Are these fees for real?

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Jgiudici
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Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 9:16 am

Hey Everyone:

After learning a lot from everyone here and making some much needed adjustments to my portfolio, I began digging around my wife's portfolio, one of them at least. The very first fund I found I was blown away by the fees I saw. She did not choose these by the way, as an adviser did I think when these were first setup. She doesn't pay much attention to it but I think I will have to start doing that for her. I wanted to see if I am reading this right:

Fund - ACAPX

Fees & Expenses As of 08/30/2017
WellsTrade Transaction Fee No
Management Fee 0.78%
Admin Fee 0.03%
12b-1 1.00%
Maximum Front Load N/A
Deferred Load 5.00%
Maximum Redemption Fee N/A
Prospectus Gross Expense Ratio 2.04%

Is she really paying 2.04% on her account each year???? If so , is it a coincidence that the first two funds I looked at are both around 2%? Do advisers do this knowing it benefits them more by recommending funds with fees this high?


Thanks!

vested1
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Re: Are these fees for real?

Post by vested1 » Tue Feb 13, 2018 9:28 am

It's worse than you think. The ER (Expense Ratio) for the fund is 2.04%, which is in addition to the other fees.

https://investor.vanguard.com/mutual-fu ... IntExt=EXT

The only fee that is non-recurring is the "deferred load" of 5%, which will be the cost of dumping the fund. This is called a back load, so if the money invested in the fund grows larger the 5% fee grows larger as well.

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Pajamas
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Re: Are these fees for real?

Post by Pajamas » Tue Feb 13, 2018 9:31 am

Pretty much so. The advisor needs to keep his tummy full and it seems like your wife is definitely helping.

The 5% fee may decline as a percentage over time. Check that and ask here with more information (percents and balances and options) to see if she should switch now or if it might be better to wait.

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Watty
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Re: Are these fees for real?

Post by Watty » Tue Feb 13, 2018 9:37 am

If you just Googled the fund name and got the fees off the internet then they may not be the fees that she is actually paying.

You need to look at the fees when she is signed on with her account or in her paperwork since the fees may be different.

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 9:46 am

Pajamas wrote:
Tue Feb 13, 2018 9:31 am
Pretty much so. The advisor needs to keep his tummy full and it seems like your wife is definitely helping.

The 5% fee may decline as a percentage over time. Check that and ask here with more information (percents and balances and options) to see if she should switch now or if it might be better to wait.
The balances of her 7 Funds are as follows, which all have similar fees from the looks of it:

$6376, $4823, $3933, $3116, $ 2774, $1332, and $1046.

I was about ready to move this all into her primary retirement at TransAmerica where she has the Vanguard Total Market Fund at .07% but I'm worried about the 5% for dumping them.

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Pajamas
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Re: Are these fees for real?

Post by Pajamas » Tue Feb 13, 2018 9:48 am

Why so many funds? I guess that makes it look like the advisor is doing something worth paying for.

Look to see if the 5% surrender fee declines over time. Maybe ask the advisor what the total fees would be for moving everything now. At least stop putting new money in or reinvesting dividends.

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sunnywindy
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Re: Are these fees for real?

Post by sunnywindy » Tue Feb 13, 2018 9:50 am

Morningstar gives the fund a Bronze rating, but a Negative rating for price. To me, it seems like the fund is just one of thousands that are designed to be index huggers (low research costs for the parent company) and made just to extract maximum money out of purchasers.

"Price Pillar: Negative | Alec Lucas, Ph.D. 12/08/2017
Fees have come down in the past few years but remain lofty compared with most rivals', earning the fund a Negative Price rating. The A shares' 1.22% expense ratio, which applies to half the fund's asset base, is 10 basis points above the large-cap, front-load peer median. That ranks in the most expensive third of those peers. At 0.89%, the Z shares are more competitively priced, but their $500,000 minimum investment places them in the large-cap institutional fee-level comparison group. As a result, they too have an above-average price tag.

Investors also face ample trading costs thanks to the portfolio's typically triple-digit annual turnover. In fiscal 2016, brokerage fees of 0.10% of average net assets were well above the 0.04% category median."
Powered by chocolate!

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 9:54 am

Pajamas wrote:
Tue Feb 13, 2018 9:48 am
Why so many funds? I guess that makes it look like the advisor is doing something worth paying for.

Look to see if the 5% surrender fee declines over time. Maybe ask the advisor what the total fees would be for moving everything now. At least stop putting new money in or reinvesting dividends.
We currently don't contribute to this anymore and just let it grow. 100% of her contributions are going to the Vanguard Fund. The fees just seem out of whack when we could just move these funds to her primary retirement with substantially less fees. I'll have to inquire what it would cost us to move it out altogether and roll it into her 401K.

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Pajamas
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Re: Are these fees for real?

Post by Pajamas » Tue Feb 13, 2018 10:01 am

Jgiudici wrote:
Tue Feb 13, 2018 9:54 am

We currently don't contribute to this anymore and just let it grow. 100% of her contributions are going to the Vanguard Fund. The fees just seem out of whack when we could just move these funds to her primary retirement with substantially less fees. I'll have to inquire what it would cost us to move it out altogether and roll it into her 401K.
It might be easier to make a clean break and ask Vanguard to pull the accounts and don't worry about the surrender charges or talking to the adviser because the charges would be made up by the lower expenses at Vanguard. When the advisor gets the request to transfer to Vanguard he will know exactly why so there is no need to talk to him. My thought in suggesting that you inquire about the fees was just to ascertain if waiting a few weeks might reduce the fees on an initial lump-sum investment or center.

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 10:02 am

Pajamas wrote:
Tue Feb 13, 2018 10:01 am
Jgiudici wrote:
Tue Feb 13, 2018 9:54 am

We currently don't contribute to this anymore and just let it grow. 100% of her contributions are going to the Vanguard Fund. The fees just seem out of whack when we could just move these funds to her primary retirement with substantially less fees. I'll have to inquire what it would cost us to move it out altogether and roll it into her 401K.
It might be easier to make a clean break and ask Vanguard to pull the accounts and don't worry about the surrender charges or talking to the adviser because the charges would be made up by the lower expenses at Vanguard. When the advisor gets the request to transfer to Vanguard he will know exactly why so there is no need to talk to him.
That's what I was thinking, in regards to getting out early instead of waiting until later. Appreciate all the input from everyone.

boglewill34
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Re: Are these fees for real?

Post by boglewill34 » Tue Feb 13, 2018 10:04 am

Pajamas wrote:
Tue Feb 13, 2018 9:48 am
Why so many funds? I guess that makes it look like the advisor is doing something worth paying for.

Look to see if the 5% surrender fee declines over time. Maybe ask the advisor what the total fees would be for moving everything now. At least stop putting new money in or reinvesting dividends.
My wife's SIMPLE was at a custodian where they broke up a $2500 total portfolio into two funds, one was $125. There was a yearly management fee per fund of $12.50. So yes, just to churn money out of people that don't open their statements.

BuckyBadger
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Re: Are these fees for real?

Post by BuckyBadger » Tue Feb 13, 2018 10:06 am

Balances are relatively low. I'd get out right now with a clean break, pay your penalty, and learn a very good lesson!

I'd get out immediately and put the money in her vanguard accounts.

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 10:13 am

BuckyBadger wrote:
Tue Feb 13, 2018 10:06 am
Balances are relatively low. I'd get out right now with a clean break, pay your penalty, and learn a very good lesson!

I'd get out immediately and put the money in her vanguard accounts.
Agreed! I'll be sure to remind her later that her non-interest in her IRA's is going to cost her a little money. Definitely time to move them to Vanguard.

TIAX
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Re: Are these fees for real?

Post by TIAX » Tue Feb 13, 2018 10:13 am

Tell us a bit more about the TransAmerica account. What type of account is that? Are there any fees besides the expense ratio?

In any case, I would move everything out even if there is a 5% deferred load and account closing fee.

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 10:14 am

boglewill34 wrote:
Tue Feb 13, 2018 10:04 am
Pajamas wrote:
Tue Feb 13, 2018 9:48 am
Why so many funds? I guess that makes it look like the advisor is doing something worth paying for.

Look to see if the 5% surrender fee declines over time. Maybe ask the advisor what the total fees would be for moving everything now. At least stop putting new money in or reinvesting dividends.
My wife's SIMPLE was at a custodian where they broke up a $2500 total portfolio into two funds, one was $125. There was a yearly management fee per fund of $12.50. So yes, just to churn money out of people that don't open their statements.
$12.50 to manage a $125 fund. Sounds like a great deal, for the adviser at least!

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knpstr
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Re: Are these fees for real?

Post by knpstr » Tue Feb 13, 2018 10:18 am

Jgiudici wrote:
Tue Feb 13, 2018 9:16 am
Is she really paying 2.04% on her account each year???? If so , is it a coincidence that the first two funds I looked at are both around 2%? Do advisers do this knowing it benefits them more by recommending funds with fees this high?
Adviser is a misnomer, it is a salesperson.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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greg24
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Re: Are these fees for real?

Post by greg24 » Tue Feb 13, 2018 10:37 am

BuckyBadger wrote:
Tue Feb 13, 2018 10:06 am
Balances are relatively low. I'd get out right now with a clean break, pay your penalty, and learn a very good lesson!

I'd get out immediately and put the money in her vanguard accounts.
+9999999999

Khanmots
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Re: Are these fees for real?

Post by Khanmots » Tue Feb 13, 2018 10:45 am

Don't feel like you're the only one who got suckered by an advisor. I think you'll find that the majority of current bogleheads had such an experience.

I know I paid in order to learn my lesson with Ameriprise. 5% front-end load, all funds had a 1% 12b-1 fee (essentially a kick-back to the advisor) in addition to their high ER...

As for coincidence, when I was getting dissatisfied with some of the fees (like a $20 quarterly fee on a sweep money market) I read through a lot of the fine print on their operations. One of the things that really struck me was that unless you brought up and asked questions about a specific fund their advisors could only suggest funds from two internally generated lists. The more preferred of the two lists had an average 12b-1 fee of 1% (i.e., the max) the other had an average 12b-1 fee of 0.75%

I didn't consider that coincidence, found this site, and bailed very shortly thereafter eating whatever fees I had to. Given the size of the balances and the high ERs, I'd do the same in your case even with the deferred load.

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Toons
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Re: Are these fees for real?

Post by Toons » Tue Feb 13, 2018 10:49 am

Info From Vanguard :happy

"Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you'd end up with about $430,000.
If, on the other hand, you paid 2% a year in costs, after 25 years you'd only have about $260,000."



https://investor.vanguard.com/investing ... t-of-costs
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 10:59 am

Khanmots wrote:
Tue Feb 13, 2018 10:45 am
Don't feel like you're the only one who got suckered by an advisor. I think you'll find that the majority of current bogleheads had such an experience.

I know I paid in order to learn my lesson with Ameriprise. 5% front-end load, all funds had a 1% 12b-1 fee (essentially a kick-back to the advisor) in addition to their high ER...

As for coincidence, when I was getting dissatisfied with some of the fees (like a $20 quarterly fee on a sweep money market) I read through a lot of the fine print on their operations. One of the things that really struck me was that unless you brought up and asked questions about a specific fund their advisors could only suggest funds from two internally generated lists. The more preferred of the two lists had an average 12b-1 fee of 1% (i.e., the max) the other had an average 12b-1 fee of 0.75%

I didn't consider that coincidence, found this site, and bailed very shortly thereafter eating whatever fees I had to. Given the size of the balances and the high ERs, I'd do the same in your case even with the deferred load.
I 100% agree. This site has been a life-saver with the amount of good information it has, along with the contributions from everyone that replies and posts on here. I've since reallocated my portfolio and obviously have a little more work to do on my wife's. As a previous comment someone already made, I'm sure Wells Fargo Advisers won't have to ask "Why" I'm moving my funds :D

pkcrafter
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Re: Are these fees for real?

Post by pkcrafter » Tue Feb 13, 2018 11:33 am

Jgiudici wrote:
Tue Feb 13, 2018 9:16 am
Hey Everyone:

After learning a lot from everyone here and making some much needed adjustments to my portfolio, I began digging around my wife's portfolio, one of them at least. The very first fund I found I was blown away by the fees I saw. She did not choose these by the way, as an adviser did I think when these were first setup. She doesn't pay much attention to it but I think I will have to start doing that for her. I wanted to see if I am reading this right:

Fund - ACAPX

Fees & Expenses As of 08/30/2017
WellsTrade Transaction Fee No
Management Fee 0.78%
Admin Fee 0.03%
12b-1 1.00%
Maximum Front Load N/A
Deferred Load 5.00%
Maximum Redemption Fee N/A
Prospectus Gross Expense Ratio 2.04%

Is she really paying 2.04% on her account each year???? If so , is it a coincidence that the first two funds I looked at are both around 2%? Do advisers do this knowing it benefits them more by recommending funds with fees this high?


Thanks!
Yes indeed, she is paying 2.04% per year. Stuff you must know IA. This fund represents one of the most egregious types of funds an advisor can dump on a "client." First, the management fee is high at 0.78%, but the worst thing is the 1.00% 12-b1 fee.
12b-1 fees are marketing and distribution expenses that fund shops charge investors. These fees are used to pay for advertising and marketing efforts, including commissions paid to financial advisors for recommending the shop's funds to clients.


Normally a fund with a high 12-b1 fee is called class C, but this fund is labeled B class because B class designates a fund with a back-end load (another commission) which this fund also has. The back end load starts at 5% the first year and drops by 1% each year until is disappears after 5 years. This "advisor" could not pick a better fund for him nor a worse one for your wife. Costs matter--a lot! Furthermore, if you need any more, this guy is not acting in your wife's best interest. Therefore, he is not a fiduciary, just a shyster. Fire him immediately.

Paul
Last edited by pkcrafter on Tue Feb 13, 2018 11:31 pm, edited 1 time in total.
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.

Jgiudici
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Re: Are these fees for real?

Post by Jgiudici » Tue Feb 13, 2018 11:43 am

pkcrafter wrote:
Tue Feb 13, 2018 11:33 am
Jgiudici wrote:
Tue Feb 13, 2018 9:16 am
Hey Everyone:

After learning a lot from everyone here and making some much needed adjustments to my portfolio, I began digging around my wife's portfolio, one of them at least. The very first fund I found I was blown away by the fees I saw. She did not choose these by the way, as an adviser did I think when these were first setup. She doesn't pay much attention to it but I think I will have to start doing that for her. I wanted to see if I am reading this right:

Fund - ACAPX

Fees & Expenses As of 08/30/2017
WellsTrade Transaction Fee No
Management Fee 0.78%
Admin Fee 0.03%
12b-1 1.00%
Maximum Front Load N/A
Deferred Load 5.00%
Maximum Redemption Fee N/A
Prospectus Gross Expense Ratio 2.04%

Is she really paying 2.04% on her account each year???? If so , is it a coincidence that the first two funds I looked at are both around 2%? Do advisers do this knowing it benefits them more by recommending funds with fees this high?


Thanks!
Yes indeed, she is paying 2.04% per year. Stuff you must know IA. This fund represents one of the most egregious types of funds an advisor can dump on a "client." First, the management fee is high at 0.78%, but the worst thing is the 1.00% 12-b1 fee.
12b-1 fees are marketing and distribution expenses that fund shops charge investors. These fees are used to pay for advertising and marketing efforts, including commissions paid to financial advisors for recommending the shop's funds to clients.


Normally a fund with a high 12-b1 fee is called class C, but this fund is labeled B class because B class designates a fund with a back-end load (another commission) which this fund also has. The back end load starts at 5% the first year and drops by 1% each year until is disappears after 5 years. This "advisor" could not pick a better fund for him nor a worse one for your wife. Costs matter--a lot! Furthermore, if you need any more, is a his guy is not acting in your wife's best interest. Therefore, he is not a fiduciary, just a shyster. Fire him immediately.

Paul
Thanks for the info on the deferred load fee Paul. This may actually have a bright side as my wife has had this account for close to 5 years if not more, so we may be able to at least save a little face!

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David Jay
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Re: Are these fees for real?

Post by David Jay » Tue Feb 13, 2018 1:04 pm

pkcrafter wrote:
Tue Feb 13, 2018 11:33 am
The back end load starts at 5% the first year and drops by 1% each year until is disappears after 5 years. This "advisor" could not pick a better fund for him nor a worse one for your wife.
After 5 years he can move the money to a new fund and start the clock again. After all, who would consider a 20% turnover rate "churning".
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

pkcrafter
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Re: Are these fees for real?

Post by pkcrafter » Tue Feb 13, 2018 4:46 pm

David Jay wrote:
Tue Feb 13, 2018 1:04 pm
pkcrafter wrote:
Tue Feb 13, 2018 11:33 am
The back end load starts at 5% the first year and drops by 1% each year until is disappears after 5 years. This "advisor" could not pick a better fund for him nor a worse one for your wife.
After 5 years he can move the money to a new fund and start the clock again. After all, who would consider a 20% turnover rate "churning".
Right! I just though of this, but the back end load to get out could be called ransom money. The 1% 12b-1 fee is vampire money. :happy

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.

Red Spot
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Re: Are these fees for real?

Post by Red Spot » Tue Feb 13, 2018 6:22 pm

Maybe there is a less sophisticated way to assess the cost of investing.
I like to use a thought experiment where all investment costs and eventually taxes are deferred until that day when you are ready to deplete the account
Using a prior example of a $100,000 lump sum invested for 25 years with a return of 6%, the final balance would be as stated, $430.000
Here comes the fun part – let’s say you financial adviser has generously elected to defer all of his (say 2%) annual fee until depletion day so he is standing in line with Uncle Sam and possibly your state ready to collect.

Adviser – I own 50% of your portfolio
Uncle Sam – I own 20% of your gain (the actual percentage may be higher or lower)
Your State – We own 5.1% of your gain (just an example)

By my reckoning you only actually own about 31% of $430,000 or $132,000

I’m sure your adviser will wish you (and himself) a happy retirement

venkman
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Re: Are these fees for real?

Post by venkman » Tue Feb 13, 2018 11:14 pm

Jgiudici wrote:
Tue Feb 13, 2018 9:46 am
I was about ready to move this all into her primary retirement at TransAmerica where she has the Vanguard Total Market Fund at .07% but I'm worried about the 5% for dumping them.
If you DON'T transfer the money now, you'll pay 5% in excessive ER costs over the next 2.5 years.

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