Need Help/advice with Financial Adviser Questions

[PeteW]

Hi,
First I have to admit to really struggling to get my head around managing our retirement investment accounts.

For years we have used a financial broker/adviser He was with Olde, back in the early 90's and now he's with Wells Fargo (as are we). My frustration is that we have many different equities in the form of numerous individual stocks and ETFs, some bonds and some cash. Altogether this portion of our investments are worth about 900K+. We have several accounts including two SEP IRAs and a couple of after taxes accounts. Our frustration comes from the fact that we don't really have a clear idea of what earnings we are seeing and what our true management fees are.

When ever we try and have a meaningful conversation with our broker/adviser it ends with us feeling no wiser than before we began. Whether it's intentional or not he never fully explains anything in a way that gives us some kind of tangible information. I'm turning here for some help.

Here are a couple of questions I'd like for him to provide straight answers to and hopefully show me how I can personally determine how they were arrived at.

1. What was our percentage and dollars of earnings for 2011 and also to date for 2012?
2. What is the exact percentage and dollar amount of our combined management fees for 2011 and to date for 2012?

I'm including 2011 because it is the most recent fully concluded year. I'd appreciate help and suggestions regarding these questions and any others that you feel are pertinent. I hope this is not to vague, if it is please tell me what you need.

Pete

 

[MBAustin]

This doesn't answer your question, but if you are frustrated with what you are hearing from your broker/adviser, that seems to me more than reason enough to fire him.

 

[PeteW]

This doesn't answer your question, but if you are frustrated with what you are hearing from your broker/adviser, that seems to me more than reason enough to fire him.

Hahaha. I couldn't agree more, but part of my frustration is my lack of understanding of what I have. Right now, this is the devil I know as opposed to the devil I don't.

As my wife just eloquently put it: "Firing him now would be like jumping out of the boat into the lake behind our house without knowing how to swim. We might make it back home safely but it seems a foolish risk".

Which is precisely why we've ended up on this forum. It looks like a place to get answers and begin to get the knowledge we need and therefore control over our equity assets.

Pete

 

[easysurfer]

I think sometimes brokers/advisors forget who owns the money and who is hiring who.

 

[Midpack]

It's good that you're asking these questions, better late than never. Many of us paid too much for a while when we were younger, before we wised up. You're on the right track - don't give up until you understand what's happening with YOUR money.

#1 - Do you get quarterly/annual statements? Your answer to question #1 should be in there. Probably available online at any time too.
#2 -You can look up the management fees for any funds you own by ticker symbol.

• As for your trading costs on individual stocks, they should be shown with each transaction.
• If you're paying him a management fee (it's not unusual for an advisor to charge 1% of total assets under management per year).
  • Few of us here pay ongoing management fees, it's often not worth the expense. Investing is not rocket science, but your broker will make you think it is (and evidently has). It's in your brokers best interest to keep you confused, he/she knows you don't need them otherwise. You can learn just like the rest of us from all walks of life...there are lots of good straightforward books. And there are lots of lazy portfolios for folks who want a hands-off approach.

They have to publish their fees. You might find what you're paying for some of your transactions here
https://www.wellsfargo.com/investing/styles/wt/com_fees/standard

https://www.wellsfargo.com/investing/styles/wt/

BTW: What will you do if you don't get satisfactory answers this time?

As my wife just eloquently put it: "Firing him now would be like jumping out of the boat into the lake behind our house without knowing how to swim. We might make it back home safely but it seems a foolish risk".

While that's true, I suspect neither of you realize how much you're paying your broker as a % of your earnings. You could be giving away as much as 25% of your returns to a broker that's really just managing your account in much the same way as all his/her others. That will add years to the time it takes to reach your $ goals, or reduce what's available to you when you retire considerably.

 

[mystang52]

"When ever we try and have a meaningful conversation with our broker/adviser it ends with us feeling no wiser than before we began. Whether it's intentional or not he never fully explains anything in a way that gives us some kind of tangible information."
With a 900K portfolio, no doubt the fees paid to this adviser are substantial. For those fees, you should be considerably more in the know, from your adviser. I think the nature of this site's members is such that you will see a consensus to fire this person.
The two questions you posed are pretty straightforward - why not send your adviser an email and insist on the answers? If you don't get a straight answer, or remain confused, see the last sentence of my previous paragraph. By the way, I suggest a third question: "Mr. Advisor: Please tell me the total fees you collected from me in the last year (in dollars)." You can then decide if that amount is worthwhile to you or not.

 

[travelover]

You aren't going to be happy when you find out how much you are paying for this "service". I'd move it all over to Vanguard. They will help you with reallocating it.

The trick is to do it without incurring a big tax bill, so you need to understand what you have so you can unwind it.

 

[GrayHare]

If all your investments are with the same brokerage, calculating the change in value is easy: compare the bottom line total of different statements. To compute the earnings for a year (I assume you mean dividends and interest), look on your form 1099, then add in earnings on non-taxable accounts.

Total management fees are hazier because if you hold mutual funds it's not just your advisor skimming off the top, it's also each fund taking expenses from you. You can find expense ratios for each fund online.

 

[pb4uski]

I'm not a Wells Fargo brokerage customer, but I suspect that they must have some online tools where you can look at your portfolio and get an answer to the first question (the return of your portfolio for 2011 and 2012 YTD).

You also need to refine the first question. Where you use the term "earnings" do you mean just income (interest and dividends) or do you mean total return (interest, dividends, capital gains distributions, realized capital gains and unrealized capital gains). While you need to answer the above for yourself, IMO total return is more relevant than just income.

The answer to the second question should also be available from you account information but you'll likely need to dig deeper. You will want to know if you are paying any advisory fee (the ~1% or more that others have mentioned, which typically would be a periodic deduction from your account) plus the management and expense fees for any mutual funds that he has you invested in (which is typically available online as well).

The reason that I suggest that you do this rather than just asking him is so that you will improve your understanding of what your account activity is and also to avoid him misinterpreting or spinning the answer in a manner that is to his benefit and your detriment.

Good luck.

 

[PeteW]

Thank you all for the advice and encouragement. You've helped me clarify my needs. I am going to dig in and go through my statements. As several mentioned, they are all online and I do know how to access them, I just don't really understand what I'm looking at.

I understand that once I've done that I'll probably be able to come back here (the forum) with better questions. It's funny, I ran a successful business for 30 years, but for some reason this stuff makes me want to run in the opposite direction screaming. Probably because it seems so confusing and unintelligible.

It appears the only logical way to approach this is to go through the statements form my questions and then work on getting the answers to them. I've actually found a PDF on my account site that Wells Fargo has furnished to help one interpret their statements. Hopefully it will be useful.

Thanks,
Pete

 

[Bestwifeever]

...."Firing him now would be like jumping out of the boat into the lake behind our house without knowing how to swim. We might make it back home safely but it seems a foolish risk"....

Here's a lifeboat for you:

If you are not happy after you discuss this in depth with your advisor, I guarantee you that a phone call to Fidelity or Schwab or Vanguard, with your 900K+ in investments, will put you right through to someone who, should you wish to move that nest egg, will help you figure you an asset allocation appropriate for your level of risk and goals and direct you to the funds to fulfill that. And you will be able to identify and understand the fees.

 

[Buckeye]

I did volunteer tax prep this year with AARP and I saw some really ugly stuff on Wells Fargo brokerage statements. Lots of buying and selling going on and the taxpayers didn't realize it was happening and/or why it was happening. I would point out the fees they were paying that were listed on the statements and many were surprised. It's all there in black and white but the oldsters can't read the statements and are intimidated and confused by their brokers.

One gentleman (I think he was in his mid-eighties) was livid when he really saw what was going on in his account. He said he was going to call his broker and demand to know why all this buying and selling was going on. He was very sharp so I said "And when you hang up the phone, you aren't going to know any more than you did before you called, right?" He agreed. We both knew the broker would give him some big song and dance and tell him not to worry 'cause he had it taken care of.

I recommended he deal with his broker only in writing. That way, the broker couldn't fast talk him and make him feel stupid and confuse him. It's really so sad seeing the oldsters getting ripped off.

 

[PeteW]

Here's a lifeboat for you:

If you are not happy after you discuss this in depth with your advisor, I guarantee you that a phone call to Fidelity or Schwab or Vanguard, with your 900K+ in investments, will put you right through to someone who, should you wish to move that nest egg, will help you figure you an asset allocation appropriate for your level of risk and goals and direct you to the funds to fulfill that. And you will be able to identify and understand the fees.

Of course, you're absolutely right. I guess the real problem I'm wrestling with is my own ignorance. I'm pretty sure I can print out my statements and take them to any other brokerage firm and they'd be happy to help me understand them, jut to get a crack at handling our portfolio.

But again, as others have just pointed out I need to get my head around all of this to really gain control.

I did volunteer tax prep this year with AARP and I saw some really ugly stuff on Wells Fargo brokerage statements. Lots of buying and selling going on and the taxpayers didn't realize it was happening and/or why it was happening. I would point out the fees they were paying that were listed on the statements and many were surprised. It's all there in black and white but the oldsters can't read the statements and are intimidated and confused by their brokers.

One gentleman (I think he was in his mid-eighties) was livid when he really saw what was going on in his account. He said he was going to call his broker and demand to know why all this buying and selling was going on. He was very sharp so I said "And when you hang up the phone, you aren't going to know any more than you did before you called, right?" He agreed. We both knew the broker would give him some big song and dance and tell him not to worry 'cause he had it taken care of.

I recommended he deal with his broker only in writing. That way, the broker couldn't fast talk him and make him feel stupid and confuse him. It's really so sad seeing the oldsters getting ripped off.

I hear you. Fortunately my broker has not been churning my account. I'm fairly confident that he has personal integrity, but that said, managing accounts is how he makes his money so sadly, I'm sure he believes helping his customers to become well informed and knowledgeable would work to his detriment.

Pete

 

[Midpack]

Of course, you're absolutely right. I guess the real problem I'm wrestling with is my own ignorance. I'm pretty sure I can print out my statements and take them to any other brokerage firm and they'd be happy to help me understand them, jut to get a crack at handling our portfolio.

But again, as others have just pointed out I need to get my head around all of this to really gain control.

Again, you're doing something very important regarding your own financial security. Don't give up until you understand what you are paying, the impact could be enormous.

The costs you may be paying include any or all of:

1. Upfront Commissions or Transaction Fees
2. Fee Based Accounts (usually expressed as a percentage of the value of your assets and typically range between 1 and 2% annually)
3. 'No Load' Funds and Internal Mutual Fund Expenses (often between 1-3% of your account balance per year, index funds are typically 0.5% or less)
4. Back End Loads or Surrender Charges
5. Account and Custodial Fees

You can find out all of them, many on your statements, but they make it difficult by design.

5 Common Types of Investment Charges and Fees

Most of us here pay much less than 1% in TOTAL fees, and superior net returns. Too many people unwittingly pay 1, 2 or even 3% in TOTAL fees (we're all hoping you're not). Those paying 2-3% are unnecessarily giving away even more than the graph below!

The difference between an expense ratio of 0.15% and 1.5% might not seem like much, but the effect of the compounding over an investing lifetime is enormous. After 30 years, a fund with a 1.5% expense ratio will provide an investor with several hundred thousand dollars less for retirement than a 0.15% index fund with the same growth. And remember that most managed funds actually underperform index funds. Costs matter, and investors need returns compounding for their own benefit, not the benefit of fund companies who skim unnecessary fees off the top. Figure 2. is an example showing that 1% of additional costs will reduce available retirement funds by 10 years.

Bogleheads® investment philosophy - Bogleheads

 

[easysurfer]

Of course, you're absolutely right. I guess the real problem I'm wrestling with is my own ignorance. I'm pretty sure I can print out my statements and take them to any other brokerage firm and they'd be happy to help me understand them, jut to get a crack at handling our portfolio.

But again, as others have just pointed out I need to get my head around all of this to really gain control. ...
Pete

IMO, another way to look at it is to decide what type of investor you are. Namely, active vs passive. If you think of yourself as a passive investor (which many of us are on this forum), then that makes to process of cutting ties with the broker much easier as that simplifies your approach/expectations a lot.

In my early investment days, I didn't have a broker, but did the "collect mutual funds" thing to try to outperform the market. But all the paperwork and tracking got very cumbersome. Then the light bulb turned on and I realized that I was making the situation more complicated than I needed to.

 

[travelover]

Reminds me when I helped my nephew figure out that he was getting skimmed for over 3% in his 401(k). He ended up mad at me for pointing it out.

 

[frayne]

The time and effort learning about your investments, costs, etc. are well worth it. Remember financial advisors, brokers, don't have a fiduciary duty to you. They will gladly line their own pockets at your expense all the while giving you a great big smile and annual Christmas card. They won't take a big chunk all at one time but little bitty chunks over a long period of time. Read anything by John Bogle and you will quickly discover how much fees are costing you over the long run as pointed out by Midpack in a previous post.

 

[easysurfer]

Another way to look at things is that when times are tough, your broker/financial advisor is not going to lose any sleep over if your portfolio is doing okay or not. You are just one client amongst many. More likely, he/she will say something like "yeah, it's a rough year."

Or worst yet, you might call broker's/financial advisor's office and get a message that he/she is away on vacation on a trip, or too busy with other clients at the moment and will have to get back to you.

I'd much rather go the DIY route.

 

[Midpack]

Another way to look at things is that when times are tough, your broker/financial advisor is not going to lose any sleep over if your portfolio is doing okay or not. You are just one client amongst many. More likely, he/she will say something like "yeah, it's a rough year."

Not to mention your broker gets paid no matter what your portfolio does, that's the larger point IMO.

Trading costs are always positive for the broker even if you're taking a loss. Mutual fund fees are withdrawn no matter what you or the fund does while you own it. And advisor fees if applicable (the 1% +/- per year of assets under management) are also paid no matter what you or your portfolio do.

The only way the broker can lose is if you fire him/her, so why would they lose sleep? They live for and get rich legally thanks to clients who 'can't get their head around' investing!

Don't give up Pete, it's much too important!

 

[PeteW]

For sure what all of you are saying is totally true. The wife and I did get into our statements this morning. We have what WF calls their command asset Account/s and from what we've determined we're paying a 1.25% annual management fee. this year is should total close to 11.5K. I didn't think we had any mutual funds, but I now believe the bonds purchased by our broker last year are in mutual funds. I don't know what the management for them is. I guess I'll need to ask the broker.

Earlier this year we had him roll the 401Ks we established a few years before we sold our business into our SEP IRA accounts, since we were paying another annual management fee for them. I guess that involved liquidating them as they were in mutual funds and at this point a large portion of that money is still in cash. I know I asked at the time, but I cannot remember why they had to be liquidated. Anyway at this point we're paying the 1.25% for the privilege of WF holding the cash in our accounts.

We're still not sure what our portfolio has earned this year. and we are struggling to figure this out. On our statement there is a line called "earned income" and another beneath it called "value change". (see the attached example pdf)

I found something on the internet (not the WF site) that said you should add these two line together to find your actual gain or loss. I'm still not sure if the "Earned Income is the total of Dividends and interest or if it also includes realized gains and or losses. As for "Value Change" I am not sure if it is just the unrealized gain or loss.

Can any of you tell by looking at the attached pdf. It looks just like the first page of one of our statements, layout wise that is. I'm willing to provide more actual detail from my statements if needed.

Unlike travelover's nephew I won't shoot the messenger. Hahaha

Per easysurfer's comment, I guess I'm easily a passive investor in that I've allowed my broker to call most of the shots, up until now anyway, I'm pretty certain that is about to change. But I am ingredient by his statement that most of the people on this site are "passive investors". Could you please elaborate.

 

[urn2bfree]

Welcome to taking charge -as you should-
Like you, I too let myself get intimidated by the jargon for way too many years (and $$$)

Active vs Passive investing can probably be learned about better than I can explain with a simple Google Search, but In a nutshell this is how I understand it:

ACTIVE INVESTOR tries to pick which stocks or funds or sectors will be the best investment on an ongoing basis.
PASSIVE INVESTOR accepts that the market will go up and down but over the long run if you just track the overall market you will go up. This means buying funds or ETF that are just baskets full of lots of stocks that will closely track the indexes like the S&P 500 or the Dow Jones or whatever index you are trying to track.

The key to both is diversity and getting that diversity right. ACTIVE REQUIRES MORE RESEARCH and therefore is more costly in expenses. Fidelity and Vanguard will help you set up a mix for free.
There are some very good inexpensive advisors who will charge you a lot less to run a Passive portfolio for you if you feel picking out the right mix of ETF and Index funds is too much for you.

FINALLY you are correct that it is INSANE and I would say robbery that you have been charged 1.25% on your cash. I would love to hear how you advisor justifies that...and then unless he offers to reimburse you in full you should fire him...on second thought you should still fire him, as soon as possible.

 

[target2019]

There's a bit to educate yourself about investing principles. So a good book is first on the list. Next, check out the online access to your accounts to gain more understanding of what is there. Select one space (e.g. your IRA) and complete the form to initiate a move of that account to Vanguard or IRA. They can invest your funds in a similar way, if you desire.

What will really help you out is to open a spreadsheet and get serious about the project. Enter every account and fund. Fill in additional columns with type of investment, expenses, and other data. Then try to define the future state. For instance, you may have 100 funds and stocks scattered over several investment spaces. Take your time and develop a plan to move from the past to future state.

The tax implications sound like they will be considerable, so be careful with the non-tax-advantaged accounts. Once you get things in order, the IRAs can be transferred and re-allocated with no immediate tax consequence. With the taxable account(s) I would look at the holdings, dissolve the management agreement, and go slowly down a path of liquidation and consolidation. However, it could be that you have a good array of stocks for the plan you develop, and might want to hold them.

As you reduce the holdings at WF, it is important to get out of the management agreement. Your balance will go down as you transfer out of WF, and the management fee might rise!

 

[target2019]

I hear you. Fortunately my broker has not been churning my account. I'm fairly confident that he has personal integrity, but that said, managing accounts is how he makes his money so sadly, I'm sure he believes helping his customers to become well informed and knowledgeable would work to his detriment.

The churning is built-in.

My in-laws have partial management with a company of "integrity." However, the number of funds in three accounts is excessive. There are 16 funds, the same 16 in each account. To meet their conservative investment goals, the adviser (directed by a computer program) sells and buys in each account. The transactions are mostly un-necessary. In this case the transactions cost nothing, as they are all in-house funds, and covered by the yearly fee on the total in all accounts.

As for personal integrity, I see that as a sliding scale. Maybe he has some, but is that enough for you? You didn't mention age, but you are leaving a lot of money on Wells Fargo table. So you're doing the right thing by finding another path.

 

[mystang52]

In prep for my ER, we will be transferring all of DW's 403B into a rollover iRA, thereby saving the 403B administrator fees of 1%. The 403B rep tried everything to convince me otherwise - first he talked about what a good job he does, and when that didn't work he actually tried to lay a guilt trip on me.
Along the same lines, I don't see where OP's advisor is worth $11,000 a year.

 

[ChiliPepr]

My advice, before you change anything, is to determine how to calculate the value of your portfolio from your statement. A simple question to ask your advisor is "If I liquidated everything on 11/30/2012 how much money would there be? And how do I find that number on my 11/30 statement?"

Once you can calculate the value of your holdings you can then move on to your returns.

Because your account is actively managed and you may be taking withdrawals and making contributions throughout the year, the return calculation is a bit more complicated. A very good explanation on how to calculate a return in excel can be found at How to use XIRR in Excel to calculate annualized returns | Experiments in Finance

Personally, I am less concerned with management fees and advisor fees than many other people. Here is my reasoning, you have been with this advisor for many years and presumably you could calculate your return for each of these years. For example, if you calculated your average return for the last 10 years with him and it comes out to be 10% annually (after all fees) and looking at a similar portfolio of Vanguard index funds over the same 10 years that basket has a return of 5%, I would say your advisor is doing a hell of a job. If that basket of index funds returned 15% you should be firing your advisor.