Fee questions for existing advisor

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Topic Author
aNYTechie
Posts: 7
Joined: Sun Jun 23, 2013 7:48 pm
Location: New York, NY

Fee questions for existing advisor

Post by aNYTechie »

So after some great help on another post -- http://www.bogleheads.org/forum/viewtop ... 1&t=119073 -- I'm going to sit down with my advisor and review things, followed by me probably leaving to either manage the portfolio myself or use of one of the recommended fee-based advisors.

As my current advisor was recommended by a very close business & personal friend, I want to be stand-up with this process and want to ask some of the hard fee questions that will be make the exit smoother to explain other than a shift in investing approach alone.

His fee is 1% AUM, however since posting the previous question, mention of a number of fees and percents were made -- transaction, commissions, loads, etc...

What's the best way to figure out what my true costs are? Despite the claim of say 4% return, how is the true return calculated? Should he be able to give that?
dhodson
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Joined: Mon May 24, 2010 3:03 pm

Re: Fee questions for existing advisor

Post by dhodson »

id ask for a disclosure of all loads, fees and commissions straight out. He/she will get the picture though and make it tougher to dig which is why Id be as direct as possible and take nothing less than full disclosure. They should also be able to tell you all previous paid fees and commissions and which mutual funds have loads and if you have any investments with surrender charges.
earlyout
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Joined: Tue Feb 20, 2007 4:24 pm

Re: Fee questions for existing advisor

Post by earlyout »

You've made up your mind to leave so you should be a lot more concerned with any fees you will incur when you leave. Getting a full disclosure of fees you have already paid really doesn't accomplish anything and is a waste of your time. That money has already been spent.

Tell the advisor you are leaving and get a full listing of all fees that will be charged when you close your accounts.
dbr
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Re: Fee questions for existing advisor

Post by dbr »

aNYTechie wrote: As my current advisor was recommended by a very close business & personal friend, I want to be stand-up with this process and want to ask some of the hard fee questions that will be make the exit smoother to explain other than a shift in investing approach alone.
It's not clear that what amounts to a blatant accusation that they have not been honest about their fees is a way to smooth a transition. Best scenario is that 1% is the only fee, and since you already have decided that is too much, it does not help to open the door to a discussion.

hard question .NE. smooth transition

It would seem to me that simply stating that you would prefer to manage your portfolio yourself using discount brokers/fund companies and that you appreciate their help up to this point is the smoothest. There is no possible advantage to you get into a debate about either their fees or their performance. It is sensible to ask about transition costs to close out accounts.
dbr
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Re: Fee questions for existing advisor

Post by dbr »

aNYTechie wrote:
As my current advisor was recommended by a very close business & personal friend
It may be that paying out in real money is the price of your business and social relationships. The question is what are you getting back in return. The back scratching is supposed to be mutual.
livesoft
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Re: Fee questions for existing advisor

Post by livesoft »

aNYTechie wrote:As my current advisor was recommended by a very close business & personal friend, I want to ...
... return them the favor and recommend a better place for their investments?
Wiki This signature message sponsored by sscritic: Learn to fish.
dhodson
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Re: Fee questions for existing advisor

Post by dhodson »

earlyout wrote:You've made up your mind to leave so you should be a lot more concerned with any fees you will incur when you leave. Getting a full disclosure of fees you have already paid really doesn't accomplish anything and is a waste of your time. That money has already been spent.

Tell the advisor you are leaving and get a full listing of all fees that will be charged when you close your accounts.

As far as I can tell, this individual is saying he/she will probably leave. If that is the case, then getting a full disclosure helps with the decision. It may also help when comparing to other alternatives.
pkcrafter
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Re: Fee questions for existing advisor

Post by pkcrafter »

aNYTechie wrote:So after some great help on another post -- http://www.bogleheads.org/forum/viewtop ... 1&t=119073 -- I'm going to sit down with my advisor and review things, followed by me probably leaving to either manage the portfolio myself or use of one of the recommended fee-based advisors.

As my current advisor was recommended by a very close business & personal friend, I want to be stand-up with this process and want to ask some of the hard fee questions that will be make the exit smoother to explain other than a shift in investing approach alone.

It's always OK to review things, but maintain a neutral position in this meeting--don't be confrontational. Note too that if you have not decided to leave, the advisor may sense what you're doing and he may convince you it's beneficial to stay.

If you are with Merrill or USB, then it's a no-brainer--move. If you have made that decision there is no point in sitting down with the advisor, just contact your new custodian and they will do the transfer. You asked friends for recommendations, and you recieved typical advice from two of them. Most investors using high-cost brokers don't know any better.


His fee is 1% AUM, however since posting the previous question, mention of a number of fees and percents were made -- transaction, commissions, loads, etc...

Normally, A share loads are waived when you are paying an advisor for management, but you are no doubt paying for buying options, which are completely unnecessary.

What's the best way to figure out what my true costs are? Despite the claim of say 4% return, how is the true return calculated? Should he be able to give that?

The return probably does count the management fee, so your returns should account for them, especially if the fees are removed from the portfolio assets. Mutual fund expense ratios are removed before total return is given, so no fee losses there. But 56 funds and ETFs? Something very strange there. Are the funds A shares (front load) or B and C shares? If B and C, you are paying an ongoing commission.


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.
Topic Author
aNYTechie
Posts: 7
Joined: Sun Jun 23, 2013 7:48 pm
Location: New York, NY

Re: Fee questions for existing advisor

Post by aNYTechie »

Great info -- thank you. Going in Tuesday.
MN Finance
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Joined: Sat Dec 22, 2012 9:46 am

Re: Fee questions for existing advisor

Post by MN Finance »

If you are planning to leave, I'm not sure what the point is if trying to dissect the fees. Do what you need to exit peacefully by saying you've decided to do this yourself and understand the commitment. Then just discuss the transition. Likely you want the accounts liquidated all you don't have issues/costs unwinding them yourself.
JW-Retired
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Re: Fee questions for existing advisor

Post by JW-Retired »

aNYTechie wrote:
His fee is 1% AUM, however since posting the previous question, mention of a number of fees and percents were made -- transaction, commissions, loads, etc...

What's the best way to figure out what my true costs are? Despite the claim of say 4% return, how is the true return calculated? Should he be able to give that?
He would be able to give you that but often they are very adroit at not doing it. I would try to make an estimate on my own before I met. You know you pay the yearly AUM 1% + the $4996 (0.2%) + the fund ERs + commissions. You cannot avoid paying the fund ERs. It would be a huge surprise to us if the total isn't >2%. The ER probably includes a 12b1 fee, which is a yearly kickback to the broker/advisor. The usual 12b1 is 0.25%. I would doubt that you are paying a front load too but who knows. Find out the broker commissions on purchases ......... for 56 funds that might multiply to real money. (maybe the $4996 already includes some of these other expenses, so I might be double counting)

Do you have a list of the 56 funds/ETFs with fund names, or better yet ticker symbols? Look up each one by putting the ticker in a google search box and choosing yahoo finance (or another option) and looking at the fund profile. Try it for example with the mid-cap growth fund GGOAX, which I just looked up for another thread.
GGOAX:
Annual Report Expense Ratio (net): 1.35%
Prospectus Net Expense Ratio: 1.35%
Prospectus Gross Expense Ratio: 1.41%
Max 12b1 Fee: 0.25%
Max Front End Sales Load: 5.50%

Then for laughs compare it with Vanguard's mid-cap growth index fund.
VMGMX
Annual Report Expense Ratio (net): 0.10%
Prospectus Net Expense Ratio: 0.10%
Prospectus Gross Expense Ratio: 0.10%
Max 12b1 Fee: N/A
Max Front End Sales Load: N/A

Let us know how the meeting goes.
JW
Retired at Last
Default User BR
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Joined: Mon Dec 17, 2007 6:32 pm

Re: Fee questions for existing advisor

Post by Default User BR »

I'm with the "why bother" crowd. It's just extra effort for you. Just go. Tell the adviser you've decided to try it on your own, period. Or don't say anything, have the new custodian transfer it out. Go someplace that will give you a nice bonus and free trading for a while to devise your new simplified Boglehead portfolio and call it a day.


Brian
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