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

[hesperus]

First post here. Have been watching this forum for some time now. I am 55 yrs old, married (wife is 46), no kids and looking for advice on whether it may be a good idea to turn to a Investment Advisor to get our investable assets to a place where I can eventually DIY. A quick history: About two years ago my father passed away, leaving approx $4.5M in investable accounts to me. $1M is in trusts, and $3M is in a mix of stocks/securities, totalling around 75 holdings. I am also sitting on approximately $500K in cash. We both work part time, but at this point we could easily live off the income generated from these accounts. These accounts are all held in one of the big brokerage houses. Up to now, they have done OK, performing fairly well but my father's portfolio was skewed heavily toward income, which served him well at 79 yrs old, but we are still relatively young and need to work toward a different allocation. I know enough to realize that these accounts need to be tweaked to adjust to a changing market with rising rates, and some of the holdings are going to be at risk in a rising rate environment.

I have spoken with a few people, including a financial planner, and understand the value of getting this portfolio into a well diversified asset allocation model. The brokerage house worked up a plan with an AA model, but I want to keep costs down and am reluctant to do a major overhaul within the brokerage, given the commission$. I am thinking of moving a sizeable portion of the accounts to either a Schwab or Fidelity account, then hiring a registered investment advisor to help me to get the portfolio to a more diversified place given our risk tolerance. The RIA I spoke to has offered to manage the accounts at 65-75 basis points depending on the amount I put in. I could also do an hourly with him, and then take his advice and do the trades myself. I pay a lot of attention to keeping expenses down, and I have always been against 'wrap fees', but in this case I admit I am starting to think it might be a good idea, at least until it gets to a place I'm more comfortable with managing. The portfolio is somewhat complex, with a lot of individual stock holdings, MLP's, CEF's, etc, etc and there are some significant capital gains to work in as well. My feeling is that the complexity of the holdings at this stage of the game is a bit much for me to go alone.

 

[robertf57]

From your post, it appears a little hand holding is in order until you are comfortable. At your father's death you should have a step up in your basis and generally free reign to sell and move those assets to a low cost brokerage account and diversify. I know vanguard would provide you with an advisor and a plan without charge, given the size of your portfolio; but, you may wish to have a totally independent fee only advisor give you their thoughts

 

[ziggy29]

Given the scenario you describe I have little problem with working with a reputable fee-only planner while you learn more about the basics of asset allocation and investing, and assessing your own risk tolerance. Until then I see no problem with paying a reasonable fee for a one-time assessment of all of that until you feel good about your ability to manage your own money.

I would just suggest that if they suggest putting you into loaded and/or very high fee mutual funds, most likely your response should be to run.

 

[LOL!]

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.

If not, can you take a sabbatical from jobs and get there? Unfortunately, a large portfolio in taxable may not be tax-efficient, so that one may have lots of distributions that are not qualified dividends and thus not be taxed at 0% because one got bumped up out of the 15% tax bracket.

If I was looking for a RIA, I would find one that could explain to me how they would sell everything and save me on taxes. In contrast, the advisor chosen by the WSJ guy (see other thread for the disaster) just sold everything and caused a big tax hit.

 

[RunningBum]

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.

If not, can you take a sabbatical from jobs and get there? Unfortunately, a large portfolio in taxable may not be tax-efficient, so that one may have lots of distributions that are not qualified dividends and thus not be taxed at 0% because one got bumped up out of the 15% tax bracket.

If I was looking for a RIA, I would find one that could explain to me how they would sell everything and save me on taxes. In contrast, the advisor chosen by the WSJ guy (see other thread for the disaster) just sold everything and caused a big tax hit.

Only the part of the cap gains that keeps all income in the 15% bucket will be at 0%. Take a good look at the Capital Gains and Dividends Worksheet on the tax forms to see how this works. You do not have unlimited 0% LT cap gains just because your income is in the 15% or lower bracket.

 

[LOL!]

^True dat.

 

[Brat]

I don't know if the OP has done this but he should prepare a spreadsheet that lists each asset, its basis (value at the time inherited or purchased) and number of shares or units, before contacting an advisor. You should also research each of the companies whose stock you hold and consider whether or not you have keepers or stinkers.

You may also want to have details about your life insurance policies.

Frankly I think you should read a couple investments books, use a fee only advisor, and invest only in no load funds if you buy mutual funds.

 

[target2019]

I would go to either Schwab or Fidelity, and start a conversation or two. With this amount at stake, you want to develop a solid plan. You and spouse must be fully involved in that. After you put in time reading and discussing, you'll see a clearer path.

 

[urn2bfree]

Evanson Asset Management is very reasonable for on going portfolio management at the sensible flat fee rates not the absurd percentage of assets others try to charge. and flat fee based planning advice is also very reasonable...charged like other reasonable professionals on an agreed upon hourly rate...
You still need to move the stuff to a custodian account at Schwab or Vanguard or Fidelity to use them...


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[Animorph]

I'd do a one time setup with an FA (and I actually did that). Have the FA set you up with low-cost mutual funds. That eliminates any stock trading worries. You should keep the number of funds to a size you are comfortable with. Nothing wrong with using just three funds. If you want to be more active, try commission-free ETF's and a larger number of funds. Even then, you should be able to ignore the entire portfolio for a year or more without a problem. You won't need an FA for that. Read this forum for other non-investing financial actions that might be of benefit to you.

 

[Bestwifeever]

First post here. Have been watching this forum for some time now. I am 55 yrs old, married (wife is 46), no kids and looking for advice on whether it may be a good idea to turn to a Investment Advisor to get our investable assets to a place where I can eventually DIY. A quick history: About two years ago my father passed away, leaving approx $4.5M in investable accounts to me. $1M is in trusts, and $3M is in a mix of stocks/securities, totalling around 75 holdings. I am also sitting on approximately $500K in cash. We both work part time, but at this point we could easily live off the income generated from these accounts. These accounts are all held in one of the big brokerage houses. Up to now, they have done OK, performing fairly well but my father's portfolio was skewed heavily toward income, which served him well at 79 yrs old, but we are still relatively young and need to work toward a different allocation. I know enough to realize that these accounts need to be tweaked to adjust to a changing market with rising rates, and some of the holdings are going to be at risk in a rising rate environment.

I have spoken with a few people, including a financial planner, and understand the value of getting this portfolio into a well diversified asset allocation model. The brokerage house worked up a plan with an AA model, but I want to keep costs down and am reluctant to do a major overhaul within the brokerage, given the commission$. I am thinking of moving a sizeable portion of the accounts to either a Schwab or Fidelity account, then hiring a registered investment advisor to help me to get the portfolio to a more diversified place given our risk tolerance. The RIA I spoke to has offered to manage the accounts at 65-75 basis points depending on the amount I put in. I could also do an hourly with him, and then take his advice and do the trades myself. I pay a lot of attention to keeping expenses down, and I have always been against 'wrap fees', but in this case I admit I am starting to think it might be a good idea, at least until it gets to a place I'm more comfortable with managing. The portfolio is somewhat complex, with a lot of individual stock holdings, MLP's, CEF's, etc, etc and there are some significant capital gains to work in as well. My feeling is that the complexity of the holdings at this stage of the game is a bit much for me to go alonye.

Once your portfolio gets shaken out and reallocated to your preferences, you probably don't need to pay someone to manage it year after year. The flat fee, fee only planner suggested here is the way to go. I also second the advice to call Schwab and Fidelity and see what they have to say before you sign on with someone.

And sorry about your father..

 

[Brat]

I started my IRAs with Fidelity and used them for my parent's trust. They give excellent service for a very reasonable cost. What I liked most is that they have offices where you can physically sit down with a representative and resolve any paperwork details. This was particularly important when working with my Mother after Dad passed away.

Phone and email (Vanguard) works fine when an investor has all their facilities but is not so comfortable late in life, IMHO. [I lived in cities with Fidelity offices.]

 

[gayl]

I would go to either Schwab or Fidelity, and start a conversation or two. With this amount at stake, you want to develop a solid plan. You and spouse must be fully involved in that. After you put in time reading and discussing, you'll see a clearer path.

I also second either listing all assets and value at his date of death (you can look it up on bigcharts.com for historical values) so you're better prepared to reallocate

 

[hesperus]

Thank you all for your replies... what a great forum.
It has been a rather unsettling time (personally as well as financially) with the changes that led to this windfall, and I think your feedback helps me to feel more comfortable in hiring some advisory help. I'll admit I have really been resistant to that path, but when I think of the consequences of trying to get it there myself in a timely and tax efficient manner - it concerns me. I don't want to get caught in a market with rising rates with the existing portfolio so I feel time is of the essence. I am definitely going ahead to open an account with a low cost brokerage (probably schwab), and focus on speaking with several different advisors to get a better idea of who could work well with me.

I do have all the stepped up cost basis data on the holdings, so I have good idea of what capital gains are there, and they are significant enough to have to plan for.


I do have a question on fees: What is considered a reasonable percentage if I were to bring assets of, say, 1.5M to 2M to an independent advisor? Is 75 basis points reasonable for a person to person advisory service? I do want to be able to meet person to person, rather than phone calls/online all of the time (that's what my existing broker communication is right now - all phone calls, as they're in chicago).
I live in a small (resort) community, so there are a few choices outside of brokerages, but not too many.

 

[gayl]

Go to Schwab. It's less than that, you'll have face- to- face interactions, and it's as good if not better than other places. I still go in for the annual evaluation and I've been with yh em for years

 

[hesperus]

Once your portfolio gets shaken out and reallocated to your preferences, you probably don't need to pay someone to manage it year after year. The flat fee, fee only planner suggested here is the way to go. I also second the advice to call Schwab and Fidelity and see what they have to say before you sign on with someone.

And sorry about your father..

thank you for the advice, and kind words...

 

[hesperus]

Unfortunately, we don't have a schwab (or fidelity) office nearby to tap an advisor there (in person).

 

[urn2bfree]

You do not need an in person meeting to get good advice.
If you are good getting advice and management that means Index investing- passive investments not Active stock picking or trying to pick winning funds. It all comes down o diversification and asset allocation by percentages. So there is no relationship between how much you bring to them and how much work they do. If you have $1 Million or $10 Million the job is the same. So there is no reason to ay by a percentage of your money. It is a scam that thy keep going and luckily you have the option of saying "no". Pay a flat rate by the hour fee...
Vanguard may do it for free at that level of investment... You can find fee based advisors through http://www.napfa.org/
There are two steps here Financial planning- which should be a one time or only once and a while need. They can tell you how to divide up money for tax efficiency etc..
And portfolio management, which again should be available at low rates but is for ongoing management to follow the plan--or you can do it yourself with the advice you got from the planner and skip,the portfolio,management fees. I like Evanson as they help me with soemtax efficiency issues and give me access to the DFA family of index funds...but you do not have to use DFA funds. White coat investor has a great article on building your own portfolio-
http://whitecoatinvestor.com/150-portfolios-better-than-yours/
I mentioned Evanson does both fee only planning and portfolio management at flat rates. Other firms doing flat rate portfolio management are Cardiff Park and FPL. PORTFOLIO solutions charges a low percentage of assets under management of 0.37% and thennlower above $3Million...Rick Ferri who runsPortfolio Solutions is one of the good guys. Good guys in this field are few and far between-- be careful. And get yourself educated. Good books include those by William Bernstein.
The website for Evanson has a number of good,free articles-
http://www.evansonasset.com/
Oblivious investor also has good advice on portfolio construction at low costs-

http://www.obliviousinvestor.com/8-sample-and-simple-portfolios/

And other good free articles in general on the same website http://www.obliviousinvestor.com/


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[clifp]

It is very rare for the forum to recommend a financial planner, but given the size of the estate and the tax complexity (MLPs) I agree with the majority.

I can understand the benefits of being able to talk a person face to face. While I am not familiar with Evanson, the rest of Urn2bfree recommendation make a lot of sense. With those assets I'd be hesitant to pay more the .5% and if at all possible pay for it on per hour basis.

One of the reason we generally prefer a DYI approach is that it is really hard to find a good financial adviser. Often the skills need to evaluation a good FA vs a rip off artist make it easier to manage your own portfolio. On the other hand their are potential tax saving in the 100K+ range which you may not know about but a good FA will know.

Feel free to find a few FA, present a summary of their fees and plans and then let the forum help you develop questions to ask them..

 

[LOL!]

The size of the portfolio is large enough that one could fly anywhere in the US to meet with an advisor several times a year if needed. So I don't think your location is particularly important. Pick an advisor in a place you like to visit.

 

[target2019]

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.

 

[donheff]

I think the first decision should be about your own orientation. For many of us here, a relatively simple set of diversified index funds is the way to go. The size of your portfolio will have only a slight impact on how that is manged. Others choose managed mutual funds and or individual equities, bonds etc. Fidelity, Schwab, or Vanguard can help you pick a reasonable AA of index funds. If you would like to DYI after a break in period a fee only advisor can help you with either approach - but be careful that the advisor you select is comfortable with the direction you want to move in (e.g. low cost index funds). If you want a long term advisor you still need to decide what way you want to go. If it was me,in that case, I would probably look for a Dimensional Funds Advsisor (DFA). They can put you in a structured set of index funds and keep you on track, but you pay for it.

 

[travelover]

I agree that you are giving up a lot if you insist on having a local adviser. It is kind of like insisting on finding a mate in a small town - needlessly limiting. With that much money, Vanguard will hold your hand for free and is much more likely to put you into efficient, low cost index funds.

 

[poorcarver]

For what it is worth Vanguard is currently charging 30 basis points for a set of services that the OP might find would fit his needs.

 

[gayl]

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

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