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

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

Post by TwoKidsOnePaycheck »

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

Paul
Paul-- Don't have exact funds yet, but it's a combination of US and international sustainable and small value stocks, emerging markets, real estate, commodities, and US, global, inflation protected, and mortgage bonds. He was suggesting a 70/30 breakdown on retirement rollovers (wife's 401k and our Roths), and a 80/20 breakdown on investment accounts--both based on our risk tolerance.
Novine
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Novine »

If I'm understanding this correctly, this should be another red flag. Your various accounts should be treated as a unified portfolio with the best funds available in each account used to meet your AA. But that doesn't sound like what the advisor was suggesting. Also, this is the first I've heard of anyone having one AA for retirement accounts and another for investment accounts.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by White Coat Investor »

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?
1.35%? You need a new advisor. Not only are you getting bad advice, but you're not getting it at a good price.
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sport
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by sport »

If/when you decide to roll over a 401k plan into an IRA, be sure to do it as a direct trustee-to-trustee transfer. If you take possession of the money during the transfer, the 401k plan is required to withhold 20% of the money for income taxes. However, this amount is also considered a taxable withdrawal from the account, unless you replace it with other money. The direct transfer method avoids this concern.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Saving$ »

1. Don't do it. DO NOT.
2. Fire this advisor.
3. Don't roll an IRA from a good 401k - it will make a backdoor Roth more difficult
4. Read here. You are smart enough to figure this out. Think of it like this. You are going to pay this advisor and every time he gives you advice, you are going to research if it is correct (to be sure you don't make a mistake) then struggle with you go with the advice here or what the advisor wants you to do. Leave this struggle behind. Just do your own research for each of the questions you posted.
SGM
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by SGM »

It seems to me that many advisors are attempting to confuse the public in terms of fees. An hourly fee only advisor, although expensive, would be the only way I would pay for advice if I needed it. Charging continuously for assets under management is a drag on returns. A 1% fee on top of expense ratios of mutual funds will cost you hundreds of thousands of dollars over a life time. Some advisors will put you in higher cost funds for which they receive some compensation. These can be expensive lessons. Some people never learn.

Stick with low cost index funds. Compare your costs to Vanguards total bond, total stock market and total international funds Admiral shares, and if your costs are higher than those expense ratios then you are supporting someone else's life style.

Buffet put his wife's trust into 10% short term bond funds and 90% Vanguard's 500 index fund which has an ER of .05%.
Topic Author
TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

Update: I spoke with my advisor about my fee concerns, and he was understanding. He told me many of their clients use them for both financial planning and asset management, but whether I use them for one, the other, or both will not affect the working relationship in any way.

In justifying their asset under management fees, he outlined a few reasons to go with them (I won't go into all the details, so apologies if this is over-simplified):
- Part of it is returns, of course.
- They also broadly diversify in some of the categories I mention earlier in the thread like small cap funds with a value tilt, following the strategies of Eugene Fama.
- They look at the balance of assets twice a week.
- Their management helps protect clients from making emotional decisions (not a concern of mine) or helps clients who only rebalance one a year or two and take their hands of the wheel (something I'm certainly guilty of).

It certainly wasn't a hard sell. And he told me whether I go with them, keep it with Fidelity, or move it to Vanguard, at the very least I should shift it out of my wife's old 401(k) to an IRA, so I feel I'm still getting solid advice.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Jack FFR1846 »

If YOU want to tilt, you can do that without a lot of complicated work. I like to tilt towards S&P 500 in the US and towards developed markets internationally. What do I do? Easy....total stock index fund and then some into an S&P 500 index fund. Overlap? Yes. That's what I want. International, I have total international (fidelity index) and global ex (double the holdings, more developing). As I've learned more, I'll get out of the global ex. But between the 2 funds, you could hold overlapping investments with a tilt as YOU want it.

Is your wife's 401k full of only bad options? If not, why move it?

Do you really need someone looking at the balance twice a week? Maybe twice a quarter. You can do it once a quarter, rebalance and move on.
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JW-Retired
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by JW-Retired »

TwoKidsOnePaycheck wrote:
It certainly wasn't a hard sell. And he told me whether I go with them, keep it with Fidelity, or move it to Vanguard, at the very least I should shift it out of my wife's old 401(k) to an IRA, so I feel I'm still getting solid advice.
Even that is not always solid advice. There can be very good reasons not to roll over the old 401k. Did he cover those to see if they might apply to you?

His justifications for the fees are worthless blather.
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BL
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by BL »

Their management helps protect clients from making emotional decisions (not a concern of mine)
This looks like the only advantage that some people have by using an adviser. Since you say you don't need it (panic selling), I can't imagine any advantage other than sticking your head in the sand and "hoping for the best". This certainly does not work to your advantage. You could pick the 3-fund portfolio or target/Life Strategy one-fund investments and do much better than throwing it away at an adviser who really can't do better for you after you subtract the huge cost you will pay. If at some time you want to tilt to small or Reit funds, just add a fund. In Vanguard it is no cost and very simple. Why not put together your information in Laura's Asking Questions and see what the folks here advise? It won't cost you anything and if you look for seasoned advice (from Laura, for example) you may have some excellent advice. Spending ~$250 at Vanguard would be a reasonable second opinion as IIRC they are not working on commission so also don't have conflict of interest.

Anyway, whatever you decide, best of luck!

PBS has done some programs on retirement that you might find useful. Here is a quick PowerPoint type one on how costs add up:
http://www.pbs.org/wgbh/pages/frontline ... -cost-you/
Jeff7
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Jeff7 »

JW Nearly Retired wrote:
TwoKidsOnePaycheck wrote:
It certainly wasn't a hard sell. And he told me whether I go with them, keep it with Fidelity, or move it to Vanguard, at the very least I should shift it out of my wife's old 401(k) to an IRA, so I feel I'm still getting solid advice.
Even that is not always solid advice. There can be very good reasons not to roll over the old 401k. Did he cover those to see if they might apply to you?

His justifications for the fees are worthless blather.
JW
I would guess that any decent salesman is going to have some tactics or canned answers in mind to answer the question of, "Why is your <product/service> priced the way it is?"
Last edited by Jeff7 on Fri Mar 07, 2014 9:12 am, edited 1 time in total.
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Random Musings
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Random Musings »

TwoKidsOnePaycheck wrote:Update: I spoke with my advisor about my fee concerns, and he was understanding. He told me many of their clients use them for both financial planning and asset management, but whether I use them for one, the other, or both will not affect the working relationship in any way.

In justifying their asset under management fees, he outlined a few reasons to go with them (I won't go into all the details, so apologies if this is over-simplified):
- Part of it is returns, of course.
- They also broadly diversify in some of the categories I mention earlier in the thread like small cap funds with a value tilt, following the strategies of Eugene Fama.
- They look at the balance of assets twice a week.
- Their management helps protect clients from making emotional decisions (not a concern of mine) or helps clients who only rebalance one a year or two and take their hands of the wheel (something I'm certainly guilty of).

It certainly wasn't a hard sell. And he told me whether I go with them, keep it with Fidelity, or move it to Vanguard, at the very least I should shift it out of my wife's old 401(k) to an IRA, so I feel I'm still getting solid advice.
Bogleheads can lead a horse to water..........

Good luck with that 1.35%. It's going to chew up a lot of your net worth.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
Topic Author
TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

Random Musings wrote:
TwoKidsOnePaycheck wrote:
Bogleheads can lead a horse to water..........

Good luck with that 1.35%. It's going to chew up a lot of your net worth.

RM
Obviously 1.35% is too much to pay to have someone manage my assets. I get that now, and thanks for all the advice of everyone in this thread. It was very educational, and prevented me from making a bad financial decision. I appreciate the education.
llessac15
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by llessac15 »

If it makes you feel better, as I was trying to roll my old 401k into my new 401k, the first advice I got from an advisor was to roll my old 401k into a Roth IRA with his company and just use the funds in the 401k to pay the tax bill. He didn't even realize he was about to cost me a 10% penalty for using my 401k funds early!

A couple weeks later after I said 'No!' to his Roth idea, he advised me to just roll it into a traditional IRA with his company and use an actively managed fund for the investment. When I told him that will kill my backdoor Roth conversions that I plan to do each year because of the pro-rata rule, he said there was no such thing!

I then abruptly moved my money from his control into my current 401k! Thank God I had an intelligent accountant to guide me through the horrible advice I was getting.
jasper
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by jasper »

all good advice above. i made a similar mistake years ago with a FA I am no longer working with and now doing it on my owm

keep reading and learning. my only additional advice to what you got above:

you already paid him for the year. get your money worth. you have questions (you stated above) about your emergency fund, 529 funding, potential early semi-retirement and if you are on goal, etc

ask him about all these issues. it will be helpful. (reading this forum regularly will be immensely helpful to you as well).

just don't roll over any money to him or let him manage anything. but advice on the "planning" aspect (not investing) is already paid for, so hit him up
likegarden
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by likegarden »

Here is another vote for not doing THAT rollover. Right now the 401k does cost you about nothing, in that IRA under their control it will cost you, plus they probably will add other costs lateron.

Rolling over a 401k into an IRA - in my case- was great. I consolidated all our IRAs at Vanguard and sold company stock with proceeds ending up at Vanguard in a taxable account. All that is now in low cost funds at V, costing me about nothing.
TN_INVEST
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TN_INVEST »

TwoKidsOnePaycheck wrote: 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?
1. Not a scam
2. Most likely, his fee + investment fee will be higher than the Fidelity 401k. (You need to look at value, not cost. Ask him what value he'll provide for that fee)
3. Fairly normal for an advisor to want to get paid for their services. You have to ask yourself do find value in that sort of thing? Nobody but you can answer that question


You are the low cost provider of financial services. If all you want is low cost, then you are the man for the job. If you want more, you'll have to pay more (to somebody or to something). Everybody is different.
Dandy
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Dandy »

The fee only advisor was not fee only. Not a hard decision: Stay with Fidelity with lots of choices and low cost or move to the advisor managing that money for 1%. Low cost, lots of choices, Fidelity - why move.
TN_INVEST
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TN_INVEST »

TwoKidsOnePaycheck wrote: We recently hired a fee-only financial advisor.
What did you hire him to do for you?

It's kinda like hiring a CPA to save money on taxes. They don't create tax breaks, so there's very little value they can add in that regard. And yet, they do add value to millions of folks. Financial advisors are kinda the same. They add very little value in terms of finding "superior" investments. The question is whether their other services are of value to you (Only you know if they are of value to you, because: 1. what are you seeking?, 2. what are they providing?)
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by ruralavalon »

TwoKidsOnePaycheck wrote: Obviously 1.35% is too much to pay to have someone manage my assets. I get that now, and thanks for all the advice of everyone in this thread. It was very educational, and prevented me from making a bad financial decision. I appreciate the education.

I am glad you got that :) , paying those 1.35% annual fees would have been very harmful to your investment returns, and very damaging to your long term accumulation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

Turns out I misspoke slightly. My advisor charges the stadard 1% AUM fee, and TD Ameritrade charges a .25% custodial fee (not .35% as I originally mentioned). The advisor would be investing in 15 various funds, 10 of them being Dimensional Fund Advisor (DFA) funds.

I've seen some other threads here (like http://www.bogleheads.org/forum/viewtop ... 1&t=113380 ) debating the performance of DFA funds vs. Vanguard, with the advice leaning toward DFA not being worth it if you have to pay 1% of your portfolio value to access them—so I imagine the recommendation toward vanguard becomes even stronger at 1.25%, but I wanted to lay it out there in the interest of accuracy and in case it changes the conversation in any way.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Laura »

If you have a million dollar portfolio that 1.25% will cost you $12,500 each year. If you put the same million into Vanguard and have a .10 ER that will be a cost of $1000. Is this worth another $11,500 each year. If that extra $11,500 annual charge was left in your account to grow for 20 years at 5% return it will be worth $251,833 which represents an additional $10k in income you can take from your portfolio. Are the services worth this much money? Since no extra return is guaranteed by the advisor I would stick with the guaranteed benefit of the lower costs.

Also, the advice to rollover the old 401k can be very bad advice depending on your personal situation. If this was not discussed at length then the recommendation isn't necessarily the right one for your situation.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Twins Fan
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Twins Fan »

I'm pretty sure no one is going to change their mind and say go for it now. :D
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by tfb »

TwoKidsOnePaycheck wrote:Turns out I misspoke slightly. My advisor charges the stadard 1% AUM fee, and TD Ameritrade charges a .25% custodial fee (not .35% as I originally mentioned). The advisor would be investing in 15 various funds, 10 of them being Dimensional Fund Advisor (DFA) funds.
If you still want an advisor you can get one from Vanguard at 0.3%. Do it for a year or two. When you are confident enough, you can stop and continue on your own.

http://www.bogleheads.org/blog/vanguard ... ices-vpas/
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SimpleFund
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by SimpleFund »

kerplunk wrote: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.
I would strongly agree with this. This is a great forum and resource for those who want to learn and share.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by pkcrafter »

TwoKidsOnePaycheck wrote:Turns out I misspoke slightly. My advisor charges the stadard 1% AUM fee, and TD Ameritrade charges a .25% custodial fee (not .35% as I originally mentioned). The advisor would be investing in 15 various funds, 10 of them being Dimensional Fund Advisor (DFA) funds.

I've seen some other threads here (like http://www.bogleheads.org/forum/viewtop ... 1&t=113380 ) debating the performance of DFA funds vs. Vanguard, with the advice leaning toward DFA not being worth it if you have to pay 1% of your portfolio value to access them—so I imagine the recommendation toward vanguard becomes even stronger at 1.25%, but I wanted to lay it out there in the interest of accuracy and in case it changes the conversation in any way.
The fact is using DFA funds is a lot better than using most other funds. The 1% advisory fee is pretty much standard. The additional 0.25% custodial fee is simply irritating. All things considered, if you really feel you need an advisor, you could do far worse. My personal view is Vanguard funds are a better deal, so it would be my opinion that if you can find an advisor who uses Vanguard funds with no additional 0.25% charge, you'd be a little better off. But I have to qualify this with the notation that many investors would disagree with my opinion of DFA funds.

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

Post by scubadiver »

SimpleFund wrote:
kerplunk wrote: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.
I would strongly agree with this. This is a great forum and resource for those who want to learn and share.
I completely agree with this and would add that you also get the benefit of a wide range of opinions and perspectives. Though I may offer you altruistic advice, my opinions are going to be shaped and biased by my own experiences and perspective which may not translate well to the particulars of your situation. On this forum you will get feedback from a variety of individuals each with their own perspective. I believe that if you take the time to sort through those opinions, you will find the appropriate path forward for your circumstances.
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tfb
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by tfb »

pkcrafter wrote:The 1% advisory fee is pretty much standard.
It's at least twice as high as necessary. AssetBuilder charges 0.45% for a $50k portfolio using DFA funds.

http://assetbuilder.com/investing/assetbuilder_fees
http://assetbuilder.com/our_portfolios/ ... portfolios
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TN_INVEST
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TN_INVEST »

TN_INVEST wrote:
TwoKidsOnePaycheck wrote: We recently hired a fee-only financial advisor.
What did you hire him to do for you?

The question is whether their other services are of value to you (Only you know if they are of value to you, because: 1. what are you seeking?, 2. what are they providing?)
Bueller? Bueller?
Bacchus01
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Bacchus01 »

You paid for that advice?

You learned a lesson. Not all paid advice is actually any good.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by pkcrafter »

tfb wrote:
pkcrafter wrote:The 1% advisory fee is pretty much standard.
It's at least twice as high as necessary. AssetBuilder charges 0.45% for a $50k portfolio using DFA funds.

http://assetbuilder.com/investing/assetbuilder_fees
http://assetbuilder.com/our_portfolios/ ... portfolios
Thanks, I am very aware that there many places now to find advisory fees under 1%, but the great majority is still at 1% and I'd still call it average--but certainly not Boglehead average. :happy

The OP has pretty much defended his advisor is all his follow up posts, and if he insists on staying with this advisor, so be it. He could do much worse. I don't recommend he stay, because he could save a lot of money, but so far, in light of some very convincing feedback, he's not convinced. In summary, the fees are too high for any Boglehead, but for those who have not seen the light go on, they are average.

BTY, tfb (Harry), I appreciate your contributions to the new Bogleheads' Blog.

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

Post by Jack FFR1846 »

Laura wrote:If you have a million dollar portfolio that 1.25% will cost you $12,500 each year. If you put the same million into Vanguard and have a .10 ER that will be a cost of $1000. Is this worth another $11,500 each year. If that extra $11,500 annual charge was left in your account to grow for 20 years at 5% return it will be worth $251,833 which represents an additional $10k in income you can take from your portfolio. Are the services worth this much money? Since no extra return is guaranteed by the advisor I would stick with the guaranteed benefit of the lower costs.

Also, the advice to rollover the old 401k can be very bad advice depending on your personal situation. If this was not discussed at length then the recommendation isn't necessarily the right one for your situation.

Laura

This is wonderfully illustrative. Doesn't this neglect the fact that the 1% + 0.25% are on TOP of fund ERs. That's my understanding...correct me if I'm wrong. So if this is right, whatever funds are chosen, on $1M is going to cost $12,500 PLUS whatever the ER is. If you must use an active managed fund, at a maximum, see what's chosen by the 1.25% people and then fire them. Leave the funds where they are, if you feel that they are right for you, for whatever reason.
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Random Musings
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Random Musings »

Just because the "average" is 1%, doesn't mean it is right. Too bad Vanguard doesn't offer another advisory service that would allow (only the) use of DFA small-value loaded funds for tilting with a 0.4% charge. :twisted:

It also depends on what total services the advisor is providing, assuming that they are actually good at what they do. All 1% advisors don't provide the same level of service, nor the same quality.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

Original Poster back. Thanks again for all the informative comments. Here's what I've been wrapping my head around for days.

According to user madsinger's annual wrap-up for 2013 (http://www.bogleheads.org/forum/viewtop ... 0&t=129673), here's where a typical three-fund portfolio shook out for the year NOT INCLUDING expense ratios.

Below that are the annualized returns from my financial advisor's suggested portfolio (15 funds, 10 of which are DFA funds) NET all fees (AUM fee, Custodial fee, Expense Ratios).

Code: Select all

                             CAGR     CAGR    CAGR
                    YTD      since    since   since 
                    2013     2011     2009    2004 

3 fund             20.74%   10.47%   14.06%   7.60%
My Advisor         17.10%    9.80%   16.70%   9.20% 
So a fair amount of advice has been of the "good luck with those fees, they'll eat away at your returns" ilk. But these numbers tell me otherwise.

What am I not getting about this?
Novine
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Novine »

Past performance doesn't guarantee future returns.

"Despite the SEC's warning that for actively managed funds past performance isn't an indicator of future performance, most individual investors continue to base their investment decisions on how the funds have fared in recent years. Are investors right to ignore the warning? Does past performance matter?..."

Read the rest of Larry's article with the counterpoint to your numbers.

Rick Ferri also tackles this topic.

"Past performance does not provide useful information about future performance. Wishing upon a star is a fine fantasy for children, but it doesn’t work for adults who are trying to earn a fair return from their mutual funds."
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TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

Novine wrote:Past performance doesn't guarantee future returns.

"Despite the SEC's warning that for actively managed funds past performance isn't an indicator of future performance, most individual investors continue to base their investment decisions on how the funds have fared in recent years. Are investors right to ignore the warning? Does past performance matter?..."

Read the rest of Larry's article with the counterpoint to your numbers.

Rick Ferri also tackles this topic.

"Past performance does not provide useful information about future performance. Wishing upon a star is a fine fantasy for children, but it doesn’t work for adults who are trying to earn a fair return from their mutual funds."
These are largely DFA funds. Not purely passively managed, I'm sure many of you would argue, but they're certainly not active funds being shifted around by a star manager.
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tfb
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by tfb »

TwoKidsOnePaycheck wrote:So a fair amount of advice has been of the "good luck with those fees, they'll eat away at your returns" ilk. But these numbers tell me otherwise.

What am I not getting about this?
That you can get the same DFA funds at maybe half the fee or less. See post above in the thread: http://www.bogleheads.org/forum/viewtop ... 6#p1988736

Depending on how much money is involved, a flat fee may be even less: http://am.fplcapital.com/fees/
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BL
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by BL »

tfb wrote:
TwoKidsOnePaycheck wrote:So a fair amount of advice has been of the "good luck with those fees, they'll eat away at your returns" ilk. But these numbers tell me otherwise.

What am I not getting about this?
That you can get the same DFA funds at maybe half the fee or less.

See post above in the thread: http://www.bogleheads.org/forum/viewtop ... 6#p1988736
If you are earning 5% on your portfolio, then paying 1.25% is giving the adviser 1/4th of your earnings. (If you lose money, the adviser is still getting a guaranteed 1.25% of your portfolio.) If you can get the same thing for 1/2 of that, that would lower it to 1/8th of your earnings. If you buy low-cost index funds, you will get 100% of your earnings. I have worked too hard for my money to pay for any adviser's retirement or new car.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by JW-Retired »

TwoKidsOnePaycheck wrote: Below that are the annualized returns from my financial advisor's suggested portfolio (15 funds, 10 of which are DFA funds) NET all fees (AUM fee, Custodial fee, Expense Ratios).

Code: Select all

                             CAGR     CAGR    CAGR
                    YTD      since    since   since 
                    2013     2011     2009    2004 

3 fund             20.74%   10.47%   14.06%   7.60%
My Advisor         17.10%    9.80%   16.70%   9.20% 
So a fair amount of advice has been of the "good luck with those fees, they'll eat away at your returns" ilk. But these numbers tell me otherwise.

What am I not getting about this?
What you are missing is that this advisor can adjust his portfolio suggestions every year to make sure it historically outperforms. It's easy, in your case he has 15 knobs to turn to make this happen. If you assume he was suggesting this same portfolio in 2009 or 2004 you are unbelievably gullible. Nearly all fund picking advisors propose only good past performing stuff. This is far easier to sell because naive beginning investors think past performance should be their guide. Some investors never get over this.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by pkcrafter »

TKOP, we can get into all kinds of things when comparing returns. For instance, are the returns you posted your actual portfolio returns or numbers the advisor provided? Do those returns reflect the 1% advisory fee? Not likely. Once we get by that, we need to compare equal allocations to various asset classes, and then we need to make adjustments for risk.

All this being said, you could do much worse than a DFA advisor with a 1% fee. For instance, if you were with a big brokerage like most individual investors, you would be far worse off. As tfb as mentioned, you can get DFA funds for lower fees, but that may not be the only consideration in your case. I think there are many investors here that are using DFA funds and paying 1% for good service and confidence.

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

Post by TN_INVEST »

TwoKidsOnePaycheck wrote: What am I not getting about this?
I'm assuming that you expect a financial advisor to help you find "better" investment returns.

I don't think you'll be happy working with an advisor. Save some fees and go for it.
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TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

OK, I think I've analyzed this enough, and have learned a lot in the process. Looks like I'll roll that 401k over to my Financial Advisor to manage and call it a day.

Just kidding. Going to roll it into a three-fund portfolio of Vanguard Admiral Shares that I manage.

Thanks for the advice, all.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by island »

TwoKidsOnePaycheck wrote:OK, I think I've analyzed this enough, and have learned a lot in the process. Looks like I'll roll that 401k over to my Financial Advisor to manage and call it a day.

Just kidding. Going to roll it into a three-fund portfolio of Vanguard Admiral Shares that I manage.

Thanks for the advice, all.
You mentioned that 401K has good choices and decent ERs so why move it? If you ever want to do a back door Roth having an IRA is a roadblock.
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TwoKidsOnePaycheck
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by TwoKidsOnePaycheck »

island wrote:
You mentioned that 401K has good choices and decent ERs so why move it? If you ever want to do a back door Roth having an IRA is a roadblock.
Moving it because—with the amount of this account—I can get Vanguard Admiral Shares, so my expense ratios are nearly non-existent.

I tried to read up on the backdoor Roth as it applies to 401k rollovers, and to be frank it seems overly complicated. The information I've found, including on these forums, is ambiguous--so to avoid screwing it up, I think I'd need to hire an accountant. And even then, I'm still not convinced I wouldn't screw it up.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by gte939h »

TwoKidsOnePaycheck wrote:OK, I think I've analyzed this enough, and have learned a lot in the process. Looks like I'll roll that 401k over to my Financial Advisor to manage and call it a day.

Just kidding. Going to roll it into a three-fund portfolio of Vanguard Admiral Shares that I manage.

Thanks for the advice, all.
I just read this whole thread for the first time and got to this point and I think my heart skipped for a second. Well played, you got me...
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by JW-Retired »

TwoKidsOnePaycheck wrote:
island wrote:
You mentioned that 401K has good choices and decent ERs so why move it? If you ever want to do a back door Roth having an IRA is a roadblock.
Moving it because—with the amount of this account—I can get Vanguard Admiral Shares, so my expense ratios are nearly non-existent.

I tried to read up on the backdoor Roth as it applies to 401k rollovers, and to be frank it seems overly complicated. The information I've found, including on these forums, is ambiguous--so to avoid screwing it up, I think I'd need to hire an accountant. And even then, I'm still not convinced I wouldn't screw it up.
The folks who screw up the backdoor Roth are the ones who go rushing off to do something before they understand it. Much like you were about to rush off to roll over your 401k to a high fee advisor to manage. Good you finally came to your senses about that. :beer

If you are unlikely to ever have a joint income greater than $181k (current phase-out range start) then you can make direct Roth contributions and won't need the backdoor. If you might need it, then it might be good to spend a little more time leaning about it. It's really quite simple. We can refer you to some threads.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by Jack FFR1846 »

Are there any fees involved with the existing Fidelity 401k?

Are you able to get Spartan index funds, advantage class at Fidelity?

If you are able to get these and there is no added 401k management fee then you're getting off of one white horse and onto another white horse. (I just made that up....pretty good, eh?).

What I'm getting at is that Fidelity Spartan index advantage class shares in a 3 fund boglehead strategy have about equal ER to Vanguard Admiral(I did the math in another thread). What Fidelity gives you as an advantage (I'll stop here and say I don't work for Fidelity but invest with them and use their site every day) is lower buy ins, no annual fee (Vanguard may charge a fee if your portfolio balance isn't high enough) and the ability to do a lot more on line without any phone or mail follow ups or support.

But Vanguard will likely be a great choice too, so don't think that there's a huge gap between companies. I personally like that Vanguard isn't a profit company, but the rubber hitting the road for me is cost and convenience. Cost is about equal and Fidelity is easier for me to use.
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by ruralavalon »

TwoKidsOnePaycheck wrote:
island wrote:
You mentioned that 401K has good choices and decent ERs so why move it? If you ever want to do a back door Roth having an IRA is a roadblock.
Moving it because—with the amount of this account—I can get Vanguard Admiral Shares, so my expense ratios are nearly non-existent.

I tried to read up on the backdoor Roth as it applies to 401k rollovers, and to be frank it seems overly complicated. The information I've found, including on these forums, is ambiguous--so to avoid screwing it up, I think I'd need to hire an accountant. And even then, I'm still not convinced I wouldn't screw it up.
Can she get Spartan Advantage class shares -- for total stock index, bond index and global ex-us --in her old 401k? If so, its likely best to do your 3 fund portfolio there, to keep open the backdoor Roth option for the future.
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island
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Re: Financial advisor wants me to roll a 401(k) into an IRA?

Post by island »

JW Nearly Retired wrote:
TwoKidsOnePaycheck wrote:
island wrote:
You mentioned that 401K has good choices and decent ERs so why move it? If you ever want to do a back door Roth having an IRA is a roadblock.
Moving it because—with the amount of this account—I can get Vanguard Admiral Shares, so my expense ratios are nearly non-existent.

I tried to read up on the backdoor Roth as it applies to 401k rollovers, and to be frank it seems overly complicated. The information I've found, including on these forums, is ambiguous--so to avoid screwing it up, I think I'd need to hire an accountant. And even then, I'm still not convinced I wouldn't screw it up.
The folks who screw up the backdoor Roth are the ones who go rushing off to do something before they understand it.
JW
Agree with JW. Believe me if I can do it you can too.

I didn't pay much attention to what was going on in my 401K, investments, especially regarding expenses and tax consequences until I found this site last year. We're good savers and just socked it away without any thought and I had no interest beyond the saving aspect, partially because I stink at math and didn't think I'd "get it". This site was an eye opener. I've learned so much here and continue to because there are so many knowledgeable Bogleheads willing to share what they know and explain it to me (and others) like we're 3rd graders if need be.

I didn't even know backdoor Roths existed until last year and I was kicking myself that we missed the opportunity to open them when that option because availabe (in 2009 or 2010?). The chance to put away some after tax $ to grow tax free and take out tax free for evermore (unless the law changes)? Are you kidding me? That's awesome! That wouldn't have been possible if my husband rolled his old 401K into an IRA 13+ years ago like every company kept nagging him to do. So in that case, ignorance was bliss that made the Roth possible for us.

I also have a large taxable account opened thru an advisor in the late 90's and that isn't bliss because of larger ERs and more div and cap gains than need be because it isn't tax effecient. Trying to mitigate that now, but would have been better if I educated myself before jumping in just because I had the money.

So my thought is if you feel you shouldn't consider a backdoor Roth because you'll screw it up, take the time to read about it and other stuff before you do anything with your accounts. Actually if you think you'll screw that up, do you think you know enough to be making the decisions on how to manage your wife's old 401k? I don't think so, especially since you think you also need assistance from financial advisors or accountant for basics.

Just take some time to read and ask questions here. I didn't make a move on creating the backdoor Roths until I got confirmation I understood it all from the Bogleheads. My husband does our taxes, with Turbo Tax the past several years, and this year I'm going to give it a whirl..with him checking it of course, but that's huge for me! Baby steps, a work in progress for me, but it's exciting and empowering to start understanding this stuff.

You can do it too, just take the time to learn.

Consider posting your portfolio for review. Helps to see the entire picture. I'm sure the experienced Bogleheads can give you some great advice on that before you go off and tinker. :D

Good luck.
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