Help Advise with a Fidelity Managed (discretionary) Account

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minskbelarus47
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Help Advise with a Fidelity Managed (discretionary) Account

Post by minskbelarus47 » Thu Nov 16, 2017 6:41 pm

Visited our friendly Fidelity account manager today and after quite a few meetings, he recommended we look at a FIDO managed (discretionary) account. While I feel the Boglehead forum advice is sufficient, my wife, who has absolutely no interest in investments, thinks this is a good idea. We have more than sufficient monthly incomes (2 x fed retirements, 2 SS, all 4 with COLA) to meet our needs, should I meet an early demise (dirt nap) or be confronted with memory issues in the future, I am not opposed to this. We have approximately 1.5M in our Fido account, another 250 in TSP, and around 1.5M in houses. So, here was the pitch.

Management fees of .77% which would be around $9-10K based on our account balances;

Assuming we invest in index funds, our ER's would be .17%, not the lowest, but not 5%.

I know you probably need more info, and I know most who view this are against managed accounts. But I do see a place for it in light of the above information.

1. So, for managed accounts, how does this stack up. Against Vanguard, for example.

2. What questions do I need to ask.

3. Or is this just a bad idea...

All advice respected.

MB

Grt2bOutdoors
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by Grt2bOutdoors » Thu Nov 16, 2017 6:51 pm

Vanguard can offer Portfolio Advisory Services for 0.30%. Why don’t you give them a call and kick the tires?

Fidelity is going to cost you more than double, are you guaranteed double the returns? What are you getting for the price of a nice all expenses paid European vacation each year?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dbr
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by dbr » Thu Nov 16, 2017 7:27 pm

You can easily afford making an annual gift to Fidelity so why not? It will mean someone is there to keep on top of things, answer your wife's questions when you are not around etc. I'm not so sure this immunizes you from being moved to expensive funds, being sold some crazy annuity, or something, but that is probably not likely. I think the question for your wife is how she likes spending the the $10K a year compared to other things she spends money on. Is $10K essentially nothing to you?

lakja
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by lakja » Thu Nov 16, 2017 8:25 pm

I wouldn’t transfer anything from the TSP. The target date funds are managed and extremely low price. Plus you have access to the G Fund.

minskbelarus47
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by minskbelarus47 » Thu Nov 16, 2017 9:59 pm

I was hoping for some more than obvious responses. I am sure out all these folks who post, someone must have experience (good or bad) with a managed account.

I know most are in the 2% range, this one is less than 1%. With a 60/40 portfolio, Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market. Anyone have any ideas on how managed accounts do compared to a 3 fund, 4 fund, 5 fund model portfolio in the 60/40 range.

Snarky answers also accepted.

Fclevz
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by Fclevz » Thu Nov 16, 2017 11:38 pm

My father has a managed account. I don't think they really do much to make it worth the cost. At least when it comes to portfolio management. However, where it is worth the cost is in the psychological counselor realm. He needs someone to talk to about stuff and reassure him (family doesn't count).

But if the full counselor aspect isn't strictly necessary, I wonder what they might do that's better than Fidelity Go, which is half the price.

DippityDoo
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by DippityDoo » Fri Nov 17, 2017 12:44 am

minskbelarus47 wrote:
Thu Nov 16, 2017 9:59 pm
With a 60/40 portfolio, Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market. Anyone have any ideas on how managed accounts do compared to a 3 fund, 4 fund, 5 fund model portfolio in the 60/40 range.
Hi, minskbelarus47. I understood your original post to state that you are financially comfortable. Not to be disrespectful, but do you really have to beat the market at this stage? In his updated version of The Little Book of Common Sense Investing, John Bogle discusses a simple stock/bond portfolio and allocation at various life stages. I highly recommend the book. He makes a convincing case that investors are better off to accept whatever the market gives via a simple porfolio (total stock market index/bond index) than trying to beat the market.

As far as questions, IMHO the most important ones should be directed to your wife to be sure you understand why she thinks a managed account may be a good idea. For example, if the concern is that you may predecease her, will she be more comfortable with account managers who may turn over every couple years than a trusted family member? If the concern is that she thinks an "expert" is needed, does she understand she will be dealing with an advisor who also wears a sales cap? If she fears making a costly mistake handling investments on her own, does she understand the cost of account management and funds with high fees? Does she understand the concept of something like a target date fund that manages itself? I think it's important to talk about all the pros/cons with your wife so she understands that a managed account may not be all she envisions it to be.

As far as questions for the person potentially managing your account, I would ask what figures into fund selection. What consideration is given to expense ratios? And I would have a LONG discussion about potential conflict of interest. I would ask the rep how he is compensated and compare his answers to Fidelity's disclosure statement. I'd probably ask what percent of his salary was base salary vs bonus the last 5 years. (The higher the bonus, the more probable he met his sales quota.) I'd also ask if he foresees potential conflicts of interest and how he handles those situations. I wouldn't hand over my account to anyone not comfortable having a frank discussion about these things. But that's just me.

I'm not qualified to give financial advice. But I do have an opinion: You can probably save a lot of money by arranging for the investments to be put into target date or other appropriate low-cost funds if you predecease your wife or can no longer manage your investments. And I believe your wife will be more likely to have her best interests served by a trusted family member who takes over management or an independent financial advisor who works on an hourly fee than a brokerage employee or subsidiary management firm.

Disclosure: I moved from Edward Jones to Fidelity earlier this year. I am a satisfied Fidelity customer invested in low-cost funds (Vanguard, Fidelity, iShares). I enjoy talking to my Fidelity rep but wouldn't want him managing my money.

vested1
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by vested1 » Fri Nov 17, 2017 9:59 am

minskbelarus47 wrote:
Thu Nov 16, 2017 9:59 pm
I was hoping for some more than obvious responses. I am sure out all these folks who post, someone must have experience (good or bad) with a managed account.

I know most are in the 2% range, this one is less than 1%. With a 60/40 portfolio, Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market. Anyone have any ideas on how managed accounts do compared to a 3 fund, 4 fund, 5 fund model portfolio in the 60/40 range.

Snarky answers also accepted.
Since you asked: Be aware that .77% is less than you will be paying, depending on the choices of investments and how often those investments are churned.

I started out with Fidelity PAS with a 1% fee, but when my dedicated investment counselor was promoted to larger accounts, he "allowed" me to stay with him at a lowered fee of .66%, and I wondered why he would do such a thing. My .66% fee at Fidelity was more like 2.2% when all of the fund fees and churning was taken into account. I was sold inappropriate investments because I was naive, such as the initial investment of 100% of my life savings after retirement at megacorp in a single GNMA. After the 1 year mark, my advisor sold the GNMA and talked me into an annuity with 25% of my life savings during the last 5 years of my accumulation phase while I was working for a different employer. He invested the rest of my portfolio in 20 high fee funds which were constantly being replaced with other high fee funds. Fidelity never beat their own benchmarks on my account. Twenty funds seems to be the magic number for Fidelity PAS clients from reading other posts on this site. If you go with Fidelity PAS you will likely see all of the funds they purchase for you with the letter "F" in front (Fidelity fund).

If, on the other hand, you know what you want to invest in, such as the 3 fund portfolio, viewtopic.php?f=10&t=88005 why do you need to pay someone to manage your accounts when you are alive? I would suggest leaving instructions with your wife, if she is currently uninterested in your investment plan, to transfer the portfolio to Vanguard PAS at a .3% management fee if you die. If you don't agree with the investing choices of VG PAS, which heavily favors international stocks and bonds, I would invest in a life strategy VG fund that mirrors your AA.

My wife and I are retired, delaying SS, and have a 60/40 AA. We have combined fees of .08% in our portfolio.

As for the long term effect of fees, plug in your numbers here http://buyupside.com/calculators/feesdec07.htm Even if you ignore loads or redemption fees, and simply input $1,500,000 with an expected 6% yearly gain, over a 30 year retirement you would be paying $1,783,093 in fees at .77%. Compare that to $204,385 in fees using the same criteria, but paying .08% instead.

minskbelarus47
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by minskbelarus47 » Fri Nov 17, 2017 12:44 pm

Thanks you both for your posts. I believe these two will help answer some questions about NOT using a Fido PAS account.

Wife is willing to do some reading, so I have printed out Taylor Larimore's post with links on the The Three Fund portfolio, and article Why Index Funds Win, Ferri's Wisdom of 60/40 Portfolios Timeless, Efficient investing with the Three Fund Portfolio, and Rebalancing - the 5/25 Rule.

I suspect that there is an advisor who is not truly an advisor, but a 'Liaison" to the SAI folks who are actually doing the investing (buying selling). In this discretionary relationship, they can pretty buy or sell (read churn) in my account as they see fit. (I may be wrong here, as brochures haven't arrived yet?)

I believe we are now at the stage of doing our own portfolio management on 3-5 index funds. I find that now that we have our retirement funds, are faced with RMD's, there may be no need to assume the same amount of risk that we have in the past. There was an interesting discussion on why a 30/70 portfolio is not out of the question. By the way, wife's TSP is totally G fund as that has been our bond allocation outside of our FIDO account, where the analyzer puts us in about 85+% equities. Wife plans to transfer TSP G fund to Fido when her RMDs start next year. We are both in agreement to "take money off the table", whatever that means, since this last year (YTD) was good performance.

Lastly, fortunately/unfortunately, our taxable has a lot of legacy stocks (with unknown yet cost basis) from the 80's/90's that have done remarkably well, which we both want to turn into index funds, but will pay hefty capital gains. This, plus RMDs are throwing us into higher brackets, which also impact Medicare Part B expenses But, we do reflect that we are blessed to have these problems.

Any additional comments???? Thanks for inputs so far.

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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by ClaycordJCA » Fri Nov 17, 2017 2:18 pm

I suggest you investigate the Fidelity Freedom Index Funds. Note the index version is very different than the plain Fidelity Freedom Funds, which use active funds. I’ve convinced my father, sort of, to use a Freedom Index Fund instead of PAS. His Advisor never really pushed him on his equity allocation and until I recently said something he was still at 75% at 88 years young. :oops: The 2020 Fund has approximately 58% allocated to equities. Net expense ratio for investor class is .15%. And no PAS fees.

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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by MidFlorida1214 » Fri Nov 17, 2017 3:54 pm

I used Fidelity Portfolio Advisory Service for a few years. I never had any problems with them. They maintained excellent communications and were always willing to talk. I had a set up of actively managed funds mixed with some ETF’s. The fee was right at 1%. I did not us the index fund option that they have, which should lower individual fund expense fees. I never saw them churn the accounts I had. When they do trade, there is no commission or trading fee involved. Whatever fees they receive for choosing the funds they utilize is applied as a credit to your Fidelity PAS management fee. You can search for and read their program fundamental on the Fidelity site to gain a better u derstanding.

I married last year. We wanted a local advisor (a CFP) who would work with more than portfolio management. So we moved to one here in town and now use DFA funds. Our advisor looks at all our financial life, rather than just our funds and allocation.

What it comes down to in the end is what services you and your spouse want, the complexity of your accounts, and your discipline in maintaining your investment plan. If your spouse is not interested in managing the money, then an advisor might be a good choice.

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Rick Ferri
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by Rick Ferri » Fri Nov 17, 2017 5:36 pm

minskbelarus47 wrote:
Thu Nov 16, 2017 9:59 pm
Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market.
I have no recollection of ever saying this. However, there is a 0% probability of outperforming the market with an index fund that tracks the market less fees. The only way one can outperform is with an active fund. Hence, using an active fund “increases the likelihood” of outperforming, but not by as much as it increases the likelihood of underperforming.

Rick Ferri
Last edited by Rick Ferri on Fri Nov 17, 2017 5:42 pm, edited 2 times in total.
The views expressed by Rick Ferri are strictly his own as a private investor and author and do not reflect the views of any entity or other persons.

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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by PFInterest » Fri Nov 17, 2017 5:41 pm

Grt2bOutdoors wrote:
Thu Nov 16, 2017 6:51 pm
Vanguard can offer Portfolio Advisory Services for 0.30%. Why don’t you give them a call and kick the tires?

Fidelity is going to cost you more than double, are you guaranteed double the returns? What are you getting for the price of a nice all expenses paid European vacation each year?
This. End of forum posts!

PFInterest
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by PFInterest » Fri Nov 17, 2017 5:42 pm

Rick Ferri wrote:
Fri Nov 17, 2017 5:36 pm
minskbelarus47 wrote:
Thu Nov 16, 2017 9:59 pm
Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market.
I have no recollection of ever saying this. That said, there is a 0% probability of outperforming the market with an index fund that tracks the market less fees. The only way one can outperform is with an active fund. Hence, using an active fund “increases the likelihood” of outperforming, but not by as much as it increases the likelihood of underperforming.

Rick Ferri
Whoa, Rick is back!

Shallowpockets
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by Shallowpockets » Fri Nov 17, 2017 5:44 pm

I talked to Fidelity rep and when they made the pitch I asked for an example of what funds I might be in. They provided me with a sheaf of papers with greater than 30 funds.
That is a whole lot more funds than I had and way below a simple BH fund family.
Plus, many of the funds were maybe 5k-10k investments. So any losses, or gains, would be small overall, but with so many funds the picking of those funds would matter. More funds, more churn. Most of all, all those funds were just too hard for me to keep up with. If I had gone with it I would most certainly have followed those funds to see what they were doing and if those picks were worth it.
All those funds create confusion and maybe that is the point of the advisor. Your wife would be over whelmed and think that she surely does need an advisor after seeing what they might put her in.

minskbelarus47
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by minskbelarus47 » Mon Nov 20, 2017 6:02 pm

Sorry Rick. I got that back a$$wards. My mistake.

I am looking for a Rick Ferri 60/40 (non Vanguard- either iShares or Fidelity) equivalents of his model portfolio for:

Note: I have some equivalents

Total Market
Small Cap Value (IJS)
REIT (IYR)
Europe (could all these international be IXUS?)
Pacific
Emerging Mkts
Int'l Small Cap Value

Total Bond
Inflation Protected bonds ?
High Yld Bonds ?

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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by abuss368 » Fri Nov 24, 2017 1:35 pm

minskbelarus47 wrote:
Thu Nov 16, 2017 9:59 pm
ith a 60/40 portfolio, Rick Ferri says that adding an actively managed mutual fund increases the likelihood of outperforming the market. Anyone have any ideas on how managed accounts do compared to a 3 fund, 4 fund, 5 fund model portfolio in the 60/40 range.
I have read Rick's posts for many years and have learned a great amount about investing. I do not recall however, ever hearing Rick mention this or recommend active funds in an attempt to beat the market.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

retiredjg
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Re: Help Advise with a Fidelity Managed (discretionary) Account

Post by retiredjg » Fri Nov 24, 2017 2:56 pm

minskbelarus47 wrote:
Thu Nov 16, 2017 6:41 pm
Visited our friendly Fidelity account manager today and after quite a few meetings, he recommended we look at a FIDO managed (discretionary) account. While I feel the Boglehead forum advice is sufficient, my wife, who has absolutely no interest in investments, thinks this is a good idea.
There have not been many examples, but some of the absolute worst portfolios we have seen here were set up by Fidelity advisors using Fidelity Advisor funds and the Strategic Advisor funds.

In addition, when the victims decided to move their money, they had to sell their "special" funds (capital gains taxes) because they could not take them to another custodian.

Based on those few examples, there is no way I'd use their portfolio management service. I might use a Fidelity advisor who was not getting an AUM fee or I might use Fidelity Go though. But not knowing how to avoid the bad Fido AUM advisors, I would not risk trying it.

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