First Post: Fees question

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
twolabs
Posts: 2
Joined: Mon Mar 12, 2018 3:41 pm

First Post: Fees question

Post by twolabs » Mon Mar 12, 2018 4:29 pm

Hello,

I have a question regarding fees. When an advisor advertises a fee structure, does it include other fees, such as the 12B-1, or is the 12B-1 in addition to the advisor's fee? I suspect it's in addition to.

Thank you.

User avatar
FiveK
Posts: 4837
Joined: Sun Mar 16, 2014 2:43 pm

Re: First Post: Fees question

Post by FiveK » Mon Mar 12, 2018 7:13 pm

twolabs, welcome to the forum.

If I understand your question correctly, the advisor charges you fees based on how much you invest with the advisor, regardless of the individual investments.

Then the individual investments (e.g., mutual funds) have their own fees, which are charged regardless of whether one buys the investments directly or through an advisor.

User avatar
arcticpineapplecorp.
Posts: 2845
Joined: Tue Mar 06, 2012 9:22 pm

Re: First Post: Fees question

Post by arcticpineapplecorp. » Mon Mar 12, 2018 7:23 pm

read this:

https://don-mcdonald-af32.squarespace.c ... stionnaire

then have your advisor fill this out:

https://static1.squarespace.com/static/ ... w_Form.pdf

If s/he won't complete ANY part of this form...run for the hills. S/he doesn't have your best interests at heart.

Or you can use Vanguard's Personal Advisor Services. They charge 0.30% (that's 3/10ths of 1%) per year of your assets under management. No 12b-1 fees at all with any Vanguard fund. In fact, the google says:
In addition to low expenses, Vanguard funds have no front-end loads, no commissions, no back-end loads, and no 12b-1 fees. Aug 12, 2014
source: https://www.google.com/search?q=does+va ... fox-b-1-ab
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

twolabs
Posts: 2
Joined: Mon Mar 12, 2018 3:41 pm

Re: First Post: Fees question

Post by twolabs » Thu Mar 15, 2018 2:04 pm

Thank you all for the answer and the great reference material. I've been lurking/educating myself for some time now.

What triggered the question was my advisor's intent to add a fee (<1% AUM). Prior to now, income realized via 12B-1(0.25%) was sufficient. He stated this is due to the fiduciary changes. Not really buying it. I was contemplating a change for other reasons, but this accelerated the decision. I have my shortlist of fee-only advisors and will reference the questionnaire as I move forward.

As background, the investments (mostly American Funds) and the advisor were inherited. I am a gov employee and the bulk of my pending retirement income will come from my CSRS and Thrift Savings Plan contributions. If I chose to work with a Vanguard advisor, that would entail transferring from American to Vanguard funds and incurring taxes, correct? The inheritance was a few years ago and the funds have appreciated.

Thanks again for your generous help.

Tal-
Posts: 313
Joined: Fri Apr 22, 2016 10:41 pm

Re: First Post: Fees question

Post by Tal- » Thu Mar 15, 2018 2:33 pm

twolabs wrote:
Thu Mar 15, 2018 2:04 pm
Thank you all for the answer and the great reference material. I've been lurking/educating myself for some time now.

What triggered the question was my advisor's intent to add a fee (<1% AUM). Prior to now, income realized via 12B-1(0.25%) was sufficient. He stated this is due to the fiduciary changes. Not really buying it. I was contemplating a change for other reasons, but this accelerated the decision. I have my shortlist of fee-only advisors and will reference the questionnaire as I move forward.

As background, the investments (mostly American Funds) and the advisor were inherited. I am a gov employee and the bulk of my pending retirement income will come from my CSRS and Thrift Savings Plan contributions. If I chose to work with a Vanguard advisor, that would entail transferring from American to Vanguard funds and incurring taxes, correct? The inheritance was a few years ago and the funds have appreciated.

Thanks again for your generous help.
If you have an advisor that you like, I'd simply ask if you can pay him by a strict $/year approach. My personal view is that this is the most transparent way to understand what you're paying, as well as the best way for him to avoid any conflicts of interest. It is, in my opinion, how all financial advisors should be paid.

If he sticks to the "I need to charge an AUM..." that doesn't necessarily mean that he's screwing you - but it does complicate things and leads to some difficult conversations. Have him map out all annual expenses paid to him and/or his firm from all sources including 12B fees and AUM. Though, even if his total compensation is reasonable, you still have the conflict of interest inherent in him recommending a fund that is paying him a fee.

Let us know how it goes... I'm interested.
Debt is to personal finance as a knife is to cooking.

User avatar
tractorguy
Posts: 624
Joined: Wed May 19, 2010 6:32 pm
Location: Chicago Suburb

Re: First Post: Fees question

Post by tractorguy » Thu Mar 15, 2018 2:38 pm

You may be able to transfer your American funds to Vanguard, Fidelity, or Schwabb "in kind." If you do that, it isn't a sale and you don't pay any capital gains tax. On any of the brokerage sites, type the ticker symbol into their search box and it will give a page which tells you if they handle the fund and what fees if any they charge to handle a sale or purchase in addition to the funds fees.

Many American funds aren't horrible but they are more expensive than the lowest cost alternatives. Most of the threads on this site that are about moving from a high cost adviser to a low cost one will recommend that you move the funds in kind if possible, turn off dividend re-investment, and then bite the tax bullet to sell a high expense fund and buy a low cost one. This is especially true if you are young and are going to be holding the fund for decades. The logic is that you are going to pay the taxes at some point, either now when you buy a "better" fund, or later when you retire and sell it for income. However, the extra costs are a yearly drag on growth that never goes away. Over decades, that cost will end up being much more than the tax bill now.

The only reason for delaying the sale would be if selling all of a fund puts you in a higher tax bracket and spreading the sale out over a couple of years keeps the tax bill down. You can find this out by running the numbers in this years version of your favorite tax preparation software.

Be aware that your current adviser will probably charge you a fee to close the account. He'll also try very hard to keep your money and will likely give you a mixture of sales pitch and possibly a guilt trip (I've done right for you and your parents for all these years) to try to keep you from taking your money somewhere else. Just remember, it's your money and you have the right to do anything you want with it.
Lorne

Darth Xanadu
Posts: 315
Joined: Sat Jan 27, 2018 1:47 am
Location: Middle Earth

Re: First Post: Fees question

Post by Darth Xanadu » Thu Mar 15, 2018 2:48 pm

tractorguy wrote:
Thu Mar 15, 2018 2:38 pm
Be aware that your current adviser will probably charge you a fee to close the account. He'll also try very hard to keep your money and will likely give you a mixture of sales pitch and possibly a guilt trip (I've done right for you and your parents for all these years) to try to keep you from taking your money somewhere else. Just remember, it's your money and you have the right to do anything you want with it.
Very true, and if you go the transfer route, it would be worth asking the other brokerages if they will cover this for you. I recently had a termination fee that Fidelity covered when I transferred to them.
My friends said stick to your guns, but instead I just got stuck.

User avatar
ajw360
Posts: 44
Joined: Fri Nov 17, 2017 3:51 pm
Location: Colorado
Contact:

Re: First Post: Fees question

Post by ajw360 » Thu Mar 15, 2018 2:50 pm

I would recommend reading: The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) by John C. Bogle.

pkcrafter
Posts: 12726
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: First Post: Fees question

Post by pkcrafter » Thu Mar 15, 2018 2:52 pm

twolabs wrote:
Thu Mar 15, 2018 2:04 pm
Thank you all for the answer and the great reference material. I've been lurking/educating myself for some time now.

What triggered the question was my advisor's intent to add a fee (<1% AUM). Prior to now, income realized via 12B-1(0.25%) was sufficient.

I doubt this. What he was doing was charging you in a different way, A or C class perhaps, and with the new rule, he has to come clean. What are the tickers of the funds you held, and if they were changed, what are the fund tickers/names now.

He stated this is due to the fiduciary changes. Not really buying it. I was contemplating a change for other reasons, but this accelerated the decision. I have my shortlist of fee-only advisors and will reference the questionnaire as I move forward.

If you say on the forum and use the learning tools, you won't need an advisor. If you still want an advisor, provide the names and we can help with your decision. You might also read this:


https://investingroadmap.wordpress.com/ ... n-advisor/

As background, the investments (mostly American Funds) and the advisor were inherited. I am a gov employee and the bulk of my pending retirement income will come from my CSRS and Thrift Savings Plan contributions. If I chose to work with a Vanguard advisor, that would entail transferring from American to Vanguard funds and incurring taxes, correct? The inheritance was a few years ago and the funds have appreciated.

Thanks again for your generous help.

OK, there are other issues too, so you can post in this format to get good feedback.

viewtopic.php?f=1&t=6212

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.

User avatar
mhadden1
Posts: 279
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: First Post: Fees question

Post by mhadden1 » Thu Mar 15, 2018 3:01 pm

If you move to a destination like Vanguard your costs would likely only go down over time regardless of "fiduciary" changes. I don't have a FA myself but Vanguard's 0.3% seems reasonable if you really need it. And, you could use advisory for a period of time while learning the ropes. By my standards this is not a fee "horror story" but I would strongly consider a move.

And, there are many destinations where you get a bonus! :happy Not Vanguard though. :(

viewtopic.php?t=196884
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Alan S.
Posts: 7558
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: First Post: Fees question

Post by Alan S. » Thu Mar 15, 2018 8:23 pm

For any advisor fees that you do incur, you should ask upfront that the fees be broken down as follows:

1) Fees allocated to non Roth IRA balances should be billed and deducted directly from those accounts.
2) Other fees should be billed to you personally, including fees for Roth balances.

If the advisor offers to bill your TIRA for all fees so they can all be paid with pre tax dollars, this could end up with your IRA disqualified as a prohibited transaction. It is not legal, and that advisor should be avoided.

Under the TCJA, all misc deductions subject to the 2% AGI limit have been suspended for 8 years. This is where some people were able to itemize these fees, but this option is now gone.

Post Reply