Is this a case where an investment advisor is a good idea?

[hesperus]

On a portfolio of that size, I'd push for an ongoing fee of 50 basis points. Before doing that, though, calculate the total amount you are giving up to the advisor over 30 years. You'll be shocked.

You are much better off working with someone to develop a plan you can manage. Your father wrote a tremendous book and passed it on to you. Don't rewrite it, but add a few chapters.

Well put, and exactly what I wish to do: working WITH someone to develop a portfolio I can eventually manage myself. I realize the cost over thirty years would be huge to keep them managing it. No way. All I want to do is get some good professional advice for say, a year, to get the complexity of this thing down to something that I can handle, and do it in a way that factors in gains and risk in a changing market. Over that time, I will also learn by doing. Once I get the portfolio to a place I feel comfortable, I will take it on myself.

I am as skeptical and resistant to a advisor managed portfolio as the next person on this forum, but the difference is that I didn't create this portfolio myself over time, I inherited it with all it's complexities and risks. It's about making smart choices in getting it more tailored to our own needs, but doing it in a timely way that factors in costs and tax consequences.

I like the hourly idea, personally. In this way I can sit with this person and address particular areas of the entire portfolio without having to 'pay' an annual percentage to manage the whole portfolio. In that way, decisions are always run by me, and I can vett & process the trades myself which would probably help the learning process.

 

[robertf57]

50 basis points on 4 million is $20,000. At $100/hour that would be 5 weeks of full time work. Please don't pay anyone 50 basis points to get you on the right track. If you must pay someone, do it on a reasonable hourly rate. But, I still think your best bet is Vanguard who would handle this for you with no additional charge and would provide you with their very lowest costs funds. Maybe 1/2 and 1/2 with fidelity and get a second opinion for free.

 

[travelover]

..............I am as skeptical and resistant to a advisor managed portfolio as the next person on this forum, but the difference is that I didn't create this portfolio myself over time, I inherited it with all it's complexities and risks. It's about making smart choices in getting it more tailored to our own needs, but doing it in a timely way that factors in costs and tax consequences.............

I think that you've got it right. Deconstruct the complex portfolio into a simple portfolio with minimal tax consequences. Then just rebalance it yourself yearly.

 

[pb4uski]

Ok. So Vanguard charges 30 basis points.

Schwab does it for free but will charge $8.95 a trade.

And yes, you can afford to travel to see them and your dedicated advisor will return calls

Sent from my SAMSUNG-SGH-I537 using Early Retirement Forum mobile app

I think you may be comparing apples and oranges. Vanguard has two levels of services - one (that I have used) would also be free but the other, with a little more handholding, would be at a sliding fee beginning at 75 bps for the first million, 35 bps for the second million and 20 bps for amounts more than $2 million. See http://www.vanguardinformation.com/pdfs/AMSSD_102009.pdf

If I were the OP I would contact Vanguard and start out with the pay version but tell them that you would like to be on a path to learn to DIY and be off the 30 bps version in 3 years or less.

 

[uofmbish]

Just a thought (I have no first hand experience with inheriting a portfolio of this size/complexity), but it seems most of your concerns are centered around the tax consequences of liquidating some of the holdings that you are not familiar with. Isn't that a question better geared to a CPA, who I would assume would be more likely to charge an hourly fee?

 

[gayl]

I think you may be comparing apples and oranges. Vanguard has two levels of services - one (that I have used) would also be free but the other, with a little more handholding, would be at a sliding fee beginning at 75 bps for the first million, 35 bps for the second million and 20 bps for amounts more than $2 million. See http://www.vanguardinformation.com/pdfs/AMSSD_102009.pdf

If I were the OP I would contact Vanguard and start out with the pay version but tell them that you would like to be on a path to learn to DIY and be off the 30 bps version in 3 years or less.

Do you get a dedicated advisor at Vanguard whose office you can walk into or is it over the phone only? I like having a free advisor

Sent from my SAMSUNG-SGH-I537 using Early Retirement Forum mobile app

 

[mpeirce]

Just a thought (I have no first hand experience with inheriting a portfolio of this size/complexity), but it seems most of your concerns are centered around the tax consequences of liquidating some of the holdings that you are not familiar with. Isn't that a question better geared to a CPA, who I would assume would be more likely to charge an hourly fee?

If you don't already have a good CPA you should find one. They can help you with the tax side of things - pointing out various tax pitfalls and there are many. And your numbers are big enough that mistakes can be pretty large.

A CPA won't help you with your investment strategy, but if you already have a target portfolio, a CPA can help you plan a tax efficient way to get there.

 

[hesperus]

If you don't already have a good CPA you should find one. They can help you with the tax side of things - pointing out various tax pitfalls and there are many. And your numbers are big enough that mistakes can be pretty large.

A CPA won't help you with your investment strategy, but if you already have a target portfolio, a CPA can help you plan a tax efficient way to get there.

yes, I have a good CPA who can work with us on the tax issues, but like you say, he is not going to be good at overhauling a portfolio from a purely investment perspective.

 

[target2019]

Well put, and exactly what I wish to do: working WITH someone to develop a portfolio I can eventually manage myself. I realize the cost over thirty years would be huge to keep them managing it. No way. All I want to do is get some good professional advice for say, a year, to get the complexity of this thing down to something that I can handle, and do it in a way that factors in gains and risk in a changing market. Over that time, I will also learn by doing. Once I get the portfolio to a place I feel comfortable, I will take it on myself.

I am as skeptical and resistant to a advisor managed portfolio as the next person on this forum, but the difference is that I didn't create this portfolio myself over time, I inherited it with all it's complexities and risks. It's about making smart choices in getting it more tailored to our own needs, but doing it in a timely way that factors in costs and tax consequences.

I like the hourly idea, personally. In this way I can sit with this person and address particular areas of the entire portfolio without having to 'pay' an annual percentage to manage the whole portfolio. In that way, decisions are always run by me, and I can vett & process the trades myself which would probably help the learning process.

Be careful with the "fee only" label when you look. To us DIY'rs it means, "pay an hourly fee for a plan, or ongoing advice." It seems that everyone offering a free dinner these days is a fee-only advisor. What THEY mean by that is very different from what most here mean.

I think you'll do well by searching the sites mentioned by others. Then run the name by your CPA. You'll benefit greatly when they cooperate. You have quite a few securities, and you actually may be better off keeping some.

I think it would be rather nice to have 100K in qualified dividends, and stay in the 15% tax bracket.

For all we know you may be sitting on the most perfect portfolio of all time.

By the way, you can plug all of that into a Morningstar free portfolio analysis, and get some measure of all the risk, and how it performs. What if you found it actually outperforms, and has lower risk than conventional balanced portfolios?

 

[Tractor guy]

I'm going to add my voice to the chorus who suggest you get a CPA and also consider putting the money at Vanguard and using their adviser service. Except for the trust, you should be able to transfer all of the estate to them in kind without incurring any tax issues. The only fee would be the one from the brokerage house where you are currently invested.

Also, I recommend spending time at the Boglehead forum and get started with their reading list here: Getting started - Bogleheads

You may want to consider posting your list of assets on that forum. You'll be swamped with a lot of free and mostly useful advice.

You should also look at their wiki and in particular their page on managing a windfall here: Managing a windfall - Bogleheads
Unless your father's investments are terribly bad (it doesn't sound like they are), I'd not rush to do anything until I understood the tax, cost, and risk of any changes. In particular, stay away from any "investment" that emphasizes its low risk, high return, or tax avoidance features. They tend to be either ways for "advisers" to make money from you at best or at worst outright scams.

 

[robertf57]

Again, if you recently inherited this portfolio, you got a step up in basis, so there should be little tax or no tax issue with liquidating and starting up with a simpler plan.

Good luck.

 

[sengsational]

There's a fee-only financial planner (marottaonmoney.com) that posts a bunch of good reports and blogs. Before I met with a financial planner, I'd spend an entire 8 hour day reading stuff on that site. That way, you'd be able to give a decent "sniff test" on what your fee only planner is recommending. Just because the planner is fee only and claims to be a fiduciary, doesn't mean there are not bad apples out there.

I wouldn't go for a "percent of assets under management" fee structure...I'd just pay a one-time fee to two or even three independent planners and see how close their recommendations are. There is no substitution for educating yourself because there's nobody in the world that has more at stake than you do.

 

[eta2020]

Are you in the 15% marginal income tax bracket? If so, then long-term capital gains are taxed at 0%, so it could be easy to sell things and convert to an index fund portfolio that would basically be on autopilot.

I agree with LOL.

I think you father was pretty smart guy and your portfolio may not need any changes. Things invested in Index funds probably don't need any changes at all. Even many individual securities may not need any changes.

You should not rush to redo portfolio that you dad created and should not be on any rush to get an Financial Advisor.

 

[Rickt]

Hesperus, you have gotten a lot of good advise from other members but here's my 2 cents:

1. You father was very wise in creating a portfolio consisting of stocks, bonds, MLP etc.instead of just a portfolio of diversified Index funds which charge you at least 0.25-0.35% (viz. @ Vanguard).

2. In my opinion, the portfolio that your father created will give better returns long term but may be a little more volatile than the portfolio consisting of just Index funds. Volatility may increase if you move funds into small cap growth stocks for example. This will increase potential returns but will also increase your portfolio's risk which may result in you selling at the wrong time in the event you find the ride too bumpy. This is counterproductive to managing a diversified portfolio that you balance periodically.

3. The 0.35-0.5% that you will pay a FA will ensure that you stay invested in such a diversified portfolio at all times. Any trades they make for you will not be based on emotions and IMHO the fees that you pay them is like an insurance policy so that you do not make any mistakes on your own based on emotional buy/sell decisions.

So basically, a diversified portfolio of index funds is not much different in terms of annual expenses compared to a diversified portfolio of individual stocks, bonds, MLP etc that is managed by a FA. In the long term (20+ years) the latter portfolio will most likely give you better returns than the former. Just my opinion of course!

Good Luck,
Rickt

 

[eta2020]

3. The 0.35-0.5% that you will pay a FA will ensure that you stay invested in such a diversified portfolio at all times. Any trades they make for you will not be based on emotions and IMHO the fees that you pay them is like an insurance policy so that you do not make any mistakes on your own based on emotional buy/sell decisions.

I am not sure about that. You will be a gold mine for some FA. Simple index funds will do great. But if your father owns high quality stocks like PG, KO, CL, WFC, PM, MO.... I would not be selling them and they may not need to be sold ever.

If you slowly learn and become your own FA you will do best. And a one the first to learn us that money are like soap. The more you use it the less you will have of it. So don't rush into any trades/changes...

Enjoy dividends

 

[pb4uski]

Do you get a dedicated advisor at Vanguard whose office you can walk into or is it over the phone only? I like having a free advisor

Sent from my SAMSUNG-SGH-I537 using Early Retirement Forum mobile app

Yes, I have a single guy at Vanguard that is my principal contact for probably 10 years - over the phone but even if he was local I would probably do over the phone anyway. (I have a local insurance agent and have never gone to their offices). I talk to my Vanguard guy a couple times a year when I need to and he coordinates any other Vanguard resources I need for the issue at hand. All for free.

 

[eta2020]

Yes, I have a single guy at Vanguard that is my principal contact for probably 10 years - over the phone but even if he was local I would probably do over the phone anyway. (I have a local insurance agent and have never gone to their offices). I talk to my Vanguard guy a couple times a year when I need to and he coordinates any other Vanguard resources I need for the issue at hand. All for free.

I have principal contact in 2 companies. I think once your account crosses 1 million they will assign you guy in local office.

I don't talk to either one of them. It is kind of company telling you thanks you are important customer.

You get there by being your own FA. Nobody cares about YOUR money as much as you do

 

[urn2bfree]

Hesperus, you have gotten a lot of good advise from other members but here's my 2 cents:

1. You father was very wise in creating a portfolio consisting of stocks, bonds, MLP etc.instead of just a portfolio of diversified Index funds which charge you at least 0.25-0.35% (viz. @ Vanguard).

2. In my opinion, the portfolio that your father created will give better returns long term but may be a little more volatile than the portfolio consisting of just Index funds. Volatility may increase if you move funds into small cap growth stocks for example. This will increase potential returns but will also increase your portfolio's risk which may result in you selling at the wrong time in the event you find the ride too bumpy. This is counterproductive to managing a diversified portfolio that you balance periodically.

3. The 0.35-0.5% that you will pay a FA will ensure that you stay invested in such a diversified portfolio at all times. Any trades they make for you will not be based on emotions and IMHO the fees that you pay them is like an insurance policy so that you do not make any mistakes on your own based on emotional buy/sell decisions.

So basically, a diversified portfolio of index funds is not much different in terms of annual expenses compared to a diversified portfolio of individual stocks, bonds, MLP etc that is managed by a FA. In the long term (20+ years) the latter portfolio will most likely give you better returns than the former. Just my opinion of course!

Good Luck,
Rickt

There is virtually no evidence for any of these three points. And some are flat out wrong. Not open to opinion, just plain factually wrong and or misleading.

1) we have no idea if the portfolio might not be considerably larger if it had been constructed with low cost index funds and the cost for most index funds is much lower than the nonsensical pulled out of thin air 0.25-0.35% ...example the Vanguard Total stock market ETF costs 0.05%. Only off by 500%...

2)no one is suggesting making the index funds more concentrated and less diverse. You can get a diversified low cost mix of index funds and not get taken by one of these crooks charging you by a percentage of YOUR money.

3)You can get a fee only advisor like Evanson who will charge you the equivalent of around 0.075% to start and if your portfolio grows and the fee being flat does not that percentage only goes down..as some one else pointed out - on a $4 Million portfolio, 0.35% FA will be charging you $14,000. If they are worth $150 an hour that is like 90+ hours of work they are charging you for--really?!? 90 hours? More likely they might be spending an hour and a half per month working for you...



Sent from my iPad using Early Retirement Forum

 

[hesperus]

I want to thank everyone who posted here with suggestions and ideas about my original question about hiring an advisor at this stage of the process. They have been very helpful - Thank you.

A couple of things. It is more difficult in a small mountain town (even if it does have it's share of wealthy retirees) to have a good range of choices in independent FA's. There are two major brokerage branch offices, but limited independent advisors. I think it would be a good idea (as several people suggested) to look outside the area, including discount brokerages like vanguard, schwab, fidelity, etc to see how their advisors would work with me. If I must have a face to face (not as sure now), Denver is only a one hour flight, and has a number of well established and reputable FA's. That would open the playing field.

My goal is to self manage, and I won't waiver on that goal. Getting there is what this thread was about. One poster warned about being a 'gold mine' for an FA. This is one of my greatest concerns as I move forward. Even independent fiduciaries may have an ulterior motive to keep a large account generating income. I can't ever ignore that possibility as I move toward DIY. Someone who understands that goal and works within that framework is essential to me.

Although I do need to get going on reallocation, I also have some time, and do not need to rush in to start making trades. Although there is some inherent interest rate risk in this portfolio, there are also some very solid holdings, and it is generating very good monthly income. There is also the capital gains issue, as many have addressed. I went in to my brokerage accounts yesterday, and found there are total unrealized gains of approx $750K that I have to factor in. I don't want to rush into that tax hit.

I will keep posting as I move forward with these changes. Your advice has been helpful in gathering information and ideas from people who have experience with this, and want to be smart with their money, as I certainly do. Once again, thank you!

 

[travelover]

........ I went in to my brokerage accounts yesterday, and found there are total unrealized gains of approx $750K that I have to factor in. I don't want to rush into that tax hit. .............

I would think that this is your biggest obstacle - unwinding current holdings without getting killed on taxes. If you had no CG at this point, you could just stick it into a lazy portfolio or Wellesley and call it a day.

 

[MBAustin]

I want to thank everyone who posted here with suggestions and ideas about my original question about hiring an advisor at this stage of the process. They have been very helpful - Thank you.

A couple of things. It is more difficult in a small mountain town (even if it does have it's share of wealthy retirees) to have a good range of choices in independent FA's. There are two major brokerage branch offices, but limited independent advisors. I think it would be a good idea (as several people suggested) to look outside the area, including discount brokerages like vanguard, schwab, fidelity, etc to see how their advisors would work with me. If I must have a face to face (not as sure now), Denver is only a one hour flight, and has a number of well established and reputable FA's. That would open the playing field.

My goal is to self manage, and I won't waiver on that goal. Getting there is what this thread was about. One poster warned about being a 'gold mine' for an FA. This is one of my greatest concerns as I move forward. Even independent fiduciaries may have an ulterior motive to keep a large account generating income. I can't ever ignore that possibility as I move toward DIY. Someone who understands that goal and works within that framework is essential to me.

Although I do need to get going on reallocation, I also have some time, and do not need to rush in to start making trades. Although there is some inherent interest rate risk in this portfolio, there are also some very solid holdings, and it is generating very good monthly income. There is also the capital gains issue, as many have addressed. I went in to my brokerage accounts yesterday, and found there are total unrealized gains of approx $750K that I have to factor in. I don't want to rush into that tax hit.

I will keep posting as I move forward with these changes. Your advice has been helpful in gathering information and ideas from people who have experience with this, and want to be smart with their money, as I certainly do. Once again, thank you!

This is a very interesting thread because you got a lot of diverse opinions and I think did a great job of synthesizing the advice into a plan that will work for you. I second the motion that you spend a good solid day reading up on investment management options, etc. (sites mentioned above). Also start a master list of questions you have when you interview an FA. If you go the Denver route (makes sense) then I would screen with a phone interview before going to the time and expense of meeting with them. Also ask them what information you should bring to the first meeting - they should ask for a fair amount of detail about your current holdings and objectives even in an initial meeting. I would be wary if they don't.

I'll also second the recommendation for using Vanguard Flagship services once you get everything arranged and are comfortable. There is no charge (as long as you have $1M in Vanguard funds) and like another poster above, we have had the same advisor for many years (I think we've been Flagship since 2000 and we've only ever had 2 advisors). Our current advisor is in Phoenix and I can schedule a phone appointment with him either same day or next day nearly always.

 

[rodi]

I have a question that may seem obvious....

Did your dad manage it all himself, or did he have a FA or CPA to advise him. If so, can you continue with his management team? They appear to have done a good job.

 

[Sarah in SC]

If Brewer is reading this thread, he might know of a few firms in that area to give you a direction for seeking counsel on this. He's a CFA charter holder.
Other than that, look on the NAPFA website and see where that leads you.

Fwiw, we encourage DIY a lot in my firm, and often have counseled clients to remove money from management for things like paying off their mortgages. But not everyone sees fiduciary responsibility through that filter.

 

[pb4uski]

....It is more difficult in a small mountain town (even if it does have it's share of wealthy retirees) to have a good range of choices in independent FA's. There are two major brokerage branch offices, but limited independent advisors. I think it would be a good idea (as several people suggested) to look outside the area, including discount brokerages like vanguard, schwab, fidelity, etc to see how their advisors would work with me. If I must have a face to face (not as sure now), Denver is only a one hour flight, and has a number of well established and reputable FA's. That would open the playing field.....

There is also the capital gains issue, as many have addressed. I went in to my brokerage accounts yesterday, and found there are total unrealized gains of approx $750K that I have to factor in. I don't want to rush into that tax hit.
.....

I live in a very rural area as well and have had accounts with Vanguard for over 20 years including at least two financial planning sessions and never a face-to-face meting. I also telecommuted for work for 13 years. With today's technology, there should be no need for a face-to-face meeting (they probably could do video but I have never pursued it).

Unless you are or think you will at some point be in the 15% tax bracket and be eligible for 0% LTCG, the tax bite on LTCG will be 15% whether you do it now or do it later (assuming no change in the tax laws) so I'm not sure if I would feel handcuffed by capital gains taxes. OTOH, if you are currently or sometime soon will be in 0% LTCG then it makes sense to do a little at a time and save the 15% ($113k).

 

[gcgang]

I question whether you need to rush to change. You say you're worried what would happen if rates go up, but very few things will do well if that happens. You'd probably hold up better than a more aggressive total stock index.

I'd start by getting a good understanding of what you want/need the investments to do for you. Determine your objectives first, then your risk tolerance and investments can follow.

The portfolio that you currently have could be a sufficiently diversified, more tax efficient, less expensive way of investing than using even the lowest cost indexes.

Morningstar has a great portfolio analyzer that someone else mentioned. That would be a good place to start to understand your holdings.

Then, if you could find a smart, honest, hourly planner to help understand what you have, how it fits with what you want/need, perhaps you'd then have a good idea of how to compliment your current portfolio when/if you invest the cash or how to make the most efficient changes.


Sent from my iPhone using Early Retirement Forum