Reply to Am I overpaying my financial advisor?

Forum Index » Money and Finances

Reply to "Am I overpaying my financial advisor?"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]OP here. Ugh I feel sick hearing this. Just spoke with DH and advisor had recommended deploying the mutual funds slow and steady in case the market crashed. The mutual funds were supposed to just beat inflation and do better than a savings account while we slowly deploy. I guess it’s all relative to risk tolerance, and we’re not being aggressive enough. What if I just tell him to move it all to a cleared S&P 500 index fund? We have time to ride the waves and understand there’s no guarantee. [/quote]

I agree this has nothing to do with risk tolerance and everything to do with you being fleeced by fees.

Now that I think you have bought on to this, we need to help you get out of this.  You need to exit every single one of those funds. Keeping the individual FAANG stocks is a personal risk choice; at least they are not generating expense fees. But I would move them to Vanguard, Schwab, or Fidelity to take them out of your assets generating an AUM fee.  While you are at it, move the cash to one of their money market funds.

Tell us the extent to which these funds are held in a taxable account, that is, not held in a retirement account like a Roth IRA.  (I am assuming that you do not have an active IRA because you are doing backdoor Roths.) You can sell all the funds in a retirement account immediately with no tax implications and move the funds over to a Roth account to wherever you are moving your stock and money market funds.

But as a previous PP has said, selling all the other funds, could generate taxable income if they are not in a retirement account, and you will need advice on how to unwind them. I think this is particularly a concern for you because I am quite sure Vanguard would not accept a portfolio of these funds; you' have to check if Schwab or Fidelity would.  This might mean you would need to liquidate them with your current financial advisor and continue to pay those fees until they are liquidated.

You need to hire a good tax CPA or one-time advise only financial advisor to figure out the liquidation exit plan in a way that balances out taxes dues from sales and fees from continuing to hold.

Once these funds are liquidated you can figure out a new deployment plan for the cash.  Don't try to ride the wave; you already have a hefty share of FAANG for that should you keep that.  You should be planning for optimizing your returns for the long-run, not for whatever further gains you may think are possible this year--absolutely no one is able to predict that.[/quote]

Excellent advice. Saved me the time to type up what I would have said, with more info. OP, this is your guide right here.[/quote]

Op here. Thank you so much!  I think I’m going to go with Schwab because it’s an approved brokerage listed by my husband’s company. I have no idea how to find a good fee-only based advisor (any specific recommendations?)so I’ll probably just go with someone through Schwab to help me liquidate all the other funds with the current FA, assuming they can’t be transferred over. Then as I get more comfortable, I’ll ditch the Schwab help and mange myself. And when I said “ride the wave,” I meant getting the most ROI while continuing to grow our portfolio. I’ll keep the individual stocks (for now) and move them over to Schwab as well. [At the moment, the individual stocks are like our fun gambling pot which we don’t touch]. As far as tax implications, if the Schwab level of support can’t help me, I can ask our CPA who does our taxes.

And once my Schwab accounts are set up, we’ll start adding funds to those accounts instead of sending to our current FA. I’m assuming my FA will be notified by Schwab that we’re moving our money? Is this a conversation I should have with him before they do (assuming they’ll help me through this)? [/quote]
If you have youngish children, and you work, do you really think you will have the bandwidth to watch your portfolio?

I tried doing that myself, and it was too hard. I didn't have time to research everything, and pay attention to the stock market.[/quote]

Op here. I do work and no, I don’t have time to routinely manage it, but I think putting new funds in an S&P index fund or something similar would be more beneficial over the long term and I won’t be paying $10k+ a year in just fees (especially since we only have $750k).  [/quote]

This is the beauty of index funds.  You don't need to manage them if you are investing for the long-run.

You do need to decide on your asset allocation between stocks and bonds, though at OP's age if she doesn't need the funds for anything other than retirement she could go all equity for another 15 to 20 years. Aggressive?  Yes, but not strongly so if it is all broadly-based index funds.  She will have most of her money in taxable accounts, however, and that does does have long-term capital gains tax implications, so she may need some light tax advice towards the end of the year for that.  She can call upon her CPA if need be.

The key to minimizing taxes is to look at turnover ratios of the various fund choices.  Generally, the indexes have very low turnover rates.  VOO for example is 2.1%.  In contrast, the first fund she listed, CMNX, is a whopping 32.1%.  [b]So on top of the load fees and very high expense ratios, she likely was being saddled as well with capital gains.[/b] [/quote]

OP here. I’m embarrassed to say that I don’t know what this means.

Is there any decent reason as to why my FA would put us in all of these different index funds (the ones I listed way up thread) instead of just one or two strong performing ones?

And also, before I ditch him, do you think I can ask him to sort out the mess and streamline all of these into one or two funds in a way that is tax advantageous to us? Then when it’s sorted, ditch him? Trying to figure out the best path forward: have him clean it up first or just let him go (this week) by telling him I want to self-manage.

Thank you all for your advice![/quote]

A turnover of 32% means the fund is selling around a third of the securities it holds every year.  If they are sold for a higher price than at which they were bought a capital gain is realized.  You have to pay taxes on the gains the fund has generated this way.  They may have sold some securities at a loss to help off set this, but it is hard to know without looking at your 1099. But you have a lot of these funds likely with similarly high turnover.  As a general rule, the higher the turnover, the greater your exposure to gains subject to taxes.  I will note that to the extent such funds are in your Roth, the gains would not be subject to tax.

Index funds, on the other hand, sell securities only to the extent needed to replicate the index.  That is why VOO has such a low turnover and is considered tax-efficient.

There is no decent reason for your FA to have put in such a portfolio.  There is no decent reason to put any load funds into a portfolio of your size, let alone funds with such high expense ratios and turnovers. Your FA is not decent; he has taken advantage of you, and I would not trust him to straighten out the mess.

I a with those who say call him up and say you want to self-direct in WellsTrade, figure out taxes for disposing of the funds with your  CPA, and put the cash into money market fund before redeploying the cash once you have a strategy.

Where you see differences in responses is whether you should get a new financial advisor or not and what type.

Some are on the full-fledged asset manager side for which you will spend 1% AUM a year. If I were you, I would be too scarred by what this FA has done to go this route (plus i can't stomach AUM fees). Others would instead go FA-lite through Schwab or an advice only advisor, particularly as your portfolio is not that large.

You may wish to consider this advice only planner is often mentioned on Bogleheads.  It is $300 a year and $8 a year thereafter; you have to execute. It has a waiting list; you may be able to get in by late April.  https://planvisionmn.com/[/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics