Embarrassing question

[JustCurious]

Should I move forward and negotiate them down to at least one percent?

No, you should not move forward.

 

[athena53]

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%.

 

[ut2sua]

. They say they’re 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

 

[kgtest]

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...

 

[pjigar]

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.

 

[Exchme]

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.

 

[SecondCor521]

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.

 

[Errollyn]

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.

 

[DrRoy]

Run away from that advisor. ]

You FA is taking you to the proverbial cleaners.

Dump him. Fast.

+1

 

[Amethyst]

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.

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

 

[mrfeh]

The lowest cost place to invest is Vanguard.

Not to start a tangent, but I don't think this statement is true.

Vanguard is still excellent, but if somebody were looking for a broker to begin their investing journey, they wouldn't be my first choice.

 

[latexman]

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.

Isn't that backwards in two ways - logic and order? One should be selling the one that has too much and, then, buying the one with too little.

 

[WestUniversity]

I’m such a noob. I have a financial advisor now and he says 1.55% is the going rate and that’s what their fee would be for handling our IRA and 401K. Is this true.



Any advice/comments are appreciated.

Ouch! You can do better…

 

[athena53]

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.

And THIS reminds me of the response of a prospective brokerage customer, which later became the title for a book. She was taken to a marina and shown the splendid yachts belonging to their advisors. Her response:

"But where are the customers' yachts?"

 

[pb4uski]

Not to start a tangent, but I don't think this statement is true.

Vanguard is still excellent, but if somebody were looking for a broker to begin their investing journey, they wouldn't be my first choice.

I guess it would be helpful if you were to explain why Vanguard wouldn't be your first choice.

I have accounts at Vanguard, Fido and Schwab... these days they are all good and all cheap (mostly free). I think Vanguard is a fine choice.

 

[mrfeh]

I guess it would be helpful if you were to explain why Vanguard wouldn't be your first choice.

I have accounts at Vanguard, Fido and Schwab... these days they are all good and all cheap (mostly free). I think Vanguard is a fine choice.

I would choose Fido. Main reasons: 0% ER index funds and customer support/web site.

 

[OldShooter]

And I am very satisfied with Schwab after over 30 years' experience.

@Kayzmum, this is not something that you need to worry about now. Take the few months to learn more about investing, then plan your moves and execute. Schwab, Fido, and Vanguard are well-liked around here and you cannot make a wrong choice among them. In each case, their principal business is catering to small investors like ourselves and they are quite good at it.

 

[RetiredHappy]

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.

While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.

 

[SecondCor521]

While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.

If.

https://www.greekboston.com/culture/ancient-history/laconic-phrase/

 

[OldShooter]

While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.

Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.

Over the last decade I have monitored FA-managed equity results for several non-profit organizations, benchmarking them against a simple set-and-forget two fund index portfolio. In no case have the "professionals" beat the index portfolio. Shortfalls have ranged from maybe 1.5% to almost 20%. The professional portfolios have ranged from complex to hideously complex, the result of their need to make investing look difficult and hence intimidate their customer into staying and paying the fees.

Bonds are another matter because yield is highly correlated with risk and the market is very efficient. The only way an FA could pick up another 1% is by taking on more risk. So I don't even try to benchmark them, just monitor the bond ratings that the FA is buying. For FAs using bond funds you get the worst of worlds, with the FA skimming his fee and then passing the remainder to the bond fund manager who then extracts his fees. The worst are US government bond funds for which, because the govvies have no risk, a good portfolio could be selected by a monkey with a dartboard. Much cheaper than hiring monkeys in business suits.

 

[target2019]

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 hasn’t been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say they’re 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 doesn’t seem like a lot, but my husband is already retired has pensions and annuities coming in that aren’t included in this. I have some survivor benefits they come along with this.

Some more analysis wil help you decide how much risk to take with your 200K.

Some math for you...

If the FA takes 1.5% of just the earnings, they are extracting valueable income from you, and it becomes very painful to watch in a "down" year.

A point that is made in many threads is that 1.5% is 30% of an average 4% expected from investments. If you look at it in that light it is obvious that you would be giving away a lot, in UP and DOWN years.

I am glad to read that you are not going forward with the deal!

 

[RetiredHappy]

Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.

Over the last decade I have monitored FA-managed equity results for several non-profit organizations, benchmarking them against a simple set-and-forget two fund index portfolio. In no case have the "professionals" beat the index portfolio. Shortfalls have ranged from maybe 1.5% to almost 20%. The professional portfolios have ranged from complex to hideously complex, the result of their need to make investing look difficult and hence intimidate their customer into staying and paying the fees.

Yes, IF.

This is a broad stroke of the brush with no specifics. No two invididuals or FA-firm manage funds in the same way. Individuals can make a ton more than the market or lose a ton of their money, depending on what they choose to invest.

Similarly, FA firms can perform differently.

The big advantage to having FA manage investments is to avoid the knee jerk reactions of the individual in selling low and buying high. If you are disciplined investors, then doing it yourself is a no-brainer.

As an example, my husband was a very good self-managed investor. He no longer has the stomach for stock market roller coaster as he has gotten older. Last March when the market was down he was anxious but I was not. Our FA called us to find out how we were doing emotionally, and I said that we were fine and not at all concerned because when we retired we had turned about 15% of our portfolio into deferred income annuities so that we did not need to rely on the stock market for a good retirement. My husband would have been tempted to sell off in March if not for our funds being managed by a third party.

 

[RetiredHappy]

I think this is a good article for OP to read.

https://money.usnews.com/financial-advisors/articles/financial-advisor-fees-and-costs

 

[CRLLS]

Yes, IF.

This is a broad stroke of the brush with no specifics. No two invididuals or FA-firm manage funds in the same way. Individuals can make a ton more than the market or lose a ton of their money, depending on what they choose to invest.

Similarly, FA firms can perform differently.

The big advantage to having FA manage investments is to avoid the knee jerk reactions of the individual in selling low and buying high. If you are disciplined investors, then doing it yourself is a no-brainer.

As an example, my husband was a very good self-managed investor. He no longer has the stomach for stock market roller coaster as he has gotten older. Last March when the market was down he was anxious but I was not. Our FA called us to find out how we were doing emotionally, and I said that we were fine and not at all concerned because when we retired we had turned about 15% of our portfolio into deferred income annuities so that we did not need to rely on the stock market for a good retirement. My husband would have been tempted to sell off in March if not for our funds being managed by a third party.

In your post, the FA can potentially stop, or at least coach a client from doing knee jerk reactions. I agree, IF that client actually follows the FA's advice. IF that person is not feeling the knee jerk reactions to fluctuations in the market, such as yourself last March, then the FA didn't really add value in that instance.

Since we are talking examples I had one FA review my financials/ He was wanting to handle my account and gave me some advice. He told me that the market is changing and will not continue to go up, There will soon be a correction. I should reduce my equity holdings to reduce my impact from that downturn. He could manage that for me. That was about 5 years ago. The downturn never really happened So much for this FA's expert advice.

I do agree that not all FA's are like that. But I will add that each and every one of them cannot predict the future. They do not know with certainty what will happen tomorrow, let alone next month or next year. I will ask this: If a person or their FA compares their personal annual performance against some index, like DJI or SPX for how they did good or bad, why not just buy that index fund(s) and let the anxiety stop?

 

[RetiredHappy]

In your post, the FA can potentially stop, or at least coach a client from doing knee jerk reactions. I agree, IF that client actually follows the FA's advice. IF that person is not feeling the knee jerk reactions to fluctuations in the market, such as yourself last March, then the FA didn't really add value in that instance.

Since we are talking examples I had one FA review my financials/ He was wanting to handle my account and gave me some advice. He told me that the market is changing and will not continue to go up, There will soon be a correction. I should reduce my equity holdings to reduce my impact from that downturn. He could manage that for me. That was about 5 years ago. The downturn never really happened So much for this FA's expert advice.

I do agree that not all FA's are like that. But I will add that each and every one of them cannot predict the future. They do not know with certainty what will happen tomorrow, let alone next month or next year. I will ask this: If a person or their FA compares their personal annual performance against some index, like DJI or SPX for how they did good or bad, why not just buy that index fund(s) and let the anxiety stop?

I agree with what you have said. It is a question which I ask myself sometimes. Because we retired early, we have spent a significant amount of cash which we had set aside plus unplanned liquidation of some investments to pay for our expenses, i.e. blow our budget, while waiting for SS and annuities to kick in. Still, our investments have grown significantly from when we retired 5 years ago. That is what a bull market does. Would we have done better if we had self-managed? Possibly, but my husband is happy and I am happy hence the status quo.