Getting away from fees

[Rachel]

After reading on this site and some self-education from books/articles, I am ready to make the leap to becoming a DIY investor. When I established an ongoing relationship with a financial advisor in 2008, I needed a lot of advice and organization. I wanted to set up a smooth trajectory for ER, get my estate planning done, set up a fixed income ladder, and make sure my ducks were in a row for college costs for 2 kids. My advisor has been responsive, helpful and gave me the extra reassurance I needed to ER in late 2011. I have up to date estate planning documents, asset allocation I am happy with, and many pretty binders from the past 4 years from my advisor showing fairly smooth sailing for retirement.

Now I have the time and interest to take over my own investments. I am persuaded that I don't need to be spending 0.75% of my assets on advice. I have all my accounts at Fidelity (both IRA and taxable, in a revocable living trust) but there are way too many funds and only 75% of them are index or ETF.

So here are my questions:
If I want to SIMPLIFY my holdings to fewer funds and get rid of all that are actively managed, do I do that BEFORE or AFTER I end my relationship with my advisor?
If I want to move everything to Vanguard, do I transfer everything "as is" and then straighten it out, or do I make the changes first within the Fidelity account?
I would appreciate advice on how to make this transition. I have sufficient assets to be eligible for Vanguard's highest level of support services and advice.

 

[jerome len]

I like Vanguard and have 80% of my portforlio with them. I keep 20% at Fidelity and check their web pages for ideas. 75% in index funds is great.....overall, managed funds are cheaper ( I think) at Vanguard.....you can have Vanguard do an analysis and it would include a comparison for you.

Good luck.

 

[easysurfer]

My experience with transfering assets from Fidelity to Vanguard only involved my 401K and pension lump sums that were managed by Fidelity to my IRA at Vanguard.
When I told Fidelity of my intentions, they did try and ask me to pick them first, but I wanted to just DIY, plus all my other investments are at Vanguard.

As for timing (Before or After ending relationship with advisor), since you've had a good relationship with your advisor, it seems to me it'll be easier to simplify in Fidelity first before moving to Vanguard. But it may just be a matter of personal preference.

As for how to make the transition, of course, you'd want to call Vanguard too to see what they have to say.

Also, I did a search and came up with a links to Vanguard's various transfer kits.

https://personal.vanguard.com/us/literature/openaccountforms/brokerage

 

[Lsbcal]

...(snip)...
So here are my questions:
If I want to SIMPLIFY my holdings to fewer funds and get rid of all that are actively managed, do I do that BEFORE or AFTER I end my relationship with my advisor?
If I want to move everything to Vanguard, do I transfer everything "as is" and then straighten it out, or do I make the changes first within the Fidelity account?
I would appreciate advice on how to make this transition. I have sufficient assets to be eligible for Vanguard's highest level of support services and advice.

Why not talk with the receiving institution to get the strategy right for the transfer. Some funds may be cheaper at one place then another to liquidate. Other thoughts:
1. You may not want to be out of the market while the transfer is taking place. So moving, then revising might be a good approach.
2. If you decide to sell an ETF you will need a brokerage account at Vanguard before you can do that.

BTW, we use VG for most of our money. Really like their low costs. Current ER for is around 0.18%, holding mostly ETF's but also a few active funds.

 

[Rustward]

...

So here are my questions:
If I want to SIMPLIFY my holdings to fewer funds and get rid of all that are actively managed, do I do that BEFORE or AFTER I end my relationship with my advisor?
If I want to move everything to Vanguard, do I transfer everything "as is" and then straighten it out, or do I make the changes first within the Fidelity account?
I would appreciate advice on how to make this transition. I have sufficient assets to be eligible for Vanguard's highest level of support services and advice.

My suggestion would be to transfer to Vanguard "in kind", then do your simplification there.

Cleaning things up at Fidelity then transferring is like an employer telling the employee "You are getting fired, but before we pull the trigger on you, we have one more very important project for you to complete". Of course Fidelity will follow your instructions, but I would not expect 100% effort from the advisor you are leaving. But again, just from a distance, I could be wrong about this.

 

[mistershankly]

I am in the same process and moving my FA holdings to Schwab. I've moved my IRA/ROTH over in kind and then sold there to buy similar funds with lower expense ratios and better performance. The taxable funds are currently being moved over and I plan on holding them as-is until I can account for any taxes or fund fees if/when I sell some of them.

Let us know what you decide to do and your experiences with it. I'd be interested in learning any insights you gain from your move.

 

[gerntz]

Someone can correct me, but for the IRA's, I don't see where it matters if you sell the funds at Fidelity & transfer the IRA's as cash UNLESS trading fees would be less at VG. There are no taxes either way.

For the taxable trust, you could be incurring unwanted capital gains if you sell - before or after the transfer. But if you are making changes to those assets, then you'll incur the cg's regardless. As the tax laws for 2013 stand now, cap gains in 2012 are lower.

 

[FreeAtLast]

I set up my accounts with my new institution in the middle of December with the instructions to transfer 'in kind' after the first of the year. Seemed to work out best for record keeping and tax reporting.

 

[pb4uski]

I would call Vanguard and ask them what the best approach is. Have them do a financial planning as well. Be careful of tax implications for your taxable accounts.

 

[clifp]

While I'd be anxious to to get rid of the .75% fee for the Fidelity adviser. I am curious why you want to move to Fidelity to Vanguard? If he has 75% of your money in index fund it doesn't sound like you've got bad advice. It is just that with more time and education you don't need it.

Vanguard expense ratio while typically lower than Fidelity are only a few basis points. difference and it is rare Vanguard fund that outperforms it Fidelity rival by more than .1% a year over a long period of time. While both Fidelity and Vanguard provide good service in most survey's Fidelity is slightly better. One area that Vanguard is more expensive than any of the other discount brokers is buying and selling non-Vanguard mutual funds.

Still in general if you started investing in 2008, in primarily index funds you almost certainly have some significant capital gains. Frankly it makes very little sense to sell Fidelity Index funds in your taxable account to buy a similar index fund from Vanguard. The 15%+ capital gains tax you will pay more than outweighs any benefits from Vanguard lower expenses.

Personally, I'd thank your adviser for his help. Telling him that you are sticking with Fidelity but don't need his services anymore. You really only need to worry about selling the 25% that isn't in index funds and reallocate to index funds.

If you need suggestions this forum, and bogleheads.org are all reasonable places to get specific suggestions.

 

[Rachel]

Thanks for excellent advice and suggestions. I did want to clarify my story for clfip--my advisor is independent, not through Fidelity. The rationale to move everything from Fidelity to Vanguard is to get free advice and access to an all-Vanguard SIMPLE portfolio (my current portfolio feels anything but simple to me although I won't get rid of the index funds). I thing the capital gains and taxes are going to limit how much I can sell of my taxable funds but even if I do this gradually it will be an improvement to get rid of a few of the high cost ones that haven't performed well.

I have a telephone appt set up with a CFP at Vanguard for Monday to talk it over. I think I will have a hard time telling my much-appreciated financial advisor that we are parting ways, and anticipate he will make a big argument to continue the arrangement (not only because it has been a very satisfactory relationship but also given the income stream he gets from my account!). I have a face-to-face meeting with my FA (also a CFP) in mid-August so I want to get a rough plan together for what to do with the managed funds before then. The advice to simplify after transferring in kind is very smart--thanks to all!

 

[teejayevans]

There is 2 ways for your current FA to react when you tell him you are parting ways.
1. (BAD) He will try to scare you by telling you what terrible things can happen if you try to DIY. If he tries this, RUN.
2. (Good) He will point out what services he provides, asks why you are not satisfied, and eventually wishes you well and maybe offers to other levels of services (periodic reviews, charging by hour, etc)
I be curious which tack he takes.
TJ

 

[Rachel]

I will be sure to update this thread with my experience and what I learn in a few weeks!

 

[Nords]

I think I will have a hard time telling my much-appreciated financial advisor that we are parting ways, and anticipate he will make a big argument to continue the arrangement (not only because it has been a very satisfactory relationship but also given the income stream he gets from my account!). I have a face-to-face meeting with my FA (also a CFP) in mid-August so I want to get a rough plan together for what to do with the managed funds before then. The advice to simplify after transferring in kind is very smart--thanks to all!

If you think you're going to have a hard time saying "Goodbye", then I strongly recommend that you have Vanguard initiate the transfer of the funds from Fidelity. Finish the transfer before you even talk to the financial advisor.

It might be better to cancel your appointment with the advisor-- why waste their time if you're going out on your own? After the transfer of assets is complete, then you can e-mail them a very nice "Thank you" for all the binders that they've bought for you with your money.

This is the first time you're leaving your advisor, but they've been left dozens of times before. You're out of your league in this battle of wills. They're experts at exploiting any residual guilt you may possess, yet they should appreciate your attempt to not waste any more of their time on changing your mind.

So high school, eh?

 

[easysurfer]

If you think you're going to have a hard time saying "Goodbye", then I strongly recommend that you have Vanguard initiate the transfer of the funds from Fidelity. Finish the transfer before you even talk to the financial advisor.

It might be better to cancel your appointment with the advisor-- why waste their time if you're going out on your own? After the transfer of assets is complete, then you can e-mail them a very nice "Thank you" for all the binders that they've bought for you with your money.

This is the first time you're leaving your advisor, but they've been left dozens of times before. You're out of your league in this battle of wills. They're experts at exploiting any residual guilt you may possess, yet they should appreciate your attempt to not waste any more of their time on changing your mind.

So high school, eh?

+1. Have to remember who's working for who (or is that whom?).

When I did my lump sum transfers from Megacorp (accounts with Fido), I had earlier called Vanguard about my plans. Vanguard had no problem of joining in on a three way conference call to help out with the transfer -- made the process easier to make sure we were all on the same page.

 

[Midpack]

I transferred my entire portfolio from Fidelity to Vanguard about 10 years ago. Fidelity Spartan Index funds had low expenses, but they did not have all the index funds I wanted (then at least). Fidelity is a good firm, but more active funds and handholding than you'll get with Vanguard (depending in part on your porfolio size).

I let Vanguard handle all the transfers, they make it easy, make sure the transfers are complete (may take more than one sweep due to dividends) - obviously they're anxious to start off with good service to impress you and of course they make money holding your portfolio.

I transferred everything I could in kind to avoid a big tax hit, you'll want to consider that. You may not want to sell/buy everything you have planned in one year, may take several years. I sold the most tax inefficient funds in the first year and others in year two and three.

Let Vanguard help you, they do this all the time and they should give you good general pointers on tax implications though you have to make the decisions.

 

[Animorph]

You may have some funds at Fidelity that are not available at Vanguard. That may make a transfer-in-kind difficult. I doubt Vanguard offers Fidelity index funds, for example. I'd figure out you portfolio at Vanguard before switching. If you like the portfolio better than what you can do at Fidelity, then switch.

 

[Cessna5354]

Rachel,
You will be fine, and so will the soon to be former FA. Great advice provided above.

I just moved from ML, they only had a small portion we transfered to them after two dinners. I called them and told them straight up they provided a great service, but we were not fully comfortable, nor did we feel like this was our best match for us. He said he understood & wished we would meet again.

Best of luck with your undertaking !!