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Old 07-28-2021, 10:37 AM   #41
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As others have said, that 1.55% is charged based on the amount of money in your account. It is charged regardless of whether your account gains money or loses money.

Yes, technically speaking, they'd be happy if your money doubled, because then their 1.55% is multiplied by twice as much, so they make twice as much. That's how they can claim that your interests are aligned.

But this is barely true. Note: (a) it's much harder to double your money when they're taking 1.55% of the balance (which is about 20% of your gains, and between a third to a half of what you can spend), and (b) they don't care that much - they get the 1.55% regardless.

Oh, and the underlying funds they put you in will possibly charge annual fees as well approaching or more than 1%. And those funds will buy and sell stuff, resulting in higher taxes to you. And they might churn your account by buying and selling investments, which will also increase your tax bill and reduce your returns. And there are even possibly front end loads, which means for every dollar you put into an investment, they take 5% off the top and invest the remaining 95 cents.
Very good post.
OP please read this post for a detailed explanation of just how many different ways you can fall behind in using this FA.
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Old 07-28-2021, 10:41 AM   #42
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I tried all kinds of ways to invest (mostly brokers "selling" me stuff.) I found out that they were the only ones getting "rich." SO, since I was totally responsible for the RESULTS of my investments, I decided to DO the investing myself. That way, I had no one to blame but myself if I didn't make money. Guess what? I did a lot better, not having sales fees (or management fees). I use low-cost index funds almost exclusively (for my bonds/stocks). The exception is psssst. Wellesley fund (through Vanguard.)

Google the Scott Burns "Couch Potato" portfolio and see if that doesn't at least get you started on an independent approach to investing. I won't say there is never the need for a Financial Advisor. I'd just suggest you pay one by the hour and NEVER use one that sells you anything. YMMV so be certain you understand everything you get yourself into. If need be, you can invest in one of the Target Year type funds (self balancing - a bit of a fee, but not ridiculous.)

Again, the watch word is YMMV.
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Old 07-28-2021, 11:13 AM   #43
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I will. I’m at work now and I have company this weekend from out State, but trust me, I absolutely will be reading that and this whole thread very very carefully. There’s so much great information everyone is shared and I can’t begin to express how much I appreciate it.
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Old 07-28-2021, 11:31 AM   #44
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I will. Iím at work now and I have company this weekend from out State, but trust me, I absolutely will be reading that and this whole thread very very carefully. Thereís so much great information everyone is shared and I canít begin to express how much I appreciate it.
You're getting solid information here. Well worth looking at.

Suggestion: Don't do anything for a while except, if necessary, fire this FA. If you spend two or three months learning and thinking and then come up with a good plan you will never remember the two or three month pause. But if you hurry and make a big mistake you will remember that for the rest of your life.

Here is a fun video from Nobel Prize winner and investing guru Dr. William Sharpe:


and here is a slide I use in my Adult-Ed investing class:



The "If You Can" paper mentioned previously is a good start for your studies. Pay special attention to Bernstein's discussion of the financial services industry. (https://www.etf.com/docs/IfYouCan.pdf -- free 16 page download)

Read these two books and you will know all you need to know to be a very successful investor:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365
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Old 07-28-2021, 11:44 AM   #45
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They already have my Social Security number and account numbers and everything. Do I need to send them a certified letter or will an email and a phone call suffice?

You can just email them and say you want to cancel. You can also phone them, but having it in email is better traceability. Formal mail letter is not required. Or better yet, if you have not signed anything, *Do Not* sign anything going forward. The FA can't do anything to your account if you have not signed an authorization for them to make changes on your behalf.


If you have signed an authorization for them, state explicitly that you are revoking that and do not want them to have access to your account(s). Hopefully you have logged on here and we have answered your questions while you are still in the beginning discussions with the FA.


You really can self-manage your account. Just read a lot on here, go back and read all you can. Write down any terms or questions and make new post with those. Some key search terms might be self directed, asset allocation, risk tolerance, three fund portfolio, couch potato portfolio, low fee index funds. Some of these terms will get hundreds of hits. But the key here is to read up and start to educate yourself. Reading books is also a good idea. But I think you can learn a lot just on the forum here.

As self managed, or self directed, on your retirement accounts you are putting that 1.55% (or 1%, or whatever fees) into your pocket - not the FA's pocket! Your self education is the best thing you can do for your financial future success.
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Old 07-28-2021, 11:58 AM   #46
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Regarding fees, I can speak to Vanguard. I opened a SEP 401k last year and they said that they would not have fees if I had $50k in any other account or in the single account. Then the standard fees for mutual funds would be the only other. Pretty sure all of them are less than .13%.
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Old 07-28-2021, 12:00 PM   #47
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Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasnít been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say theyíre a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesnít seem like a lot, but my husband is already retired has pensions and annuities coming in that arenít included in this. I have some survivor benefits they come along with this.
1.55% of net worth? = obscene
1.55% of assets under management (AUM)? = expensive
1.55% of earnings = never heard of such.
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Old 07-28-2021, 12:05 PM   #48
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.... Should I delete it all before I tell them forget it -- no deal?
Yes.
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Old 07-28-2021, 12:10 PM   #49
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Please donít get me wrong, Iím going to run away from this deal. Iím only asking this next question to learn. How would he get the 1.55% if that is based on earnings in my account and the account loses money?
The 1.55% fee typically is based on the assets under management (aka AUM). So if you have $250k that they are managing then they would take $968.75 each quarter... but the fee will fluctuate based on your portfolio balance.

Or put another way... if you earn 8% for the year, the first 1.55% goes to the FA and the remaining 6.45% goes to you.
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Old 07-28-2021, 01:10 PM   #50
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Others have covered the 1.55% is on the amount in your account with him, not your gains each year or on your entire net worth. I will add that IF he puts you into "managed" mutual funds, you are paying for him to manage something that is already managed. There is no upside for you to pay twice. If you need hand holding when the market has corrections a fee only (hourly) is the best bang for your buck IMO. If you've already been thru a correction or two, or thru the 2008 fiasco without changing horses, I don't think you need handholding.
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Old 07-28-2021, 01:11 PM   #51
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Should I move forward and negotiate them down to at least one percent?
No, you should not move forward.
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Old 07-28-2021, 01:25 PM   #52
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You can just email them and say you want to cancel. You can also phone them, but having it in email is better traceability. Formal mail letter is not required. Or better yet, if you have not signed anything, *Do Not* sign anything going forward. The FA can't do anything to your account if you have not signed an authorization for them to make changes on your behalf.
And wherever you transfer it, the new firm will be VERY helpful in extracting your money from your current one. To the extent you can, try to avoid having your holdings sold and liquidated into cash before you transfer- you may incur taxes on the capital gains. It may be impossible if the products are proprietary products sold only by the current firm.

Another thing- depending on how your holdings are structured, if they're mutual funds the advisors who sold them to you may also be raking off a bit of the fees the fund imposes in addition to the 1.55%.
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Old 07-28-2021, 02:18 PM   #53
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. They say theyíre a fiduciary company and that the percentage based fee give them incentive for my their accounts to grow.
Correction is mine. They will get your $ whether your account is up or down. It could be worse than the 1.55% if they start to convince you to buy funds that pay them $ on the side.
Hang with this forum and learn a bit more on the Bogleheads forum then you will learn how little you have to do in investing. Save you a trip to Europe every year if you can just buy the 3 funds and pay 0$ in fee for those. Good luck
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Old 07-28-2021, 07:16 PM   #54
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You made me look. Managing my own mix of ETFs via Vanguard has an annual expense ratio of .07%. Next year it will be less at .06%. You can refer to my YTD thread but this is a 100% stock portfolio via VG ETFs and I think I am at about 17-18% returns ytd...
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Old 07-28-2021, 08:12 PM   #55
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I hope this 1.5% advisor at least invites his clients to a yearly cruse on his yacht.
Reminds me of my neighbor touting how nice his FA was. FA gave nice gifts on neighbor's kids' birthdays. I tried to explain that the gifts were paid for by his money but he couldn't understand my logic.
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Old 07-28-2021, 08:28 PM   #56
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Managing your money is super simple. The lowest cost place to invest is Vanguard. Open accounts there for each type you want (taxable, Roth IRA, traditional IRA).

Then if you are very uninterested, you can do it one fund - buying a target date fund. Those cost you around 0.25% per year. They hold some stocks and some bonds according to a standard mix for your age group. They are not terribly tax efficient as they rebalance continuously to keep your stock/bond allocations on target and they adjust the stock/bond allocation every few years as you age. Not a bad choice and could not be simpler.

If you want to be more involved, you can buy Vanguard Total Market (VTI) for your stocks and Vanguard Total Bond (BND) for your bonds and you can adjust the stock bond percentage when needed. If you are accumulating, you can usually do that by just putting your new money to whichever one is underweight.

If you want to get fancy, buy some Vanguard Total International stock market as part of your stock holding. A lot of places are recommending that 20-50% of your stocks should be international, in part because they have lagged US performance for a long time (so it's really hard to want to buy them).

Some elements of the market will surely do better than others, but neither you, nor any advisor nor anyone else on the planet can say which. So the strategy that keeps winning over time is acknowledge you don't know the future and buy the whole market. The fees on the total stock ETF is something small like 0.03 or 0.04%. (I was talked into buying lots of small cap value, large cap growth, etc. funds - you know what their performance adds up to altogether? - slightly worse than the Total Market, but with more fees. Now I have a lot of capital gains in my taxable account and am kind of locked in)

All of Wall Street is trying really hard to keep the simple truth from you, that you don't need them, you do much harder stuff every day. So that's pretty much it, you are now a knowledgeable investor!

One last small point, if the market makes a big move so that you are more than 5% absolute or 25% relative from the stock/bond allocation you wanted, then rebalance, buying the one that has too much and selling the one with too little.

Rebalance examples:
If you want 60% stocks/40% bonds rebalance if your stock percentage gets below 55% or above 65%.
If you want 90% stocks, rebalance if you get above 92.5%/7.5 stock/bond or below 87.5%. (because bonds had a target of 10% so the 25% relative band means they have to stay within 2.5 points of the 10% target.)

During your accumulation years, you can probably rebalance with new money except for episodes like last March where the market made a huge move. Rebalancing is risk control, it's about as likely to reduce returns as increase them, but over time, stocks grow more than bonds so your asset allocation and hence your risk will get out of bounds.
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Old 07-28-2021, 10:21 PM   #57
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One last small point, if the market makes a big move so that you are more than 5% absolute or 25% relative from the stock/bond allocation you wanted, then rebalance, buying the one that has too much and selling the one with too little.
Emphasis added.

Good overall post. It does seem to me that the bolded above is backwards. I know what you meant, but OP is a newbie so I think it'd be wise to correct it.
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Old 07-29-2021, 04:34 AM   #58
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How would he get the 1.55% if that is based on earnings in my account and the account loses money?
I know we're beating a dead horse at this point, but...The fee is usually assets under management, or AUM. That means he's collecting the fee based on the total value of your account--it has nothing to do with gains or losses, which as you point out isn't a very good incentive for him to actually earn you money each year.

This is what I meant about a 1% fee actually equating to at least a 25% loss in your spending money each year in retirement. If you plan to withdraw 4% of your assets each year in retirement, you've got to account for that 1.55% fee from your advisor. So if you've saved $1,000,000 to live off, the 4% rule says you could withdraw $40,000 each year. But with your FA dipping into 1.55% of that 1 million each year, your cut of the 4% drops to 2.45%...meaning your $40,000 income drops to $24,500. Eeek.

Others can correct me if I'm wrong, but this is how I view annual fees.
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Old 07-29-2021, 04:34 AM   #59
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Run away from that advisor. ]
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You FA is taking you to the proverbial cleaners.

Dump him. Fast.
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Old 07-29-2021, 04:46 AM   #60
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Very self-serving, too (by the FA's, not the OP!) Like the way real estate agents were pushing "offer an incentive, or we won't show your house," and the mailman and paper boy leave cards in your box, unsubtly hinting at Christmas gifts.

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The line about incentive for them to do better is complete bs. .
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