to yours, I got very little education or advice on the subject at home or in school, and the first few interactions I had with professional "advisors" were in hindsight more like sales pitches for whatever they were selling me at the time. At the end of the day, they had their best interests, not mine, in mind.

For some people, a 1.35% annual fee may be worth it for the piece of mind of not having to deal with any of it. Based on what you have said so far it seems like you are not one of those people. In the last year I have gone from being more or less clueless about everything investment-related to being really pretty knowledgeable on the subject, and in large part I have the Bogleheads community to thank for that.

If you are pretty new to the site I would suggest looking over some basics on the Wiki and the Recommended Reading page (I found The Bogleheads' Guide to Investing to be especially straightforward, informative, and easy-to-understand). It sounds like with a little (free, unbiased) help you could be on your way to having the knowledge and skills to "break the cycle" as you say. Know that you can always look to the community here for help whenever you have a question.
User avatar
stilts1007
 
Posts: 88
Joined: Fri Jan 25, 2013 1:46 pm
Location: Chicago IL

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby scubadiver » Mon Mar 03, 2014 10:02 am

We recently hired a fee-only financial advisor. His first move is to suggest we move it over to a TD Ameritrade IRA account that they manage at a 1% annual fee (plus a .35% TD custodial fee).


There is no way the I would EVER pay a 1.35% annual fee. Whether you choose to roll it over or not is another question and I think others have commented to that effect. If I did do a rollover, I would look at Vanguard or similar firm.

For benchmarking purposes, consider that my wife and I have an overall portfolio expense ratio of 0.08%. My rollover IRA at Vanguard, which accounts for about 1/3 of our portfolio, is a significant contributor to the maintenance of that very low expense ratio.
Last edited by scubadiver on Mon Mar 03, 2014 10:33 pm, edited 1 time in total.
User avatar
scubadiver
 
Posts: 740
Joined: Sun May 04, 2008 10:48 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Mr Rosco » Mon Mar 03, 2014 10:20 am

I was recently in nearly the exact same scenario. I too was skeptical about the fees but I also liked my adviser. He suggested I roll over my wife's 401k Fidelity into their account. I knew there was going to be fees but in a way I felt I owed it to him for his advice, even though I was skeptical. Luckily rolling it over turned out to be a pain and drug our feet long enough to not follow through with it.

I kept asking him about the fees over the next year. He told me it was 1.35%. I did not like it but I did not really know what that meant.

Then I found this site. And it soon became very clear what a 1.35% fee really meant when I put some numbers in this calculator: http://401kfee.com/how-much-are-high-fees-costing-you/

If you use an allocation of 75% stock and 25% bonds with the three Spartan funds you listed will have a fee of about 0.09%. Assuming a return of 6.5% on a $100,000 starting balance over a twenty year period period, the higher 1.35% fee will cost you $80,000 if the returns are equal.

For myself that is what I needed to see to realize how much these fees can be a drag on your returns.

You will be amazed by how much knowledge you will gain if you spend an hour a week reading the bogleheads wiki and searching through the forums.

Good luck!
Mr Rosco
 
Posts: 22
Joined: Thu Nov 28, 2013 9:24 am

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby ruralavalon » Mon Mar 03, 2014 10:57 am

1. Ditch this advisor. EDIT 1% AUM is way to much to manage an index fund based portfolio, you can do it yourself. And what in the world is the "custodial fee" anyway?

2. If you don't want to keep the 401k where is is for some reason, then roll it over to Vanguard or roll it over to Fidelity and use their low expense Spartan funds.

3. Read one or two of the General Investing books listed here: link . You can do this yourself, without paying any extra unnecessary fee.
Last edited by ruralavalon on Mon Mar 03, 2014 7:00 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
ruralavalon
 
Posts: 4997
Joined: Sat Feb 02, 2008 11:29 am
Location: Illinois

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby JW Nearly Retired » Mon Mar 03, 2014 11:07 am

This is my favorite calculator showing how much hefty annual fees like 1.35% end up costing you over time. http://www.buyupside.com/calculators/feesdec07.htm

For example, if your investments would have averaged a 6% return before fees, then over a 30 year period the 1.35% fee will have reduced your 401k rollover portfolio by 1/3rd. :oops:

If this is worth the "peace-of-mind" you feel because you have this advisor in the loop then we probably can't help you.
JW
Retired Summer 2013
JW Nearly Retired
 
Posts: 4055
Joined: Sun Dec 16, 2007 1:25 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby Twins Fan » Mon Mar 03, 2014 2:12 pm

This thread is a good reminder of the age old question.... "Where are the customers yachts?"... :D
Twins Fan
 
Posts: 1465
Joined: Fri Mar 08, 2013 2:02 pm

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby pkcrafter » Mon Mar 03, 2014 2:46 pm

There would be no surprise or discussion if the advisor's fee was 1%; it's the added 0.35% that is the issue. Advisors have a relationship with the brokerage and they use one exclusively, but I had not ever heard of a "custodial" fee before. It makes me wonder if many advisors and/or brokerages simply do not mention it. It seems totally unnecessary, although an advisor may get funds with transaction fees or loads without paying those fees.

Anyone know if other brokerages such as Schwab also charge this custodial fee for advisor-maintained accounts?

TKOP, do you know what particular funds your advisor is/was going to suggest?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
pkcrafter
 
Posts: 8256
Joined: Sun Mar 04, 2007 1:19 pm
Location: CA

Re: Financial advisor wants me to roll a 401(k) into an IRA?

Postby rotorhead » Mon Mar 03, 2014 10:12 pm

TwoKidsOnePayCheck, leave your wife's 401k where it is until you have had time to do much more research; and decide the best course of action. You've been given some good advice here.

No need to pay all those fees. I am retired from Fortune 50 company, and left my Fidelity managed 401k in place for more than 5 years after retirement because of the good selection of low cost Fidelity Funds, and the Stable Value Fund that was available. SVF is great place to put money when you are undecided about bonds or CD's, etc.

I am long term USAA member, and during the interval I did engage USAA advisors to perform a review and recommend a plan. They were pretty good; didn't try to sell me anything, but in reality it was just common sense. Cost us about $900; but in the end I figured out I could do it myself just as well. In the meantime I discovered this forum; and haven't looked back since. Eventually moved USAA funds to Vanguard.

When my company changed 401k fund management from Fidelity to Hewitt, I didn't care for the way things were being set up; so I rolled over to Fidelity IRA. Was a completely seamless exercise; and I've been very pleased with the service. Fidelity Spartan funds are very good. My wife's Rollover IRA is with Vanguard; and they are as good as it gets. Our total portfolio ER is 0.15, and it wouldn't be that high except we are in Fidelity Total Bond Fund (FTBFX) with ER of 0.45. Don't care for the ER, but the fund has been a good performer.

Take your time, and seek your own counsel. Lots of great, free advice on this forum. Use it.
rotorhead
 
Posts: 260
Joined: Wed Mar 17, 2010 4:59 pm
Location: Florida

Next

Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: bluejello, Drifting Along, jdb, jwvanhoven, LongerPrimer, nwffdiver, Professor Emeritus, sfnerd, Steelersfan, Yahoo [Bot] and 60 guests