Asked my advisor about fees and here's their reply

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johnsac
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Asked my advisor about fees and here's their reply

Post by johnsac » Mon Aug 13, 2018 7:07 pm

I'm new to the Boglehead/Vanguard approach, and have taken note of some of the books recommended here and will be buying those asap. I'm with a traditional advisor and have gotten pretty worried that I'm not ever going to be able to retire.

One expense that I'm worried about is that of the advisor. I havent gotten any financial advice per se from them for probably a decade. Thats my fault not theirs, its my money and I should have not been so trusting. But now that I've learned a little about Vanguard I asked my current company about what my fees are and here is the info they replied with:

"Your fees are 1.1% of assets under management, and internal fees of .35% and around $20 per trade. The internal fund fees are within the mutual funds themselves and have nothing to do with us. In a nut shell it is the cost of operating the mutual fund and they all have them. They are sometimes referred to as an expense fee. You do not actually pay out the .35% (or whatever the fee is), it comes out of your return. You don’t pay this upfront. Also, trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal. Other than that there is not much trading going on. You would have these fees at the custodian whether you traded yourself or whether we requested your trades. There is not a custodian out there that will trade for free (unfortunately)."

So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?

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ruralavalon
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Re: Asked my advisor about fees and here's their reply

Post by ruralavalon » Mon Aug 13, 2018 8:36 pm

Welcome to the forum :) .

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
I'm new to the Boglehead/Vanguard approach, and have taken note of some of the books recommended here and will be buying those asap. I'm with a traditional advisor and have gotten pretty worried that I'm not ever going to be able to retire.

One expense that I'm worried about is that of the advisor. I havent gotten any financial advice per se from them for probably a decade. Thats my fault not theirs, its my money and I should have not been so trusting. But now that I've learned a little about Vanguard I asked my current company about what my fees are and here is the info they replied with:

"Your fees are 1.1% of assets under management, and internal fees of .35% and around $20 per trade. The internal fund fees are within the mutual funds themselves and have nothing to do with us. In a nut shell it is the cost of operating the mutual fund and they all have them. They are sometimes referred to as an expense fee. You do not actually pay out the .35% (or whatever the fee is), it comes out of your return. You don’t pay this upfront. Also, trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal. Other than that there is not much trading going on. You would have these fees at the custodian whether you traded yourself or whether we requested your trades. There is not a custodian out there that will trade for free (unfortunately)."

So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
The "internal fees of .35%" seems to refer to expense ratios of funds or ETFs you might be invested in. An expense ratio of 0.35% is fairly moderate, not bad. As you know you can get much lower expense ratios at Vanguard, Fidelity or Schwab.

They mention a fee "around $20 per trade" but say there is "[n]ot a custodian out there that will trade for free". Vanguard, Fidelity and Schwab will each trade their own mutual funds and ETFs for free, and trade some ETFs of other companies for free.

An asset under management fee of 1.1% is unfortunately fairly typical, but higher than necessary in my opinion. Vanguard Personnel Advisory Service, for example, is 0.30%. If you instead manage your own investments you reduce that part to zero.
Last edited by ruralavalon on Mon Aug 13, 2018 8:45 pm, edited 3 times in total.
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dogagility
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Re: Asked my advisor about fees and here's their reply

Post by dogagility » Mon Aug 13, 2018 8:39 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
Yes, you did get fleeced for over 5K this past year by your salesperson (advisor).

Fortunately, you've come to the right forum to learn how to invest your money on your own. Read the wiki on this site, read some books (recommend the Boglehead Guide to the Three Fund Portfolio), and you can invest your money wisely and efficiently for practically nothing (just the expense ratio of index funds... some of which are truly free... Fidelity Zero funds).

I suggest you read, make a plan, and then implement the plan. If you want some guidance, this forum is here to help. You could also try the Vanguard PAS for 0.3% AUM. However, investing isn't rocket science. You can do this.
Taking "risk" since 1995.

stan1
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Re: Asked my advisor about fees and here's their reply

Post by stan1 » Mon Aug 13, 2018 8:59 pm

If you can do the math to figure out how much you are paying per year in fees you have the necessary math skills you need to manage your own portfolio.

livesoft
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Re: Asked my advisor about fees and here's their reply

Post by livesoft » Mon Aug 13, 2018 9:00 pm

Your advisor gave you a straight answer.
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straws46
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Re: Asked my advisor about fees and here's their reply

Post by straws46 » Mon Aug 13, 2018 9:12 pm

livesoft wrote:
Mon Aug 13, 2018 9:00 pm
Your advisor gave you a straight answer.
You truly have an advisor rather than a broker or insurance salesman. You seem to have a fee only fiduciary and you did not get fleeced, in my opinion. You paid a reasonable fee for the services rendered. You are way better off than people who thought they had a financial advisor but really only had a salesman with a license who sold them annuities and variable life policies and got big commissions for doing so. Having said that, you can do much better yourself as ruralavalon pointed out if you have the temperament and desire.

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Re: Asked my advisor about fees and here's their reply

Post by pkcrafter » Mon Aug 13, 2018 9:26 pm

John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

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.

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Watty
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Re: Asked my advisor about fees and here's their reply

Post by Watty » Mon Aug 13, 2018 9:38 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
There are all sorts of assumptions and details but one thing to keep in mind is that academic studies have shown that for someone that retires at 65 they can start out with a "safe withdrawal rate" (SWR) of spending about 4% of their retirement portfolio when they first retire.

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

The advisors fees come out of that so if you are paying 1.33% a year more than you had to with something like a low cost target date retirement fund then you are paying them a third of your income to manage your portfolio. In some ways it is worse than that since taxes also come out of your 4% safe withdrawal rate so you are paying the financial advisor a LOT of your spendable income.
johnsac wrote:
Mon Aug 13, 2018 7:07 pm
I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
I have most of my funds in the Vanguard 2015 Target Date Retirement fund which has an expense ratio of 0.13%. If $350K was invested in that fund the cost would be $350,000 * 0.13%= $455.

https://investor.vanguard.com/mutual-fu ... file/VTXVX

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Re: Asked my advisor about fees and here's their reply

Post by Grt2bOutdoors » Mon Aug 13, 2018 9:46 pm

Read a couple of books. I recommend The Only Guide to a Winning Investment Strategy You’ll Ever Need - Larry Swedroe, All About Asset Allocation - Rick Ferri, The Little Book of Common Sense Investing by John Bogle where you learn about the tyranny of expenses. Read them, formulate an investment policy statement (search the wiki), understand if you would incur any immediate tax ramifications from moving your money, then move it to Vanguard or Fidelity. Stick with index funds and watch the savings add up.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Bacchus01
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Re: Asked my advisor about fees and here's their reply

Post by Bacchus01 » Mon Aug 13, 2018 9:49 pm

What he is charging you and the response you got seems fair.

However, if you want to do it yourself you can do it much cheaper and probably better, but it requires your time and attention.

FlyingMoose
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Re: Asked my advisor about fees and here's their reply

Post by FlyingMoose » Mon Aug 13, 2018 10:03 pm

They discuss the .35 expense ratio and trade price at length but never even mention why the AUM fee is so high.

sixty40
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Re: Asked my advisor about fees and here's their reply

Post by sixty40 » Mon Aug 13, 2018 10:11 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm

So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
It would be dropping from 1.10% to 0.30% for a difference of 0.80%, assuming fund expense ratios are the same. Also I think VG ETF & stock trading fees are in the $2 range vs $20 range you are paying. Schwab ETF & stock trading fees are $4.95, so I think your trading fee seems high, unless it is for mutual funds since they seem to be always a little higher. For $350k, 0.80% difference is $2800. VG index funds are pretty low, in the 0.10% or lower range, their managed funds are in the 0.25% to 0.4% range. So the difference in fees is probably in the 0.9% to 1.0% range. If you believe in index funds and/or simplifying to a 3 or 4 fund portfolio, then the management fees seem unnecessary. Only you can determine if the management fees are worth it. If returns is all you are concerned with, maybe determine how their management skills have done against comparable index funds and see if it has been worth it for you.

A friend of mine uses Merrill Lynch and pays the management fees, he does not want to do it himself, meets with his adviser once or twice a year, and he feels it is worth it. He can call him anytime.

johnsac
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Re: Asked my advisor about fees and here's their reply

Post by johnsac » Mon Aug 13, 2018 10:24 pm

pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!

HEDGEFUNDIE
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Re: Asked my advisor about fees and here's their reply

Post by HEDGEFUNDIE » Mon Aug 13, 2018 10:40 pm

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
I would ask your advisor these questions:

1. What is my portfolio allocation between bonds/US equity/international equity? How has this changed over time?

2. Over the past ten years what are the returns, standard deviation, and Sharpe ratios for my combined US equity holdings and my combined international equity holdings?

Standard deviation is a measure of risk (lower is better), and Sharpe ratio is a measure of how much return you are getting per unit of risk you are taking (higher is better).

For comparison, over the past ten years, Vanguard's [US] Total Stock Market Index Fund (VTSAX) returned 10.8% CAGR at a standard deviation of 15.2, generating a Sharpe ratio of 0.73.

Vanguard's Total International Stock Index Fund (VTIAX) returned 3.4% CAGR at a standard deviation of 18.8, generating a Sharpe ratio of 0.25.

Let's see what you're getting for your 1% management fees...
Last edited by HEDGEFUNDIE on Mon Aug 13, 2018 10:54 pm, edited 1 time in total.

BusterMcTaco
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Re: Asked my advisor about fees and here's their reply

Post by BusterMcTaco » Mon Aug 13, 2018 10:53 pm

Story time. About 7 years ago when I rolled my old 401k into an E*Trade IRA, I made the mistake of going to the physical office to meet with an advisor (for free, of course!). I asked explicitly if I pay him for his services and he said "no". Of course somewhere I signed a thing saying I agreed to an AUM fee.

Fortunately about 9 months later I get a notice that the AUM fee was going up (to 0.75% FWIW). I called him and asked him what the heck that's all about and he explained it was the account that they are investing and monitoring for me (or some such garbage). I kind of remembered something about him doing that for my very small Roth (~$4k) and asked him if that's what he's talking about. "Yes", he said.

Apparently his phone calls got an internal audit or something because a day later his boss calls me to tell me that it's actually the $75k IRA that has that fee. I immediately told them to stop managing my portfolio and just let it ride. I wish I knew what I know then, because I'd have gone into a 3-fund portfolio and probably have been about $10k richer for it today. I still consider it a cheap lesson.

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Re: Asked my advisor about fees and here's their reply

Post by tfb » Mon Aug 13, 2018 10:55 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
But now that I've learned a little about Vanguard I asked my current company about what my fees are and here is the info they replied with:

"Your fees are 1.1% of assets under management, and internal fees of .35% and around $20 per trade. The internal fund fees are within the mutual funds themselves and have nothing to do with us. In a nut shell it is the cost of operating the mutual fund and they all have them. They are sometimes referred to as an expense fee. You do not actually pay out the .35% (or whatever the fee is), it comes out of your return. You don’t pay this upfront. Also, trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal. Other than that there is not much trading going on. You would have these fees at the custodian whether you traded yourself or whether we requested your trades. There is not a custodian out there that will trade for free (unfortunately)."

So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
Your advisor explained the 0.35% and $20 are sort of unavoidable, which isn't entirely accurate because you can get them down to 0.1% and $0, but we let it slide for the moment. Are you curious why the advisor didn't say anything about the elephant in the room, the 1.1%? You said you aren't getting any financial planning advice. So the advisor basically let it run on autopilot and collect the 1.1%. Vanguard's 0.3% is on top of the fund expenses, about 0.1%. So call it 0.4% on your $350k = $1,400. If you just invest in one target date fund it will be about 0.15%, or $525.
Harry Sit, taking a break from the forums.

cantos
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Re: Asked my advisor about fees and here's their reply

Post by cantos » Mon Aug 13, 2018 11:15 pm

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
$20 a pop to get in and out of each of these. You are getting fleeced.

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Re: Asked my advisor about fees and here's their reply

Post by pkcrafter » Mon Aug 13, 2018 11:16 pm

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
Thanks John. You are holding DFA (Dimentional Fund Advisors) and AQR (Applied Quantitative Research) funds, which some here regard as very good. So you apparently have a DFA or AQR advisor. The funds are more expensive than Vanguard, but less expensive than the average fund dumped on investors.

I think you can drop your advisor and keep the funds, and you will probably get some feedback on whether you should do that or not.

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.

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Re: Asked my advisor about fees and here's their reply

Post by celia » Mon Aug 13, 2018 11:18 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
...Also, trade fees [$20] are only relevant if we are changing your allocation or you are making a deposit or withdrawal....
Please tell me you didn't sign up for automatic payroll deposit of $500 or more and it was split up into all your 20 or so funds. If that was happening each month, let's say, you "lost" $400 of each month's deposit due to commissions to purchase more shares in each fund. Somehow I have a feeling that is why your account wasn't growing very much.

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Re: Asked my advisor about fees and here's their reply

Post by tuningfork » Mon Aug 13, 2018 11:26 pm

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
Of course, for every fund you're in it was at least one $20 fee to trade into it, possibly more if it was added to over time. And if they ever moved money between funds, more $20 fees incurred. As has been said, some firms offer some ETF trades for free, and many have trading fees in the $5 to $10 range, although some can be much higher. Depends on the investment firm and the specific fund.

If you choose to manage your portfolio yourself, you should be able to do an in-kind transfer to Fidelity, Vanguard or Schwab to avoid paying any more $20 trading fees at your current firm. Check to see what the trading fees will be at the new firm for each of your funds (that may influence which one you move to). Fidelity has at times given free trade bonuses to new accounts, or a dollar amount that you could apply to trading fees. The other probably do as well, so check into that. Once you've moved your investments, then it's time to simplify. There's no need to have so many funds. The only reason this is a long list, aside from the trading fees, is that your advisor has intentionally made it complicated to convince you into thinking it's too complex for you to manage yourself.

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Re: Asked my advisor about fees and here's their reply

Post by TropikThunder » Mon Aug 13, 2018 11:36 pm

straws46 wrote:
Mon Aug 13, 2018 9:12 pm
You seem to have a fee only fiduciary and you did not get fleeced, in my opinion.
Fee-only fiduciaries charge an AUM fee now? I don’t think fee-only means what you think it means. :P

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FIREchief
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Re: Asked my advisor about fees and here's their reply

Post by FIREchief » Mon Aug 13, 2018 11:47 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
I'm new to the Boglehead/Vanguard approach, and have taken note of some of the books recommended here and will be buying those asap. I'm with a traditional advisor and have gotten pretty worried that I'm not ever going to be able to retire.
You are in the right place. If you haven't already learned it, you don't need to pay anybody to manage your money. You can likely do much better just investing in one or more low cost, passively managed, index funds at Fidelity, Vanguard or numerous other providers. Your costs will drop from 1.45% per year to essentially zero. Over the next twenty years, that will pay a huge dividend. :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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steve321
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Re: Asked my advisor about fees and here's their reply

Post by steve321 » Tue Aug 14, 2018 3:58 am

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
Did I just get absolutely fleeced for the last decade?
yep. But think positive: you won't get fleeced the next decade if you DIY :happy

Bacchus01
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Re: Asked my advisor about fees and here's their reply

Post by Bacchus01 » Tue Aug 14, 2018 6:17 am

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFTCX $47,500
DFTWX $21,500
QTMRX $18,000
DFSMX $13,700
DFTIX $13,000
BTIIX $18,000
DGEIX $11,500
DFUVX $10,600
DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFSTX $6000
DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
I change my answer. He’s fleecing you. Get out fast.

Mr.BB
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Re: Asked my advisor about fees and here's their reply

Post by Mr.BB » Tue Aug 14, 2018 6:25 am

"Also, trade fees are only relevant if we are c"hanging your allocation or you are making a deposit or withdrawal."
If I am reading this right they are charging you $20 to deposit money in your account?
If that is correct you should be really mad!

If you don't have a copy of the last year or two year end summary...get it and review the breakdown of fees.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Jack FFR1846
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Re: Asked my advisor about fees and here's their reply

Post by Jack FFR1846 » Tue Aug 14, 2018 6:31 am

Ok, so where to go from here.

You've told them to let everything ride, so that's good.

Next, stop all contributions. In all accounts.

Then, you want to find a new place where you can transfer everything in kind and get enough free trades that you can dump everything without cost and buy ETFs to start your own 3 fund portfolio. Merrill Edge is pretty famous for giving free trades for transfers, but look at Fidelity, Schwab and TDAmeritrade to see if they offer free traded ETFs that you like. I hold ETFs at Schwab and would not have issues being there. Why ETFs? It just makes it easily transferable if you later want to move somewhere else.

Then you simply set up your contributions as you have been doing.
Bogle: Smart Beta is stupid

rich126
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Re: Asked my advisor about fees and here's their reply

Post by rich126 » Tue Aug 14, 2018 6:45 am

I've almost always done my own investing (for better, or worse). A few years ago I hired a local guy based on his history (he had records of his own investing going back quite a few years) and the fact he invested his money along with his investors in the stocks. I also am a big believer in not putting all your eggs in one basket and thought having someone else manage a part of my money kind of protected myself from myself.

However, writing that 1% fee check each quarter was painful. And when someone (either here or one of the other investment boards I browse) brought up the fact that a 1% fee is really 25% of your 4% safe withdrawal amount (I'm still working but..) that really hit home and I moved that money to Vanguard (I also have accounts at TD Ameritrade).

I do think some people are so bad with money that a 1% isn't horrible (as long as it isn't coupled with high expense funds or dubious investments) but also it isn't that hard just to set up an account at Vanguard, Fidelity, etc. and put the money in ETFs or mutual funds and do it yourself. Even with a basic life strategy fund.

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Re: Asked my advisor about fees and here's their reply

Post by bottlecap » Tue Aug 14, 2018 7:46 am

What you’re paying is fairly standard. But that doesn’t mean it’s a good deal.

The only thing your advisor has done for you is protect you from yourself and charged you handsomely for it.

If you want to do things yourself and move to low cost funds, you can. Just educate yourself here and let it sink in until you no longer need to be saved from yourself.

Good luck,

JT

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Re: Asked my advisor about fees and here's their reply

Post by Dandy » Tue Aug 14, 2018 8:08 am

Most of the value of a good adviser and most of his/her work is at the front end. That is when they get to know your assets, risk tolerance, help to formulate an investment allocation/plan etc. It can take a lot of training to get the proper expertise and time to formulate and explain a good tailored investment plan. After that their value or involvement is spotty unless there are significant life events.

This business model, for investors, should fit the fee only financial adviser rather than an adviser whose charges are little up front and 1% or so of assets going forward. The little up front expense helps bring in clients and they often don't seem to feel the rather large ongoing expense that 1+ percent actually affects their portfolio performance. Even worse it can lead the adviser to make the portfolio complex to justify their expense and/or to make frequent changes to the investments.

There is really no good answer for the investor who chooses this bad business model. Bad for the investor that is.

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Re: Asked my advisor about fees and here's their reply

Post by oldcomputerguy » Tue Aug 14, 2018 8:11 am

FlyingMoose wrote:
Mon Aug 13, 2018 10:03 pm
They discuss the .35 expense ratio and trade price at length but never even mention why the AUM fee is so high.
Indeed. If, as he claims, there is "not much trading going on", and you haven't received advice from him in a decade, I can't help but wonder what he's actually doing to earn his fee. Granted, some investors feel comforted by having an advisor they can contact if they need something, and feel that the fee they pay is worth that peace of mind, and if this describes you, then that's okay. But at some point you should ask yourself if the $3,800 ($350k * 1.1%) you're paying him each year is justified. Is he providing $3,800 per year of actual service to you?

The other thing that caught my attention is the claim that "trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal." Does this mean that the advisor scrapes off $20 each time you contribute cash to your account? That strikes me as ludicrous. What benefit does he provide that justifies this cost?
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Asked my advisor about fees and here's their reply

Post by Jack FFR1846 » Tue Aug 14, 2018 8:11 am

I thought of another reason why this advisor is not working for YOU.

Say you invest $500 a week. Say he does the best he can and each $500 block only goes into 1 stock. This means that you're essentially paying $20/$500 or 4% on the buy. If you were to stay with this guy and eventually sell, you're paying $20/$whatever to get out. That's pretty steep.

And even if you paid at someplace like Fidelity or Schwab, you'll pay $4.95 a trade. I believe $7.95 at eTrade or TDAmeritrade. Not sure on others, but $20 is what's paid on stock option/RSU/ESPP trades where you have no choice. Or for trades you would have made back in the 80's.
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Re: Asked my advisor about fees and here's their reply

Post by tfb » Tue Aug 14, 2018 9:47 am

oldcomputerguy wrote:
Tue Aug 14, 2018 8:11 am
The other thing that caught my attention is the claim that "trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal." Does this mean that the advisor scrapes off $20 each time you contribute cash to your account? That strikes me as ludicrous. What benefit does he provide that justifies this cost?
To be clear the $20/trade is charged by the custodian this advisor uses, such as Schwab. The advisor doesn't get the $20. The custodian offers tools that make it easier for the advisor to upload trades and download statements for multiple clients. In that sense the $20 is also part of the cost of using an advisor, but the advisor isn't profiting from the $20 directly.
Harry Sit, taking a break from the forums.

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Re: Asked my advisor about fees and here's their reply

Post by Nate79 » Tue Aug 14, 2018 9:49 am

I guess the good news is those funds are DFA funds which some bogleheads actually like on here. To buy these funds you need an advisor in almost all cases. So to me it comes down to do you think you are getting sufficient value from your advisor to pay him. You are going to be hard pressed to find an advisor who charges less and I'm not sure you can find a fee only per hour advisor to get access to DFA funds. If you don't find value in DFA funds and don't need an advisor I would move to Schwab or Fidelity and set up a simpler portfolio using low cost index funds.

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Re: Asked my advisor about fees and here's their reply

Post by livesoft » Tue Aug 14, 2018 11:10 am

Sometimes ignorance is worth the cost of the education.

Other times, education is worth the cost of ignorance.
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Re: Asked my advisor about fees and here's their reply

Post by johnsac » Tue Aug 14, 2018 1:25 pm

celia wrote:
Mon Aug 13, 2018 11:18 pm
johnsac wrote:
Mon Aug 13, 2018 7:07 pm
...Also, trade fees [$20] are only relevant if we are changing your allocation or you are making a deposit or withdrawal....
Please tell me you didn't sign up for automatic payroll deposit of $500 or more and it was split up into all your 20 or so funds. If that was happening each month, let's say, you "lost" $400 of each month's deposit due to commissions to purchase more shares in each fund. Somehow I have a feeling that is why your account wasn't growing very much.
Luckily no. The $20 trade fees have been pretty irregular and I didnt do it on a monthly basis, just a 1 time check to max out the allowable contribution each year. The funds have been doing fine, one of the accounts is at 13.8% for the last 12 which I'm very happy with, another at 9.2%, but my frustration is the no planning, no optimization, and paying for advisor fees that I dont recognize the value of, and certainly don't want to pay for the next 20 years.

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Re: Asked my advisor about fees and here's their reply

Post by ruralavalon » Tue Aug 14, 2018 1:31 pm

What sorts of accounts are these funds in? A work based account like a 401k, 403b, 457, TSA? An IRA? A taxable brokerage account?

johnsac wrote:
Mon Aug 13, 2018 10:24 pm
pkcrafter wrote:
Mon Aug 13, 2018 9:26 pm
John, how many funds do you have. Would you mind posting some of them along with ticker symbols?

Paul
Sure, heres what I see:

DFA T.A. U.S. Core Equity 2 (I) ER 0.24%, DFTCX $47,500
DFA T.A. WORLD EX-U.S. Core Equity I, ER 0.39%, DFTWX $21,500
AQR TM Large Cap Momentum Style R6, ER 0.32%, QTMRX $18,000
DFA Short Municipal Bond I, ER 0.22%, DFSMX $13,700
DFA Intermediate Term Municipal Bond I, ER 0.23%, DFTIX $13,000
DWS Equity 500 index Institutional, ER 0.24%, BTIIX $18,000
DFA Global Equity Institutional, ER 0.30% DGEIX $11,500
DFA U.S. Large Cap Value III, ER 0.13%, DFUVX $10,600
DFA Global Allocation 60/40 R2, ER 0.53%, DURPX $10,600
AMOMX $1,500
DFSVX $7800
DFA U.S. Small-cap I, ER 0.37%, DFSTX $6000
DFA International Value III, ER 0.24%, DFVIX $9500
ATSMX $9900
ATIMX $9000
DIHRX $4600

There are a LOT of others but they're in small increments of a 2k-4k elsewhere. My head is sort of spinning with all the different funds I'm in!
As others have said the good news is that you are using DFA funds. Those are good passively managed funds, with moderate expense ratios, and are well thought of by many here.

The issue is always whether the advisor fee is so high that it eats up any extra benefit to using DFA funds. I think so.

. . . . .

Here is a guide to help in deciding if you want or need an advisor: "The great paradox of using an advisor is that you must know some basics in order to evaluate the advice, and once you do, you also know enough to consider doing your own management." "Chapter 10 – On Your Own or Hire an Advisor".

1) You could post your financial details on this forum for ideas on investments and financial planning. Please see this for format: "Asking Portfolio Questions".

2) Vanguard offers a Personal Advisory Service, Fidelity and Schwab offer a similar service.

3) Harry Sit, who sometimes posts here, offers a service thru his blog to help people locate an advisor in their locality. "Advice-Only Search and Screening".

4) Two links for finding an advisor:
http://www.napfa.org/consumer/index.asp
http://www.garrettplanningnetwork.com/

. . . . .

If you decide that you want to manage your own investments then I suggest moving accounts to a low cost provider. For funds and location of accounts I usually suggest
1) Vanguard,
2) Fidelity, or
3) Schwab
in that order of preference.

Vanguard has by far the largest selection of low expense mutual funds offered anywhere. I also like Vanguard's mutual structure, Vanguard is owned by the Vanguard funds, has no other shareholders, and so conflicts of interest with shareholders don't exist. Both Vanguard and Fidelity have a larger selection of low expense index funds than does Schwab.We have all of our accounts at Vanguard, and use only Vanguard index funds.

Both Fidelity and Schwab have local customer service offices in some cities, but Vanguard does not. None have a local office near me, so that was not a factor in my choice. A local office is important for some, but in my opinion not at all necessary. We have had no problems with the rare phone consultations that were necessary. I call Vanguard once per year at most, some years not at all. Once a reasonable investing plan is set up, it requires almost no attention. Some people prefer the customer service at Fidelity or Schwab.

Schwab does not offer a total international stock index fund, both Vanguard and Fidelity do. Vanguard stock index funds are more tax-efficient, which is important if you are using a taxable account. Vanguard offers a larger selection of tax-exempt bond funds than either Schwab or Fidelity, which is important if you are using a taxable account and are in a high tax bracket. Vanguard offers a small-cap value index fund, but Schwab and Fidelity do not, which is important if you are interested in value investing.
Last edited by ruralavalon on Tue Aug 14, 2018 6:59 pm, edited 3 times in total.
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Sandtrap
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Re: Asked my advisor about fees and here's their reply

Post by Sandtrap » Tue Aug 14, 2018 1:39 pm

Grt2bOutdoors wrote:
Mon Aug 13, 2018 9:46 pm
Read a couple of books. I recommend The Only Guide to a Winning Investment Strategy You’ll Ever Need - Larry Swedroe, All About Asset Allocation - Rick Ferri, The Little Book of Common Sense Investing by John Bogle where you learn about the tyranny of expenses. Read them, formulate an investment policy statement (search the wiki), understand if you would incur any immediate tax ramifications from moving your money, then move it to Vanguard or Fidelity. Stick with index funds and watch the savings add up.
+1
Great book selection. Ferri's book is outstanding.
Your best defense is education, awareness, and vigilance.

OP: You might want to review these links and then edit your original post in the "portfolio review format" so the forum can help you restructure.
(use the pencil icon). Or post a separate post for portfolio review with that appropriate title.
1. List the funds you have and in what accounts they reside. (401k, Roth, etc)
2. List the funds available to you. Expense ratios. And percentage of total.
3. If it is feasible for you to move into Vanguard, Schwab, Fidelity, etc to take advantage of the low cost zero trade fees of house funds.
And, as wisely cautioned, what tax issues might arise from moving your funds.

You've come to a good place.
Now, focus on getting onto solid ground going forward and learning from the past and leaving it behind.
j

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Re: Asked my advisor about fees and here's their reply

Post by Outafter20 » Tue Aug 14, 2018 1:51 pm

Schwab does not offer a total international stock index fund, both Vanguard and Fidelity do.
Schwab has an international stock index fund:

https://www.schwab.com/public/schwab/in ... ol%3Dswisx

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Re: Asked my advisor about fees and here's their reply

Post by ruralavalon » Tue Aug 14, 2018 2:03 pm

Outafter20 wrote:
Tue Aug 14, 2018 1:51 pm
Schwab does not offer a total international stock index fund, both Vanguard and Fidelity do.
Schwab has an international stock index fund:

https://www.schwab.com/public/schwab/in ... ol%3Dswisx
Schwab International Stock Index Fund (SWISX) is not a total international stock index fund, it does not invest in emerging markets, Canada, or stocks of smaller companies. You can use 3 Schwab ETFs to make up a total international stock investment at Schwab.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Asked my advisor about fees and here's their reply

Post by bloom2708 » Tue Aug 14, 2018 2:08 pm

Welcome. You are in the discovery phase. Go slow. Soak up information.

Run scenarios with this calculator. Use your information.

Our all up cost at Vanguard is .07%. No trade fees on their mutual funds. compare that to 1.5% or 2.0%.

https://www.dinkytown.net/java/compare- ... -fees.html

See the difference over 30 years. Eye opening results.

When you get farther along you will maybe pass through "denial" and then "disgust". I laid in bed and thought of all the fees we paid and how stupid our portfolio was as a result. Just a mixed bag of junk. Individual stocks, overlapping mutual funds, high load funds, narrow sector funds.

The single best move ever was to simplify, dump our advisor and spend time here instead of listening to my "advisor" and lining his pockets.

Welcome again!
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

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Re: Asked my advisor about fees and here's their reply

Post by Doctor Rhythm » Tue Aug 14, 2018 3:59 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
Here's a yucky way to think about how much you're paying. $5000 is around the median monthly household income in the US. That might be 200+ hours of work to pay for the 30-60 minutes of effort that your advisor performs on your behalf. Because 30-60 minutes per year is really all the time that it takes for you to adequately manage your retirement portfolio. In fact, you could put the $350,000 into a target date fund, pay ~$500 in annual expenses (0.15%), and not look at the damn thing for a decade. Your returns might be better or worse that what you're currently getting, but I'd wager they will be better for the same amount of risk, since you won't have high expenses cutting into your returns.

As a comparison, I'm paying roughly 0.05% or $500 per $1 million invested in my workplace retirement accounts.

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Re: Asked my advisor about fees and here's their reply

Post by Big_Jim » Tue Aug 21, 2018 11:26 am

You aren't getting fleeced in the sense that that is a common fee to be paying for an account your size. And, as others have said, they protected you from doing something truly catastrophic - a valuable service.

That said, it appears your advisor has used complexity as a way to show value, rather than planning. There is no reason to use so many funds for an account your size, even though the funds you have aren't terrible. Find an advisor who will do actual planning for you or save some money and take some time to figure out how to DIY.

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Re: Asked my advisor about fees and here's their reply

Post by Rwsawbones » Tue Aug 21, 2018 12:52 pm

A 1% fee for AUM is worse than 25% of your SWR since one then ends up with only 3% In fact your advisor ends up with 33% of your withdrawal. Initially for every $100,000 of investable assets you get $3000 per year and your advisor gets $1000.

GatorFL
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Re: Asked my advisor about fees and here's their reply

Post by GatorFL » Tue Aug 21, 2018 1:06 pm

AUM should be retitled "Access to yoUr Money'. I am a reformed Boglehead and I can tell you that charging the 1.1% and then trading fees on top of that is terrible. Shame on them.
My advice:

1. Pick a portfolio (2 fund, 3 fund, etc.)
2. Adjust for your Asset Allocation
3. Enjoy the simplicity
4. Take your family out to dinner once a year and celebrate the fact that you have stopped the AUM. I hate that term.

GatorFL

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Re: Asked my advisor about fees and here's their reply

Post by nisiprius » Tue Aug 21, 2018 1:20 pm

Keep in mind that the fee is not "1.1%", it is "1.1% per year, each year, every year." Without getting into financial math, just to the roughest approximation, if you have that account with them for thirty years, they have taken 1.1% thirty times... or 33%, or about a third, of your money.

Another way to think about it is to consider how much you hope your account will grow every year. You shouldn't be thinking about the fee as a percentage of your portfolio, you should be thinking of it as a percentage of the amount your portfolio is earning every year. If you portfolio is earning 7% per year, then 1.1% of your portfolio is 1.1/7 = over 15% of your earnings. It is taking you 7 years to get the same amount of growth you could get in 6 years without the fees; the fee is stealing one year's growth from you every seven years.

The devil of it all is that this is more or less what advisors need to charge, in order what to do what they need to do and make a living out of it. So understandably it does not seem unreasonable to them.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Asked my advisor about fees and here's their reply

Post by alfaspider » Tue Aug 21, 2018 1:52 pm

I like thinking of AUMs in terms of income in retirement. If you use a safe withdrawal rate of 4%, then the adviser is asking for 25% of your income in exchange for shoveling your money into whatever mutual fund strikes his fancy that day. What other services would you consider devoting 25% of your income to?

afan
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Re: Asked my advisor about fees and here's their reply

Post by afan » Tue Aug 21, 2018 2:36 pm

Your advisor answered your questions, telling you the assets under management fee, the expense ratios of the mutual funds and commissions for trades.
These are all too high.
If you really need an investment advisor-most people do not- Vanguard will do this for 0.3%, far less than you are being charged.
Vanguard does not charge any fees to trade its mutual funds or ETFs. By the end of August Vanguard will be offering nearly all non-Vanguard ETFs with no commission. So your cost per trade should be zero.

Although there are lots of mutual funds with expense ratios higher than what you were quoted, there is little reason to pay that much. You should be able to assemble a good portfolio with an average expense ratio of under 0.1%.

Your best move may be to transfer to Vanguard and sign up for their Personal Advisor Service. They will help you redesign your portfolio to something that makes sense. After that you can keep the PAS or simply manage the portfolio yourself.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Asked my advisor about fees and here's their reply

Post by jalbert » Tue Aug 21, 2018 3:43 pm

johnsac wrote:
Mon Aug 13, 2018 7:07 pm
I'm new to the Boglehead/Vanguard approach, and have taken note of some of the books recommended here and will be buying those asap. I'm with a traditional advisor and have gotten pretty worried that I'm not ever going to be able to retire.

One expense that I'm worried about is that of the advisor. I havent gotten any financial advice per se from them for probably a decade. Thats my fault not theirs, its my money and I should have not been so trusting. But now that I've learned a little about Vanguard I asked my current company about what my fees are and here is the info they replied with:

"Your fees are 1.1% of assets under management, and internal fees of .35% and around $20 per trade. The internal fund fees are within the mutual funds themselves and have nothing to do with us. In a nut shell it is the cost of operating the mutual fund and they all have them. They are sometimes referred to as an expense fee. You do not actually pay out the .35% (or whatever the fee is), it comes out of your return. You don’t pay this upfront. Also, trade fees are only relevant if we are changing your allocation or you are making a deposit or withdrawal. Other than that there is not much trading going on. You would have these fees at the custodian whether you traded yourself or whether we requested your trades. There is not a custodian out there that will trade for free (unfortunately)."

So.....any thoughts on how this compares to other financial planning companies? Did I just get absolutely fleeced for the last decade? If I move to Vanguard I'm looking at dropping from 1.45% to below .3% right? I'm super uneducated financially but if I'm doing it right the 350K I have with them had charges then of over 5K this past year and Vanguard would have been only about 1k?
You are not being charged an amount atypical of other similar advisory arrangements. Whether you are getting value commensurate with the fee structure is another matter. You should also ask the advisor if he or she is getting 12-b1 fees from the mutual funds in which you are invested, as these are marketing kickbacks for choosing the fund and create a conflict of interest about which fund to select.

But it is true that Vanguard Personal Advisor Services is only 0.3% on top of the mutual fund expense ratios, which likely will also be lower than the .35% you are paying for the funds you have. Expense ratios averaging even 0.35% are actually fairly low for the types of mutual funds usually selected by advisors, a good sign that you may well be getting good service from your advisor. But you still can get it more cheaply at Vanguard.

Last question would be if the assets are in a taxable account or tax-qualified retirement account? If the latter you may be able to use LifeStrategy or Target Retirement fund products and not even need an advisor.
Risk is not a guarantor of return.

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Re: Asked my advisor about fees and here's their reply

Post by afan » Tue Aug 21, 2018 4:36 pm

jalbert wrote:
Tue Aug 21, 2018 3:43 pm


Last question would be if the assets are in a taxable account or tax-qualified retirement account? If the latter you may be able to use LifeStrategy or Target Retirement fund products and not even need an advisor.
Just to be clear. I have never heard that Lifestrategy or Target date funds are only available in retirement accounts.
If for some reason that is true, you can invest in balanced funds without an advisor.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

moehoward
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Re: Asked my advisor about fees and here's their reply

Post by moehoward » Tue Aug 21, 2018 5:00 pm

Nate79 wrote:
Tue Aug 14, 2018 9:49 am
I guess the good news is those funds are DFA funds which some bogleheads actually like on here. To buy these funds you need an advisor in almost all cases. So to me it comes down to do you think you are getting sufficient value from your advisor to pay him. You are going to be hard pressed to find an advisor who charges less and I'm not sure you can find a fee only per hour advisor to get access to DFA funds. If you don't find value in DFA funds and don't need an advisor I would move to Schwab or Fidelity and set up a simpler portfolio using low cost index funds.
I also have DFA funds in my portfolio which I like. I had to negotiate a .25% fee maxing out at $2000.

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