Help us rescue our managed funds

[Gillette]

DH and I have nearly $900k with 4 different money mangers through SmithBarney. We're not happy with how much they're making, how much the portfolio churns, the unbelievable fees, the taxes, etc. We'd like to get to a point where our money is in index funds preferably not with SB.

I'd appreciate your advice on how to do this. Sell it all at once, pay the $7,000 in taxes it would trigger (still cheaper than one year of fees)? Then what? Buy $900k of index funds at once? Or sell it over time? How much time? Selling over time is also limited b/c once a money manager has less than $100k you have to liquidate the account of that manager.

Any advice on how to get out of the structure we set up when we didn't know any better?

 

[JohnP]

neeps

We had money in SmithBarney that we recently rescued - I should have done it much earlier but I was just busy -

My suggestion is to just do it!  You may have some taxes owed on unrealized gains but SB will cheerfully help you out with lots of close-out fees, back-loads, etc.   They sure did for me! 

I had started a Vanguard account - VG did all of the work of telling SB to close out the accounts and transfer the money to my account.  This will get you out from under the turmoil when the SB weasels managers see this income source going out the door.

Good luck

JohnP

 

[Gillette]

Appreciate the reply JohnP. That's what I was thinking, but DH prefers a slow and steady course.

I'm curious did you invest all your SB fund money into the vanguard funds immediately? I'm concerned about taking such a huge (for us anyway) position in the market all at one time.

 

[TromboneAl]

Yes, what JohnP said. Move the money to similar funds in VG, and you can later make any changes in allocation if desired. That is, you won't be taking a huge position in the market at once, because there won't be much change in the types of funds you own.

Also, VG has special fee reductions when you move a lot of money to their funds, and you can let them advise you as to the appropriate similar funds.

 

[Texas Proud]

Appreciate the reply JohnP. That's what I was thinking, but DH prefers a slow and steady course.

I'm curious did you invest all your SB fund money into the vanguard funds immediately? I'm concerned about taking such a huge (for us anyway) position in the market all at one time.

Why do you think you are taking a huge position in the market all at the same time? Are you not in the market today with your money If so, then all you are doing is moving it from one place in the market to another place in the market... no NEW funds to invest.. no NEW market risks....

 

[Gillette]

Why do you think you are taking a huge position in the market all at the same time? Are you not in the market today with your money If so, then all you are doing is moving it from one place in the market to another place in the market... no NEW funds to invest.. no NEW market risks....

This is a very good point. I guess we were looking at it from the point of view that the $900k doesn't all have the same cost basis right now. There is a large chunck of unrealized gain in there that we would be realized to invest in Vanguard. For some reason, realizing the gain and having $900k as your starting amount seems different than our original situation; where we had a much smaller principal and added to it over time and it grew to $900k. I guess the numbers getting really big have clouded us to the fact that the rules of the game don't change.

 

[mickeyd]

I'm reading between the lines here, but are you saying that you have $900k in a taxable account and you only have a gain of X which would amount to $7000 in income taxes due? That seems small for such a large amount of money.

If this is all correct, and you are prepared to pay the $7k in taxes, I would move the whole amount to Vanguard and start over in the index funds that you prefer. They have a number of excellent tax-managed funds. Why continue to pay fees to a company that you are unhappy with?

Also, Ask Vanguard about a free financial plan after you move the money over to them. I believe that you can receive a a free plan if you move over $250k. Here is their link https://flagship.vanguard.com/VGApp/hnw/content/AccountServ/Advice/ATSAdviceCompFinPlanContent.jsp

 

[wabmester]

Sell it all at once, pay the $7,000 in taxes it would trigger (still cheaper than one year of fees)?

You didn't mention how the money was invested, but there's probably no need to sell unless they invested in high-fee funds.    If the assets are just stocks and bonds, then you can just transfer the assets to a low-cost brokerage account without selling.

 

[jazz4cash]

The $7k sounds like such a  big number,  but its only (7000/900k)=.77%, plus as you say its less than the fees for one year.  Sideways move.....its all good!  Actually I am getting my butt in gear to do the same thing with my 401k, moving from managed to index funds (no taxes!).

 

[Nords]

I'm reading between the lines here, but are you saying that you have $900k in a taxable account and you only have a gain of X which would amount to $7000 in income taxes due? That seems small for such a large amount of money.

I think that's why neeps has decided it's time to move their portfolio. You only pay taxes when you make money.

Not only is there the prospect of avoiding higher fees, but when we sold off a bunch of Tweedy, Browne shares and invested them in a Powershares ETF we avoided an additional $10K in losses just in the time it took us to buy all the shares. Tweedy still hasn't recovered the price we sold at.

 

[smooch]

We recently moved about the same amount to Vanguard. We were with Merrill Lynch, but within Merrill Lynch our FP had us in various other funds. So I moved as much as possible "in-kind" to VG. Because Merrill wouldn't let us move their funds, we sold them except for the ones with large back-end fees. Now we have a meeting scheduled with a VG Financial Planner to review what we have and to make suggestions. I am interested in selling some of the other high fee funds, but they are already housed with VG and I feel more comfortable doing it this way. Vanguard handled everything, except that I had to talk to the ML person to find out that she tied some of my husband's 403B money up for 6 years.

 

[Surfdaddy]

If you have such small gains as you indicate, and such high costs, then I'd do it immediately. Sort of like shedding a boat anchor - the sooner the better. Take the money out and then you can gain the investment income rather than your crooks advisors.

 

[Gillette]

I love this forum b/c y'all make me think! The constant churning of the portfolio has caused us to realize gains each year it's been with SB (and moved the cost basis up when they re-buy). I hadn't looked at it that way before. The $7k is the tax effect of the small portion of unrealized gain left.

DH and I were thinking that we needed to do this. Now we don't think we can make the changes fast enough.

 

[Delawaredave]

I moved my Mom's account from Merrill to Vanguard.

Vanguard: they were very helpful and knowledgeable with all the paperwork.

Merrill: they were very "pissy" and suprisingly unprofessional

I know Merrill was losing business - and shouldn't be happy - but they were downright nasty and pinged the account with all kinds of transfer/closing fees.

Stocks that could be transferred - I just transferred over and did not sell. ML funds I sold and transferred money over.

I thought about keeping ML account open and keeping ML fund money there - but I was so angry at ML, I wanted out of there ASAP.

 

[nucdr]

I'm certainly no expert, but if I were in your shoes I would do the following
1. Transfer your stocks and and bonds to Vanguard Discount Brokerage. I'm not sure if this can be accomplished tax free. If not pay the taxes and consider it the cost of getting into a low cost investing environment.
2. Sell your SB mutual funds and transfer the sum to Vanguard - Vanguard will help you.
3. Put the proceeds into Short Term Bond fund. Acts similar to a MM fund but over time has a better total return.
4. Read William Bernstein's Four Pillars of Investing.

Tom

 

[Craig]

neeps, you hit it.

When I read your $7K number my jaw dropped. On a $900K portfolio? Wow.

Most of the folks here have large unrealized gains in their portfolios that effectively compound tax-deferred everyday. That has a huge impact on wealth creation.

Just out of curiosity, can you tell from your records what your annual returns have been in the current arrangement?

Best of luck in making the change.

 

[Gillette]

I'm certainly no expert, but if I were in your shoes I would do the following
1. Transfer your stocks and and bonds to Vanguard Discount Brokerage. I'm not sure if this can be accomplished tax free. If not pay the taxes and consider it the cost of getting into a low cost investing environment.
2. Sell your SB mutual funds and transfer the sum to Vanguard - Vanguard will help you.
3. Put the proceeds into Short Term Bond fund. Acts similar to a MM fund but over time has a better total return.
4. Read William Bernstein's Four Pillars of Investing.

Tom

2. Don't own any mutual funds, SB or otherwise. The system is set up so that we have 4 money mangers that buy stocks in their designated areas. i.e. they're basically creating their own mutual funds for us. At last count we owned I think ~ 200 individual stocks across 4 managers. Hopefully they can be transferred over to Vanguard.

4. Struggled through to chapter 3 before moving on to another (easier reading) finance book. I'll give it another go.

neeps, you hit it.

When I read your $7K number my jaw dropped. On a $900K portfolio? Wow.

Most of the folks here have large unrealized gains in their portfolios that effectively compound tax-deferred everyday. That has a huge impact on wealth creation.

Just out of curiosity, can you tell from your records what your annual returns have been in the current arrangement?

Best of luck in making the change.

I wish I knew how to put a spreadsheet on here. (I'm a little bit of a spreadsheet nerd.) I have a work of art that tells me ROI before tax, after tax, time-weighted returns, what each account would have made in the benchmarked index fund for the time period vs. what each money manger made. Ahh...the beauty of all those numbers. (can you tell I have a CPA license?)

Anyway what it all tells me is that on a ROI basis before tax we are basically achieving what the benchmarks achieve (as a whole). However, we also have an EFT account that is not weighted to a benchmark and is the primary driver of the growth in the portfolio. On an after-tax basis ROI becomes negative in two of the accounts and lower than the index benchmark in 3 out of 4. Cumulative the before tax ROI is 5.98% after tax ROI is 4.64%.   

We're definitely a case of analysis paralysis...which all changes Monday.

 

[mickeyd]

At last count we owned I think ~ 200 individual stocks across 4 managers.

Yikes...they must love you guys! They will be crying when you depart.

I assumed (incorrectly) that you had much, if not all, of your $900k in mutual funds. Is it your plan to keep all 200 individual issues, or take a dip into the MF pool with all or some of it?

 

[Nords]

2. Don't own any mutual funds, SB or otherwise. The system is set up so that we have 4 money mangers that buy stocks in their designated areas. i.e. they're basically creating their own mutual funds for us. At last count we owned I think ~ 200 individual stocks across 4 managers. Hopefully they can be transferred over to Vanguard.

You should be able to transfer everything over in kind. Heck, you should be able to have them deliver the certificates to you if you want.

With 200 stocks, you're as diversified as some mutual funds-- and your annual expense ratio is... zero. Not a bad deal if you can minimize the trading and get free reinvestment of the dividends (which Fidelity will do).

 

[Gillette]

Is it your plan to keep all 200 individual issues, or take a dip into the MF pool with all or some of it?

We might keep a few of the ETFs, but the majority of the individual issues I see us selling and putting into index funds.

With 200 stocks, you're as diversified as some mutual funds-- and your annual expense ratio is... zero. Not a bad deal if you can minimize the trading and get free reinvestment of the dividends (which Fidelity will do).

This is a good point, but DH and I have no desire to "run" our own mutual fund. Keeping up with that many stocks is not something I see us doing or us wanting to do. We like to not think about the money. Which is how SB has managed the accounts for so long.

 

[mathjak107]

I would put it all in at once since you already are in and studies show since the markets rise 2/3 of the time trying to put it in over time usually cuts your returns more than the occasional market dip you might catch.
I use 2 newsletters one of which i have been following for over 20 years and continue to do so.I use 2 newsletters because i have different portfolios for my short,medium and long term money and the 2 newsletters give me no overlap by using the same fund in more than one porfolio.I like having active management as well as the hand holding, in the downturns  having input from the newsletters helps my emotions from doing something stupid like bailing.But there is nothing wrong with going the etf route.

 

[mickeyd]

With 200 stocks, you're as diversified as some mutual funds

Not necessarially Nords. It would be easy to have 200 stocks and have little diversification. There are about 7000 stocks in the US alone. 200/7000 isn't that much.

 

[mathjak107]

Not necessarially Nords. It would be easy to have 200 stocks and have little diversification. There are about 7000 stocks in the US alone. 200/7000 isn't that much.

Just having 200 stocks isnt any guarantee of alot of diversification.Remember ford is now a finance company first that happens to sell cars.There are so many companies today that have diworsified that its hard to tell what business they are in.What the heck does ge do anymore? While i agree with 200 stocks you got to at least hit it lucky and get some right,it would take doing alot of homework to get the mix just right and knowing just what it is that your companies do..

 

[Craig]

I'm a CPA as well, so I feel your pain ... counseling can help get you past the spreadsheet addiction, but it is a long road.

So, roughly 6% per annum returns, pre-tax? Since when? I note your comments re: index funds. Common situation.

The $7K tax hit is so immaterial in the big picture, if you just start with that clean sheet of paper and allocate appropriately, you'll probably be much happier.

Best of luck.

 

[Texas Proud]

Not necessarially Nords. It would be easy to have 200 stocks and have little diversification. There are about 7000 stocks in the US alone. 200/7000 isn't that much.

Probably wrong... it has been many many years since I took portofolio analysis for my MBA, but in fact the 'portfolio' starts to get diversified around 30 stocks... not if they are in the same field etc, but are different type of companies (ie diverse kind of companies)..

We would create a portfolio and do an analysis... add another diverse stock not in the same industries.. and the diversification calulations did not change that much at all... so I would be if these are diverse companies they are pretty diverse...