Inheritance Assistance - Edward Jones

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MVP0913
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Inheritance Assistance - Edward Jones

Post by MVP0913 » Tue Oct 29, 2019 6:56 pm

Hello,

My parents asked for my help in managing their inheritance (grandparents passed away). Currently this is mostly at the Edward Jones with the all too common "family friend". I have not seen the individual funds or allocation, but it is easy to deduce that the fees are outrageous. My parents trust my judgment and will move away from Edward Jones if I strongly suggest it, although there is likely to be a bit of uneasiness in cutting loose their "friend". We will see if he is still their friend when not collecting $30k+ a year in fees.

The current portfolio is approx 2.0 million with 1.6 million at Edward Jones and 0.4 million in cash equivalents.

Their stated goals are to "live off the dividends" and not touch the principal. They are currently in a fairly low cost of living area with a paid off house. I think they are hoping for $75k to live off of each year, but I would like to push this upwards to $100k to be safe. In addition to the expected portfolio dividends and interest, they also will receive net rental income of ~$60k, which makes the $100k much more do-able at a 2% or so yield. This is before a bit more part-time income and SS in the next few years.

My questions relate to dumping Edward Jones and the eventual asset allocation and draw strategy. I am meeting with the adviser in the next week or so on a fact-gathering mission. I am not planning to start the meeting by hinting at the fact that we will in all likelihood fire him.

Questions:

1.) Tax implications. My (limited) understanding is that these are in taxable accounts and thus the basis would be stepped up to market value, i.e., no capital gains when my parents sell and move to Vanguard. What am I missing here? How will Edward Jones try to entangle us?

2.) Fee structure. I am going to ask what the current fees look like (ER, loads, etc.). I am genuinely curious how they will spin this....not that it really matters.

3.) Asset allocation. My parents intent to "live off the dividends" but I know for a fact they would be freaked out if the marked dropped 20% right after they entered it. So, long-term capital appreciation (and the volatility that comes with it) needs to be balanced out. Due to this, my gut feeling is a 50/50 allocation.

Initial thoughts are that this would consist of $1MM equities split 75% VTSAX and 25% VTIAX.

The other $1MM is where I especially need assistance - between bonds / online cash / TIPS, etc. Suggestions? I know it is preferred to not have bond funds in your taxable, but not sure how else to mitigate the tax inefficiency. How bad would it be? Tax exempt bonds likely don't make sense given their tax rate vs decline in yield (I think?).

Please help and thank you.

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Watty
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Re: Inheritance Assistance - Edward Jones

Post by Watty » Tue Oct 29, 2019 8:04 pm

If this was inherited recently there should not be any big tax considerations with selling everything and moving it somewhere else. It would be more complicated is some of the money is in something like an annuity or wierd partnership.

https://www.bogleheads.org/wiki/Step-up_in_basis

It sounds like they will be in a relatively modest tax bracket so I would be tempted to just suggest that they use a target date fund.

https://investor.vanguard.com/mutual-fu ... etirement/#/

That might be ideal from a tax standpoint but it would be orders of magnitude better than Edward Jones.

If their tax rates higher and they have a mixture of retirement and taxable accounts they could use a three fund portfolio.

https://www.bogleheads.org/wiki/Three-fund_portfolio

psteinx
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Re: Inheritance Assistance - Edward Jones

Post by psteinx » Tue Oct 29, 2019 9:07 pm

What's your parents age?

What's your parents' background with investing?

What's your background with investing?

How much confidence do your parents have with you making major calls on this?

What would the upshot be if you recommended 50%, or more, in equities, and the market cratered? (It could go down a lot more than 20%).

===

Basically, there are some things it would likely be wise for your parents to do, BUT, in a relationship situation like this, where you are not the principal, there are a lot of added complications. EJ and other advisers get a lot of criticism here, some of it deserved, but an advantage of your parents staying with an adviser is that it shelters you and your relationship with your parents from the ups and downs of the market. Of course, the cost of the relationship with EJ or any other adviser is something to take seriously. But don't reject the adviser approach out of hand, before you at least understand the costs, and think through who will be there to pick up the pieces, with your parents, if markets get ugly...

bradinsky
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Re: Inheritance Assistance - Edward Jones

Post by bradinsky » Tue Oct 29, 2019 9:08 pm

OP,
When we left EJ, I decided not to get into a discussion with the advisor/salesperson. I initiated the transfer at Schwab & waited a day or so before contacting him. It was easier, less stressful & maybe less confrontational to send him an email explaining that we were leaving, the transfer was already in process & “thanking” him for his help. I believe the advisors are skilled salespeople trained in client retention & probably have no problem trying to use personal relationships to guilt you into staying. EJ charged us $95 per account to close the & Schwab was more than happy to reimburse us for those fees & toss in free trades to boot. All in all, the best move we have made financially was leaving EJ. At Schwab, the free trades came in handy trying to clean up the convoluted mess we transferred.
Good luck in the process. You will not regret leaving them!

psteinx
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Re: Inheritance Assistance - Edward Jones

Post by psteinx » Tue Oct 29, 2019 9:15 pm

Also, to a VERY rough approximation, and on an expected basis only (i.e. actual results may vary wildly):

Interest rates on relatively safe investments right now are around 2%.

Plausible midpoint estimates (with WIDE error bars) on long term US equity returns are probably around 6-7%, nominal, before costs. (Of course, you'll find many opinions on this, some rather different from my figure, but I'm basically thinking market earnings yield (inverse of P/E), plus inflation of 2% or a bit less.

So, call it 2% for safe bonds, 6% for stocks.

50/50 around 4%. But again, could vary widely from that. And that's a nominal figure. If inflation eats maybe 1.8%-2%, then the expected real return is about half of that 4% figure.

So, obviously an adviser charging 1.5% or even 1% is a big drag on that. But it's also OK for the principal to decline in real, inflation-adjusted terms somewhat over time, especially if your parents are old. If they invested all the money in CDs at 2% and spent that interest income, the real value of the principal would fall over time, with inflation, but that might not be such a bad thing if your parents are late 70s or 80s and only have 10-15 year life expectancy.

On the other hand, if your parents are significantly younger, and may live 30+ years, then total returns become more important. Adviser fees are magnified over longer time periods, and keeping a solid chunk in equities, developing the wherewithal to withstand market fluctuations, may be more appropriate.

Another option is an SPIA (single premium immediate annuity). While many annuities are rightly criticized, SPIAs have some real advantages - look into them if you're not already familiar with them.

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Wiggums
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Re: Inheritance Assistance - Edward Jones

Post by Wiggums » Tue Oct 29, 2019 9:21 pm

Is it possible to move the funds “in kind” to another broker to save the AUM?

It would be helpful to know the funds and the associated fees for each.

An AA of 50/50 sounds pretty good, but I was curious to know their current AA.

Looking forward to hearing from you.

HomeStretch
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Re: Inheritance Assistance - Edward Jones

Post by HomeStretch » Tue Oct 29, 2019 9:35 pm

Likely your parents are paying 2%+ in EJ advisor fees and high ERs. Also likely there are a high number of funds making for a complicated portfolio. Don’t waste too much time with the EJ advisor who is going to try his hardest to sell them on staying. Just thank the “friend” and keep repeating “thank you, we prefer to handle our investments ourselves at Vanguard”.

Speak with a Vanguard Account Specialist who will help your parents with the account transfer. If there are minimal gains due to the recent basis step-up, sell all investments at EJ and transfer cash to Vanguard. Print or download all EJ statements and trade confirmations as the online account access may be shutoff right after transfer.

As your parents will withdraw a low 2% per year (and even lower when SS starts), they can reinvest in a simple 3-fund portfolio using VTSAX, VTIAX and VBTLX. Without knowing your parents risk profile, consider an asset allocation of 50/50 - 40/60 (equity/fixed income). As part of their fixed income allocation, in addition to holding bonds (VBTLX), they could hold a TIPs fund if they want and perhaps a year’s expenses in a Vanguard money market fund as a cushion.

In the Taxable account settings, turn off reinvestment of dividends and capital gain distributions. This should give your parents about 2% ($40k) income per year they can easily withdraw. It’s easy to link their bank account to the Vanguard account so cash can be manually or automatically transferred monthly from Vanguard to their local bank account.

Vanguard doesn’t have a Cash Management Account, but your parents can request checks which will allow the to write a check which goes against their money market fund, if they want.

If you will be helping your parents with the account on an ongoing basis, each parent can grant you full or limited agent authorization. Vanguard has a Form for this. Once complete, you can setup an online account and access the Vanguard app as well.

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Re: Inheritance Assistance - Edward Jones

Post by Taylor Larimore » Tue Oct 29, 2019 10:38 pm

Welcome to the Bogleheads Forum!

Your parents may find this article enlightening. I know that I did.

http://kronstantinople.blogspot.com/p/e ... -saga.html

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In investing, you get what you don't pay for. Costs matter."
"Simplicity is the master key to financial success." -- Jack Bogle

Topic Author
MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 6:39 am

Taylor Larimore wrote:
Tue Oct 29, 2019 10:38 pm
Welcome to the Bogleheads Forum!

Your parents may find this article enlightening. I know that I did.

http://kronstantinople.blogspot.com/p/e ... -saga.html

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In investing, you get what you don't pay for. Costs matter."
Thank you and I am very much looking forward to reading that article!

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 6:47 am

psteinx wrote:
Tue Oct 29, 2019 9:07 pm
What's your parents age?

What's your parents' background with investing?

What's your background with investing?

How much confidence do your parents have with you making major calls on this?

What would the upshot be if you recommended 50%, or more, in equities, and the market cratered? (It could go down a lot more than 20%).

===

Basically, there are some things it would likely be wise for your parents to do, BUT, in a relationship situation like this, where you are not the principal, there are a lot of added complications. EJ and other advisers get a lot of criticism here, some of it deserved, but an advantage of your parents staying with an adviser is that it shelters you and your relationship with your parents from the ups and downs of the market. Of course, the cost of the relationship with EJ or any other adviser is something to take seriously. But don't reject the adviser approach out of hand, before you at least understand the costs, and think through who will be there to pick up the pieces, with your parents, if markets get ugly...
Parents are in their early 60s, so likely 30 or so years of investing left if lucky. Their investing background is limited. I'm 30 and my background lines up with what is preached here - all my funds are in low cost index funds with a 90/10 split between my wife and I's 401(ks), IRAs and taxable accounts. Fortunately my parents have a lot of confidence in me making this call for them as I have assisted them in an number of financial ways in the last 5 plus years.

The only unknown is how they would react to your 20-50% drop. My tolerance with volatility (I think :happy ) is much higher than theirs, hence a more conservative allocation even though they are investing for 30+ years. Even when they pass, it is something that we would not need to draw on either.

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 6:48 am

bradinsky wrote:
Tue Oct 29, 2019 9:08 pm
OP,
When we left EJ, I decided not to get into a discussion with the advisor/salesperson. I initiated the transfer at Schwab & waited a day or so before contacting him. It was easier, less stressful & maybe less confrontational to send him an email explaining that we were leaving, the transfer was already in process & “thanking” him for his help. I believe the advisors are skilled salespeople trained in client retention & probably have no problem trying to use personal relationships to guilt you into staying. EJ charged us $95 per account to close the & Schwab was more than happy to reimburse us for those fees & toss in free trades to boot. All in all, the best move we have made financially was leaving EJ. At Schwab, the free trades came in handy trying to clean up the convoluted mess we transferred.
Good luck in the process. You will not regret leaving them!
I would love to avoid this discussion completely, but due to reasons out of my control we have not "seen" all the investments yet. Yeah, that is pretty messed up when you think about it.

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 6:52 am

psteinx wrote:
Tue Oct 29, 2019 9:15 pm
Also, to a VERY rough approximation, and on an expected basis only (i.e. actual results may vary wildly):

Interest rates on relatively safe investments right now are around 2%.

Plausible midpoint estimates (with WIDE error bars) on long term US equity returns are probably around 6-7%, nominal, before costs. (Of course, you'll find many opinions on this, some rather different from my figure, but I'm basically thinking market earnings yield (inverse of P/E), plus inflation of 2% or a bit less.

So, call it 2% for safe bonds, 6% for stocks.

50/50 around 4%. But again, could vary widely from that. And that's a nominal figure. If inflation eats maybe 1.8%-2%, then the expected real return is about half of that 4% figure.

So, obviously an adviser charging 1.5% or even 1% is a big drag on that. But it's also OK for the principal to decline in real, inflation-adjusted terms somewhat over time, especially if your parents are old. If they invested all the money in CDs at 2% and spent that interest income, the real value of the principal would fall over time, with inflation, but that might not be such a bad thing if your parents are late 70s or 80s and only have 10-15 year life expectancy.

On the other hand, if your parents are significantly younger, and may live 30+ years, then total returns become more important. Adviser fees are magnified over longer time periods, and keeping a solid chunk in equities, developing the wherewithal to withstand market fluctuations, may be more appropriate.

Another option is an SPIA (single premium immediate annuity). While many annuities are rightly criticized, SPIAs have some real advantages - look into them if you're not already familiar with them.
Thanks for the information. Since it will (hopefully) be 30+ years, I think total return is going to be important. With that said, I think reducing volatility is going to be big as well, so there will definitely be some safe cash equivalents at the ~2% rate that with lose the inflation battle.

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 6:53 am

Wiggums wrote:
Tue Oct 29, 2019 9:21 pm
Is it possible to move the funds “in kind” to another broker to save the AUM?

It would be helpful to know the funds and the associated fees for each.

An AA of 50/50 sounds pretty good, but I was curious to know their current AA.

Looking forward to hearing from you.
Unfortunately do not know the funds or fees, but I'm sure they are exorbitant. Even once I know the asset allocation, I assume we sell everything and move to cash before transferring to Vanguard - thoughts on that?

HomeStretch
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Re: Inheritance Assistance - Edward Jones

Post by HomeStretch » Wed Oct 30, 2019 7:00 am

MVP0913 wrote:
Wed Oct 30, 2019 6:53 am
Unfortunately do not know the funds or fees, but I'm sure they are exorbitant. Even once I know the asset allocation, I assume we sell everything and move to cash before transferring to Vanguard - thoughts on that?
Before selling, verify the capital gains are not significant and that none of the holdings are keepers. if not, sell and have Vanguard initiate the transfer to pull the cash.

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 7:01 am

HomeStretch wrote:
Tue Oct 29, 2019 9:35 pm
Likely your parents are paying 2%+ in EJ advisor fees and high ERs. Also likely there are a high number of funds making for a complicated portfolio. Don’t waste too much time with the EJ advisor who is going to try his hardest to sell them on staying. Just thank the “friend” and keep repeating “thank you, we prefer to handle our investments ourselves at Vanguard”.

Speak with a Vanguard Account Specialist who will help your parents with the account transfer. If there are minimal gains due to the recent basis step-up, sell all investments at EJ and transfer cash to Vanguard. Print or download all EJ statements and trade confirmations as the online account access may be shutoff right after transfer.

As your parents will withdraw a low 2% per year (and even lower when SS starts), they can reinvest in a simple 3-fund portfolio using VTSAX, VTIAX and VBTLX. Without knowing your parents risk profile, consider an asset allocation of 50/50 - 40/60 (equity/fixed income). As part of their fixed income allocation, in addition to holding bonds (VBTLX), they could hold a TIPs fund if they want and perhaps a year’s expenses in a Vanguard money market fund as a cushion.

In the Taxable account settings, turn off reinvestment of dividends and capital gain distributions. This should give your parents about 2% ($40k) income per year they can easily withdraw. It’s easy to link their bank account to the Vanguard account so cash can be manually or automatically transferred monthly from Vanguard to their local bank account.

Vanguard doesn’t have a Cash Management Account, but your parents can request checks which will allow the to write a check which goes against their money market fund, if they want.

If you will be helping your parents with the account on an ongoing basis, each parent can grant you full or limited agent authorization. Vanguard has a Form for this. Once complete, you can setup an online account and access the Vanguard app as well.
Thanks so much for the information and advice. It would be shocking to see this rep (or any IMO) cut us off like that, but clearly it happens.

I can't say I know much about if TIPS would be a good long-term option or not. Thoughts on that?

They would just transfer cash monthly or quarterly to their local bank account.

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MVP0913
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Re: Inheritance Assistance - Edward Jones

Post by MVP0913 » Wed Oct 30, 2019 7:02 am

HomeStretch wrote:
Wed Oct 30, 2019 7:00 am
MVP0913 wrote:
Wed Oct 30, 2019 6:53 am
Unfortunately do not know the funds or fees, but I'm sure they are exorbitant. Even once I know the asset allocation, I assume we sell everything and move to cash before transferring to Vanguard - thoughts on that?
Before selling, verify the capital gains are not significant and that none of the holdings are keepers. if not, sell and have Vanguard initiate the transfer to pull the cash.
Thanks. The step-up happened in the last few weeks so can't imagine it would be significant. And even if it was, I don't know of a scenario where a fund would be a keeper. I think best to bite the bullet and cut the adviser completely.

HomeStretch
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Re: Inheritance Assistance - Edward Jones

Post by HomeStretch » Wed Oct 30, 2019 7:22 am

MVP0913 wrote:
Wed Oct 30, 2019 7:01 am
Thanks so much for the information and advice. It would be shocking to see this rep (or any IMO) cut us off like that, but clearly it happens.

I can't say I know much about if TIPS would be a good long-term option or not. Thoughts on that?
Some brokerages’ systems are just set up to cutoff online access when accounts are closed. It may not have anything to do with the rep.

You might search for past threads about TIPS/fixed income investments. I mentioned TIPS as your OP did. haven’t had the need for individual TIPS/TIPS fund yet but will consider them in the future.

Link to BH wiki page about TIPS:
https://www.bogleheads.org/wiki/Treasur ... d_Security
Last edited by HomeStretch on Wed Oct 30, 2019 7:24 am, edited 2 times in total.

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Re: Inheritance Assistance - Edward Jones

Post by Jack FFR1846 » Wed Oct 30, 2019 7:22 am

Certainly, it would be best to leave EJ for a low cost place. If this were not to be done, it is likely that the EJ fees would be more than the dividends paid by all the funds. Point this out. The dividend minus fees number could well be negative and would very likely be no more than zero.

Moving somewhere else that is low cost, this becomes a simple math question. What dividends are paid each year. They are looking for $75k a year and want that from dividends. That won't happen. That would require 3.75% dividend payment from a $2M investment. Sorry.....no.
Bogle: Smart Beta is stupid

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BL
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Re: Inheritance Assistance - Edward Jones

Post by BL » Wed Oct 30, 2019 7:25 am

I would also keep in mind Vanguard's PAS, if they would still like an adviser who works for them, at a low cost of 0.3%/year. It would protect you a bit as well, and they would be there if something happened to you. Also, could set things up and could be fired at any time leaving a decent low-ER portfolio to handle yourself.

Although, it sounds like you can do this. Also consider a single balanced fund + money market or similar.

Agree with above.. Start with dividends but be prepared to sell equities as well. Could even sell and send to bank account automatically.

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Re: Inheritance Assistance - Edward Jones

Post by MrBobcat » Wed Oct 30, 2019 8:25 am

HomeStretch wrote:
Tue Oct 29, 2019 9:35 pm

Speak with a Vanguard Account Specialist who will help your parents with the account transfer. If there are minimal gains due to the recent basis step-up, sell all investments at EJ and transfer cash to Vanguard. Print or download all EJ statements and trade confirmations as the online account access may be shutoff right after transfer.
There is no way I'd sell the securities at EJ and risk paying their outrageous commissions. No way. As far as printing/downloading the statements absolutely.

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Re: Inheritance Assistance - Edward Jones

Post by Stinky » Wed Oct 30, 2019 8:58 am

Welcome to the Board! Glad that you posted your question.
MVP0913 wrote:
Wed Oct 30, 2019 7:02 am
I think best to bite the bullet and cut the adviser completely.
Congratulations to you for coming to the right answer so quickly! You need to work out all of the details, but you're headed in the best direction.

You refer to the EJ advisor as a "family friend". I think that it's more correct to call the advisor a "family friend (who is raking in fees of $40k per year)".

Best of luck to you.
It's a GREAT day to be alive - Travis Tritt

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Re: Inheritance Assistance - Edward Jones

Post by HomeStretch » Wed Oct 30, 2019 9:18 am

MrBobcat wrote:
Wed Oct 30, 2019 8:25 am
HomeStretch wrote:
Tue Oct 29, 2019 9:35 pm

Speak with a Vanguard Account Specialist who will help your parents with the account transfer. If there are minimal gains due to the recent basis step-up, sell all investments at EJ and transfer cash to Vanguard. Print or download all EJ statements and trade confirmations as the online account access may be shutoff right after transfer.
There is no way I'd sell the securities at EJ and risk paying their outrageous commissions. No way. As far as printing/downloading the statements absolutely.
Good point. OP should check. At Wells Fargo (which I am familiar with) there were no trading/ACAT fees for AUM and all holdings had to be sold as they wouldn’t transfer in-kind. EJ may be different.

OP - ask if there are EJ fees to sell or fees to transfer out securities in-kind. There may also be an account closure fee. You also need to ask Vanguard whether your EJ holdings will transfer in-kind. Any holding proprietary to EJ won’t transfer in-kind. You’ll likely pay fees to leave EJ but try to minimize them and to keep in mind that the one-time cost is a small trade-off for the future lower costs.

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Re: Inheritance Assistance - Edward Jones

Post by MrBobcat » Wed Oct 30, 2019 9:42 am

HomeStretch wrote:
Wed Oct 30, 2019 9:18 am
MrBobcat wrote:
Wed Oct 30, 2019 8:25 am
HomeStretch wrote:
Tue Oct 29, 2019 9:35 pm

Speak with a Vanguard Account Specialist who will help your parents with the account transfer. If there are minimal gains due to the recent basis step-up, sell all investments at EJ and transfer cash to Vanguard. Print or download all EJ statements and trade confirmations as the online account access may be shutoff right after transfer.
There is no way I'd sell the securities at EJ and risk paying their outrageous commissions. No way. As far as printing/downloading the statements absolutely.
Good point. OP should check. At Wells Fargo (which I am familiar with) there were no trading/ACAT fees for AUM and all holdings had to be sold as they wouldn’t transfer in-kind. EJ may be different.

OP - ask if there are EJ fees to sell or fees to transfer out securities in-kind. There may also be an account closure fee. You also need to ask Vanguard whether your EJ holdings will transfer in-kind. Any holding proprietary to EJ won’t transfer in-kind. You’ll likely pay fees to leave EJ but try to minimize them and to keep in mind that the one-time cost is a small trade-off for the future lower costs.
To be fair if the taxable account is AUM there should be no additional commissions, but asking is the way to go for sure, or just bypass EJ. When I left EJ my taxable wasn't AUM but the traditional brokerage account. It would have cost me thousands to sell before I moved to Fidelity and I have nowhere near what is sitting in the OPs parents.

To the OP, it's stressful switching especially when a family "friend" is involved but it's a huge weight once you've escaped. I'd really just get a hold of Vanguard, let them take over the transfer and not contact EJ till it's done. More than likely the EJ guy will call you/your parents when they get the instructions from Vanguard and give you some spiel about doing your own investing is akin to flying a plane w/o a pilots license.

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Re: Inheritance Assistance - Edward Jones

Post by Meg77 » Wed Oct 30, 2019 3:09 pm

Hey there! I actually have been involved in this same process. My mom had an EJ portfolio for a couple of decades and asked me to take it over for her. I have learned a lot (and full disclosure my father worked for EJ for a couple of years over a decade ago, which is why she had it in the first place; it was managed by a friend of theirs after my dad left the firm and then they later divorced). I ended up rolling her $5MM portfolio to Vanguard, but she still has a lot of the old American funds and individual stocks she was invested in due to large accumulated capital gains. Here are some of my takeaways, though of course your situation could be different.

1. Many of the mutual funds they sell are loaded funds with up front 5% sales charges. BUT those are sunk costs. I was worried about "churn" or the idea that he'd been rebalancing or shifting in and out of loaded funds every few years just to get new 5% loads. But I learned that once you are in a fund group (like American funds) and pay the sales load, you do not pay it again when transferring into another fund in that fund group. So that put my mind at ease a bit. Plus it didn't appear there had been much movement at all once initial funds were selected (hence the big long term gains).

2. They also pick a lot of individual stocks - which have no expense ratios at all and actually did a lot to reduce the overall average annual fees of the portfolio. And many of those have increased a lot in value as well, so she still holds most of them (none are over 5% of her total assets). And she did have a few vanguard index funds in there too - though the expense ratios were about double what VG charges directly. I haven't sold those either though because I've prioritized getting out of worse, pricier funds first.

3. Her average annual return over the prior 15 years when I took over was 12.8% (I think the statement was as of end 2017 when I noticed that? Can't recall exactly). She was happy, and so despite paying higher fees than she absolutely HAD to, overall her portfolio was working and doing what it was supposed to do.

4. When I told her the amount of fees she was paying annually she shrugged and said she felt like it was worth it. Which says a lot since that would have technically been her single largest expense even perhaps beyond income taxes each year. But of course when I told her I could cut it in half she was happy about that and trusts me to manage her money too - so we went that route. (She was paying around $40K a year from what I recall on about a $4.7MM portfolio. Some funds charged up to 1.7% a year, but others like Vanguard were more like 0.25% and then the individual stocks of course had none). This was a good reminder to me that not everyone has the same Bogle mindset and that it's OK.
MVP0913 wrote:
Tue Oct 29, 2019 6:56 pm
1.) Tax implications. My (limited) understanding is that these are in taxable accounts and thus the basis would be stepped up to market value, i.e., no capital gains when my parents sell and move to Vanguard. What am I missing here? How will Edward Jones try to entangle us?
You can do a like kind exchange and roll the whole portfolio to Vanguard with no tax consequences. This is what I did. You don't even have to tell EJ; just start the process with VG and they handle (though it would be a courtesy to at least give the advisor a heads up of course). However when you sell a fund or stock, you'll pay capital gains tax.

Yes you're right. If there are no material gains (should not be in the last few weeks) you can just roll everything to VG and then sell. In my case, I made a spreadsheet of the funds she had and sold any with a loss immediately. Then I sold the worst funds - which is subjective. Highest fee doesn't always mean worst. She has some that are 5 star rated and have outperformed their indices for many years. Her portfolio is taxable nearly 100% so the tax drag was important too - some funds had great returns but not so great after tax because they had high turnover and distributions. Point is, I was surprised how well a couple of the active funds have done. Not every fund that isn't a VG fund is awful. And not all active funds are awful either. That said, if you have the opportunity to start from scratch I'd just dump it all into VG funds (or Schwab, Fidelity).
MVP0913 wrote:
Tue Oct 29, 2019 6:56 pm
3.) Asset allocation. My parents intent to "live off the dividends" but I know for a fact they would be freaked out if the marked dropped 20% right after they entered it. So, long-term capital appreciation (and the volatility that comes with it) needs to be balanced out. Due to this, my gut feeling is a 50/50 allocation. Initial thoughts are that this would consist of $1MM equities split 75% VTSAX and 25% VTIAX.
I've got my 62 yr old mom at about 60/40 and plan to stay there. Same story. She was 100% equities for decades and never knew the diff, but when she inherited a bunch of muni bonds I was glad the total portfolio is now a lot more conservative AA. She barely looks at her statements though so hopefully will not be one to panic. But she could live another 30 years off this - or more - so she needs appreciation too. If these assets are mainly in taxable accounts, you might consider the Vanguard tax managed balanced index fund. Has done really well over time and is very like a Wellington. But total stock and total bond funds are fine too if their tax bracket is in the middle to low area.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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