Getting Away From the Advisor and Specific Asset Allocation

[sengsational]

Someone recently came to me after realizing that they've been paying too much to an adviser (assets under management percent, plus taking commissions). They asked me "what I would do". I know what I would do, but doing it "formulaically" is turning out to be a problem. In general, I would say to get out of the high-fee mutual funds and transfer everything to Vanguard. My first attempt was using Morningstar Instant x-ray, but that doesn't really give me what I want in a way that I can iterate to hit the specific asset allocation target.

So what I would do first is define a target asset allocation with these categories (adding to 100%, so no overlap):

Cash
Domestic Bonds
Emerging Bonds
Hard Assets
Domestic Equity
Europe Equity
Non-Europe Equity
Emerging Equity
​

Then I would segregate my current holdings into things I wanted to not sell, and things I could or would be willing to sell. In other words, there are some individual stocks that I might not want to sell, but instead adjust the other choices in the portfolio to compensate.

Finally I would iterate over available Vanguard ETF's and funds by trial and error until, when I combined the allocations for the selected funds plus the stocks I'm not selling, would hit my allocation target.

The problem is that instant x-ray has a breakdown by domestic stock, foreign stock, cash and bonds, so not detailed enough. They also list stock by region, so it would be possible to break-out europe, non-europe, and emerging, but there's no repeatable way to break out hard assets and no repeatable way to break out emerging from domestic bonds.

I think that the actual percentages are not highly critical, as long as the investor has a repeatable way to calculate an asset allocation, and keep consistently doing that calculation and re-balancing when called for. It's that the ability to repeatably do that asset allocation into the categories that's giving me the trouble, and worse, the trial and error with the wide variety of funds that could be made to fit.

 

[2B]

I don't see any reason to make things more complicated than they need to be. I would move 100% to Vanguard. That makes taking the current asset allocation and having to force it into a new asset allocation that your "someone" is comfortable with. The caveat comes from any proprietary funds held in after tax account that have substantial capital gains. Unfortunately, that would be part of the cost of doing business.

 

[ArkTinkerer]

If you were going to move a substantial amount into Vanguard, wouldn't they at least help you get the balance you wanted as you transfer in? Seems like a minimal service to me to get a new account.

 

[ERD50]

I also feel you are making this far too complex, and just might scare them right back into the arms (claws?) of the 'advisor' (salesperson).

Why not go simple:

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

Two fund portfolio:

40% Vanguard Total Bond Market Index Fund VBMFX
60% Vanguard Total World Stock Index Fund VTWSX​

Or, for the obsessive:

Three fund lazy portfolios:

Bill Schultheis' Three-fund portfolio

33% Vanguard Total Bond Market Index Fund VBMFX
34% Vanguard Total Stock Market Index Fund VTSMX
33% Vanguard Total International Stock Index Fund VGTSX​

or...

Scott Burns' Couch Potato portfolio

33% Vanguard Inflation-Protected Securities Fund VIPSX
34% Vanguard Total Stock Market Index Fund VTSMX
33% Vanguard Total International Stock Index Fund VGTSX​

-ERD50

 

[sengsational]

It is more complicated than it needs to be. Too bad they didn't ask me what I thought they should do! That would be some version of the ideas from ERD50.

As to why I make it more complicated than it needs to be, I think there's an edge to being just a little more diversified, and reducing investment in countries with restrictions on economic freedoms (2015 World Economic Freedom Levels: Heat Map for Continents and Countries).

 

[sengsational]

If you were going to move a substantial amount into Vanguard, wouldn't they at least help you get the balance you wanted as you transfer in? Seems like a minimal service to me to get a new account.

That's a good idea! .... it would get me out of the loop! As long as they would supply enough details for ongoing rebalancing.

 

[ArkTinkerer]

I could see them charging for rebalancing or not depending on account balance. But to get the account I think it would be an easy thing to ask for and get.

 

[2B]

That's a good idea! .... it would get me out of the loop! As long as they would supply enough details for ongoing rebalancing.

If "someone" you know, had over $1MM, the Flagship people would move heaven and earth. Once I said what my accounts would grow to when I moved everything, I suddenly found myself with more help than I wanted or thought necessary.

 

[sengsational]

Thinking more about it, I wonder if they'd be willing to build a portfolio to an asset allocation specification that was not available from the public records (prospectus, reports, etc). When I looked in a few of those PDF's, I didn't see that they had reported a split like I was calling for. So if they built that portfolio to spec, they might need to use non-public information, which would probably mean they wouldn't be able to do it. I'm sure they'd talk a great game, but in the end, they'd give you something that was close, but not something that could be rebalanced based on public information.