Help wanted: After 20+ years finally looking at expenses

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ilovedavidstove
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Help wanted: After 20+ years finally looking at expenses

Post by ilovedavidstove »

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Last edited by ilovedavidstove on Mon Nov 17, 2014 11:51 am, edited 9 times in total.
Grt2bOutdoors
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Re: Taking control now; please look at my current fund lineu

Post by Grt2bOutdoors »

Hello and welcome to the forum!

What are your gains and losses in those funds? Frankly, I think it's ridiculous to be paying a 12-b-1 fee not to mention some of those expense ratios for the funds themselves are a bit high. But then to add insult the adviser charges you on top of it! I hope you were not holding balanced funds in a taxable account? paying unnecessary taxes is appalling. :shock: :oops:
Perhaps if you can minimize the amount of tax hit, you can get out of those funds and transfer over to Vanguard funds, even their actively managed funds aren't charging expense ratios that high for the most part.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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ilovedavidstove
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Re: Taking control now; please look at my current fund lineu

Post by ilovedavidstove »

Grt2bOutdoors wrote:Hello and welcome to the forum!

What are your gains and losses in those funds? Frankly, I think it's ridiculous to be paying a 12-b-1 fee not to mention some of those expense ratios for the funds themselves are a bit high. But then to add insult the adviser charges you on top of it! I hope you were not holding balanced funds in a taxable account? paying unnecessary taxes is appalling. :shock: :oops:
Perhaps if you can minimize the amount of tax hit, you can get out of those funds and transfer over to Vanguard funds, even their actively managed funds aren't charging expense ratios that high for the most part.
I do not have the information on me, but fair to say some significant, some not so significant. Advisor does a lot of tax loss harvesting, which I am now told is very risky with actively managed funds.
Grt2bOutdoors
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Re: Help wanted: After 20+ years finally looking at expenses

Post by Grt2bOutdoors »

You will get maximum feedback from others on the forum if you state what advice you like to receive and list how your portfolio is structured by percentages of each fund held. I can assure you of this, no one is going to like the fees you listed. The current portfolio as shown has a significant amount of overlap - two equity and income funds?, three balanced funds, a sector fund (materials), two tax-free funds. Not sure what the reasoning was to create such a complicated portfolio. The use of actively managed funds masks what the true exposure is to individual securities, both equity and fixed. One can only look forward, would recommend calculating gains and losses by fund, if the adviser truly was tax loss harvesting, you may still have enough losses from the 2008/2009 time frame to lessen the potential tax hit from liquidating and creating a low-cost portfolio that still meets your objectives. Schedule D on your Form 1040 tax form will show if you have any tax-loss forwards for the 2014 tax year. However, your financial adviser's personal objective will definitely not be met. Losing AUM means a lower paycheck.
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jf89
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Re: Help wanted: After 20+ years finally looking at expenses

Post by jf89 »

ilovedavidstove wrote:...

Our Advisor was recommended to us 20+ years ago and we would consider him a friend. The entirety of our funds incur the "wrap" fee and the overwhelming majority of this portfolio is taxable.

...

I have recently raised a question about the fee structure and over the past 6 months or so have received packages in the mail updating/reducing our managed fee from 0.9% to 0.85% to 0.75% and finally to 0.65%. I have new word that this will be going to 0.5%. This dramatic reduction renders me happy of course, but it is bittersweet too - as it also forces me to want explanation of the past. We are not paying sales charges giving we are in a wrap arrangement, but we do pay the 12b-1.

...
I just wanted to address this part quickly.

You may consider him a friend, and I'm sure outside of working hours you have a great relationship. But the reason your fee was higher than it had to be for so many years (and the reason you are in so many funds with 12b-1 fees and higher than necessary ERs) is that between 9 and 5 on weekdays you are his CLIENT. Remember that when/if you decide to follow the advice of this forum by relocating your funds and doing this yourself.
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celia
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Re: Help wanted: After 20+ years finally looking at expenses

Post by celia »

These are the bond funds:
ATFAX / Invesco Tax Free Intermediate / Tax Free /A / 0.62% / 0.25% (likely to hold bonds)
YYYY / State-specific Muni Bond Fund / Tax Free / A / 0.74% / 0.10%
MFIAX / MFS Muni Bond Fund / Tax Free / A / 0.73% / 0.25%
WMFAX / WF Advantage Muni Bond / Tax Free / A / 0.75%/ NA
These are partly bonds and partly stock (Note the word "Balanced" in the fund names):
HBLAX / Hartford Balanced / Balanced /A / 0.96% / 0.25%
GLRBX / James Balanced Golden Rainbow / Balanced/Retail / 1.04% / 0.25%
JDBAX / Janus Balanced / Balanced / A / 0.94% / 0.25%
Without knowing what percent of your portfolio is invested in each fund, it is impossible for anyone to tell if you have 60% bonds. But you can calculate it yourself. Look up the 3 balanced funds to see what per cent of each fund is in bonds. (I am trying to show you--and others--how to figure it out. By doing it yourself, you will also probably read about who issued the bonds: federal, state, cities, corporations, other countries, etc). Look for a mix of types of issuers to spread out your risk as far as bonds.

Note that I didn't comment on the stocks as that is harder to analyze. Of course, the Expense Ratios are high, but that is expected when the funds are not index funds (ie, "Index" is in the title of the fund name). If you were to go with index funds, you wouldn't need an advisor.
Last edited by celia on Thu Aug 28, 2014 12:09 pm, edited 1 time in total.
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sjb19
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Re: Help wanted: After 20+ years finally looking at expenses

Post by sjb19 »

Seems overly complicated to me. Starting from scratch you could probably design a similar, much simpler portfolio for less than 1/10 of your newly lowered fee. But, you are not starting from scratch and there will be other considerations, some financial, some not. Good luck.
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celia
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Re: Help wanted: After 20+ years finally looking at expenses

Post by celia »

Grt2bOutdoors wrote:The current portfolio as shown has a significant amount of overlap - two equity and income funds?, three balanced funds, a sector fund (materials), two tax-free funds. Not sure what the reasoning was to create such a complicated portfolio.
This could be considered normal if there are different kinds of accounts, for example: a mix of taxable, Her Roth, and His traditional IRAs, etc. It is also a way to diversify. Without us knowing percents and type of account each fund is in, it is impossible to tell.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Help wanted: After 20+ years finally looking at expenses

Post by livesoft »

To give one an idea of how low expenses and taxes can go, I can say that I have a mid-7 figure portfolio with the overall expense ratio of about 0.15%.

In the taxable account, the expense ratio is a little bit lower, but more important, I paid taxes of about 0.25% on the 7-figure taxable equity portfolio. That's right! The qualified dividends are taxed at a low rate, I get the foreign tax credit, and also reduce my taxes because of the $3,000 capital loss that I claim every year against ordinary income.
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jebmke
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Re: Help wanted: After 20+ years finally looking at expenses

Post by jebmke »

livesoft wrote:portfolio with the overall expense ratio of about 0.15%.
Ours is probably pretty close to that. No reason why OP can't get down to 20bp or lower without much effort.

Agree with other comments, holdings are much to complicated.

Without knowing what the unrealized gains are, it is hard to map out a strategy. My first inclination would be to move the whole thing in-kind to some place like Vanguard, Fidelity or Schwab and then develop a planned end state. It might take a while to implement a total clean up depending on the tax consequences.
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Grt2bOutdoors
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Re: Help wanted: After 20+ years finally looking at expenses

Post by Grt2bOutdoors »

celia wrote:
Grt2bOutdoors wrote:The current portfolio as shown has a significant amount of overlap - two equity and income funds?, three balanced funds, a sector fund (materials), two tax-free funds. Not sure what the reasoning was to create such a complicated portfolio.
This could be considered normal if there are different kinds of accounts, for example: a mix of taxable, Her Roth, and His traditional IRAs, etc. It is also a way to diversify. Without us knowing percents and type of account each fund is in, it is impossible to tell.
True to some extent, however I don't understand the reasoning for having 3 balanced funds issued by 3 different investment management companies - Gabelli, American Century and Oakmark. What's the rationale there? one invests in value, another in growth opportunities and another in deep value? I mean really (and this is directed solely at the adviser), it looks like the portfolio was designed ad-hoc with no rhyme or reason by someone who went down the alphabet - American Century today, Gabelli tomorrow and then Oakmark just to make sure we are diversified, if one manager doesn't make it maybe the others will? :oops:

I think the Peter Lynch saying has some merit - "if you can't explain why you own it in 6 words or less" you have no business buying it.
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BigOil
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Re: Help wanted: After 20+ years finally looking at expenses

Post by BigOil »

Brutally honest?

Well it's pretty simple. You are in an overpriced dogs breakfast of funds. You paid a lot of money for your handholding over the years. It may not have been a bad expenditure in hindsight--- if it enabled you to focus on earning more money.

Your target should be simply holding the market index fund or possibly tilted index funds and likely 40-60% bond funds with a low-cost advisor that can help you move them over in kind. This will require divorce financially from your advisor. Really need your all financial picture to make it accurate overall risk suggestion, but generally speaking that would be what most around here recommend.

With unrealized gains it may take a while to unravel this, I am assuming most of this is after-tax.

Realize he may be able to demonstrate numbers that show how well he did. But they will never be risk-adjusted nor academically valid numbers on his performance. Is virtually certain he did not beat the market or add value in the investment he chose. Those are designed to make him money, and is an ancillary bonus make it look complicated and if you can't do it without him or her.

Good advisers perform other services, and should be able to loop in other professionals for the estate and tax planning purposes. As well as keeping you from selling at bad time. I hope they do/did these things for all the money you paid.
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Re: Help wanted: After 20+ years finally looking at expenses

Post by Lafder »

ilovedavidstove,

You said this collection of funds is "currently held at a fancy brokerage firm."

My honest assessment is that they have you in a fancy overly complicated redundant mix of funds. This probably contributed to your belief that this stuff is far too complicated for you to possibly understand and manage on your own.

There is no reason for so many different funds. It just makes all aspects of record keeping much more complicated and harder to manage.

Simple can do just as well, actually probably better. You have come to the right site if you are ready to take control and simplify.

As others have mentioned, there can be taxes owed if you sell any taxable holdings with gains. So that does need to be considered if you do decide to simplify.

Here is a link to some very simple investment portfolios. http://www.bogleheads.org/wiki/Lazy_portfolios

For more thorough feedback and specific suggestions on how and where to move your $ to simplify, take the time to post which funds are taxable vs retirement/nontaxable, and add the % of your assets in each fund. It will help give you more perspective to go through these steps.

Even at the reduced rates they are so graciously offering after you asked ! , you can manage your own accounts for even less fees than this.

It is never to late to decrease your future unnecessary expenses!
best wishes,
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Ged
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Re: Help wanted: After 20+ years finally looking at expenses

Post by Ged »

Well, one of the things you need to realize is that in retirement you are likely to be able to spend something like 3-4% of the value of your portfolio.

This means that your investment cost is looking to be 40-50% of your potential cash from your investments if you had continued on this course. Add in the drag the drag these costs had on your portfolio during the growth phase and you start to really appreciate how horrific the impact of these fees (and the lack of tax efficiency) this could have been.

At least you have some time to go before retirement to work on this.

The real strategy now is going to be how to unwind these positions. Whatever is in tax advantaged accounts is fortunately possible to sell without incurring cap gains. Holdings in taxable accounts will have to be unwound carefully and maybe gradually in order to minimize tax impact.
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