Go it alone or stay with wealth management?

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Mercer
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Joined: Wed Nov 07, 2018 9:50 pm

Go it alone or stay with wealth management?

Post by Mercer » Wed Nov 07, 2018 11:19 pm

Due to the recent sale of my company, I reached a new milestone of $3.5M net worth (with $3.3M in cash and investments). In addition to receiving cash, I also received stock in the acquirer which vests next year, on track to amount to $2.2M, after taxes. This will get me above the $5M mark, at which point I’d like to have the option to retire at 40, take some time off, and maybe start another company.

For the past two years, I’ve had about $1M invested with a large firm in private wealth management. I’m starting to question the quality of their decisions, and the 1.25% fee they charge. I discovered recently a number of market linked structured notes in my account, that I’ve read are frequently a poor investment, and a way for my advisors to make money on commissions.

Now that I have an additional $2M in assets to invest, I’m considering either a new firm or managing my own investments using low cost ETFs. For now I’ve parked the cash in an ultra short term fund with a 2.1% yield.

At this point, I’m fearful to make a mistake with my hard earned money and put my retirement and my family’s livelihood at risk. Therefore, I’m looking for some advice:

1. At this level of assets, and with my forthcoming needs to have retirement income, is a portfolio of low cost ETFs viable?
2. Assuming it is, what sort of asset allocation is recommended to achieve a tax efficient 3 - 4% withdrawal rate? Suggestions or a link to a guide is appreciated.
3. Is there any software / tools you recommend to design a robust post-retirement portfolio? I’m looking for something that can model wealth over time, cash flows, etc.

Thanks very much in advance!

PFInterest
Posts: 2528
Joined: Sun Jan 08, 2017 12:25 pm

Re: Go it alone or stay with wealth management?

Post by PFInterest » Thu Nov 08, 2018 7:39 am

Mercer wrote:
Wed Nov 07, 2018 11:19 pm
I’m starting to question the quality of their decisions, and the 1.25% fee they charge
thats a ton of money being wasted
Mercer wrote:
Wed Nov 07, 2018 11:19 pm
1. At this level of assets, and with my forthcoming needs to have retirement income, is a portfolio of low cost ETFs viable?
yes, it is viable for literally everyone from $100 to people worth multiples of you on this board. dont focus on ETFs, just any low cost index fund will do.
Mercer wrote:
Wed Nov 07, 2018 11:19 pm
2. Assuming it is, what sort of asset allocation is recommended to achieve a tax efficient 3 - 4% withdrawal rate? Suggestions or a link to a guide is appreciated.
you have to decide on your own. its based on need, willingness, and ability to take risk. realize you should plan to lose half your stock allocation (so if you are 50:50, 25% of your portfolio could disappear for years)
Mercer wrote:
Wed Nov 07, 2018 11:19 pm
3. Is there any software / tools you recommend to design a robust post-retirement portfolio? I’m looking for something that can model wealth over time, cash flows, etc.
yes read through the wiki. you dont really need them though.
3.3MM will support 130K withdrawal indexed to inflation for 30 years of a 50:50 portfolio.
start from there and adjust.

typical.investor
Posts: 342
Joined: Mon Jun 11, 2018 3:17 am

Re: Go it alone or stay with wealth management?

Post by typical.investor » Thu Nov 08, 2018 7:51 am

Mercer wrote:
Wed Nov 07, 2018 11:19 pm
I’m starting to question the quality of their decisions, and the 1.25% fee they charge. I discovered recently a number of market linked structured notes in my account, that I’ve read are frequently a poor investment, and a way for my advisors to make money on commissions.
If they aren’t going to invest in your interests, then I think you have no choice.

ETFs (or index Mutual Funds) are perfect for that level of assets.

If you DIY, don’t get caught up in thinking that since you are clever that putting the time into finding a perfect plan is ideal and will pay off.

Find a low cost diversified reasonable plan and start your second business. Use your energy there.

It shouldn’t be difficult to settle in an asset allocation that you can keep.

Remember 1% advisory fee is 25% of your safe withdrawal or maybe 33% if you retire early.

Spend a little on a software package for advisors if it makes you feel better, but seriously we don’t know future returns or inflation so the wide range of possible outcomes isn’t so satisfying. I just use 10 year outlooks, keep an eye on a conservative withdrawal rate and prepare to adjust spending if necessary to stay safe.

student
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Re: Go it alone or stay with wealth management?

Post by student » Thu Nov 08, 2018 7:54 am

You are smart enough to start your own company and have $4M in such a young age. I think you can manage your own portfolio. If you believe in a bogleheads strategy such as a 3-fund portfolio, you don't need to spend much time on it.

GmanJeff
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Joined: Sun Jun 11, 2017 7:12 am

Re: Go it alone or stay with wealth management?

Post by GmanJeff » Thu Nov 08, 2018 8:12 am

Consider Vanguard's Personal Advisor Services as an intermediate or even long-term alternative. Their fee of .3% of assets under management for the first $5M (less for sums above that break point) is relatively modest. There is no charge for an initial consultation with a PAS rep to learn more about the service so you can make an informed decision whether there would be value in it for you. Not only is the PAS advisory fee much less expensive than your current advisory firm, PAS will also place you into a smaller number of investment options which have much lower expenses in themselves, very likely improving your returns with less volatility. PAS can help you move your investments from your current firm to Vanguard, making the transition relatively painless.

In your circumstances, you may benefit from assistance with the development and evolution going forward of a financial plan and with the selection of investment assets which meet your risk tolerance and reward objectives, which PAS provides. You can always withdraw from the service in the future if at some point it stops offering you value commensurate with its costs.

The 3-fund approach you'll find advocated here is very simple once you identify an appropriate selection of funds and their relative proportions for your circumstances, but it may or may not provide as optimized a risk/reward profile as you might be able to obtain with a more refined asset allocation model like that which PAS may offer as an alternative.
Last edited by GmanJeff on Thu Nov 08, 2018 2:53 pm, edited 3 times in total.

Jack FFR1846
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Re: Go it alone or stay with wealth management?

Post by Jack FFR1846 » Thu Nov 08, 2018 8:27 am

I like to use real world examples where I can. I don't have quite the portfolio balance that you do, but I'm at least at the same ball park with $2.3M invested. I have my portfolio set up with assets in US equity funds/ETFs, International equity funds/ETFs and Bond funds/ETFs with also some US Savings bonds counted in the bond portion. Making the decision of what allocations of each you want is your first choice to make.

Next, I've spread my investments between me and my wife over 10 accounts for various reasons. My own traditional IRA has been the recipient of all of my 401k roll overs and so has nearly half my investments. I keep the 3 above named fund types there and any rebalancing is done there. Every other account holds exactly 1 fund each.

I keep track of everything on a home made excel spread sheet which does a fantastic job and was easy to make.

On to cost. I've opened my sheet and I keep track of cost in 2 ways. One way is everything totaled and then the cost and average ER tracked. For me, with $2,278,861.79 today, my annual cost is $492.24. If this were your portfolio, even ignoring expense ratios, just the 1.25% fleecing, you'd pay $28,485.76. Now perhaps you don't care about the extra $28k you pay over what I pay. I mean....to me....that's more than I've paid for my last 4 cars each, including new. Add in expensive expense ratios and this could easily double! Now we're talking a new BMW 5 series or maybe an Audi S4 every year.

What should you do?

Get the hell out of there. Read the wiki. Vanguard is the safest place because they won't fleece you. I also use Fidelity, Schwab and TDAmeritrade, but I know enough to ignore all of their sales people. If you don't know what to do, just dump everything into a target date fund. It will save you a "car" worth of expenses EVERY YEAR.
Bogle: Smart Beta is stupid

FoolMeOnce
Posts: 324
Joined: Mon Apr 24, 2017 11:16 am

Re: Go it alone or stay with wealth management?

Post by FoolMeOnce » Thu Nov 08, 2018 11:39 am

We have roughly $3.5m invested assets and left our advisor a little over a year ago to avoid the 0.75% AUM fee and some large expense ratios. Trying to whittle down our numerous holdings to a three fund portfolio, though we probably won't get all the way there due to capital gains.

Read about asset allocation and the three fund portfolio on this site. It can be quite simple.

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nedsaid
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Re: Go it alone or stay with wealth management?

Post by nedsaid » Thu Nov 08, 2018 5:28 pm

GmanJeff wrote:
Thu Nov 08, 2018 8:12 am
Consider Vanguard's Personal Advisor Services as an intermediate or even long-term alternative. Their fee of .3% of assets under management for the first $5M (less for sums above that break point) is relatively modest. There is no charge for an initial consultation with a PAS rep to learn more about the service so you can make an informed decision whether there would be value in it for you. Not only is the PAS advisory fee much less expensive than your current advisory firm, PAS will also place you into a smaller number of investment options which have much lower expenses in themselves, very likely improving your returns with less volatility. PAS can help you move your investments from your current firm to Vanguard, making the transition relatively painless.

In your circumstances, you may benefit from assistance with the development and evolution going forward of a financial plan and with the selection of investment assets which meet your risk tolerance and reward objectives, which PAS provides. You can always withdraw from the service in the future if at some point it stops offering you value commensurate with its costs.

The 3-fund approach you'll find advocated here is very simple once you identify an appropriate selection of funds and their relative proportions for your circumstances, but it may or may not provide as optimized a risk/reward profile as you might be able to obtain with a more refined asset allocation model like that which PAS may offer as an alternative.
I would agree with this poster. With that large amount of money, I would work with Vanguard Advisory Service even though they will recommend a relatively simple portfolio. They should be able to help you with such things as asset allocation, tax efficiency and longer range planning. If they make a couple of good suggestions to solve things you haven't even thought about, it would be worth the money. A big part of an advisor's value is experience, hopefully you will get someone who has been around the markets for a while and has seen client mistakes. Better to learn from someone else's experience than your own.

The Vanguard Personal Advisory Service need not be a permanent arrangement. You could think of it like training wheels on a bike. At some point, you could manage it yourself. One reason that you should think seriously about this is that really bright people often do questionable things with their portfolios. For one thing, folks often decide they want to be stock pickers. They get bored and want to shuffle their portfolio around. Good investing should be boring, looking for excitement can get you in trouble.
A fool and his money are good for business.

Grt2bOutdoors
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Location: New York

Re: Go it alone or stay with wealth management?

Post by Grt2bOutdoors » Thu Nov 08, 2018 6:09 pm

At age 40, you are pushing it with a 4% withdrawal rate, especially if you want the money to last 50 years. You need a high equity allocation. Lower the withdrawal rate, lower the equities. But first you must ditch the 1.25% advisor, that represents nearly 30% of your first year withdrawal rate.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

nullbytes
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Joined: Thu Oct 18, 2018 5:40 pm

Re: Go it alone or stay with wealth management?

Post by nullbytes » Thu Nov 08, 2018 7:15 pm

I've been talking with quite a few 100% fiduciary advisors lately to see what they'd offer for a windfall over my own investment strategies so I have some fresh info here. First, 1.25% is very very high. I was in the .60 -.90% and that's was starting point, I negotiated down from there.

The things they recommended were based on having that big windfall. You're going to have a pretty heavy tax bill so there were things they were going to do to try and offset some of that tax liability. For example, if you already give you charity or plan to. Dump a chunk into a charitable trust in your name and get the write off this year and every year you donate. When you die your kids can take it over and give from it as it grows.

Another option was the pooled income fund. You get the write off the same year but not after and you get a lifetime income stream from it (which you'd pay ordinary tax on).

The only big one was getting into a private mutual fund of stocks that only you own to be more in control of your capital gains/losses from fund holdings vs a public index fund. I'm still researching the value of this one as it seems debatable. If there is a large enough downturn, being in a public fund theoretically could have a nasty tax bite if capital losses don't cover money moving out of the fund.

Seemed to me like the benefits were mostly around tax strategies vs any allocation strategies. There were some mentions of private equity options as well. Personally, I couldn't stomach seeing 5M go to 2.5M so I'd be pretty conservative in equities after this long bull run and look at owning some property and heavy bonds in my portfolio as well. Congrats on your new monies! :)

nullbytes
Posts: 9
Joined: Thu Oct 18, 2018 5:40 pm

Re: Go it alone or stay with wealth management?

Post by nullbytes » Thu Nov 08, 2018 7:17 pm

also, I should mention the big benefit for the charitable trust/income fund was being able to donate the face value of stock into the trust/fund to avoid all tax liability on shares you donate.

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