Fees Taking a Third of Profit ?

[reubenray]

On part of my retirement money I am currently getting the dividends and interest sent to me instead of being rolled back into the funds. This amounts to about $12,000 year. But a little over $4,000 comes out for the investment company fees. This is a third of my money I am giving back to the investment company.

Is this normal or should I look at changing this? I am meeting with my investment adviser in a few weeks for our yearly visit and would like to see what my options are.

 

[Animorph]

Find out how your fees are determined. We can't really tell much just compared to dividend interest. However, "investment company" and "investment advisor" already suggests they are too high.

 

[RunningBum]

+1 to Animorph. You are probably getting charged a % of your portfolio, not based on any profits or withdrawals. If you have $400K invested than you are being charged 1%, even if you make less than 1% in a bad year. 1% is pretty standard, but the standard is high and unnecessary. And that 1% is on top of any expense ratios in any mutual funds you are invested it.

Compare that to self-managing at Vanguard, where you have 0% direct fees, and their funds have an expense ratio of around 0.25% to less than 0.10%.

 

[reubenray]

It is 3% of the total amount.

 

[target2019]

It is 3% of the total amount.

That is entirely too high. They are probably justifying this fee based on a lower balance than they normally deal with.

I suspect more chicanery. Your yield is almost 10%. You are taking on quite a bit of risk to see that level of reward.

 

[gcgang]

It is 3% of the total amount.

If they are charging 3%, and that is $4,000, you have about $135,000? You are generating $12,000 AFTER the $4,000 fee, meaning you are getting about 12% in dividends and interest? If your advisor is really doing this, either: they are really good; they have a Madoff scheme going; or something is wrong with this info or my understanding of it.

 

[target2019]

If they are charging 3%, and that is $4,000, you have about $135,000? You are generating $12,000 AFTER the $4,000 fee, meaning you are getting about 12% in dividends and interest? If your advisor is really doing this, either: they are really good; they have a Madoff scheme going; or something is wrong with this info or my understanding of it.

I think the 4k was deducted separately. So they earned 12k, paid 4k fee, and took away 8k before taxes. I calculated a 9 percent yield. Still seems too many high.

 

[RunningBum]

3% is absurd. I wouldn't even give them the courtesy of a meeting before pulling my money out of their control. If you feel differently that's your business.

 

[reubenray]

Here is a better breakdown of what this part of my retirement is doing.

1) $250,406 has given me $1,639 in dividends over a 5 month period. The fees for this portion is about $3,200 dollars for this year.

2) $38,368 has given me $1,436 in dividends over a 7 month period.

3) $114,136 has given me $5,900 in dividends over a 10 month period.

The other $800 in fees are for items 2 and 3. I averaged out the amount for the next few months to get my yearly estimate. This is my first year of drawing dividends and each fund was started at different times.

I was shocked that item #2 which is about 6.5 times less than item #1 was earning more $$ per month than item #1 But item #1 has grown $14,000 where item #2 did not grow any. Some way I need to factor in this amount in my figuring of dividends vs fees. If it was a perfect world I would like to put a lot of the $$ from item #1 into the same type of funds that item #2 is. This would give me more monthly dividends without the high quarterly fees. At this stage of my investing I am not so much concerned with how much my $$ grow, but how much I get monthly into my bank account.

 

[Animorph]

3% is in RUN! territory.

Keep in mind that the maximum withdrawal rate we can recommend in retirement over 30 years is 4%. These guys are taking 3/4 of that. Even at 3%, some of the more pessimistic posters on this board might say you have a chance of seeing no growth in your portfolio. These guys are living off your portfolio instead of you...

 

[padlin00]

As a total, it's not 3%, it's 1%. You should provide more info on the investments, can't tell what your returns are based on the type of investment.

 

[2B]

I suspect you are a very recent retiree. I've seen a number of people "fat, dumb and happy" with egregeous investment advisor fees while still drawing a paycheck only to become dumbstruck after retirement at how much they have been paying their FA.

I can't make any sense of your fees vs returns but you are likely just getting hit with an across-the-board fee schedule. What you have not included are the likely high fees you are paying for any mutual funds in your portfolio. In addition to the 3%, you could easily be paying an additional 1 to 2% in mutual fund fees. Basically, you can't afford to retire with all these fees. Immediately, find a new job so you can continue to fund your FA's lifestyle and future retirement.

There are several ways I could approach this but I agree you need to get your money out of there ASAP. I personally invest with Vanguard index funds and would suggest you move your money there. What you also need to do is to figure out your asset allocation. That's a separate thread IMHO but there have been many discussions on the topic which you could read. I suggest you read Andrew Hallam's Millionaire Teacher (very easy read); and for more of an indepth discussion, William Bernstein's Investor's Manifesto.

Please note that being your own financial advisor is not a difficult job. It does not take very much time. You will probably spend more time discussing the topic with your FA than you would need to spend doing your own investment management with index funds.

 

[ERD50]

...

I was shocked that item #2 which is about 6.5 times less than item #1 was earning more $$ per month than item #1 But item #1 has grown $14,000 where item #2 did not grow any. Some way I need to factor in this amount in my figuring of dividends vs fees. If it was a perfect world I would like to put a lot of the $$ from item #1 into the same type of funds that item #2 is. This would give me more monthly dividends without the high quarterly fees. At this stage of my investing I am not so much concerned with how much my $$ grow, but how much I get monthly into my bank account.

It is good that you are looking at expenses and evaluating just what your FA is doing for you.

That said (and don't take this as criticism, it is an observation and I'm trying to help!), the way you are looking at your investments is somewhat twisted. But that's OK, because people here can help with that.

You need to look at your investments as a whole - a 'top down' view, and at 'total return' (the gain/loss on its entirety - price change plus divs). Comparing dividends, but not accounting for price change is just going to confuse you. It's all money.

Getting higher dividends (your comment about moving from #1 funds to #2 funds), might not be the right thing for you to do. Higher dividends are typically associated with higher risk funds. Is that what you want?

The general formula here is, pick an Asset Allocation (blend of stocks and fixed income) that matches your risk tolerance. History shows that anything from about 45/55 to 90/10 will provide similar success rates for a 30+ year retirement, so don't sweat the details.

As others have mentioned, it looks like the fees you mentioned ar somewhere around 1%, which is a typical FA fee. But then the funds probably have higher ERs than other choices you have, so that adds to the costs.

Don't think of fees as a % of dividends, think of them as a % of your total portfolio. Dividends are a function of what type of investments you have, it's just not a useful metric. That said, a typical 1% has a huge impact on your retirement - if you plan to draw 4% from your portfolio, you need a portfolio that is 25% larger just to pay your advisor. It's as if you handed $80,000 of your $400,000 to your FA.

It is unlikely that an FA can provide returns over and above those costs, compared to a simple 'couch potato' style portfolio that you can easily do yourself.

Good luck, and keep asking questions!

-ERD50

 

[reubenray]

Thanks for all of the info even with my confusing breakdown of what I have. My first step is to call my FA today to schedule a meeting. In this phone discussion I want him to check into reducing my fees as well as to start me on my draw down. This will have to be explained to me on how it works and what effect it will have on my current income of dividends. I am assuming that my dividends will reduce as I start pulling out money.

The biggest amount is where I put my 401K savings went into. This account is constantly buying and selling so much that I cannot keep up with what I have. This one has grown the most, but has the high fees.

The smallest amount is my Roth IRA that I put in years ago.

The middle amount is a combination of stocks and bonds that we have bought over the years. This one gives me the most monthly return, but with the biggest loses when the market goes down.

 

[Lsbcal]

Very simply put, you are probably getting ripped off.

If it were me, I'd move all of my money to a reputable financial institution. And I would do this as quickly as possible.

 

[ERD50]

Thanks for all of the info even with my confusing breakdown of what I have. My first step is to call my FA today to schedule a meeting. ...

I will strongly suggest that you wait before calling your FA.

It is his job to charge you for something you can very likely do very easily for yourself, and you can likely do it better. He isn't going to let you talk him out of his job. There is nothing to be gained talking with him. He is going to have to move on to someone else who thinks they can't DIY.

People on this forum are disinterested third parties, we make no money from your financial decisions. But we are interested in learning and sharing what we have learned.

This isn't complicated at all, for most cases. A simple portfolio of low cost index funds, or similar (target funds, or maybe Wellington or Wellesley funds) will very likely outperform any selections from your FA and takes very little effort to set up (probably less time than meeting with your FA).

So look at your total investments, SS/pension (COLA or not COLA?) estimates, and your time frame. I guess you are already retired? What age do you want to plan for? Spouse/Dependents?

-ERD50

 

[nun]

If you feel comfortable can you tell us where your money is invested?

 

[haha]

The altruism of very skilled board members is astounding. What a resource!

Ha

 

[Animorph]

I am assuming that my dividends will reduce as I start pulling out money.

If you can live only off the dividends rather than selling shares for income, then a reduction in dividends is not inevitable. You are however at the mercy of the companies deciding what their dividends will be.

The biggest amount is where I put my 401K savings went into. This account is constantly buying and selling so much that I cannot keep up with what I have. This one has grown the most, but has the high fees.

That's "churning" or "turnover". It's a good way for a broker who gets paid a commission to increase his income and drain your account. Even if they are not acting criminally, there are expenses you are paying for each buy and sell transaction. These are not part of a 1% or 3% management fee, but are still costs to you that reduce your return.

We have yet to hear anything good about your FA.

 

[samclem]

I will strongly suggest that you wait before calling your FA.

Agree. Your FA is making a lot of money from you (for very little work) and he will not let go of that easily. Expect he'll have lots of great arguments about how much he's doing for you, and the figures/numbers will be confusing enough that you'll probably just throw up your hands and leave it with him.
Managing investments is not difficult. Most people can easily set up a simple portfolio that will do better than a "professionally managed" portfolio (after accounting for the fees these guys charge).

 

[2B]

The biggest amount is where I put my 401K savings went into. This account is constantly buying and selling so much that I cannot keep up with what I have. This one has grown the most, but has the high fees.

OMG!

This is probably the worst possible way to have your money "managed." You are probably paying a fortune in brokerage commissions on top of the management fee.

Do you happen to have your account at Raymond James? If you do, I suggest you look at moving out of there quickly. In any event, it's not going to accomplish anything to have a "performance discussion."

As pointed out earlier, your FA will have a giant litany of reasons that he/she is doing a marvelouse job with your money for a mere pittance in fees. "Why, you are almost a charity case with the firm as they charge you so little. You could never comprehend the complexity of investing on your own and you would soon be eating cat food as your retirement suddenly becomes so very bleak. You would almost certainly be forced back to work without them."

These guys live off people like you. There's an old book out called Where are the Customers' Yachts that goes into all they way the financial service industry fleeces their [-]chumps[/-] clients. Over time they carefully move money from your account to theirs. The book is worth reading but not until you've read Millionaire Teacher and moved your money away from your current FA.

 

[2B]

This is posted separately to make it stand out more.

Please post a list of your investments and their various amounts. Identify what is in taxable, tax deferred and Roth accounts. You will get better comments on your investments if it is clear what they are.

Do you have any data on your portfolio return over the last several years? It would be interesting to see if you FA has equaled the performance of a simple passive portfolio. Typically, the FAs don't make it easy to evaluate the total return of a portfolio. They love to point out "winners" and somehow forget all about the "losers."

 

[reubenray]

If you feel comfortable can you tell us where your money is invested?

It is Wells Fargo Advisors which was A. G. Edwards before Wells Fargo took over. I have had the same FA for since 1998 and I have a lot of trust in him. He has never steered us wrong. I got this one account (with the high fees) in 2006.

 

[reubenray]

This is posted separately to make it stand out more.

Please post a list of your investments and their various amounts. Identify what is in taxable, tax deferred and Roth accounts. You will get better comments on your investments if it is clear what they are.

Do you have any data on your portfolio return over the last several years? It would be interesting to see if you FA has equaled the performance of a simple passive portfolio. Typically, the FAs don't make it easy to evaluate the total return of a portfolio. They love to point out "winners" and somehow forget all about the "losers."

I have access of everything concerning my funds. The year to date performance on this one fund is 6.5%. But the performance since inception is only 2.7%.

 

[Bestwifeever]

Reubenray, there is a very clear article today by financial writer Gail MarksJarvis about using index funds as supported by the new Nobel economics medalusts. It is behind a firewall in the Chicago Tribune but you might be able to find it with a google search.

It is so clear that even my DH understands it .

Watch out for your FA to compare apples to oranges in terms of fees and dividends. They are good at that; DH has a small legacy account at Edward Jones and has no idea what fees he is actually paying.

Go look at Vanguard's website and check Wellesley, for instance, where a $400,000 investment would have cost $720 in fees at 0.18% and increased in value by $24,000 over the past year, including dividends and market value increase (I am not good at math but this is what I got from the Vanguard website).

If you called Vanguard, Fidelity, or Schwab, etc., they will be happy to discuss an index fund portfolio and its costs with you.