Are excessive financial fees eating your returns?

[InParadise]

I am in the plus one on this.... If your stmt is true, then just posting your top 3 or 5 MF holdings would go a long way in this discussion...

I just wanted to take a look at the fee structure of these funds... pretty simple if I knew which ones they were...


To be fair, here are mine...

VPMAX Primecap
VTCLX Tax managed Cap appriciation
VCVLX Capital Value
VSEQX Strategic Equity
VEXAX Extended Market Index


Then it starts into some more index funds....


Took me all of 2 minutes to get them.....

As I have previously stated, our holdings fluctuate with way too much frequency for me to tell you on which funds the focus is. There are literally dozens of them...I primarily pay attention to returns, rather than positions. We do not get charged for churn or ANY mutual fund fees. And yes, I asked this specifically when he broached the subject, fee by fee, because I found it hard to believe, but that is one of those data points the doubting Thomas will continue to doubt until they see it on Moses' tablets. I could certainly tell you some of our positions, but I am not sure that would tell you the whole story.

Some (today) include: AMERICAN FUNDS EUROPACIFIC GR F-1 (AEGFX)

FIDELITY ADVISOR LEVERAGED COMPANY STOCK FUND CLASS A (FLSAX)

FIRST EAGLE OVERSEAS FUND CLASS A (SGOVX)

JOHN HANCOCK DISCIPLINED VALUE MID CAP FUND CLASS A (JVMAX)

JP MORGAN LARGE CAP GROWTH FUND CLASS A (OLGAX)

PIMCO SMALL CAP STOCKS PLUS AR STRATEGY FUND A (PCKAX)
RYDEX S&P MIDCAP 400 PURE GROWTH FUND CLASS A (RYMGX)
SUNAMERICA FOCUSED DIVIDEND STRATEGY FUND A (FDSAX)
FRANKLIN/TEMPLETON GLOBAL BOND FUND CLASS A (TPINX)

Well, OK, that was a PITA to edit down so that you didn't see all the other info that copied and pasted with, but since you asked so nicely...

 

[InParadise]

A lot of us here have have spent considerable time in the market, myself since college in 1968, so of course there are some strong opinions.

IMO most of what has been said here can be boiled down to four points:

1) FAs over the long term cannot do better than chance either in stock selection or in timing.

2) A reasonable withdrawal rate is around 4% and giving 25% of your income to a FA seems unreasonable to most of us here considering point 1.

3) You are obviously a very intelligent person. You can do better for yourself, on your own.

4) Whatever other things your FA is doing for this 25% of your future income could likely be done by yourself or someone like a good CPA for a lot less.

1. Wasn't that the "average" FA? Who says my guy is "average?" We may have been more lucky than good in finding this guy, but I suspect he is above average. He is good enough to make us happy at this time.

2. Withdrawal rate does not equal income.

3. Maybe when I have less on my plate, if DH can avoid the need to micromanage something he knows so very little about. The fights over self-management were not worth it. This is way more relaxing and cheaper than a divorce.

4. And just when do you actually retire? The most prized benefit above and beyond managing our accounts is knowing that we have things set up so our teens will have someone guiding them if we get hit by a bus. Our siblings are useless. He was great when I was dealing with Dad's estate, and if the boys are in the position of needing a helping hand because we are no longer there, with no extra charge, btw, they have one. I'm not naive enough to think that his motivation isn't bringing more assets to the firm and cementing his position with the kids as their FA, but in a crunch, one which we hope never to have to deal with, it's a blessing. He has a list of our assets outside of the account, details on where to find paperwork, and how we would like to see the boys guided in our absence. He can't be trustee, but he can advise, and no doubt he will advise saving for retirement/investment, which works for us. Most of our assets are retirement accounts, so no real need to set up a trust, and he will handle the RMDs. If the kids blow their inheritance, that is their bad. We've already instilled the values we can, and they will need to carry them out or do what they think best. If there is some other professional that can take over this job for free, please tell me. Always ready to investigate better avenues.

 

[Midpack]

We know about 20% of advisors will beat the indexes after fees, and the balance will not. Unfortunately past performance does not guarantee they'll continue to do so, some will, some won't. And we know that even pros can't identify those who will consistently beat the averages long term. So passive investing is conceding the odds are about 4 to 1 against us matching indexes with an FA.

I can well understand why you can't share who your FA is, but what exactly were you hoping we'd learn, that's still a mystery to me? That we're just not trying hard enough? Do you have advice on how to reliably pick exceptional FAs? If not...

I am sure you know the old adage by the time you know enough to pick a good advisor, you don't need one.

 

[CaliforniaMan]

As I have previously stated, our holdings fluctuate with way too much frequency for me to tell you on which funds the focus is. There are literally dozens of them...I primarily pay attention to returns, rather than positions. We do not get charged for churn or ANY mutual fund fees. And yes, I asked this specifically when he broached the subject, fee by fee, because I found it hard to believe, but that is one of those data points the doubting Thomas will continue to doubt until they see it on Moses' tablets. I could certainly tell you some of our positions, but I am not sure that would tell you the whole story.

Some (today) include: AMERICAN FUNDS EUROPACIFIC GR F-1 (AEGFX)

FIDELITY ADVISOR LEVERAGED COMPANY STOCK FUND CLASS A (FLSAX)

FIRST EAGLE OVERSEAS FUND CLASS A (SGOVX)

JOHN HANCOCK DISCIPLINED VALUE MID CAP FUND CLASS A (JVMAX)

JP MORGAN LARGE CAP GROWTH FUND CLASS A (OLGAX)

PIMCO SMALL CAP STOCKS PLUS AR STRATEGY FUND A (PCKAX)
RYDEX S&P MIDCAP 400 PURE GROWTH FUND CLASS A (RYMGX)
SUNAMERICA FOCUSED DIVIDEND STRATEGY FUND A (FDSAX)
FRANKLIN/TEMPLETON GLOBAL BOND FUND CLASS A (TPINX)

Well, OK, that was a PITA to edit down so that you didn't see all the other info that copied and pasted with, but since you asked so nicely...

I am sorry InParadise but what you said in this post is so scary on so many levels that I had to do a quick check on Morningstar:

Fund Load Expenses
AEGFX 0.00 0.85%
FLSAX 5.75 1.10%
SGOVX 5.00 1.15%
JVMAX 5.00 1.27%
OLGAX 5.25 1.09%
PCKAX 5.93 1.09%
RYMGX 4.75 1.50%
FDSAX 5.75 0.98%
TPINX 4.25 0.86%

I was wrong in my previous comment you are not paying 25% of your reasonable withdrawal rate in retirement, it is closer to 50%.

Think about it. These are managed funds! Why would you have so many? How many unique holdings are there between funds? And even more concerning is why you would be switching between funds daily. The ONLY reason I can think of, this is the scary part, is that it makes it very difficult for you to see what you are actually paying. The fund is charging you 1% to manage the holdings, and your FA is charging you 1% to manage these managed funds. And as you say, they are changing too fast for you to keep track. Do you really know you are not paying any load? Other than what he says?

Look I don't have any skin in this game, I am not trying to prove you wrong and me right, but for goodness sake, please, what your FA is doing does not make sense. Well yes it does make sense, that is what is scary.

 

[InParadise]

We know about 20% of advisors will beat the indexes after fees, and the balance will not.

Huh?

I can well understand why you can't share who your FA is, but what exactly were you hoping we'd learn...

As I stated pretty darned early on, post 3 IIRC, that you need to focus on net return after fees and expenses are accounted for, not simply keeping expenses and fees as low as possible. Not really rocket science, so I'm not sure why it caused such a furor.

 

[Texas Proud]

As I have previously stated, our holdings fluctuate with way too much frequency for me to tell you on which funds the focus is. There are literally dozens of them...I primarily pay attention to returns, rather than positions. We do not get charged for churn or ANY mutual fund fees. And yes, I asked this specifically when he broached the subject, fee by fee, because I found it hard to believe, but that is one of those data points the doubting Thomas will continue to doubt until they see it on Moses' tablets. I could certainly tell you some of our positions, but I am not sure that would tell you the whole story.

Some (today) include: AMERICAN FUNDS EUROPACIFIC GR F-1 (AEGFX)

FIDELITY ADVISOR LEVERAGED COMPANY STOCK FUND CLASS A (FLSAX)

FIRST EAGLE OVERSEAS FUND CLASS A (SGOVX)

JOHN HANCOCK DISCIPLINED VALUE MID CAP FUND CLASS A (JVMAX)

JP MORGAN LARGE CAP GROWTH FUND CLASS A (OLGAX)

PIMCO SMALL CAP STOCKS PLUS AR STRATEGY FUND A (PCKAX)
RYDEX S&P MIDCAP 400 PURE GROWTH FUND CLASS A (RYMGX)
SUNAMERICA FOCUSED DIVIDEND STRATEGY FUND A (FDSAX)
FRANKLIN/TEMPLETON GLOBAL BOND FUND CLASS A (TPINX)

Well, OK, that was a PITA to edit down so that you didn't see all the other info that copied and pasted with, but since you asked so nicely...

Thanks for posting...

I know some of these, but not others... none seem to be strange.... but we will see in time...

Thanks for posting... I too had to edit some out... that is why it took two minutes...


To me, I would be concerned with churn and that means someone is chasing return...

Also, a small holding will not make a big difference in your return... IOW, if you have less than 5% in a fund, it will not change your total return that much even if it does a lot better...

 

[InParadise]

I am sorry InParadise but what you said in this post is so scary on so many levels that I had to do a quick check on Morningstar:

Fund Load Expenses
AEGFX 0.00 0.85%
FLSAX 5.75 1.10%
SGOVX 5.00 1.15%
JVMAX 5.00 1.27%
OLGAX 5.25 1.09%
PCKAX 5.93 1.09%
RYMGX 4.75 1.50%
FDSAX 5.75 0.98%
TPINX 4.25 0.86%

I was wrong in my previous comment you are not paying 25% of your reasonable withdrawal rate in retirement, it is closer to 50%.

Think about it. These are managed funds! Why would you have so many? How many unique holdings are there between funds? And even more concerning is why you would be switching between funds daily. The ONLY reason I can think of, this is the scary part, is that it makes it very difficult for you to see what you are actually paying. The fund is charging you 1% to manage the holdings, and your FA is charging you 1% to manage these managed funds. And as you say, they are changing too fast for you to keep track. Do you really know you are not paying any load? Other than what he says?

Look I don't have any skin in this game, I am not trying to prove you wrong and me right, but for goodness sake, please, what your FA is doing does not make sense. Well yes it does make sense, that is what is scary.

Ya know, I am so tired of repeating myself that I am just not going to bother anymore. Your assumptions are wrong.

Starting balance vs ending balance net of fees, new contributions or distributions are peachy. What else do you want to fret over?

 

[aja8888]

As I have previously stated, our holdings fluctuate with way too much frequency for me to tell you on which funds the focus is. There are literally dozens of them...I primarily pay attention to returns, rather than positions. We do not get charged for churn or ANY mutual fund fees. And yes, I asked this specifically when he broached the subject, fee by fee, because I found it hard to believe, but that is one of those data points the doubting ..

Not to beat a dead horse here......but dozens

 

[InParadise]

Thanks for posting...

I know some of these, but not others... none seem to be strange.... but we will see in time...

Thanks for posting... I too had to edit some out... that is why it took two minutes...


To me, I would be concerned with churn and that means someone is chasing return...

Also, a small holding will not make a big difference in your return... IOW, if you have less than 5% in a fund, it will not change your total return that much even if it does a lot better...

Portfolio is set up to maximize return while minimizing volatility. The only issue I have with with churn is the complications it imposes on transparency. Still, ending balance vs starting balance net of deposits and withdrawals tells all.

 

[InParadise]

Not to beat a dead horse here......but dozens

Beat away. The dead horse is immune at this point. Hope you feel better for the activity.

 

[travelover]

I wonder what happened to Mommy Millionaire?

 

[CaliforniaMan]

Ya know, I am so tired of repeating myself that I am just not going to bother anymore. Your assumptions are wrong.

Starting balance vs ending balance net of fees, new contributions or distributions are peachy. What else do you want to fret over?

Since you asked...

Last year Vanguard S&P500 had a return of over 32%. For the past 5 years it was about 18% per year. Everybody looks good! But unfortunately, and why the withdrawal rate of 4% IS a a valid measure of sustainable return, is that we will not be in this happy situation forever.

Markets do and will go down, and often down a lot. So feeling "peachy" now is not what is important to you long term. It may be important to your FA, but not to you.

 

[gozer]

InParadise, am I correct in assuming that the following quote means you have shifted to a more conservative style of investing when you turned it over to a FA?

If I can keep the good returns and lower my time spent with the funds, I would be all for that, but considering I went from Mechanical Investing with wild turbulence and very high returns, (TMF tutored, not my creation,) to a more conservative approach overnight, it made sense to hand it off to someone who was performing well until I figure out if I should take it back over.

 

[Gumby]

Starting balance vs ending balance net of fees, new contributions or distributions are peachy.

At the end of the day, this is all that should matter for any of us -- are we satisfied with our investment performance? I personally use a mix of investments -- index funds, actively managed funds, individual stocks. I manage it all myself because I have the time and I enjoy it. At the end of the year, I am only concerned about one thing - do I have more money than I did a year ago, and is it sufficient to meet my financial goals? It doesn't really matter how I got there. And I don't need to beat any particular index. I don't even need to have maximized my return that year. I only need to have gained "enough" as I define it.

P.S. - I think we could all be a little more welcoming and a little less critical of a new member.

 

[CaliforniaMan]

I wonder what happened to Mommy Millionaire?

Funny, that thought passed my mind too. I am a relative newcomer here, but I did read through that entire post not too long ago and found it captivating, sad but captivating.

 

[Chuckanut]

Many years ago I heard a recorded talk given by the photographer Galen Rowell. He complained that one of his most famous images "Rainbow over the Potala Palace" was being questioned by people who thought he must have photoshopped it. Several prominent photographers had been caught photoshopping images and not revealing this to the public. People who used Photoshop knew how easy it was to put a rainbow into a photo. Thus, Mr. Rowell's very famous photo 'must' be a fake.

 

[InParadise]

Since you asked...

Last year Vanguard S&P500 had a return of over 32%. For the past 5 years it was about 18% per year. Everybody looks good! But unfortunately, and why the withdrawal rate of 4% IS a a valid measure of sustainable return, is that we will not be in this happy situation forever.

Markets do and will go down, and often down a lot. So feeling "peachy" now is not what is important to you long term. It may be important to your FA, but not to you.

So what does the John Greaney accepted 4% rate of withdrawal have anything to do with what fees I am incurring? It is not an epiphany to me that the market does not go up in a linear fashion. I have a risk tolerance of a cast iron skillet stomach that is only tempered by DH and our proximity to retiring. You seem to be fretting over the imagined fees you think I am paying. If the ratio of the starting balance to the ending balance provides a number I am happy with, what does anything else matter?

BTW, we are anticipating a withdrawal rate of less than 4%, which should result in our principal growing, not shrinking. ER has been a hard sell, and the timing has had as much to do with getting Youngest out of high school so we can leave this high COL area as it has had to do with finances. More in fact, as I won't push him out of this school district before he is ready.

 

[InParadise]

InParadise, am I correct in assuming that the following quote means you have shifted to a more conservative style of investing when you turned it over to a FA?

Yes, as I have said I have gone hugely more conservative, which is one reason why we have taken on an FA for the transition. I need to learn investing all over again from a less aggressive POV and simply don't have the time to put into it right now.

 

[Buckeye]

These remarks raised the hairs on the back of my neck. They are startlingly like things that people said when they "invested" with Bernie Madoff, as reported in "No One Would Listen" by Harry Markopolos, the analyst who sounded the alarm on Madoff years before the Ponzi scheme collapsed.

Sorry if this sounds like an inappropriate comparison to your FA, but that book make me paranoid about financial "advisors" whose returns are better than everyone else's, and who only accept money from the chosen few.

+1

My stomach did a backflip when I read those comments.

 

[InParadise]

+1

My stomach did a backflip when I read those comments.

Heh. Probably because ocdokie's interpretation is much more dramatic than the original comments. I am monitoring, just not having to direct the investments.

 

[Dash man]

I am sorry InParadise but what you said in this post is so scary on so many levels that I had to do a quick check on Morningstar:

Fund Load Expenses
AEGFX 0.00 0.85%
FLSAX 5.75 1.10%
SGOVX 5.00 1.15%
JVMAX 5.00 1.27%
OLGAX 5.25 1.09%
PCKAX 5.93 1.09%
RYMGX 4.75 1.50%
FDSAX 5.75 0.98%
TPINX 4.25 0.86%

I was wrong in my previous comment you are not paying 25% of your reasonable withdrawal rate in retirement, it is closer to 50%.

Think about it. These are managed funds! Why would you have so many? How many unique holdings are there between funds? And even more concerning is why you would be switching between funds daily. The ONLY reason I can think of, this is the scary part, is that it makes it very difficult for you to see what you are actually paying. The fund is charging you 1% to manage the holdings, and your FA is charging you 1% to manage these managed funds. And as you say, they are changing too fast for you to keep track. Do you really know you are not paying any load? Other than what he says?

Look I don't have any skin in this game, I am not trying to prove you wrong and me right, but for goodness sake, please, what your FA is doing does not make sense. Well yes it does make sense, that is what is scary.

Many funds have a form of institutional funds used by the big brokerage houses that have much lower fees than what general clients would be charged. Investing through an FA or a larger 401k with these brokerages get these institutional rates. Typically not zero, but often less than a tenth of a percent.

 

[ChrisC]

I wonder what happened to Mommy Millionaire?

P.S. - I think we could all be a little more welcoming and a little less critical of a new member.

And as I recall, the strident comments about the self-proclaimed purported success of "Mommy Millionaire" hastened her departure from further posting here. Perhaps, her investment strategy, which I recall was sort of momentum investing, was antithetical to the learned judgment and analysis shared by a number of folks here. My observations were that many people here listened and responded first, rather than listen, understand and then respond. Seems to me like the same thing was happening here.

I would like to know more about strategies that swim against the investment current before we drown out the contrarian with conventional, and in many instances, strident and snarky commentary. We ought to cut a lot of slack to relatively new posters, with different ideas, especially since imprecise tone and candor might obscure their content.

I look forward to learning here from all viewpoints.

 

[gozer]

Many funds have a form of institutional funds used by the big brokerage houses that have much lower fees than what general clients would be charged. Investing through an FA or a larger 401k with these brokerages get these institutional rates. Typically not zero, but often less than a tenth of a percent.

Yes. For example the AEFGX fund listed has class B and C shares which trade the front end load for deferred sales charge and dramatically higher expense ratios. For example, class B shares have a 5% deferred sales charge with a 1.59% expense ratio. Class C shares have a 1% deferred sales charge with a 1.63% expense ratio. My information is from the summary prospectus on morningstar dated 6/1/2013.

FLSAX has similar things. Class B has 5% deferred sales with 1.91% expense ratio. Class C has 1% deferred sales with 1.85% expense ratio. Summary Prospectus dated 9/28/2013.

I suspect many of these funds are like that.

ETA: But note that IP included the class type in her list of funds, they were all class A

 

[gozer]

Looking at the first fund, AEGFX in more detail I see that it under performed the MSCI EAFE benchmark index that morningstar compares it to for the past 1,3 and 5 year periods once you take expenses into account. At 3 years it did the best with an annualized gain of .2 per year better than the index, but with an expense ratio of .85 it under performed the benchmark index. A small investor can buy the VGTSX fund with an expense ratio of .22%. A larger investor can get admiral shares of the same fund (VTIAX) with an expense ratio of .16%. Either of these core index funds beat the managed fund.

Is morningstar comparing the fund to an improper benchmark?

ETA: I should have said "benchmark index" instead of "index fund" in the first sentence. I have corrected this.

 

[Dash man]

Yes. For example the AEFGX fund listed has class B and C shares which trade the front end load for deferred sales charge and dramatically higher expense ratios. For example, class B shares have a 5% deferred sales charge with a 1.59% expense ratio. Class C shares have a 1% deferred sales charge with a 1.63% expense ratio. My information is from the summary prospectus on morningstar dated 6/1/2013.

FLSAX has similar things. Class B has 5% deferred sales with 1.91% expense ratio. Class C has 1% deferred sales with 1.85% expense ratio. Summary Prospectus dated 9/28/2013.

I suspect many of these funds are like that.

ETA: But note that IP included the class type in her list of funds, they were all class A

That still doesn't mean the isn't another institutional class of the fund with very low fees only available to large brokerages for managed accounts. My FA is with USAA and they explained to me that their managed account services with a minimum investment of $500K would have access to these institution versions of their funds with very low fees. I chose not go use them since I enjoy picking individual stocks and didn't like the one percent annual management fee even with the low fund fees, but may consider it one day as I get older. Although USAA doesn't, it's possible her FA eats the fund fees so she only pays the one percent. Institutional fund fees make sense to attract larger accounts. I think everyone needs to cut her some slack. Do you really think institutional fund rates would be available to retail users of Morningstar?