Fees Taking a Third of Profit ?

[2B]

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%.

I am asking for everything plus it needs to be identified as to what it is. I have VTSAX (Vanguard Total Stock Market Admiral Shares) which is a broad US stock index. It is up 23.32% this year as of 10/14/2013. If you say you have a stock fund, you're not doing too well. For a bond fund, you're doing really well.

"Since inception" is pretty useless. 5 and 10 year returns would be nice. It is very unlikely you are beating any of the typical index portfolios.

 

[2B]

It is so clear that even my DH understands it .

Get Millionaire Teacher for him. After years of trying to get DW to understand, she read this and says it now all makes sense.

 

[Animorph]

The dividend adjusted price of VFINX, Vanguard's S&P 500 index fund, was between $100 and $114 during 2006. It's at $157 as of yesterday. That's a 37% to 57% gain from 2006 until now. However, much of that return will depend on if you added to or withdrew from the account during that period. Dividend payers will have a different gain, as will international stocks and a balanced stock/bond portfolio. But 2.7% is not good in my opinion.

 

[2B]

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.

A. G. Edwards was my last "full service" brokerage account. It was the very early 1980s and before the days of discount brokerages (I think). It may have been just as they were appearing. I really liked my broker and we talked about a lot of things. One day he told me about his parole for auto theft. I also found out he got his GED when he was in prison. So much for the standards in the brokerage business at that time. I don't know if they have changed.

I moved soon afterwards and moved my account to Vanguard.

 

[haha]

I predict nothing but frustration here. People are often more faithful to their FAs than they are to their spouses.

Ha

 

[2B]

I predict nothing but frustration here. People are often more faithful to their FAs than they are to their spouses.

Ha

That's pretty true when people are working. I've seen many people suddenly realize (like the OP) how much money they are paying their FA once they retire.

I'm done with any direct comments unless the OP produces a better summary of their assets. He's either done with us because he realizes we're not in favor of using a FA and that none of us knows how to get some dramatically lower fee schedule.

The longer someone uses the same FA the harder it is to accept that when you thought they were looking out for your best interest they were really just lining their pockets with your money. It's like finding out your spouse of 15 years had been having regular affairs that you just didn't find out about until now.

 

[nun]

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.

Well there's your problem. You have an account at a major advisor and you have too much faith in your FA. It sounds as if they are trading on your account to rack up fees.

What exactly are you invested in, I'll bet it isn't low cost index funds.

 

[tomc5179]

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.

I was with Wells Fargo / AG Edwards for 7 or 8 years until I heard about index investing and found this forum and started reading up on it.

What finally convinced me to switch is that I set up a simple spreadsheet to compare my balances, returns and fees / expenses between Wells Fargo and Vanguard AND THEN project that on out for 20-30 years or so into the future.
I would encourage you to do the same and see the difference for yourself.

 

[reubenray]

That's pretty true when people are working. I've seen many people suddenly realize (like the OP) how much money they are paying their FA once they retire.

I'm done with any direct comments unless the OP produces a better summary of their assets. He's either done with us because he realizes we're not in favor of using a FA and that none of us knows how to get some dramatically lower fee schedule.

The longer someone uses the same FA the harder it is to accept that when you thought they were looking out for your best interest they were really just lining their pockets with your money. It's like finding out your spouse of 15 years had been having regular affairs that you just didn't find out about until now.

I am not done with you, but I am not comfortable putting my personal investment information out for the entire world to see.

I have discussed this issue with my FA and will meet with him in a few weeks.

 

[samclem]

I am not done with you, but I am not comfortable putting my personal investment information out for the entire world to see.

I have discussed this issue with my FA and will meet with him in a few weeks.

Reubenray,
If you'd prefer not to use any additional real numbers, you could just instead just multiply all the dollar amounts by some X factor. And maybe give an indication of which funds your FA has selected for you. The info that folks here will likely provide will allow you to be well prepared for your upcoming meeting with your advisor.

I've gotten help on this forum (and on Bogleheads) that has been worth many tens of thousands of dollars. Getting informed opinions from people with no vested interest in your decision can be an incredibly valuable thing.

 

[scrinch]

reubenray, I just checked my Vanguard accounts and looked at the YTD return for a large rollover IRA I haven't touched in several years (not even to rebalance). YTD return is 8.02% for a conservative (roughly 50:50 bonds and stocks) portfolio of index mutual funds. If you're not doing better than that and you're paying $thousands in fees, well, I'm not sure what you're paying for.

 

[target2019]

I am not done with you, but I am not comfortable putting my personal investment information out for the entire world to see.

I have discussed this issue with my FA and will meet with him in a few weeks.

Don't submit real balances. Do the following.

In one column list the total for each fund (or stock). At bottom, add up the total.
In next column list the name of fund (or stock). In next column list the ticker. In next column list the fund expense ratio (stock will have no expense ratio). In next column calculate the percentage of each fund or stock by the total.

Don't reveal the fund balances, just list the fund names and the percentages. It should add up to 100%.

It's likely you are paying more than 1% in management fee to the advisor company. In addition you are likely paying 1% or more too much in expenses in the funds, or in churning. So you are starting off each year -2%. That's quite a bit of headwind to overcome.

As for the experience here, keep in mind that someone may have given you a sharp whack to the back of the head, and another has given you a friendly nudge. In any event, the building is on fire, and everyone wants you to get to the exit for your own sake.

The first step is education. When you go in a few weeks to meet the nice advisor, it will help you to have an impartial analysis of the investments. Also, there is quite a lot of burden on yourself to start reading, and follow up with questions.

 

[2B]

I have discussed this issue with my FA and will meet with him in a few weeks.

Never forget that he is a commissioned salesman with no real interest in your financial well being. If he was, he would have recommended you move your money into index funds long ago. Any discussion with him will be nothing more than his effort to maintain you as a client so that the income to him from that relationship will continue.

The recent Nobel prize in economics was given to one guy that says you can't time the market (Fama). One of the others (Shiller) thinks you can. In both cases they talk in terms of broad market indexes and don't wade into the world of individual stock selection. Data has consistently shown that broad based index funds consistently beat a very high percentage of managed mutual funds over any time period selected. There are no managed funds that consistently beat indexing in multiple time periods.

If your advisor was really so good, why is he wasting his career with you? If he could beat the indexes consistently every pension plan in the world would be making him outrageous offers to manage their assets.

 

[urn2bfree]

Watch out for this "argument." He will claim that 1% fee is not really 25% of your SWR because the 1% is flat but the 4% actually increases over time. This is true but irrelevant. It is true that if you follow the 4% SWR rule strictly that 4% is % of INITIAL portfolio and adjusts up,for inflation. Over the years that amount grows to be a bigger percent of the total portfolio-5%, 6%, etc. But you advisor, nice guy that he is ONLY takes 1% of YOUR MONEY!!! And never adjusts that percent up. Gee, what a pal. This ignores the fact that he is not worth half of that and as your portfolio grows probably not even worth a tenth of that. There is zero evidence that you cannot domjust as well with lower costs. On the contrary, reams of studies show that such fees will take huge amounts of your portfolio and cause you to fail.
If you can know EXACTLY the $ amount that you are paying to him and divide it by the time you think he spends on you and your investments, I think only then can you judge if that is what you want to pay. Often you will find they are making $500 -$1000 per hour off of you. Is that the rate you want to pay?

 

[travelover]

Don't overlook the fact that most FAs will send you a yearly birthday card.

 

[FinanceDude]

Sounds like they have you in a platform wrap account. A lot of banks use these programs, which were "invented" in the 90's and still pushed today. I have yet to see one that could not be duplicated for a LOT less, even with a different FA, much less on your own.

3% fees are ridiculous. You are right to question it and understand what is being charged and why.

 

[marinauser]

The OP is not paying 3% in fees even though that is what she stated. That number seems to have been miscalculated as several others have pointed out. If that were the case, she would be earning dividends and/or interst of $12,000 on a $133,333 investment. She has apparently paid $4,000 on a total of about $403,000 in investments which works out to a 1% fee. Not great but certainly not unusual. Without the actual investments being identified and without seeing the actual buys and sells, there is no way to determine whether there is churning of the account. The trades that she is seeing every month could simply be dividends/interest payments in each month and repurchases. While I don't see a need for a broker/advisor in my life, an assumption that everyone of them is a crook is simply not true. There are people who benefit and that benefit comes at a cost. If you need or want it, then you pay the cost.

 

[RunningBum]

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.

That's 1.28% over 5 months, which projects out to 3% for the year if the rate holds. The fees on the other parts seem less but I'm not clear what the fee structure is. Sounds like a base fee + fees on transactions, and that one group has a lot of churn.

It's up to the OP to do whatever s/he wants. The building isn't on fire, but the septic tank is definitely overflowing. Index funds aren't the only answer though it is a good one.

In my opinion the first mistake the OP is making is looking at dividends only, rather than total return. Compare $100K that does not grow in value and generates 4% income that you pull out, against $100K that grows 3% and generates 2% income. In the latter case you can pull out the 2% income and 2% of the gains to get the same 4% spending money, but now you have $101K. That will actually generate a bit more income the next year and/or leave you more to draw down.

The second mistake is putting up with those high fees. The OP asked for our opinion on this, specifically the fees, and again my advice is to definitely change this. You say you trust the FA and he has not steered you wrong, but what do you base this on? With all that apparent fee-generating churn and mediocre results I think your trust may be misplaced. I'm sure he can cut the fees by churning less but I still think you can do better on your own. Even if you don't have enough to get a free analysis and recommendation from Vanguard, the one time fee for it would still be worthwhile, and you might be able to negotiate to get it for free for transferring your account to them.

I think people sometimes stick with an FA because they don't want to admit making a mistake for so many years, but you can't change the past. You can, however, improve the future. You owe the FA no loyalty whatsoever. But it's no skin off my back if you decide to stay with him.

 

[reubenray]

For one thing I am a he and not a she. I also made an error on how I was calculating my fees.

I have been researching my 401k rollover plan which is the $250,000 one. I only started drawing dividends on it back in June. I also was able to check my fee cost back one year. The fees work out to be $0.00375. I calculated this by dividing my fee amount by the amount of the fund itself. For example back in October of 2012 I paid $434.82 for $115,984.45. In January I added another $114,000 +- to this fund. I checked this on my other quarters and they all work out to the same percent. My error in calculating this before was incorporating my wife's fees in with my mine. Her fees are the same percent, but we cannot draw dividends on her $$ yet.

I only started drawing dividends on this fund back in June/2013, so I cannot do much research on the outcome. In the last quarter (July, August & September) I was paid $983.07 and the fees for that quarter was $932.28. So the fees are basically taking my dividend money away. But this fund grew by $10,062 in this same quarter. Whether this was due to the market or the work of the FA I do not know.

The other two funds have no fees. The $114,000 one gave me dividends of $1,654.89 for the last quarter, but this fund lost over $10,000 with the market swings. The smallest fund gave me dividends of $593.08 for the quarter and the value stayed about the same.

So I do not think I am paying to much (but I don't know). My goal is to get more monthly income (dividends) and have some growth.

 

[padlin00]

Seeing as how you refuse to tell us what funds you are invested in and continue to think your FA is doing a swell job, I wish you the best of luck. May your FA enjoy the new car that you are helping him pay for.

You paid $932 in fees for 1 quarter on an investment of $230k, or $3728 for the year. My math says that's 1.6%

 

[samclem]

You paid $932 in fees for 1 quarter on an investment of $230k, or $3728 for the year. My math says that's 1.6%

Those are just the fees to the FA, but probably not everything he's paying because of his FA. Wait until you see the expense ratios of the special funds the FA has selected. But even at 1.6%, that equates to about 40% of what reubenray should be receiving (if we assume a typical 4% withdrawal rate). If we add in typical taxes that reubenray must pay, reubenray will be taking home about the same amount as he is giving the FA. But I'm sure he gets a VERY nice Christmas card.

So I do not think I am paying to much (but I don't know). My goal is to get more monthly income (dividends) and have some growth.

You are paying too much. If you want to increase the amount you can take from your portfolio, the fastest and safest way is to stop paying those fees and keep that money for yourself. Later we'll talk about dividends--they are important, but they sometimes aren't what they appear to be.

 

[Animorph]

Seeing as how you refuse to tell us what funds you are invested in and continue to think your FA is doing a swell job, I wish you the best of luck. May your FA enjoy the new car that you are helping him pay for.

You paid $932 in fees for 1 quarter on an investment of $230k, or $3728 for the year. My math says that's 1.6%

I don't think he knows what funds he's in. And clearly the math needs a little more clarity. An FA may be not a total waste in this case.

ruebenray, keep working on it and eventually you'll understand your investments better. Next time you talk to the FA, or find your account statements, see if you can get a detailed description of what the heck is in your accounts. You need to know that and have a good handle on the expenses before you will know if your FA is OK or a thief. And when you know that answer, you can start investing on your own and stop paying the FA.

 

[reubenray]

I know exactly what is in my accounts, but as I said I am not comfortable putting out my info to total strangers. I understand ya'll are trying to help me, but this is not the way. If I am paying to much in fees I will discuss this with my FA. I am not in the position to take out my money and put it somewhere else without getting my monthly dividends.

I can you the names of the funds.

 

[scrinch]

reubenray, you've got a nice blend of funds. Someone else will have to look at the fee schedule as I am at work and don't have the time. Remember, you don't have to limit yourself to withdrawing dividends. There's nothing preventing you from cashing out a few shares too.

Regarding fees, most FA's would probably think that combined mutual fund operating fees and his management fees of 1.5% is reasonable. From his perspective it probably is. From my perspective (I pay about 0.2% at Vanguard) it is several times too high. The difference between his fees and the fees charged at a place like Vanguard or Fidelity is about $5000/yr in your pocket if you have $400k invested.

 

[samclem]

Fund Expenses: We can't tell how good or bad the whole situation is without some idea of your weighting (percent) in each fund. Overall, the expenses of these funds aren't "crazy", but most are still about 0.5% above low-cost index funds. That's .5% every year. Together with what the FA is getting paid, it's about 1/2 of what reubenray can sustainably take out of his funds every year. The FA and the fund companies will be getting as much every year from reubenray's investments as he will. Did they work for this money for decades as he did?

That's a lot of money to give away.