Financial advisor question

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pg59
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Financial advisor question

Post by pg59 »

Although I am 5-8 years from retirement, I admit to being a relative novice. 20+ years ago, while a resident in training, I started using the services of a financial advisor because neither my husband or I wanted to spend our time keeping up with things. Now that I am likely within 5 years of going part time and 8 to 10 years of retiring, I'm paying attention again, as I want to make sure we maximize our last years of income.

The issue is with the advisor. I like him and I have trusted him, but we've been passive and haven't kept up regular meetings. After reading White Coat Investor (and going back and forth a couple of times with Jim), I realize that I need to figure out what I am paying for our asset management. We started out meeting quarterly and paying a flat fee (I think $1000/year back then). We switched to an AUM (and wrote a check when we met with him 2 to 4 times/year). For the last 5-10 years, we haven't "paid" anything. So I asked and he's being a bit obtuse. He sent back an analysis of a portion of our account (~2/3 of our assets) to show how the average annual fee went from 1.75% to 1.27% after switching some funds. Given this, on this portion, it looks like the annual fee we paid was for this portion was ~$35K (which seems really high since we only meet once/year and I don't think much is done on the account between meetings). Our overall portfolio is ~$3.2M.

Is it wrong to expect a detailed expense report to show where the fees are in the account? Do advisors typically keep track of fees that go to the funds and fees that go to him? And since we don't write a check to him anymore, is it safe to assume the fees to him come from the fund?

Yes - I plan on reading more. I've started with this forum, WCI and POF, but think I should pick up a general book. I've also reached out to another company who has offered to review our portfolio prior to meeting with us.

Advise? What's a reasonable fee to pay and should it be capped at a certain amount? Thanks in advance.
Jack FFR1846
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Re: Financial advisor question

Post by Jack FFR1846 »

The clear question to ask yourself is: What exactly do you expect your financial planner to do to earn his money?

If he is tax loss harvesting and moving funds (at no cost and with no load) to lower ER funds as they come up and rebalancing at a regular interval, and providing relevant tax information, then perhaps he adds value. If, however, he's making trades in a black box with no expression as to what he's doing and why and how much it costs, then why are you with him. Because he's a nice guy? I'm a nice guy.....I'll take your money and not tell you what I'm doing with it for only $10k.....:)

In my own portfolio, I stick with a 3 fund, low cost portfolio of index mutual funds and index ETFs. I don't really trade except to buy more or to sell when I have expenses (currently selling taxable and savings bonds for tuition). My "management" includes 15 minutes on my birthday to update my spreadsheet and determine if I need to "sell to buy" in my IRA. If so, I do it. For all of this, I pay about 0.0428% or $900 on a $2.1M portfolio. I cannot imagine what anyone would do to earn another $34k on another $1.1M on top of what I've got. Heck.....I could buy a pretty nice car for that. Or a semester for my son at his private, expensive engineering college.
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Avo
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Re: Financial advisor question

Post by Avo »

Yes, you are paying far more than you need to. You could easily pay zero if you are willing to do a little bit of learning. The hard part (because your "advisor", actually a salesperson, has undoubtedly made things as complicated as possible) will be to make the transition.

If you don't feel the need to have sit-downs with your advisor, and are OK with consultations by phone, consider Vanguard's advisory service as a much less expensive alternative (if you don't want to do it on your own).
Last edited by Avo on Tue Jun 20, 2017 1:59 pm, edited 2 times in total.
livesoft
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Re: Financial advisor question

Post by livesoft »

This article in this week's NYTimes may be helpful:
Before You Pay for Financial Advice, Read This Guide
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Avo
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Re: Financial advisor question

Post by Avo »

That's a great article.

OP, an option is to consult a fee-only fiduciary planner (as explained in the article) for a set fee, and then implement the plan yourself, avoiding ongoing AUM fees.
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flamesabers
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Re: Financial advisor question

Post by flamesabers »

I agree with the others that you're paying far too much to your adviser. I can only think of two reasons as to why someone may need an adviser:

1. You prefer having a face-to-face talk (versus email or phone) with someone about your investment portfolio.
2. An adviser keeps you from making impulsive trades.

If either of these reasons are relevant for you, I suggest looking for one that charges only a flat-fee and not an AUM fee. The adviser should be working with your best interests in mind, not his/her's interests.
MittensMoney
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Re: Financial advisor question

Post by MittensMoney »

Is it wrong to expect a detailed expense report to show where the fees are in the account?
No, plenty of advisors (primarily RIA's) will do this for you, and many will do it without you having to ask them to.
Do advisors typically keep track of fees that go to the funds and fees that go to him?
Yes, advisors know exactly what you pay for each fund (expense ratio) and they know exactly what you pay them (% of AUM, fees to trade/move assets around, and indirectly any commissions they get when they select certain investment vehicles for you.)
And since we don't write a check to him anymore, is it safe to assume the fees to him come from the fund?
The fee's are taken directly from your account, and fund fee's for mutual funds/ETF's come directly from your assets invested in each fund.

Anything above 1% is too much. Work with a fiduciary, you can find one for less than 1% if you like to have an advisor. Otherwise, manage it yourself. But, probably seek some sort of advice on the best way to start withdrawing money when retirement comes because there are specific ways to minimize your tax bill.
dbr
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Re: Financial advisor question

Post by dbr »

MittensMoney wrote:
Is it wrong to expect a detailed expense report to show where the fees are in the account?
No, plenty of advisors (primarily RIA's) will do this for you, and many will do it without you having to ask them to.
Do advisors typically keep track of fees that go to the funds and fees that go to him?
Yes, advisors know exactly what you pay for each fund (expense ratio) and they know exactly what you pay them (% of AUM, fees to trade/move assets around, and indirectly any commissions they get when they select certain investment vehicles for you.)
And since we don't write a check to him anymore, is it safe to assume the fees to him come from the fund?
The fee's are taken directly from your account, and fund fee's for mutual funds/ETF's come directly from your assets invested in each fund.

Anything above 1% is too much. Work with a fiduciary, you can find one for less than 1% if you like to have an advisor. Otherwise, manage it yourself. But, probably seek some sort of advice on the best way to start withdrawing money when retirement comes because there are specific ways to minimize your tax bill.
Keep in mind that fund expenses are not fees and brokerage costs inside funds are not reported in the expense ratio. I am not sure that all costs of doing business with the company are necessarily called fees, such as loads paid on funds. It is easy for your advisor to disingenuously mislead you if he really wants to.
pkcrafter
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Re: Financial advisor question

Post by pkcrafter »

to show how the average annual fee went from 1.75% to 1.27% after switching some funds.
Can you clarify this. Is this the expense ratios of the funds or the AUM fee? If funds, please list them, or some of them it there are a lot. As mentioned above, management fees are withdrawn from your account quarterly.

If these are fund expense ratios, they are very high and suggest you might have C class funds, which contain an embedded 1% 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.
MN Finance
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Re: Financial advisor question

Post by MN Finance »

Just for comparisson.... I work in an advisory shop. We work with clients about that size. They pay on average about 60bps to 70bps in direct costs and 10bps in indirect costs (funds.) The direct costs are highlighted on every quarterly statement, which should be expected. For that cost clients have portfolio managed, tax loss harvesting, tax prep services, retirement planning, and legal services. If you are just using your advisor to manage money, then you should probably just be doing it on your own... You can build a portfolio that is basically free. If you need other services the coordinate with your investments, then I obviously think that's worth paying for. But in today's commoditization of portfolio advice, a team should be doing a lot more to justify their fee. If not, don't pay anyone anything.

Incidentally, it should never take a conversation about fees for them to lower your fee... They should already be choosing the lowest cost investments available.
FoolMeOnce
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Re: Financial advisor question

Post by FoolMeOnce »

In response to your primary question, yes, you should easily be able to find out how much the advisor is charging. The advisor should be able to tell you directly, without blending it into fund expense ratios. That sounds incredibly suspect to me.

The management fees should show up on your statements when they are withdrawn (if withdrawn directly) and on your 1099s. In fact, the amount exceeding 2% of your AGI is deductible from your federal income tax, so you should've have been given information about that to claim that deduction each year.

If your advisor can't tell you how much he or she charges, run away.

Regarding how much is reasonable, 1% AUM of typical. Doesn't mean it is reasonable, though... We are charged 0.75%, but are leaving the advisor to self direct to avoid the fee.
Mr.BB
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Re: Financial advisor question

Post by Mr.BB »

It is never wrong to expect a detailed expense report; in fact it should be expected. The fact that he is not being perfectly straight forward and clear with you should be a warning sign. He works for you not the other way around.
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Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

Jack FFR1846 wrote:The clear question to ask yourself is: What exactly do you expect your financial planner to do to earn his money?

For all of this, I pay about 0.0428% or $900 on a $2.1M portfolio. I cannot imagine what anyone would do to earn another $34k on another $1.1M on top of what I've got. Heck.....I could buy a pretty nice car for that. Or a semester for my son at his private, expensive engineering college.
So I'm hoping I do this reply correctly. Yes - I realize I've been a bit stupid, but plan on changing that in the next few years. I have a senior in high school so will be paying for college soon also - hoping the 529 plans perform well.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

Avo wrote: has undoubtedly made things as complicated as possible) will be to make the transition.
I am very concerned about this because it seems like we have a bazillion funds listed on our summary report.
Last edited by pg59 on Wed Jun 21, 2017 9:33 am, edited 1 time in total.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

flamesabers wrote:I agree with the others that you're paying far too much to your adviser. I can only think of two reasons as to why someone may need an adviser:

1. You prefer having a face-to-face talk (versus email or phone) with someone about your investment portfolio.
2. An adviser keeps you from making impulsive trades.
We went with an advisor originally because it seemed easy at the time, but I think the value added is no longer applicable.
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pg59
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Re: Financial advisor question

Post by pg59 »

FoolMeOnce wrote:In response to your primary question, yes, you should easily be able to find out how much the advisor is charging. The advisor should be able to tell you directly, without blending it into fund expense ratios. That sounds incredibly suspect to me.

The management fees should show up on your statements when they are withdrawn (if withdrawn directly) and on your 1099s.

If your advisor can't tell you how much he or she charges, run away.

Regarding how much is reasonable, 1% AUM of typical. Doesn't mean it is reasonable, though... We are charged 0.75%, but are leaving the advisor to self direct to avoid the fee.
I have gotten from him that of the 1.27 (previously 1.75) that his fee is 0.6%. I am having a hard time figuring out from statements where that is listed. There are a variety of accounts (personal, qualified retirement, 529) but all are in various funds within an RBC account.
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pg59
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Re: Financial advisor question

Post by pg59 »

MN Finance wrote:f you are just using your advisor to manage money, then you should probably just be doing it on your own... You can build a portfolio that is basically free. If you need other services the coordinate with your investments, then I obviously think that's worth paying for. But in today's commoditization of portfolio advice, a team should be doing a lot more to justify their fee. If not, don't pay anyone anything.
Although he has run forecast reports for college funding and retirement every few years, he basically manages our money. I will say that from a return rate, I think our account has done pretty well. But changes are only made once a year at most when we have a meeting.
bsteiner
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Re: Financial advisor question

Post by bsteiner »

MN Finance wrote:... I work in an advisory shop. We work with clients about that size. They pay on average about 60bps to 70bps in direct costs and 10bps in indirect costs (funds.) ... For that cost clients have portfolio managed, tax loss harvesting, tax prep services, retirement planning, and legal services. ....
How can an "advisory shop" perform legal services?
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goingup
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Re: Financial advisor question

Post by goingup »

pg59 wrote:
Avo wrote: has undoubtedly made things as complicated as possible) will be to make the transition.

I am very concerned about this because it seems like we have a bazillion funds listed on our summary report.
Frankly, this is one of the insidious techniques of an FA. Having a bazillion funds is completely unnecessary but a client gets ensnared. Then it gets difficult to get out because of capital gains considerations. You may also own investments that are difficult to sell.

It's going to take some effort to get untangled. It wouldn't be sustainable in my mind to pay an FA $35K/yr so I'd start planning my exit.
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retiredjg
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Re: Financial advisor question

Post by retiredjg »

pkcrafter wrote:
to show how the average annual fee went from 1.75% to 1.27% after switching some funds.
Can you clarify this. Is this the expense ratios of the funds or the AUM fee? If funds, please list them, or some of them it there are a lot. As mentioned above, management fees are withdrawn from your account quarterly.
I had the same questions.

It is possible that he was not obtuse, but that the answer was complex because there are so many different fees that could possibly be involved. Or he might have been trying to put lipstick on a pig by pointing out how costs have "come down".

"Average annual fee" sounds like it could be expense ratios of the funds. That would be outrageously high but that is what some of these professional "advisors" sell.

Or "average annual fee" could be a combination of fund expense ratios and an AUM fee (a percentage you pay him to manage your money). Or some other combination of fees his company charges. Whatever he meant, 1.27% is a high cost to pay for investments.

The fact that you said you have a bazillion funds is quite worrisome. Numerous funds are not needed to achieve a diversified portfolio. Some advisors may do this to make investing seem hard. Or to get commissions by selling certain funds. Or because they don't know how to diversify any other way.

My observation here on this forum is that "bazillion funds" is frequently associated with high costs and poor management. And a high tax cost to get out from under the mess. You are not alone though. People here can help you get out.

No, you are not wrong to expect to know the exact costs you are paying. They are supposed to tell you that. It is possible you may need to be more exact in asking just what types of fees you are paying.
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Nate79
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Re: Financial advisor question

Post by Nate79 »

Why don't you switch to a service like Vanguard PAS if you don't want to do this yourself? 0.3% and cheap index funds. Or use target date funds, or other simple funds. It's not really that hard.

My guess once you see the fees that you were actually paying it will make you sick. Do you really want to know or just unwind this mess your so called advisor (aka salesman) put you in?

Edited to add: If you want to have some fun with him ask him if he is a fiduciary? Then watch him squirm in his seat and make up some excuses, blah blah blah.
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pg59
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Re: Financial advisor question

Post by pg59 »

pkcrafter wrote:
to show how the average annual fee went from 1.75% to 1.27% after switching some funds.
Can you clarify this. Is this the expense ratios of the funds or the AUM fee? If funds, please list them, or some of them it there are a lot. As mentioned above, management fees are withdrawn from your account quarterly.

If these are fund expense ratios, they are very high and suggest you might have C class funds, which contain an embedded 1% ongoing commission.

Paul
I am told that our previous average fee on our account was 1.75% and that included his compensation and fund fees. He switched the accounts for ETFs and the new total fee is 1.27% (0.67 fund expense, 0.6 for him). A few of the funds were:
GCCSX
FRDTX
HSSCX
FNICX
ECASX
MCDVX

As stated above, he sold/bought much of the portfolio to lower the fees (not sure why he didn't do this years ago). One concern I have and that I need to investigate is whether the money needs to stay in the new funds for a certain period of time or risk penalties. That may be a stupid question, but I've been pretty clear that I need to educate myself.
dbr
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Re: Financial advisor question

Post by dbr »

If you already know that among your fees is an AUM of 1.27% on 2/3's of what you own and that tallies up to about $35,000, then you should recognize that you are paying too much no matter what service you are getting. To address this by trying to figure out exactly what you are paying for what is pointless. What you should be doing is figuring out how to get your assets somewhere else that doesn't have such a cost. The starting point is to get out from under having an adviser at all.

If there really are services that you think you need that you can't do yourself, it is time to investigate how to buy those services for a reasonable cost. It is highly likely most of those are not being supplied by this advisor anyway.
dbr
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Re: Financial advisor question

Post by dbr »

pg59 wrote:
pkcrafter wrote:
to show how the average annual fee went from 1.75% to 1.27% after switching some funds.
Can you clarify this. Is this the expense ratios of the funds or the AUM fee? If funds, please list them, or some of them it there are a lot. As mentioned above, management fees are withdrawn from your account quarterly.

If these are fund expense ratios, they are very high and suggest you might have C class funds, which contain an embedded 1% ongoing commission.

Paul
I am told that our previous average fee on our account was 1.75% and that included his compensation and fund fees. He switched the accounts for ETFs and the new total fee is 1.27% (0.67 fund expense, 0.6 for him). A few of the funds were:
GCCSX
FRDTX
HSSCX
FNICX
ECASX
MCDVX

As stated above, he sold/bought much of the portfolio to lower the fees (not sure why he didn't do this years ago). One concern I have and that I need to investigate is whether the money needs to stay in the new funds for a certain period of time or risk penalties. That may be a stupid question, but I've been pretty clear that I need to educate myself.
Fund expenses should not exceed 0.10%, with a couple of possible exceptions. If your adviser is saying that part of his job is to cut fund expenses, he is doing an incompetent job and charging you for it.
retiredjg
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Re: Financial advisor question

Post by retiredjg »

pg59 wrote:I am told that our previous average fee on our account was 1.75% and that included his compensation and fund fees. He switched the accounts for ETFs and the new total fee is 1.27% (0.67 fund expense, 0.6 for him). A few of the funds were:
GCCSX
FRDTX
HSSCX
FNICX
ECASX
MCDVX
These are all very high cost funds of questionable value. Your advisor is not to be trusted. You need to prepare to leave. And that does include educating yourself. Start here.

https://www.bogleheads.org/wiki/Getting_started


As stated above, he sold/bought much of the portfolio to lower the fees (not sure why he didn't do this years ago).

That's a good thought on your part. It is possible this change was in response to the new fiduciary rules that went into effect in the last few weeks.

However, ETFs are pretty cheap - they don't usually cost anywhere near .67% so either he found some very bad ones for you or there is something added to the basic ETF cost.

ETA: I suppose that .67% could represent some low cost ETFs averaged in with some of the remaining high cost funds.
Last edited by retiredjg on Wed Jun 21, 2017 10:43 am, edited 1 time in total.
MittensMoney
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Re: Financial advisor question

Post by MittensMoney »

GCCSX
FRDTX
HSSCX
FNICX
ECASX
MCDVX
The funds he has you in are pretty awful, and what's worse is that these are supposedly the 'better' funds he switched you INTO? Unbelievable. If there are costs associated with liquidating the funds, the Rep at whichever firm you decide to move to will tell you and worst case scenario you can transfer them in-kind to at least ditch the additional 0.60% this guy is charging you. For fun, perhaps download a portfolio calculator like Personal Capital which will show you how much of your retirement your 'advisor' is siphoning off.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

MittensMoney wrote:

The funds he has you in are pretty awful, and what's worse is that these are supposedly the 'better' funds he switched you INTO?
These are the old funds. As of last week, the account was switched into new funds and those transfers are trickling into our mailbox. I'll post some when I get them. I realize I will definitely have to meet with someone to through the transfer process because it is complicated.
pkcrafter
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Re: Financial advisor question

Post by pkcrafter »

See replys in blue.
pg59 wrote:
pkcrafter wrote:
to show how the average annual fee went from 1.75% to 1.27% after switching some funds.
Can you clarify this. Is this the expense ratios of the funds or the AUM fee? If funds, please list them, or some of them it there are a lot. As mentioned above, management fees are withdrawn from your account quarterly.

If these are fund expense ratios, they are very high and suggest you might have C class funds, which contain an embedded 1% ongoing commission.

Paul
I am told that our previous average fee on our account was 1.75% and that included his compensation and fund fees. He switched the accounts for ETFs and the new total fee is 1.27% (0.67 fund expense, 0.6 for him). A few of the funds were:
GCCSX
FRDTX
HSSCX
FNICX
ECASX
MCDVX

These are not ETFs. Not only that, but they are all C class funds and each contains a 1% commission embedded in the expense ratio. In light of this, I don't see how he could have reduced your fees since C class funds have the hightest expense ratios. The first one is Gaballi with an expense ratio of 2.14%!!!! :annoyed

As stated above, he sold/bought much of the portfolio to lower the fees (not sure why he didn't do this years ago). One concern I have and that I need to investigate is whether the money needs to stay in the new funds for a certain period of time or risk penalties. That may be a stupid question, but I've been pretty clear that I need to educate myself.

No, it's not a stupid question as some funds do have redemption fees for certain periods of time.

You can check this yourself at Morningstar. Here's a link that shows the Gabelli fund. You can change funds by putting the ticker in the quote box at the top of the page. I didn't check them all, but I don't think these funds will have redemption fees.

http://financials.morningstar.com/fund/ ... ml?t=GCCSX

I agree with other posters who said he may have lowed fees (IF he actually did) because of the new fiduciary regs, but he may have also claimed that because you were beginning to question him. In the end, he didn't make it better, he just made it different.

I don't think there's much more to say about this, so now you need to turn your attention to developing a new plan. You can switch to a better, more honest advisor, you can move to a robo advisor, or you can grab the reins and manage yourself. I would also strongly suggest you don't actually make any moves until you have learned what you need to know and have a detailed plan in place. For instance, you can move things without ever having to talk to the advisor. But you need to know how to transfer things correctly. After that you can actually start the moving process.

Edit--Added: I now think you posted funds you used to have. What are names/tickers of some of the new funds/etfs. Wouldn't matter now because he really took advantage of you before. I also think he probably made the change because he had to.
:confused

Paul
Last edited by pkcrafter on Wed Jun 21, 2017 1:56 pm, edited 1 time in total.
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marbleous
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Re: Financial advisor question

Post by marbleous »

pg59 wrote: These are the old funds. As of last week, the account was switched into new funds and those transfers are trickling into our mailbox. I'll post some when I get them. I realize I will definitely have to meet with someone to through the transfer process because it is complicated.
The advisor has tried to make it complicated, but it is easier than you think to transfer out. Did you describe what accounts this money was in? If tax deferred it is a piece of cake to move. Just call up Vanguard, or the like, and they will walk you though it. Just sell it all and move the cash to a new IRA.

If this is all taxable, it sounds like the capital gains tax hit has already been taken. This recent shift to new funds or etfs probably made you bunch of taxable gains, but also reset your basis for a lot of your money. If so, just sell it again and move it out asap. No reason to stick with this advisor. You have probably already paid them hundreds of thousands of dollars too much.
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Meg77
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Re: Financial advisor question

Post by Meg77 »

You are at a very expensive firm, but what you have does not sound out of the ordinary. Paying 1.27% per year isn't crazy, especially if you are getting world class service (immediate responses to your emails and calls, invitations to educational and networking events, golf or lunch outings) and handholding and advice on a variety of financial topics from college and retirement planning to insurance and estate issues.

I recommend a couple of things:

1. Start trying to get your money's worth out of your advisor. It sounds like you have drifted into the background, and he probably rightly assumed that you aren't interested in more active communication because you didn't demand it or even (it sounds like) respond to periodic meeting invitations. Tell him you are interested in taking a more active role in managing your money as this new stage of life approaches, and let him know that you want to be educated and involved in what he is doing. If he is reluctant at all to teach or guide you, and frankly if he doesn't promptly suggest some special meetings to help explain everything to you, then move right along to step two.

2. Shop around. You may be someone that is more comfortable working with a financial advisor instead of doing everything yourself. Frankly, with over $3MM in assets and given your age and prior lack of interest, that is perfectly acceptable - despite what a lot of other Bogleheads will tell you. But given your portfolio size you can get your fees down to 1% at many firms (or even to 0.75% with a smaller less known firm or individual financial advisor). AND with that you should be getting impeccable service and responsiveness. I recommend going with a medium or smaller sized firm where you will be more of a "big fish" in a smaller pond. At RBC your account is one of the small ones. It's not going to demand as much attention and resources as the 8 figure accounts they are really chasing to move the needle.

It may be worth interviewing several planners/advisors and having them review your current portfolio and suggesting an alternative that they would implement. See who you feel comfortable with - who would you want to have to deal with after the loss of a family member? Who would you trust to help with the money element if a major life change such as a divorce or disability presents itself? Also consider that a younger, more recently educated financial advisor may actually be in your best interest. For one thing, many newer financial professionals will be more responsive and work harder to please you because they are trying to build their businesses (versus older financial advisors who are more likely to be simply riding the annuity of their AUM fees while golfing as much as possible instead of retiring). Also if your advisor is your age or older, you may face the possibility of him retiring or facing major health problems right as you do and right when you need him most.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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nedsaid
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Re: Financial advisor question

Post by nedsaid »

What I would do is calculate the returns from your portfolio and benchmark them against a blended index. I create a blended index of the US Total Stock Market Index, US Total Bond Market Index, and Total International Stock index. You use portfolio visualizer to track what your returns would have been with a three fund portfolio.

So if you have 40% US Stocks, 30% International Stocks, and 30% US Bonds; then use those percentages in Portfolio Visualizer using 40% US Total Stock Market Index, 30% Total International Index, and 30% US Total Bond Market Index.

My sense is that you are paying too much in fees and that your returns have probably trailed the indexes a bit. A $3.2 million portfolio is hardly life in hell. It hasn't been a disaster but you could have done better.

It would be interesting to know what your returns were and how the advisor had your portfolio allocated.
A fool and his money are good for business.
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FelixTheCat
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Re: Financial advisor question

Post by FelixTheCat »

Here's how you start to look at expenses. I took one of you funds Gabelli Small Cap Growth C GCCSX and looked it up on morningstar http://www.morningstar.com/funds/XNAS/GCCSX/quote.html
  • You are paying a 1% front-end load. Contribute $100 and only $99 is invested.
    Your fund charges you 2.14% annually for it's fees.
Now compare it to Vanguard's Small Cap growth index
  • No front-end load
    .07% in annual fees.
Have fun learning. The wiki has a lot of information.
Felix is a wonderful, wonderful cat.
Avo
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Re: Financial advisor question

Post by Avo »

GCCSX is a class C fund, and therefore the 1% load is likely back-end, not front end; meaning that you pay it when you sell, not when you buy; and that it likely does not apply after a certain holding period, usually one year.

Not that any of this matters. The OP is paying far more than necessary.
retiredjg
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Re: Financial advisor question

Post by retiredjg »

I don't think that is right either.

According to Investopedia, if I followed it right, the Class C shares have a level load - something you pay annually for as long as you own the fund. In addition, there can be a smaller back end load which does go away after the shares have been held long enough (seems like it is a year).

So in this case of the Gabelli Small Cap Growth C GCCSX, the 2.14% expense ratio is paid for as long as you hold the fund. Part of that (1%?) is the 12-b-1 fee which I believe goes to the salesperson and/or his company.

If the fund was sold in less than a year, there might have been an additional smaller back end load for selling too soon.

There is a load (commission), but it is not paid on the front end.

This is truly a clever and evil way to take money from customers who don't know what is going on and one of the reasons the fiduciary rule was put into place. The level load of possibly 1% is like a hidden 1% AUM fee. (I'm guessing at the percentage because 1% seems to be some kind of cap.) The fact that this poster has suddenly been moved to lower cost funds should be looked at with suspicion. They have mostly traded one set of hidden fees for something else that is not so hidden.
Righty
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Re: Financial advisor question

Post by Righty »

I'm sorry you're in this situation and I'm sure you're feeling some remorse for not being more involved over the past few years.

My advice would follow Meg77s - it is not apparent that this advisor is pulling a fast one on you or that you are being vastly overcharged (compared to industry norms). You should request a sit down with him/her and have them walk through everything about your account and relationship. The advisor must be able to do this in plain english - and do not move beyond a topic unless it makes 100% sense to you.

The biggest issue I see right now is that you are out of the loop and are not knowledgeable about your money and how its being invested. This is manifesting itself in two ways:

1. You aren't asking/don't know the right questions you should be asking your advisor - and this is causing confusion for them when trying to help you understand the situation. I am not sure if you've followed up but I would make it clear that their responses are not adequate and/or do not make sense to you.

2. In a like manner, you are coming here and posting snippets of conversations and the advisor's answers to questions which you don't understand. As a result - many people here seems to be getting fired up and are making blanket statements/suggesting sinister intentions which may or may not be relevant for you.

Both of these challenges are likely causing you quite a bit of distress - so you need to get up to speed on this topic as quickly as possible. If the advisor is not willing to take the time, then you should look elsewhere. Apologies if this is direct but this post was going down a rabbit hole which was not going to benefit you in any way.
Avo
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Re: Financial advisor question

Post by Avo »

pg59 wrote:What's a reasonable fee to pay and should it be capped at a certain amount? Thanks in advance.
A benchmark for full-service financial planning and investment management, by a firm that will be a fiduciary to you, is Buckingham Strategic Wealth, the firm of long-time contributor here, and author of numerous very helpful books, Larry Swedroe: http://buckinghamadvisor.com

At your asset level, they charge under 1% of AUM, plus minimal expense ratios on index and quasi-index funds:
http://www.moneyzen.com/wp-content/uplo ... erview.pdf
retiredjg
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Re: Financial advisor question

Post by retiredjg »

Another benchmark might be Vanguard's Personal Advisory Service. They charge .3% AUM and put you in rock bottom cost funds (I'd think the funds might average .2% or less?)

These numbers seem small, but if your portfolio makes 5% and you pay 1% to your "advisor", they have eaten a full 1/5th (20%) of your profit. If your portfolio has a good year, it will be less.

But in the years of a downturn or crash....you'll be paying them more than you are making. :shock:
Righty
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Re: Financial advisor question

Post by Righty »

OP - please remember to take what you read here with a grain of salt. The last two posts are not appropriate benchmarks for what you have - a fee-based account with actively managed funds.

Buckingham charges a similar advisory fee given the dedicated, in-person advisor model but implements portfolios passively - hence the lower price point.

PAS will also give you lower cost passive funds, and you get access to an advisor only through the phone.

Both are potential solutions for the help you require - but those are both options of what you could be paying, not what you should be paying given what your current advisory relationship.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

OP here -
Thanks to everyone for your thoughts and opinions. I think I share responsibility for my situation as I've been passive. We started with him when we were both young and he's built a big business at this point. I don't think he's evil.

My plan is to get an opinion from 2 to 3 advisors on my current situation and go from there. If I need to transition, I'll use a fee only person (or one of the lower % larger companies).

Also plan on continued education and a more active role. Luckily I have several more years to work and when I retire is up to me at this point.
dbr
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Re: Financial advisor question

Post by dbr »

pg59 wrote:OP here -
Thanks to everyone for your thoughts and opinions. I think I share responsibility for my situation as I've been passive. We started with him when we were both young and he's built a big business at this point. I don't think he's evil.

My plan is to get an opinion from 2 to 3 advisors on my current situation and go from there. If I need to transition, I'll use a fee only person (or one of the lower % larger companies).

Also plan on continued education and a more active role. Luckily I have several more years to work and when I retire is up to me at this point.
Your chances of getting good opinions from even one of 2 to 3 advisors are very small. The Catch 22 in this business is that until you are knowledgeable enough to in principle run this yourself you will not be able to tell if you are getting good advice. That doesn't mean you have to run it yourself if you are willing to pay what it costs for someone else to do it.

It might be interesting for you to share what you hear back on the Forum.
CedarWaxWing
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Re: Financial advisor question

Post by CedarWaxWing »

http://www.cfapubs.org/doi/abs/10.2469/faj.v70.n1.1

Is a link to "The Arithmetic of Active Investment" by John Bogle. I would read this and later on read the Bogle book that supports his claims as to why this paper is useful and correct.

Clicking the pdf tab will down load his brief succinct paper on this topic.

https://www.bogleheads.org/wiki/Taylor_ ... tment_Gems

Is a link to Taylor's Gems... a very nice collection of wisdoms from many of the books work reading on personal finance and investing. To get the support for those gems being true requires reading a given book... but all those books are worthwhile. Some are more pertinent perhaps as good first books to read.

For your situation I would consider that you have a lot of money, and are not in a terrible financial state.

Take what ever time you need to find a smart, honest, skilled communicator FA who takes no commissions and sells nothing but expertise and the time it takes to give you advice. This should include advice as to how to educate yourself over 1-2 years so as to enable you to manage most of your own day to day finance/investing decisions in low cost mutual funds with a diversified portfolio.

Some very good "first books" to read on personal finance and investing are:

1. How a Second Grader Beats Wall Street By Alan Roth, cpa, cfp (who has posted a lot of good advice on Bogleheads).

2. The Bogleheads' Guide to Investing, Second edition by Michael LeBoeuf, Mel Lindauer & Taylor Larimore

3. The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Mel Lindauer, Rick Ferri & Laura Dogu

4. The Little Book of Common Sense Investing by Jack Bogle

(Common Sense on Mutual Funds is the 700 pg version which is excellent but not fun to read for many people. Full of the evidence of why low cost funds have a solid advantage over most active funds.)

IF you have a good advisor, for a few years you may feel you need to occassionally call and ask for specific answers to specific questions, and also have an annual review, which can easily be done in person, or skype, or phone for no more than about 2 hours of the FA time.

The first overhaul visit I would suspect will take 4-8 hours depending on how organized your info is and how good a communicator the FA is.

Over about 2-5 years you should be able manage your own affairs with only occ questions and brief reviews of your portfolio IF you are able to read 2-4 books a year.

Spending some time on this bogleheads website, even if only 1 hour a week is time very well spent. It will over time slowly help you to know what your resources of financial knowledge are, and will greatly improve your "BS sniffing" abilities when it comes to sizing up people who want to put your hand into your financial affairs. :)

Best of luck, and congratulations on beginning to understand your situation, but also on having been wise enough to invest early, and apparently save well.

M
dbr
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Re: Financial advisor question

Post by dbr »

CedarWaxWing wrote:
Take what ever time you need to find a smart, honest, skilled communicator FA who takes no commissions and sells nothing but expertise and the time it takes to give you advice. This should include advice as to how to educate yourself over 1-2 years so as to enable you to manage most of your own day to day finance/investing decisions in low cost mutual funds with a diversified portfolio.
Far and away the most likely such advisor and the only one I actually know of that meets those criteria is this forum and the books and articles of similar ilk often published by participants here.
CedarWaxWing
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Re: Financial advisor question

Post by CedarWaxWing »

dbr wrote:
CedarWaxWing wrote:
Take what ever time you need to find a smart, honest, skilled communicator FA who takes no commissions and sells nothing but expertise and the time it takes to give you advice. This should include advice as to how to educate yourself over 1-2 years so as to enable you to manage most of your own day to day finance/investing decisions in low cost mutual funds with a diversified portfolio.
Far and away the most likely such advisor and the only one I actually know of that meets those criteria is this forum and the books and articles of similar ilk often published by participants here.
Which is why I recommend the only one I know to be meeting those criteria and who is also on this forum, and writes a lot of very common sense things that are backed up by academic evidence. There is a lot of good advice on this forum, but I think some people who are very rational may sleep better at night by having an hourly rate advisor to help make the a major portfolio transition. This is especially true if someone is a busy professional who is working very long hours and cannot find time to read a book per week during the transition away from the not so great advisor currently running the overly expensive and overly complicated portfolio that is almost surely under perfoming over the long term.

The books I recommended are excellent imho for a first four sequence. I found that for me it took a long time to determine which of the things I read over the years were based on evidence. A great deal more good books are available now then in the time I started earning more than a student's wage and had funds to invest. I lost about ten years of smart investing time trying to do what I read about, and yes, taking bad advice from smart people about who to trust to get help on investing. It is amazing how many smart people get, and accept, bad advice because how investing really works is very well obfuscated by the people who make a lot of money doing so.

This website is great for finding what to read, but it takes more than one book giving good info for a person to know how many more books to read before actually making some radical changes in their investments. A REALLY good FA (by my criteria I think) is well worth it for such a transition, especially when a lot of money is involved, so as not to make a big change more than once.

I tell most of my friends that they don't need an FA if they can read and do the work to get educated...and always refer them to bogleheads.org also. Then I tell them if they don't wish to read, they need an FA, but a REALLY good FA is hard to find, by the criteria I use.

:)


M.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

CedarWaxWing wrote: This is especially true if someone is a busy professional who is working very long hours and cannot find time to read a book per week during the transition away from the not so great advisor currently running the overly expensive and overly complicated portfolio that is almost surely under perfoming over the long term.
Hmmm - who could you be talking about. :happy
Thanks so much for the recommendations. I already bought the first book and Alan Roth may be one I contact for a second opinion.
I usually do read a book a week, but usually not about finance or investing. I know what I will be doing on vacation next week......
Finance-MD
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Re: Financial advisor question

Post by Finance-MD »

Congratulations on the net worth you've grown and saved.

Please know that at this point in your net worth, for every hour you put into learning and understanding managing your own money, you are actually getting paid more per hour than you do as a physician. Managing your money thus is financially more important than your actual job. You have enough to be retired today.

Read a few books from the bogleheads list - I recommend swedroe's 'right financial plan', Reading White coat investors book (listening to his podcast also) and if you want another physician book - Bernstein's four pillars.

Bogleheads can help you 100% of the way in every step of your journey, completely for free.

If you're paying $35k post-tax money, that could very well be $60K of pretax earnings per year. That's more than the average resident physician earns. And they are working 80hrs per week....

Managing your money will be a job for the rest of your life. It doesn't have to take a lot of time. Once you're in the swing of things, you could literally spend a few hours per year to do better than your advisors were... and get paid >$10,000 per hour in the process. A few hours to rebalance whenever you put money in or take it out... and maybe a tax loss harvest at an opportune time one to two times per year.

The annual cost itself is not as important however as the long term cumulative effect on your earnings.. because that lost $35k per year is not just $35k, it's $35k that's not invested and compounding over time... this could cumulatively cost over $1MM in earnings over the rest of your life.
Topic Author
pg59
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Re: Financial advisor question

Post by pg59 »

Thanks for your suggestions. it will not be overnight, but I will be making changes.
equanimity511
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Re: Financial advisor question

Post by equanimity511 »

Finance-MD wrote:Congratulations on the net worth you've grown and saved.

Please know that at this point in your net worth, for every hour you put into learning and understanding managing your own money, you are actually getting paid more per hour than you do as a physician. Managing your money thus is financially more important than your actual job. You have enough to be retired today.

Read a few books from the bogleheads list - I recommend swedroe's 'right financial plan', Reading White coat investors book (listening to his podcast also) and if you want another physician book - Bernstein's four pillars.

Bogleheads can help you 100% of the way in every step of your journey, completely for free.

If you're paying $35k post-tax money, that could very well be $60K of pretax earnings per year. That's more than the average resident physician earns. And they are working 80hrs per week....

Managing your money will be a job for the rest of your life. It doesn't have to take a lot of time. Once you're in the swing of things, you could literally spend a few hours per year to do better than your advisors were... and get paid >$10,000 per hour in the process. A few hours to rebalance whenever you put money in or take it out... and maybe a tax loss harvest at an opportune time one to two times per year.

The annual cost itself is not as important however as the long term cumulative effect on your earnings.. because that lost $35k per year is not just $35k, it's $35k that's not invested and compounding over time... this could cumulatively cost over $1MM in earnings over the rest of your life.
I agree entirely. As a fellow physician, it behooves you to spend whatever time is necessary to make sure that you are benefiting as much as possible from compounding returns while minimizing the vulnerabilities of compounding costs. There are enough red flags raised to suggest that your nest egg (nice job saving BTW) could be much larger than it is at present if this advisor was not syphoning your savings with a large annual fee to provide you with vague advise and expensive funds which likely likely has you doing worse than the average index. In just a few months you can learn enough to manage your portfolio all by yourself. It really doesn't take more than a few hours per year to rebalance a simplified portfolio to reflect your given level of risk. You really do stand to benefit from this over the next couple decades more than you will from any income you generate....
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F150HD
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Re: Financial advisor question

Post by F150HD »

pg59 wrote:I have a senior in high school so will be paying for college soon also - hoping the 529 plans perform well.
pg59 wrote: it looks like the annual fee we paid was for this portion was ~$35K
Look what you could save each year. Do you even need a 529? :happy
Long is the way and hard, that out of Hell leads up to light.
Jack FFR1846
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Re: Financial advisor question

Post by Jack FFR1846 »

I'd like to address a few of your statements. You have done pretty well with this adviser over the years, so feel that perhaps he's added some value. My response is "bunk!". Some years ago, I transferred an old 401k into a rollover IRA. Then I did the thing that a Fidelity study says brings investors the biggest returns.......I ignored it. So without a manager, I managed to get to $1.56M. Then I found Bogleheads.

Ok, so the next part is easy. When you don't know what funds to put your money in, a really safe place to put it all is into one of the Vanguard target date funds. Pick the date closest to when you want to retire and put it there. All $3M of it. As you learn more, if you want to choose your own asset allocation and actual funds for the 3 fund portfolio, you can do that. The target date funds cost about 1/20th of what you currently pay. I would even say to skip the Vanguard advisers as from what Bogleheads tend to report, they put you in the equivalent of a target date allocation anyways. This ain't hard......it really isn't. Understanding teenagers is hard. Investing is a piece of cake.
Bogle: Smart Beta is stupid
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