[403(b) Fidelity or TIAA Cref allocation, and do I want one?]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

[403(b) Fidelity or TIAA Cref allocation, and do I want one?]

Post by ai_3_us » Mon Jan 09, 2017 8:41 pm

[Title was "EJ not [costing me as much as] others?". The OP has revised his portfolio, see Page 3 of this thread. --admin LadyGeek]

I have read through many other posts on this forum about Ed Jones which I can summarize as "get out, leave!" This is the exact sentiment that led me to finding this forum. However, when I look at other's stories and compare it to my own I wonder what the difference is and if someone can help explain it.

I am in my mid 20s and am lucky enough to have a total of $500,000 in mutual funds (Advisory Solutions) and $7500 in a Roth IRA at Ed Jones, thanks to a very generous great-grandfather. All recent investments have gone to my Vanguard account and I have been threatening to move it all to Vanguard, but have been very fearful of such a large change.

In my monthly Advisory Solutions reports I see that I pay ~$5000 in fees/year (at my current value). This is about 1% of the value of that account, in line with what Edward Jones advertises. I have seen claims on here that look as though people are paying a much higher fee rate than myself. I know that since I have >$250,000 in my Advisory Solutions, many fees are waived including reinvestment into the same MF (yes I know that this is a purely selfish move on their part). Further, I see that I have a one-year annualized return of 7.5% and a 5-year annualized return of 8.5%, which are both calculated after advisory solutions and mutual fund fees and expenses. These numbers don't seem bad to me when I compare to a range of index funds I would invest in. In fact, the "growth" portion of my fund (Small and Mid-cap) and "growth and income" (Large-cap) have returned 15% and 12% over the last 5 years (annualized and after fees) which is in line with the S&P 500. Lastly on this account I will note that I do see some activity that looks like churning, but I am not an expert and am not sure of this (why should I be concerned about this if I am not paying fees, taxes?). I have also read that there is a $40/year fee for a Roth IRA, but that fee has been waived for me as well as any reinvestment fees (this may be due in part to my account and members of my family also sharing the same advisor).

When I brought my concerns up with my financial advisor (regarding fees and active/passively managed funds), he warned me that yes indices have been doing better in recent years, but that the EJ accounts do better in down years. This is a claim I asked to be backed up with data but he was not able to provide anything concrete and I did not have the account in '08-'09 for instance.

My question is, are things for me not as bad as they have been for others with EJ or am I being naive here? I am aware that $5000/yr means >$100,000 in fees over the next 20 years. However, if I am continuing to get returns in-line with what I would expect if I were investing on my own, does that matter? Because of my age I am primarily interested in growth and am not relying on this account for income, should I be making more per year on this account? Finally, if it will cost me a lot to close out this account (in terms of taxes and other fees) is it a reasonable choice to just divert all dividends to my Vanguard account?

Edit, adding funds + ER + loads:
2.9% Goldman Sachs Commodity Strategy A GSCAX, ER = 0.85, Load = 4.50
4.0% Baron Small Cap Retail BSCFX, ER = 1.32, Load = 0
3.0% ClearBridge Mid Cap A SBMAX, ER=1.2, Load=5.75
2.2% Hotchkis & Wiley Mid-Cap Value I HWMIX, ER=1.02, Load=0
2.1% JHancock Disciplined Value Mid Cap A JVMAX, ER=1.12, Load=5
4.4% Victory Integrity Small-Cap Value A VSCVX, ER=1.5, Load=5.75
3.9% Delaware Select Growth A DVEAX, ER=1.25, Load=5.75
6.5% Dodge & Cox Stock DODGX, ER=0.52, Load=0
4.8% Harbor Capital Appreciation Instl HACAX, ER=0.64, Load=0
8.7% Invesco Growth and Income A ACGIX, ER=0.83, Load=5.5
7.8% JHancock Classic Value A PZFVX , ER=1.18, Load=5
2.8% Morgan Stanley Inst Global Real Est I MRLAX, ER=1.05, Load=0
12.0% Oppenheimer Main Street A MSIGX, ER=0.93, Load=5.75
6.7% American Funds Intl Gr and Inc F2 IGFFX, ER=0.7, Load=0
5.2% DFA Emerging Markets Value I DFEVX, ER=0.56, Load=0
4.7$ Harbor International Institutional HAINX, ER=0.77, Load=0
4.7% MainStay ICAP International I ICEUX, ER=0.95, Load=0
6.5% Oppenheimer International Growth A OIGAX, ER=1.14, Load=5.75
5.7% T. Rowe Price International Stock PRITX, ER=0.84, Load=0

I am aware the ER is high and that it's silly to purchase front loaded mutual funds, but now that they are already purchased does the load matter?
Last edited by ai_3_us on Mon Jan 09, 2017 10:36 pm, edited 1 time in total.

Nate79
Posts: 1349
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: EJ not [costing me as much as] others?

Post by Nate79 » Mon Jan 09, 2017 10:15 pm

Can you post the funds your advisor has you in along with the corresponding ER and any loads you paid? Most likely you have a complicated portfolio of high ER funds in which you may have paid a high load fee.

Everyone of the active funds your advisor chooses for you must beat the index by 1% + ER + factor in the load paid up front. I think it is highly unlikely that your account has beat a comparable account if it was composed of low fee index funds instead.

Active funds, churning, 1% advisory fee, loads, etc will not beat a low cost index fund portfolio over the long term.

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 10:18 pm

Is the $500,000 in a tax-advantaged account? If it is in a taxable account, how much extra taxes are you paying because of lack of tax efficiency?
This signature message sponsored by sscritic: Learn to fish.

Miriam2
Posts: 1747
Joined: Fri Nov 14, 2014 11:51 am

Re: EJ not [costing me as much as] others?

Post by Miriam2 » Mon Jan 09, 2017 10:32 pm

ai_3_us wrote:My question is, are things for me not as bad as they have been for others with EJ or am I being naive here? I am aware that $5000/yr means >$100,000 in fees over the next 20 years. However, if I am continuing to get returns in-line with what I would expect if I were investing on my own, does that matter?

Would you rather have that $100,000 in your own account to compound up for you as you age and retire, or would you rather have that $100,000 given to your EJ rep for them to put into their coffers?

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 10:38 pm

Nate79 wrote:Can you post the funds your advisor has you in along with the corresponding ER and any loads you paid? Most likely you have a complicated portfolio of high ER funds in which you may have paid a high load fee.


I have edited the OP with this information. I wonder why the high load fee matters now that I have already paid it? I also think the portfolio is more complicated than need be, but the numbers I posted about returns are correct, so my question remains, why is switching better?

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 10:43 pm

livesoft wrote:Is the $500,000 in a tax-advantaged account? If it is in a taxable account, how much extra taxes are you paying because of lack of tax efficiency?


I believe the account is not tax-advantaged (sorry, I am a rookie so I am not sure, but I do pay taxes on it unlike my Roth). This is a concern I have. Is this purely a function of the possible churning?

Miriam2 wrote:
ai_3_us wrote:My question is, are things for me not as bad as they have been for others with EJ or am I being naive here? I am aware that $5000/yr means >$100,000 in fees over the next 20 years. However, if I am continuing to get returns in-line with what I would expect if I were investing on my own, does that matter?

Would you rather have that $100,000 in your own account to compound up for you as you age and retire, or would you rather have that $100,000 given to your EJ rep for them to put into their coffers?


If my current account has me earning the same amount as one with lower fees (after accounting for fees) does it matter who has that extra $100,000? It will either be in the hands of the EJ rep or not exist, and that I could care less about. (This is assuming that the two accounts would earn the exact same amount over those 20 years, after fees).

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 10:46 pm

ai_3_us wrote:I believe the account is not tax-advantaged (sorry, I am a rookie so I am not sure, but I do pay taxes on it unlike my Roth). This is a concern I have. Is this purely a function of the possible churning?

No, not purely a function of churning. An actively-managed fund with taxable distributions could lower the net after-tax return by another 1% to 2% compared to an index fund. You won't see this extra cost in the fund performance numbers unless you sell shares to pay the taxes. And if you don't sell shares to pay the taxes, but pay the taxes instead out of your paycheck or other accounts, then this is effectively like you are adding more money stealthily to the account to cover the cost of the taxes. It's a big deal that is only made extra worse by churning, but it is not good without any churning anyways.
This signature message sponsored by sscritic: Learn to fish.

Lafder
Posts: 3553
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: EJ not [costing me as much as] others?

Post by Lafder » Mon Jan 09, 2017 10:51 pm

I do not believe your portfolio will out perform a simple 3 fund index fund porfolio over time.

Here is a link that includes a table of the difference fees make. A 2 % difference is huge over years.

viewtopic.php?t=192276

You are so fortunate to have such a nest egg at your age. How great you are realizing the impact of fees now!

lafder
Last edited by Lafder on Mon Jan 09, 2017 11:55 pm, edited 1 time in total.

User avatar
JMacDonald
Posts: 2023
Joined: Mon Feb 19, 2007 5:53 pm

Re: EJ not [costing me as much as] others?

Post by JMacDonald » Mon Jan 09, 2017 10:54 pm

ai_3_us wrote:When I brought my concerns up with my financial advisor (regarding fees and active/passively managed funds), he warned me that yes indices have been doing better in recent years, but that the EJ accounts do better in down years. This is a claim I asked to be backed up with data but he was not able to provide anything concrete and I did not have the account in '08-'09 for instance.

The fact that the advisor was not able to back up his claim tells you everything you need to know about EJ.
Do you really believe that EJ has your best interest at heart, or is EJ just lining their pocketbook with your money?
You are young and have many years for this money to grow. The time to get out of EJ is now.
Best Wishes, | Joe

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 10:55 pm

livesoft wrote:
ai_3_us wrote:I believe the account is not tax-advantaged (sorry, I am a rookie so I am not sure, but I do pay taxes on it unlike my Roth). This is a concern I have. Is this purely a function of the possible churning?

No, not purely a function of churning. An actively-managed fund with taxable distributions could lower the net after-tax return by another 1% to 2% compared to an index fund. You won't see this extra cost in the fund performance numbers unless you sell shares to pay the taxes. And if you don't sell shares to pay the taxes, but pay the taxes instead out of your paycheck or other accounts, then this is effectively like you are adding more money stealthily to the account to cover the cost of the taxes. It's a big deal that is only made extra worse by churning, but it is not good without any churning anyways.


Thank you letting me know about this. How might I go about checking the tax efficiency? I will of course be doing my taxes soon, is there something I should be looking out for and some way to compare against what I would expect to see from an index fund?

User avatar
dwickenh
Posts: 775
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: EJ not [costing me as much as] others?

Post by dwickenh » Mon Jan 09, 2017 10:57 pm

ai_3_us,

Welcome and some reading would help you considerably.

A link to the information for reading: https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

I would read the "If You Can" which is available free- google it.

I would also read John Bogles "Little book of common sense investing"

You will answer most of your questions easily after reading these two short books.

Hearing it from the me would not be the same as the authors of these books.

The portfolio you have with EJ appears to be tilted to favor the adviser and not you. My opinion is that it is a mess.

You deserve to keep more of your Grandfathers meaningful gift.

Best wishes,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:00 pm

Lafder wrote:I do not believe your portfolio will out perform a simple 3 fund index fund porfolio over time.

Here is a link that includes a table of the difference fees make. A 2 % difference is huge over years.

viewtopic.php?t=192276

You are so fortunate to have such a nest egg at your egg. How great you are realizing the impact of fees now!

lafder


Yes I agree and understand how much even a 0.5% difference is over the years (especially starting young as I am). However, at least hypothetically, one could out perform a simple 3 fund index (I am not saying that will happen for me). And as of right now it looks as though I have been performing along the lines of what I would expect with a simpler portfolio (please correct me if you expect that I would have instead earned 10.5% or more over the last 5 years with a different portfolio). So to me it looks like as of right now there is not much of a difference.

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 11:02 pm

Look at your 2015 tax return (and 2016, too). I recommend that you have less than $10 on the top half of Schedule B and mostly qualified dividend income on the bottom half of Schedule B. The amount of dividends from a $500,000 portfolio would be about $10,000 at the most. You should have essentially no capital gains distributions reported on Schedule D line 13. The rest of Schedule D should probably show a loss for the best tax efficiency.

If you give some ticker symbols, we can look up how much taxable distributions for that fund were and comment.
Last edited by livesoft on Mon Jan 09, 2017 11:03 pm, edited 1 time in total.
This signature message sponsored by sscritic: Learn to fish.

printer86
Posts: 57
Joined: Mon Apr 25, 2016 8:45 am

Re: EJ not [costing me as much as] others?

Post by printer86 » Mon Jan 09, 2017 11:02 pm

I rolled over some old 401k money and started an after tax account with EJ back in my late 30's. I quickly learned that they were sucking my earnings dry with their fees. I had everything moved to Vanguard within 18 months. Get out sooner rather than later.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:04 pm

JMacDonald wrote:
ai_3_us wrote:When I brought my concerns up with my financial advisor (regarding fees and active/passively managed funds), he warned me that yes indices have been doing better in recent years, but that the EJ accounts do better in down years. This is a claim I asked to be backed up with data but he was not able to provide anything concrete and I did not have the account in '08-'09 for instance.

The fact that the advisor was not able to back up his claim tells you everything you need to know about EJ.
Do you really believe that EJ has your best interest at heart, or is EJ just lining their pocketbook with your money?
You are young and have many years for this money to grow. The time to get out of EJ is now.


I agree that certainly they are not looking out for me exclusively, but that alone is not reason enough to choose a different portfolio option. It is in the best interest of any organization for me to be invested in their services, this does not necessarily mean they are bad for me, it can be mutually beneficial. To be honest, what scares me is this exact sort of "The time to get out of EJ is now" statement that to me feels like "trust me, just do it." That's why I am posting here after reading many other statements to that effect about EJ on this site.

User avatar
David Jay
Posts: 3984
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: EJ not [costing me as much as] others?

Post by David Jay » Mon Jan 09, 2017 11:06 pm

To answer you post title, you are paying about what other EJ clients are paying: 1% AUM plus about .9% (eyeballing it) in ERs. But if you don't really care about a quarter of a million dollars (way more than $100,000 due to compounding and high ERs) over the next 20 years, so be it. It's your money and if you want to gift that much to your EJ rep it is your choice.

The line that "active funds do better in a down market" is a standard line but it is without analytical support. Up market or Down market, typically 80% of active funds underperform their respective indexes each year.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

radiowave
Posts: 1257
Joined: Thu Apr 30, 2015 5:01 pm

Re: EJ not [costing me as much as] others?

Post by radiowave » Mon Jan 09, 2017 11:07 pm

ai_3_us welcome to the forum.

The other thing to consider is that after accounting for all the added costs (higher expense ratios), loads, AUM fee, etc. the only way to make the returns better than low cost, diversified index funds is to substantially increase your risk. That means the next market downturn you are likely to loose proportionally more value in the EJ fund mess than a simply 3 -fund portfolio. There is no free lunch.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:27 pm

livesoft wrote:Look at your 2015 tax return (and 2016, too). I recommend that you have less than $10 on the top half of Schedule B and mostly qualified dividend income on the bottom half of Schedule B. The amount of dividends from a $500,000 portfolio would be about $10,000 at the most. You should have essentially no capital gains distributions reported on Schedule D line 13. The rest of Schedule D should probably show a loss for the best tax efficiency.

If you give some ticker symbols, we can look up how much taxable distributions for that fund were and comment.


I have updated the original posting and have listed the symbols for every fund in my portfolio.

From 2015: I have $0 from the account in question in the top half of my Schedule B for 2015. In the bottom I have $6278 in dividends, $5887 of which are qualified. I have $26,834 in capital gains. I may have withdrew some money during this time but less than $5000.

From 2014: Total ordinary dividends = $8464, $6451 of which are qualified. Total capital gains is $20,225. I probably withdrew more money this year as I moved to a new state.

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 11:30 pm

You are getting killed on those capital gains distributions. They may even put you in a higher tax bracket. The index funds that I own have $0.00 in capital gains distributions for a 7-figure portfolio.
This signature message sponsored by sscritic: Learn to fish.

User avatar
warowits
Posts: 305
Joined: Tue Sep 29, 2015 2:38 am

Re: EJ not [costing me as much as] others?

Post by warowits » Mon Jan 09, 2017 11:32 pm

The question you have to ask is does EJ on average help their clients make more than a 2% higher yearly return for their customers (to cover their fees, loads and ridiculously high ERs). I have never seen any proof that they do.

What I have garnered about the company is that they will sell you anything that will make them the most money, regardless of whether it makes you the most money. Any advisor who put your loved ones assets in a mutual fund with a 5% load was not trying to help anyone but themselves. The only reason they don't just put it all in the fund that pays them the most is they make fees of from churning your account and they want to make sure that the whole thing looks so complicated that you couldn't possibly handle it without them.

The fuss they kicked up over the fiduciary rule for retirement accounts (which still probably won't apply to your large taxable account) really shows you who they are looking out for.

https://www.bloomberg.com/gadfly/articl ... sting-fees
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:35 pm

David Jay wrote:To answer you post title, you are paying about what other EJ clients are paying: 1% AUM plus about .9% (eyeballing it) in ERs. But if you don't really care about a quarter of a million dollars (way more than $100,000 due to compounding and high ERs) over the next 20 years, so be it. It's your money and if you want to gift that much to your EJ rep it is your choice.

The line that "active funds do better in a down market" is a standard line but it is without analytical support. Up market or Down market, typically 80% of active funds underperform their respective indexes each year.


I certainly do care about the money loss, and yes, it would be >>$100,000 I just used that number as a lower bound. But the point I am still caught up on is if the funds perform similarly (after fees) as I think mine has (and no one has to tell me otherwise? I know that this is nearly impossible to answer though...) then I am not actually losing that quarter of a million you speak of.

I figured this was a standard line. Of course it is easy to believe that a portfolio which is performing worse during up markets could perform better during down markets if things were balanced in a nice way. I don't know if I believe that active funds are actually achieving that balance though. I wonder if there is any analytical support someone could point me to which says the opposite (in particular for down markets)? There are certainly down quarters for which I have seen my portfolio perform less negatively than the indices, but I do not think that this covers the diminished returns in the long run.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:37 pm

livesoft wrote:You are getting killed on those capital gains distributions. They may even put you in a higher tax bracket. The index funds that I own have $0.00 in capital gains distributions for a 7-figure portfolio.


Yeah I see that. Is there a particular reason that would be occurring? If I were to do some simple investing in index funds would I expect $0 (or close to) capital gains distributions?

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: EJ not [costing me as much as] others?

Post by Novine » Mon Jan 09, 2017 11:38 pm

Let's say that all your money was invested at Vanguard paying no loads and much lower fees. If an EJ rep approached you today and asked you to move all your money to EJ, would you?

renue74
Posts: 893
Joined: Tue Apr 07, 2015 7:24 pm

Re: EJ not [costing me as much as] others?

Post by renue74 » Mon Jan 09, 2017 11:43 pm

In April 2015, I found this forum. At that time, I had a FA who had me in "OK" funds, but all were average 0.75% to 1.5% expense fees, plus she was taking 0.75% to 1.00% (sliding scale based on my portfolio).

You run those numbers using the Betterment fee analyzer and over 20 years, as my portfolio grows...we would have ended up losing $800,000 to FA fees, lost gains, and expenses. Heck, I was paying our FA about $12,000/year.

Plus...the capital gains like livesoft noted. In 2015, in his usual livesoft sarcastic way, he posted about my capital gains...and how indexing would fix that. Truly up until that point, I never really paid attention to them and just paid my taxes each year.

In 2015, I had $50K in CG and I would have to scramble to find money to pay taxes....In 2016...$1200 in CG.

So....the little tweaks you make to your portfolio now, will pay off. What seems like a small expense number now will snowball. Stop it when you are young and you'll no doubt how more money when you retire.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:43 pm

Novine wrote:Let's say that all your money was invested at Vanguard paying no loads and much lower fees. If an EJ rep approached you today and asked you to move all your money to EJ, would you?


No, at least certainly not immediately. I would see what was offered and seek out more information, as I am doing right now. That direction is also biased since I would have to pay loads which have already been paid in this case.

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 11:44 pm

ai_3_us wrote:
livesoft wrote:You are getting killed on those capital gains distributions. They may even put you in a higher tax bracket. The index funds that I own have $0.00 in capital gains distributions for a 7-figure portfolio.


Yeah I see that. Is there a particular reason that would be occurring? If I were to do some simple investing in index funds would I expect $0 (or close to) capital gains distributions?

Yes, if you did some simple investing in index funds, you would see $0 (or close to) cap gains distributions. You can look up the history of cap gains distributions easily to confirm.
This signature message sponsored by sscritic: Learn to fish.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:47 pm

livesoft wrote:
ai_3_us wrote:
livesoft wrote:You are getting killed on those capital gains distributions. They may even put you in a higher tax bracket. The index funds that I own have $0.00 in capital gains distributions for a 7-figure portfolio.


Yeah I see that. Is there a particular reason that would be occurring? If I were to do some simple investing in index funds would I expect $0 (or close to) capital gains distributions?

Yes, if you did some simple investing in index funds, you would see $0 (or close to) cap gains distributions. You can look up the history of cap gains distributions easily to confirm.


Well sir, I thank you much for this information. As of now this is the most concrete argument I have seen for switching (which does not rely on speculation of my active funds failing to outperform the indices by 1-2% which I will admit is a lot to ask for).

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Mon Jan 09, 2017 11:48 pm

And thanks to renue74 for a testimonial. :sharebeer
This signature message sponsored by sscritic: Learn to fish.

User avatar
tractorguy
Posts: 578
Joined: Wed May 19, 2010 6:32 pm
Location: Chicago Suburb

Re: EJ not [costing me as much as] others?

Post by tractorguy » Mon Jan 09, 2017 11:49 pm

As others have said, you should do some more research to answer your questions yourself. However, I can give you the benefits of my research into EJ fees on my parent's account which were similar to yours. They never moved them but I did when I inherited the money and I'm glad I did.

* My understanding is that your assets under management fee is 1%. You can go it alone with a simple 3 fund portfolio at Vanguard for 0 AUM fee or if you aren't comfortable going alone, you can use Vanguard's advisor service for 0.3%, saving 70% on this cost.

* Your funds at EJ have an eyeball average Expense ratio of about 0.9% compared to Vanguard's average of under 0.1% Your funds seem to be doing about the same as an index fund but I'll bet you that to do this, you are actually investing in higher risk funds. I suggest you look up your funds at Morningstar and look at their risk ratings compared to the Vanguard Index funds that are typically recommended here.

* As mentioned by others, actively managed funds tend to have much higher stock turnover than index funds. That generates taxable gains which you must pay taxes on every year.

* As you've said, you load is sunk cost and should influence your decision on the cost of your funds. However, my parents found that their EJ adviser came to them every few years with a "suggestion" that they should move some of their money to a new fund that was being promoted by Edward Jones. This was actually an opportunity to pay more loads and for the adviser to make more commissions.

So to sum up, you're paying about 1.5% every year that you don't have to, you're taking more risk to essentially match market returns, you're paying too much in taxes, and you can expect to be called up every few years to fund your advisers new car or pay for his kids college. What's not to like about being with Edward Jones?????
Lorne

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Mon Jan 09, 2017 11:52 pm

renue74 wrote:In April 2015, I found this forum. At that time, I had a FA who had me in "OK" funds, but all were average 0.75% to 1.5% expense fees, plus she was taking 0.75% to 1.00% (sliding scale based on my portfolio).

You run those numbers using the Betterment fee analyzer and over 20 years, as my portfolio grows...we would have ended up losing $800,000 to FA fees, lost gains, and expenses. Heck, I was paying our FA about $12,000/year.

Plus...the capital gains like livesoft noted. In 2015, in his usual livesoft sarcastic way, he posted about my capital gains...and how indexing would fix that. Truly up until that point, I never really paid attention to them and just paid my taxes each year.

In 2015, I had $50K in CG and I would have to scramble to find money to pay taxes....In 2016...$1200 in CG.

So....the little tweaks you make to your portfolio now, will pay off. What seems like a small expense number now will snowball. Stop it when you are young and you'll no doubt how more money when you retire.


Thanks for the anecdote, renue74, it is an interesting and enlightening comparison. Again though this shines light on my question: it looks as though your fees are much higher than mine. Now I agree, 0.05% < 1% no matter what base you choose to work in. But, it seems like at the very least my portfolio needs to not outperform the indices as much as other actively managed portfolios I have seen people talking about on here. That is the base of my question... why is this and is there ever a point at which it becomes worth it.

renue74
Posts: 893
Joined: Tue Apr 07, 2015 7:24 pm

Re: EJ not [costing me as much as] others?

Post by renue74 » Mon Jan 09, 2017 11:58 pm

My portfolio is larger...that's why I was paying my FA $12K/year.

That's another thing you need to look at....as your portfolio grows, your annual FA advisor fee will grow and all of that fee could have gone back into your portfolio. But instead, it goes to pay for your advisor's kid's braces and the leather upgrade on his BMW.

Right now, you're giving your advisor almost as much as you could be using to fully fund a Roth IRA annually.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: EJ not [costing me as much as] others?

Post by Novine » Mon Jan 09, 2017 11:59 pm

"No, at least certainly not immediately. I would see what was offered and seek out more information, as I am doing right now. That direction is also biased since I would have to pay loads which have already been paid in this case."

What is it that EJ can offer you that you can't get from Vanguard at a lower cost?

I doubt you would find any legitimate financial advisor who thinks your 19 fund portfolio makes any sense at all. I bet your "advisor" can't explain why you are in half the funds that they have listed. It's a mess primarily designed to enrich EJ at your expense. Yes, it will cost you a small amount of money to get out of EJ because they insist of getting their last dime out of you as you leave. But you'll be far better off once you do. I've yet to read a post by anyone expressing regrets for leaving EJ. Quite the opposite, they all wish they had left sooner. Doesn't that tell you something?

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:00 am

tractorguy wrote:
* Your funds at EJ have an eyeball average Expense ratio of about 0.9% compared to Vanguard's average of under 0.1% Your funds seem to be doing about the same as an index fund but I'll bet you that to do this, you are actually investing in higher risk funds. I suggest you look up your funds at Morningstar and look at their risk ratings compared to the Vanguard Index funds that are typically recommended here.


Thank you for the solid advice, I will do that promptly.

tractorguy wrote:
* As you've said, you load is sunk cost and should influence your decision on the cost of your funds. However, my parents found that their EJ adviser came to them every few years with a "suggestion" that they should move some of their money to a new fund that was being promoted by Edward Jones. This was actually an opportunity to pay more loads and for the adviser to make more commissions.

Interestingly enough I have not had this experience at all. Maybe it has something to do with my family holding funds at the same office for a while, maybe it's just the FA's style. He has never once suggested a new fund to me and has only called me up in a return to my calls, to schedule a check-in meeting, or for pertinent information (for example regarding the new IRA rules -- and even in this case he suggested I just stay the course and not change anything up). But I wonder, I do see some buy and sell orders every so often but they are never accompanied with a fee. Are the front loads only paid for new funds? For instance, if I have $ in a fund and want to buy more of it, do I have to pay the load? Further, do you know (having had some experience with EJ) if the orders I see reflect the $ amount to buy new funds but I only receive the funds for the amount - load costs? This is information I am curious about.

Lafder
Posts: 3553
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: EJ not [costing me as much as] others?

Post by Lafder » Tue Jan 10, 2017 12:02 am

I disagree that your portfolio will outperform a 3 fund portfolio, or I would use your portfolio instead of my 3 fund portfolio :shock:

I disagree yours will outperform before fees are subtracted. So I believe it will greatly underperform over time when fees are also subtracted out. ((This means I disagree with the advisors statements it will outperform more than the fees will cost you))

See this, take the time to read it through :) It will answer every question you have about a 3 fund portfolio being able to beat a more complex portfolio.

viewtopic.php?f=10&t=88005

Welcome here!

lafder

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:05 am

renue74 wrote:My portfolio is larger...that's why I was paying my FA $12K/year.

The fee structure also looks more aggressive, but I guess it's close enough that it does not matter much.

renue74 wrote:That's another thing you need to look at....as your portfolio grows, your annual FA advisor fee will grow and all of that fee could have gone back into your portfolio. But instead, it goes to pay for your advisor's kid's braces and the leather upgrade on his BMW.

All of these FAs have BMWs and kids, don't they? :wink:

renue74 wrote:Right now, you're giving your advisor almost as much as you could be using to fully fund a Roth IRA annually.

You are right... And bring up another (unrelated) question. The $5000 a year is simply taken out of funds automatically right now (how convenient!) Is it in my best interest to do this to myself every year to put in the Roth? Or maybe just direct dividends to the Roth so as to limit taxes? Unfortunately my income is not enough right now to fully support my Roth, though I would like to.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: EJ not [costing me as much as] others?

Post by Novine » Tue Jan 10, 2017 12:07 am

"All recent investments have gone to my Vanguard account and I have been threatening to move it all to Vanguard, but have been very fearful of such a large change. "

Who set you up initially at EJ? Are other family members invested there too?

renue74
Posts: 893
Joined: Tue Apr 07, 2015 7:24 pm

Re: EJ not [costing me as much as] others?

Post by renue74 » Tue Jan 10, 2017 12:09 am

We all want to think we are better than the norm. We think we can research the market or hire somebody who is an expert advisor who can do better than the market. It's our innate nature to want to do better than the norm.

But the 3 fund portfolio is sort of like that whole Occam's razor thing....basically the best outcome is the one with the least amount of assumptions.

The best outcome, over time, will be to buy the market...the whole market...and you don't need to pay someone $5000+/year to do that.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:10 am

Novine wrote:Who set you up initially at EJ? Are other family members invested there too?


Yes. It was set up before I had any knowledge of it.

TIAX
Posts: 851
Joined: Sat Jan 11, 2014 12:19 pm

Re: EJ not [costing me as much as] others?

Post by TIAX » Tue Jan 10, 2017 12:15 am

ai_3_us wrote:When I brought my concerns up with my financial advisor (regarding fees and active/passively managed funds), he warned me that yes indices have been doing better in recent years, but that the EJ accounts do better in down years. This is a claim I asked to be backed up with data but he was not able to provide anything concrete and I did not have the account in '08-'09 for instance.


Take a look at the SPIVA statistics. As you can see, generally 80%+ of active funds underperform the index. Transfer everything to Vanguard asap. Don't waste time arguing with your salesman.
Last edited by TIAX on Tue Jan 10, 2017 12:18 am, edited 1 time in total.

livesoft
Posts: 56547
Joined: Thu Mar 01, 2007 8:00 pm

Re: EJ not [costing me as much as] others?

Post by livesoft » Tue Jan 10, 2017 12:16 am

If you have a job with earned income, then you should contribute the max possible to your 401(k) or other employer plan. If you are self-employed you should have a self-employed retirement plan. You should also contribute the max to your Roth IRA. This "contribute the max" should be no problem because you can sell some of your taxable account assets each year to meet expenses if needed.
Last edited by livesoft on Tue Jan 10, 2017 12:17 am, edited 1 time in total.
This signature message sponsored by sscritic: Learn to fish.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:17 am

renue74 wrote:We all want to think we are better than the norm. We think we can research the market or hire somebody who is an expert advisor who can do better than the market. It's our innate nature to want to do better than the norm.

Actually, I am a big believer in following the norm exactly, I don't need to overachieve. I simply am curious if I am already following the norm without having to make a big change. In the end (as I was at the beginning) I am probably going to make the switch, but I have interesting new info to work on.

[quote="renue74"]
But the 3 fund portfolio is sort of like that whole Occam's razor thing....basically the best outcome is the one with the least amount of assumptions. [\quote]
Oh, but Occam's razor isn't always right... consider the Monty Hall problem as a simple example. Anyhow, I do believe that simplifying is helpful and now I will begin to look into how I will do that.

User avatar
DG99999
Posts: 177
Joined: Fri May 30, 2014 12:30 pm

Re: EJ not [costing me as much as] others?

Post by DG99999 » Tue Jan 10, 2017 12:19 am

Here are some "back of the envelope" numbers you can use to compare with your own calculations as you work through a decision making process.

I tried to calculate the total fees one would pay over 10, 20 and 30 years for a taxable account with a starting value of $500K using a return of 8% each year - my results were $62K, $158K, $307K (i.e. as compared with the lower bounds of $50K, $100K, $150K).

Next I made the assumption that index funds and your active funds will have the same returns BEFORE expenses (you can decide if you have any interest in this assumption/data, but I think it may actually be the most realistic one to make). This would mean that you are paying excess fees and adding these results to those cited above I came out with $115K, $295K, $575K, respectively.

If the $575K number seems absurd, I can say that it does represent about 30% of the final account value which is similar to the number that Bogle has cited in the past for the long term loss to total excessive fees.

Again, I hope you will run your own numbers, my guess is they will convince you once you assess and validate all assumptions with enough research to get them correct.
Last edited by DG99999 on Tue Jan 10, 2017 12:50 am, edited 1 time in total.
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.

rr2
Posts: 1013
Joined: Wed Nov 19, 2008 10:04 pm

Re: EJ not [costing me as much as] others?

Post by rr2 » Tue Jan 10, 2017 12:20 am

ai_3_us wrote:Unfortunately my income is not enough right now to fully support my Roth, though I would like to.

If you are making at least $5500/year in earned income, then you can max your Roth IRA. As livesoft mentioned, you can withdraw from your EJ account for living expenses.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:24 am

livesoft wrote:If you have a job with earned income, then you should contribute the max possible to your 401(k) or other employer plan. If you are self-employed you should have a self-employed retirement plan. You should also contribute the max to your Roth IRA. This "contribute the max" should be no problem because you can sell some of your taxable account assets each year to meet expenses if needed.


Unfortunately my income is ludicrously low right now and my employer does not offer any matching. I may sign up for a 403(b) though. Is it best to put income directly in the 403(b) and sell assets to go to the IRA?

TIAX
Posts: 851
Joined: Sat Jan 11, 2014 12:19 pm

Re: EJ not [costing me as much as] others?

Post by TIAX » Tue Jan 10, 2017 12:25 am

rr2 wrote:
ai_3_us wrote:Unfortunately my income is not enough right now to fully support my Roth, though I would like to.

If you are making at least $5500/year in earned income, then you can max your Roth IRA. As livesoft mentioned, you can withdraw from your EJ account for living expenses.

Your income is less than $5500/year?

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:26 am

TIAX wrote:
rr2 wrote:
ai_3_us wrote:Unfortunately my income is not enough right now to fully support my Roth, though I would like to.

If you are making at least $5500/year in earned income, then you can max your Roth IRA. As livesoft mentioned, you can withdraw from your EJ account for living expenses.

Your income is less than $5500/year?


No, it is not. I have maxed out my Roth IRA every year I have had it. Is it worthwhile to withdraw from my EJ account for living expenses? I will almost certainly need to do that if I contribute $5500/yr to my Roth.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: EJ not [costing me as much as] others?

Post by Novine » Tue Jan 10, 2017 12:29 am

"All recent investments have gone to my Vanguard account and I have been threatening to move it all to Vanguard, but have been very fearful of such a large change."

This appears to be the crux of your problem. You've already started the move to Vanguard. But because someone else set up the account with your great-grandfather's money, you're afraid of screwing it up, right? Having the FA at EJ "manage" it, even if it costs more and doesn't perform as well as it could, gives you an out because if things don't go well, it wasn't from something you did. It's a safety blanket. But it's an expensive one.

It's actually good that you're asking question. Too often young investors are overconfident, don't know what they don't know and go down the wrong paths chasing the extra dollar. In your case, you're the opposite. You're willing to give away a few dollars to avoid messing up. But everything you are reading is telling you that Vanguard is the right choice or at the least, EJ is the wrong one. It sounds like you're getting confidence that moving away from EJ is the right thing. You can build on that by continuing to educate yourself on why leaving is the right move. When it comes to finance, knowledge is power so keep reading and asking questions but know that at some point, you're going to have to decide.

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:30 am

DG99999 wrote: Again, I hope you will run your own numbers, my guess is they will convince you once you assess and validate all assumptions with enough research to get them correct.

These numbers are actually similar to calculations I have done before, which is what got me thinking along this path in the first place. The reason I decided to post here was to gain a little bit more information and to see what people said about the possibility that maybe I am making as much as an index fund after fees. Again this is probably unrealistic and people here have helped me understand why I may be seeing that and why it may be dangerous, so thank you.

TIAX
Posts: 851
Joined: Sat Jan 11, 2014 12:19 pm

Re: EJ not [costing me as much as] others?

Post by TIAX » Tue Jan 10, 2017 12:31 am

ai_3_us wrote:
TIAX wrote:
rr2 wrote:
ai_3_us wrote:Unfortunately my income is not enough right now to fully support my Roth, though I would like to.

If you are making at least $5500/year in earned income, then you can max your Roth IRA. As livesoft mentioned, you can withdraw from your EJ account for living expenses.

Your income is less than $5500/year?


No, it is not. I have maxed out my Roth IRA every year I have had it. Is it worthwhile to withdraw from my EJ account for living expenses? I will almost certainly need to do that if I contribute $5500/yr to my Roth.


Especially assuming you can tax loss harvest (you'll have plenty of opportunity with all those active funds), yes. What's your long term capital gains rate?

ai_3_us
Posts: 53
Joined: Mon Jan 09, 2017 7:53 pm

Re: EJ not [costing me as much as] others?

Post by ai_3_us » Tue Jan 10, 2017 12:33 am

Novine wrote:"
This appears to be the crux of your problem. You've already started the move to Vanguard. But because someone else set up the account with your great-grandfather's money, you're afraid of screwing it up, right? Having the FA at EJ "manage" it, even if it costs more and doesn't perform as well as it could, gives you an out because if things don't go well, it wasn't from something you did. It's a safety blanket. But it's an expensive one.


To be honest I have been putting money in there as a means of comparison. For a little bit I thought I would split my total wealth 50-50 between EJ and Vanguard and see what happened after 10 years. (a) I am now feeling like that may be a costly move and (b) I know that past performance is not indicative of future performance (hello Markov processes), but it would be telling if one outperformed the other by a significant margin.

Post Reply