Brokerage fees?

[A854321]

What would be a reasonable brokerage fee for a diversified IRA account at a large brokerage house?

My most recent quarterly statement showed a fee of 0.28%. This fee is assessed quarterly

 

[haha]

What would be a reasonable brokerage fee for a diversified IRA account at a large brokerage house?

My most recent quarterly statement showed a fee of 0.28%. This fee is assessed quarterly

This is definitely not reasonable. Many places it would be free. At others maybe a flat $10 fee.

Give more details and we can make more complete suggestions.

Ha

 

[A854321]

Yes, more info

This an actively managed account established 14 years ago.

11% annual return. Currently at $1.4 mil.

 

[73ss454]

Pretty cute how they show the expense ratio quarterly. It's still over 1% which is too much. Move it all to Vanguard and make it easy.

 

[Sam]

How much does Vanguard charge, by the way?

I'm now using Fidelity, it costs me nothing as my employer pays the administrative fees.

 

[73ss454]

With 1.4M this qualifies for flagship and I don't think there's any costs at all. Just the ER for what ever fund it goes into. Also 12 free trades a year and $8 after that. 500K must be in vanguard funds though.

 

[A854321]

Just to clarify

This is a post-divorce issue. I got handed a big pile of really cute reports from this brokerage, and am trying to make heads and tails.

Neither of us ever actively managed this portfolio- there (obviously) was a broker that did all this. We never made a trade.

So, as I am unsophisticated, and not ready to risk this on webreports and forum trading hints........ would this be an excessive fee for what looks like a reasonable, totally broker-managed portfolio?

 

[clifp]

Actually 11% is surprisingly respectable return for an brokerage account with a 1%+ fee on the assets plus probably commissions. I am not sure I actually believe it.

A fair number of Vanguard funds index funds were established in the 1992-1994 time frame and most of them have returns in the 10-11% range.

If it is worthwhile to pay a broker almost $16,000/year to manage your IRA fund is question you'll have to answer yourself. But by the standards of the financial "helper" industry it is not unreasonable especially considering the returns, which are quite good if the portfolio contains fixed income investments.

 

[LOL!]

FWIW, there are places where one can get $1.4million managed for a flat fee of around $3000 a year and places where the fee is 0.25% of assets under management (AUM) or less per year. However, I think a 1% annual fee is fairly typical for assets under 7-figures from large brokerage places.

One should also be aware that all fees are negotiable even if the provider says they are not. Also be aware that there can be other fees such as front-end loads which may not be included in the 11% annual return.

In 2006, a simple all-equities index fund strategy returned about 20%. When the divorcee mentions an 11% return, we would need more info to really characterize that as good, bad, or indifferent. For example, if any trading in the account created taxable events and you ended up paying the taxes out of salary, then things could be quite different. But if the account did significant tax-loss harvesting, then that would be a benefit.

 

[FinanceDude]

FWIW, there are places where one can get $1.4million managed for a flat fee of around $3000 a year and places where the fee is 0.25% of assets under management (AUM) or less per year. However, I think a 1% annual fee is fairly typical for assets under 7-figures from large brokerage places.

The account is over $1Million, so he definitely can negotiate the fees.

In 2006, a simple all-equities index fund strategy returned about 20%. When the divorcee mentions an 11% return, we would need more info to really characterize that as good, bad, or indifferent. For example, if any trading in the account created taxable events and you ended up paying the taxes out of salary, then things could be quite different. But if the account did significant tax-loss harvesting, then that would be a benefit.

He said it was in an IRA account, so there would be no taxable events. However, I am wondering how they are getting the fee paid, separate monthly billing? Management fees are billed quarterly, and they list it as .28% because that's what he paid for that quarter, 25% of 1.12%.........

If it was straight stock, and very little trading, he should be able to get that down to 50-60bp or so........

BTW, just telling him to "move it to Vanguard" when he has little or no knowledge is a little premature. I think he needs to learn more about investing before that occurs. You guys may disagree but I think he needs to learn more about his account and what options he has before making quick decisions.......

 

[73ss454]

If he moves more than 250K to vanguard he'll get a free advise from one of the planners. No tax consequence in taxadvantaged account. He doesn't have to know much to move this money. It's a no brainer to me.

 

[FIRE'd@51]

In 2006, a simple all-equities index fund strategy returned about 20%. When the divorcee mentions an 11% return, we would need more info to really characterize that as good, bad, or indifferent. For example, if any trading in the account created taxable events and you ended up paying the taxes out of salary, then things could be quite different. But if the account did significant tax-loss harvesting, then that would be a benefit.

I interpreted A854321's post to mean the actively managed fund has returned 11% compounded over the past 14 years. If so, this is slightly better than the total return of the S&P 500 over the same time period (10.9%).

Of course, we don't know enough about the fund to make a risk-adjusted comparison to a benchmark, but at first glance, it appears to have been a decent performance if my interpretation of the 11% is correct.

 

[FinanceDude]

If he moves more than 250K to vanguard he'll get a free advise from one of the planners. No tax consequence in taxadvantaged account. He doesn't have to know much to move this money. It's a no brainer to me.

He potentially has estate issues and other things in play, I don't think a Vanguard rep is qualified to answer, perhaps start with a CPA or estate planning attorney.............

 

[A854321]

Trying to get a grip on costs at this time

Yup, financedude has pretty much explained what I was trying to say.

Costs for everything involving lawyers, accountants, advisors are all adding up. Not haveing activly managed this IRA, ( mostly mutual funds, not much in stocks), I was surprised to see how much the charges were.

I just don't know what is realistic % of fees/charges for an account like this. I do not not plan on managing the account myself, and have appreciated having a professional to deal with it, while I dealt with my job and making the money.

Any ideas what other brokerages charge for this type of account?

 

[A854321]

Aha!

I found an article by Richard Ferri called "The Price of Advice".

He has lots of reasonable advice about not being impressed by fancy offices, addresses, and glossy brochures. He says " a fee of 0.50% per year on accounts from $100k to $1 mil is about right and assets over $1 mil should be half of that amount. A minimum fee of $500 per year is reasonable on accounts less than $100K."

 

[FinanceDude]

I found an article by Richard Ferri called "The Price of Advice".

He has lots of reasonable advice about not being impressed by fancy offices, addresses, and glossy brochures. He says " a fee of 0.50% per year on accounts from $100k to $1 mil is about right and assets over $1 mil should be half of that amount. A minimum fee of $500 per year is reasonable on accounts less than $100K."

I've seen that article. Accounts at $1 million and above are competed for aggressively..........

An advisor I used to work with recently bid on a $30 million account. His "winning bid" was 28bp a year, andf he was competing against Chase Private Bank, Merrill Lynch, Northern Trust, and Smith Barney...........

 

[LOL!]

\Any ideas what other brokerages charge for this type of account?

Other brokerages and financial advisors charge about 1% of AUM per year. As I wrote before, you should be able to get this done for $3000 or 0.25% of AUM or less.
See e.g.: Bogleheads :: View topic - Ferri, Evanson, or Gorlow as my new advisor? Help please!
It seems to me you could save yourself at least $12,000 a year by moving and perhaps get better performance.

 

[A854321]

Not me

Excellent article, LOL.

It wasn't me with that original post, although it certainly could have been. I will review all this really valuable information. Thanks very much.

 

[Moemg]

Vanguard charges 0.75 % for the first million It actively manages and 0.35 % for the next million .That is an annual fee .

 

[FinanceDude]

Vanguard charges 0.75 % for the first million It actively manages and 0.35 % for the next million .That is an annual fee .

Seems high for Vanguard.........

 

[FinanceGeek]

I'd chime in with what others said and shoot for moving an account like this to VG or Fidelity. Either one should be willing to manage it for < 100 bps/year.

Bear in mind 1% of $1m is still $10k / year. It might pay to self-manage at some point, once you develop the knowledge and confidence to do so...

 

[dbr]

There may be some confusion here about what fees are for what and what kind of advice/management is needed.

The OP started with reference to a brokerage fee which evidently is actually an asset management fee, distinct from commissions or trading costs in general (loads, spreads). There can also be account maintenance fees at a brokerage but not usually large like .28%/quarter. All of this refers to the process of actually managing the investments, such as choosing what intruments to buy/sell and when.

A different issue is financial planning which is at least the process of assessing risk profile and determining asset allocation but could extend to withdrawal strategies, etc. As an example Rick Ferri, as I understand, stresses that he does NOT do financial planning. He does asset management given a financial plan. So one must be clear what the fee paid is for.

Tax planning and tax management are another issue. Since tax planning requires input and analysis beyond simply the placement of investments, this is a separate subject and should cost additional money to advise.

Estate planning extends beyond all of this and while involving tax management also includes questions of how one wishes one's estate to be disposed and is properly an exercise for a qualified attorney. Tools used are wills/trusts/gifting, etc.

I doubt Vanguard is capable of addressing tax and estate planning, but they do apparently provide cookie cutter or perhaps better financial plans and asset management within certain confines for a very minimal charge.

I would suggest anyone looking for "financial advice" write up a clear list of what the subjects are upon which advice is sought and match the resources to the problem at hand.

 

[clifp]

A85 looking back at the thread...

Let me make a slightly different suggestion.

In order to to really understand if the fees are reasonable or not, you need to first understand what you currently have, and your past history. (I agree with the consensus that you can save a heck of a lot by moving the money to other places.)

I'd start as first step in rather than trying to decipher the brokerage statements by yourself, which are often confusing even for those of us who have looked at lot, I'd call up your broker and set up long meeting.

Make it clear to the broker that having spent 150K+ in fees over the last 14 years, and facing the prospect of spending 15K+/year you want a comprehensive review of your account. ( I'd plan for several hours). Make sure he knows that if you aren't happy with his explanation the account will go away.

Tell him to pull annual summaries for the last 12 years and more detailed information for the last couple of years.
What you are trying determine is the following
1. What is the overall performance over the last 14 years. How did your account do vs market averages. What was the relative performance of your account in Bull and Bear Markets
2. Overall asset allocation of your account Stock/Bonds and other investment. How has the allocation changed over time and why.
3. Mix of mutual funds vs individual stocks and individual bonds

Next ask him for a detailed explanation of the fees associated with your account. Does it include trading costs for stocks and bonds? Are there any front-end or back-end 12b-1 with any mutual fund you are in. What is the expense ratio of the funds you currently own.

Finally, be blunt and ask him why you should not move the money to Vanguard and save $10K+ on fees and expenses per year what is their value added. Is there cheaper options regarding expenses available.

One final suggestion, If you are not very familiar with investing, consider taking along someone to the meeting who is. My first choice would your CPA/Tax guy, but if you another financial advisor that would be fine also, or even just a friend who is smart about investments. I am not sure if your a guy or girl, I think it is especially important to have a friend a long if you are a woman since some brokers have a bad habit of trying to BS woman, about this stuff.

I think will be easier for the board to give you comparative advice if we know your investment history, and current status better.

 

[LOL!]

( I'd plan for several hours).

Wow, who wants to sit through what would appear to be a confrontational interview for several hours and then possibly fire someone or get fired?

Perhaps, reading up on things for a few weeks, then trying to understand the statements, figuring out the asset allocation oneself, then running one's own benchmarks, then some one hour interviews ... is in order. Wait a minute - isn't that why one hires an advisor to begin with: so that one can avoid all that understanding?

 

[clifp]

Well if I was a the broker with an account generating 15K/year in fees I'd happily spend a day (or get an assistant) making up a some nice charts show the performance of the account vs others. Of course I'd try and spin it a bit, but...

On the other hand if I was spending $15K a year I'd expect that level of service and would rather have a couple hour explaination than trying to figure out some complicated brokerage statements.

Hiring a hard to find "fee-only" financial advisor may very well be the best approach. On the other it is possible that the broker actually maybe one of those rare brokers that adds a lot of value. If he has been averaging 11% a year for 14 years without taking excess risk than why fire him or hire somebody else?