Fidelity managed accounts

[explanade]

I thought I posted about this previously but can't find it.

My parents have most of their securities assets with Fidelity. They've been happy with their balances growing in recent years but they know I have most of my assets in VG and know it's also grown.

They've been paying $15-20k a year in management fees.

They had a trust account with a large balance and their IRAs being managed by Fidelity.

When I look at the statements, there's frequent trading and they have dozens, maybe hundreds of equity and fund/ETF positions, of a few thousand each.

That's in this trust account and their IRA accounts. And I would swear one of the statements indicated that they were assessed a fee with the annual MRDs from their IRAs.

My father expressed interest in moving some of the assets over to VG but apparently he didn't press the issue with the account managers at the local Fidelity office.

He passed away in October and I'm probably going to become the trustee of the family trust, because my mother has never dealt with the finances and is lost about these matters.

We met with Fidelity about a couple of weeks ago and I did express to them that we were looking to get away from management fees.

The one thing they said in their favor that made me think was that they claim the accounts they manage are done so in a way to make them tax-advantaged, meaning minimizing their tax liabilities.

I haven't looked closely at their tax returns yet but would that mean they harvest so many losses with this frequent trading churn?

Some of the transactions they do is for a few shares. Since there are so many positions, it's hard to see the effect of small transactions in the overall return and tax exposure of the trust account.


If I get her IRA moved to VG, problem is simple we can liquidate most or all those positions if necessary and buy VG funds or ETFs and there are no tax implications.

But the trust account, which has low 7-figures in assets would obviously have tax liabilities if I tried to streamline the account and start selling off some of these positions to eventually replace with VG funds or ETFs.

Plus, I would imagine we'd be paying VG commissions on those sales all along the way so tax hit as well as commissions.

Or maybe I could find out if I can get Fidelity to stop managing them and I would sell these positions little by little over time.

But that account will be the property of the trust and we will probably need to have tax attorneys file trust tax returns, which will cost money over time.

 

[jonat]

I assume your parents are Fidelity Portfolio Advisory Services customers (as are we). Yes, they manage transactions to minimize capital gains, selling at a loss and then buying similar but not identical funds as a replacement. You can see a YTD summary of CG when you log in to the site, and "tax saved" is displayed on the account home page.

Fees are based on assets managed. We have about $3M managed and in 2016 paid about $10.5K in fees. DW and I are happy with PAS as we don't trust our own ability to manage the investments and we have a good relationship with the local Fidelity people. A service like PAS is not for everyone, but the returns have been good for us without our making individual investment decisions. Only you (and perhaps a tax advisor) can determine if the service is something worthwhile for your mom. If you feel comfortable making the investment decisions, then sure, you can switch to something with lower or no fees. For DW and myself, the fees are a small price to pay for not having to fuss with it.

 

[wanaberetiree]

We have about $3M managed and in 2016 paid about $10.5K in fees.

$10.5K in fees on $3M!!!

I wonder if you compare Fido portfolio performance say in last 5 y vs something simple say VG Wellington, what the result would be ?

 

[FrankiesGirl]

My father had PAS, as he was very sick towards the end of his life and unable to keep up with things. I left the PAS alone for about 6 months after I inherited from him, as I had to learn how things worked.

I took all accounts out of PAS after I figured out index investing/self management. I have zero plans of ever using it again. I'm sure they can justify the fees with all sorts of charts/graphs/etc... but in the end, since I wanted to be involved and also a passive/index investor, there was no reason to pay someone else to manage things for me.

But with a 7 figure trust fund, I would definitely proceed with extreme caution if you are unfamiliar with things like taxes and trusts in general. I don't think I would feel comfortable taking over in that case since it wouldn't be my accounts; it would be taking on fiduciary responsibility and avoid a potential mess if a parent and/or siblings got upset, I think I'd rather leave it in professional management and just act as the family contact instead (what is currently set up). But that is also because I have some family weirdness that would be a level of discomfort for me that I don't think I'd want to deal with... this may not be the case with you.

As far as the IRAs/basic accounts, I'd be fine with taking those out of PAS, and just moving them to Fido's index funds and setting up any RMDs as necessary. As long as they were tax deferred, you should incur no taxable events for buying/selling funds, and could rebalance at least that stuff into cheaper funds and cull them down to a simple 1 stock/1 bond setup.

You would have to sell off their "exclusive to Strategic Advisors" type of funds, and they would likely expect you to open new accounts for the self-managed type that you were shifting from PAS (they have different types of designations on the PAS accounts). And then you would be responsible for all of that - which may or may not be something you're interested in, but for a trust fund, I kind of wouldn't want to touch that myself.

Fidelity offers comparable funds to anything Vanguard sells if you wanted to leave the accounts at Fido, but move towards lower cost/simpler funds. This is what I did. As my accounts are well into 6 figures, I still get a no-cost assigned adviser and streamlined/priority contact when I have any questions, but I pay zero in any management fees, just the standard expense ratios on the funds I hold.

https://www.bogleheads.org/wiki/Fidelity

 

[jonat]

$10.5K in fees on $3M!!!

I wonder if you compare Fido portfolio performance say in last 5 y vs something simple say VG Wellington, what the result would be ?

I meant 2017. This is about .3%, yes? I like the diversity of investments and having knowledgeable people watching over it. I don’t trust any single fund, and to be honest, I’m not chasing ultimate returns. DW is especially paranoid and she is comfortable with PAS, as am I. It doesn’t look as if we’re in any danger of running out of money during our lifetimes.

As I said, it’s not for everyone. I know there’s a lot of people here who like to run investments on their own. We’re not like that.

 

[ERD50]

.... Or maybe I could find out if I can get Fidelity to stop managing them and I would sell these positions little by little over time. ...

I think you can. When my FIL passed, I helped DW and MIL to get all their investments (in trusts) consolidated at Fidelity. They had various savings accounts and IRAs at multiple local banks, and some inherited stocks (still had certificates or in street name). Fidelity was very accommodating, and having a B&M office made everything easy (Medallion signatures were required for the stock transfers from his SSN to EIN). We weren't pressured to put anything under management (though they sensed I knew what we wanted, and didn't need any 'help'). Other than the small ER for the bond funds, there are no fees (maybe a small annual fee on the IRA - I'd have to look?).

She gets her dividends each month/quarter, I have her RMD transferred to her taxable account, with Fed & IL tax withholding made, and it has all been smooth as silk.

.... But that account will be the property of the trust and we will probably need to have tax attorneys file trust tax returns, which will cost money over time.

We just kept with their tax guy, he handled their business taxes. There might be cheaper options, but I don't think the charges are all that bad, and it just isn't worth upsetting the apple cart too much. But I don't think it's that big an issue to get the taxes done on the trust. The trust only pays taxes on anything that is retained - the distributions (to your mother I assume, in this case), are taxed as her income. If it is all distributed, maybe the trust doesn't even need to file (or maybe just to document that the distributions were made?). I forget the details.

Of course you may need to be careful unwinding all those holdings, watching to harvest losses and limit gains. But if things will need to be sold to support your Mom, you will have to take the gain sometime. Otherwise, it can get the step up to heirs.

Short version - I think you'll be OK.

-ERD50

 

[ERD50]

I meant 2017. This is about .3%, yes? I like the diversity of investments and having knowledgeable people watching over it. I don’t trust any single fund, and to be honest, I’m not chasing ultimate returns. DW is especially paranoid and she is comfortable with PAS, as am I. It doesn’t look as if we’re in any danger of running out of money during our lifetimes.

As I said, it’s not for everyone. I know there’s a lot of people here who like to run investments on their own. We’re not like that.

Well, 0.3% is not so bad. But they may have you in funds that have much higher expenses than you could replicate w/o those expenses.

Expenses on Total Market and Total Bond ETFs/funds are tiny. What are the expenses on the funds they have you in?

To my thinking, when you say "I like the diversity of investments and having knowledgeable people watching over it.", my response is that getting diversification is easy, easy, easy these day, and who is watching over the people watching over your money?

I don't really 'like' running my investments, but it is so easy, that I'd rather just do it than worry about what someone else is doing. For me, this is 'easy'.

-ERD50

 

[wanaberetiree]

I meant 2017. This is about .3%, yes? I like the diversity of investments and having knowledgeable people watching over it. I don’t trust any single fund, and to be honest, I’m not chasing ultimate returns. DW is especially paranoid and she is comfortable with PAS, as am I. It doesn’t look as if we’re in any danger of running out of money during our lifetimes.

As I said, it’s not for everyone. I know there’s a lot of people here who like to run investments on their own. We’re not like that.

I was not trying to criticize your approach, but rather trying to understand value proposition of managed portfolios way

 

[LOL!]

Anybody can say an account is tax-managed, but the 1099-B and 1099-DIV or the consolidated statement will tell the truth. On a $3MM portfolio I'd expect the taxes to be negative because of the tax-loss harvesting and the foreign tax credit. What do the 1099's hint at and what do the tax returns look like?

Also what fraction of the dividends that ended up on the front page of Form 1040 were qualified vs non-qualified?

 

[meierlde]

I think you can. When my FIL passed, I helped DW and MIL to get all their investments (in trusts) consolidated at Fidelity. They had various savings accounts and IRAs at multiple local banks, and some inherited stocks (still had certificates or in street name). Fidelity was very accommodating, and having a B&M office made everything easy (Medallion signatures were required for the stock transfers from his SSN to EIN). We weren't pressured to put anything under management (though they sensed I knew what we wanted, and didn't need any 'help'). Other than the small ER for the bond funds, there are no fees (maybe a small annual fee on the IRA - I'd have to look?).

She gets her dividends each month/quarter, I have her RMD transferred to her taxable account, with Fed & IL tax withholding made, and it has all been smooth as silk.



We just kept with their tax guy, he handled their business taxes. There might be cheaper options, but I don't think the charges are all that bad, and it just isn't worth upsetting the apple cart too much. But I don't think it's that big an issue to get the taxes done on the trust. The trust only pays taxes on anything that is retained - the distributions (to your mother I assume, in this case), are taxed as her income. If it is all distributed, maybe the trust doesn't even need to file (or maybe just to document that the distributions were made?). I forget the details.

Of course you may need to be careful unwinding all those holdings, watching to harvest losses and limit gains. But if things will need to be sold to support your Mom, you will have to take the gain sometime. Otherwise, it can get the step up to heirs.

Short version - I think you'll be OK.

-ERD50

Turbotax Business does 1041s for trusts, so if all the trust has for income is interest dividends and capital gains its not to hard to do. Note that you want to distribute most of the income (pay taxes to us up the low bracket if the beneficiary is in a higher bracket)

 

[explanade]

I assume your parents are Fidelity Portfolio Advisory Services customers (as are we). Yes, they manage transactions to minimize capital gains, selling at a loss and then buying similar but not identical funds as a replacement. You can see a YTD summary of CG when you log in to the site, and "tax saved" is displayed on the account home page.

Fees are based on assets managed. We have about $3M managed and in 2016 paid about $10.5K in fees. DW and I are happy with PAS as we don't trust our own ability to manage the investments and we have a good relationship with the local Fidelity people. A service like PAS is not for everyone, but the returns have been good for us without our making individual investment decisions. Only you (and perhaps a tax advisor) can determine if the service is something worthwhile for your mom. If you feel comfortable making the investment decisions, then sure, you can switch to something with lower or no fees. For DW and myself, the fees are a small price to pay for not having to fuss with it.

I don't know if I specifically saw PAS. Nor do I see CG or tax saved but I see "personal return."

I just looked at the balances at the end of last year and then through October or so and they were at or just below the market. Of course I'm looking at balances which include them taking their fees every quarter.

And they're not trading in and out only of funds but individual equities, things like Facebook and Amazon as well as less volatile non-tech stocks.

 

[explanade]

My father had PAS, as he was very sick towards the end of his life and unable to keep up with things. I left the PAS alone for about 6 months after I inherited from him, as I had to learn how things worked.

I took all accounts out of PAS after I figured out index investing/self management. I have zero plans of ever using it again. I'm sure they can justify the fees with all sorts of charts/graphs/etc... but in the end, since I wanted to be involved and also a passive/index investor, there was no reason to pay someone else to manage things for me.

But with a 7 figure trust fund, I would definitely proceed with extreme caution if you are unfamiliar with things like taxes and trusts in general. I don't think I would feel comfortable taking over in that case since it wouldn't be my accounts; it would be taking on fiduciary responsibility and avoid a potential mess if a parent and/or siblings got upset, I think I'd rather leave it in professional management and just act as the family contact instead (what is currently set up). But that is also because I have some family weirdness that would be a level of discomfort for me that I don't think I'd want to deal with... this may not be the case with you.

Good points. My thought was to migrate them to VG index funds little by little but it would be a taxable event.

OTOH, with my father's passing, I know we can take advantage of step-up basis for those assets so the CG liability may not be as high.

But if I tried to buy VG index funds, I'd be buying at the top of the market.


It's just that after going with index funds for all my investments, the idea of paying those management fees is kind of hard to take.

 

[explanade]

Turbotax Business does 1041s for trusts, so if all the trust has for income is interest dividends and capital gains its not to hard to do. Note that you want to distribute most of the income (pay taxes to us up the low bracket if the beneficiary is in a higher bracket)

So they will do Form 706, estate tax returns?

I've been trying to get an idea of how much tax accountants around here will charge to prepare estate tax returns but they're being kind of cagey.

Quotes range from $195 to $450 an hour.

May look to pay for a couple of years and then see if there's software that makes it possible for me to do the returns.

 

[explanade]

Anybody can say an account is tax-managed, but the 1099-B and 1099-DIV or the consolidated statement will tell the truth. On a $3MM portfolio I'd expect the taxes to be negative because of the tax-loss harvesting and the foreign tax credit. What do the 1099's hint at and what do the tax returns look like?

Also what fraction of the dividends that ended up on the front page of Form 1040 were qualified vs non-qualified?

Thanks for those pointers, I'll look out for them.

I think the foreign tax credit may no longer be valid because of the new tax bill?

 

[Luck_Club]

0.3% for managed money assuming decent returns with good stop losses in place, is a bargain in my opinion. If they made 10%+ last year and loss less than 10% in 2008, smile all the way to the bank.

When talking big money small market fluctuations can keep you up at night 5% swing is $150K! Which can and does happen frequently.

 

[alaska55]

Good points. My thought was to migrate them to VG index funds little by little but it would be a taxable event.

OTOH, with my father's passing, I know we can take advantage of step-up basis for those assets so the CG liability may not be as high.

But if I tried to buy VG index funds, I'd be buying at the top of the market.


It's just that after going with index funds for all my investments, the idea of paying those management fees is kind of hard to take.

That crazy to think that because your selling at the top of market so its a wash.

 

[explanade]

Yes I don't try to market time.

So I would have to sell and buy periodically.

But that would mean paying VG commissions on those sales and there are so many different positions, it could be messy.

 

[wanaberetiree]

0.3% for managed money assuming decent returns with good stop losses in place, is a bargain in my opinion. If they made 10%+ last year and loss less than 10% in 2008, smile all the way to the bank.

When talking big money small market fluctuations can keep you up at night 5% swing is $150K! Which can and does happen frequently.

This is guesstimate , the only way to know is to publish returned in 2017 and 2008.
Until, we know those numbers it’s .3% on top of funds expenses

 

[jonat]

0.3% for managed money assuming decent returns with good stop losses in place, is a bargain in my opinion. If they made 10%+ last year and loss less than 10% in 2008, smile all the way to the bank.

When talking big money small market fluctuations can keep you up at night 5% swing is $150K! Which can and does happen frequently.

+16.5% last year. And yes, I see large swings, but haven't yet seen any THAT large. I wasn't with them in 2008. In addition, I get the services of Fidelity Charitable (Donor-Advised Fund) for free.

 

[wanaberetiree]

+16.5% last year.

Great!

And what was the loss in 2008 ?

 

[45th Birthday]

I think the foreign tax credit may no longer be valid because of the new tax bill?

Source please?

 

[ERD50]

0.3% for managed money assuming decent returns with good stop losses in place, is a bargain in my opinion. If they made 10%+ last year and loss less than 10% in 2008, smile all the way to the bank.

When talking big money small market fluctuations can keep you up at night 5% swing is $150K! Which can and does happen frequently.

There is no such thing as a "good stop loss".

I'm a never-say-never guy, and I say never use a stop loss. Lots of people have got hurt with those. You end up selling low and buying high, or you get taken out on a blip (remember the 'flash crash'?). A 10% stop loss doesn't protect you if a stock drops 50% overnight or the w/e when it's not trading (and that is often when the worst news comes out, to protect people). If trading opens 50% down, you get sold.

For some rare cases where downside protection might make sense, buy a put. Never use a stop loss.

-ERD50

 

[wanaberetiree]

Tried digging into my own question.
My average expense ratio is 0.16% (according to Personal Capital)
and 2017 was +27.83%
2008 was -12.95% (as of today 70/30 AA)

 

[jonat]

I became a PAS client in 2014. No clue what 2008’s performance would have been. I do know that they do shifts due to economic climate. They ask us what our risk tolerance is on a 1-10 scale - we have chosen 5. (If it was just me, I’d say 6, DW would say 4.) This affects what kind of investments they select. Also the withdrawal rate affects this.

Fidelity has an “RPM” score of how it thinks our money would last in an “underperforming” market. Our score pegs the meter at 150 - it doesn’t go higher.

 

[wanaberetiree]

Fidelity has an “RPM”

Where on Fidelity website this can be found ?