It may make little difference but if I pay, for example, $20k on a portion of my portfolio in advisor expense each year, should that be part or my expenses or should I remove from expenses and estimate the weighted investment expense impact?
FA Fees - regular expense or increase fees to reflect?
- Thread starter DogGone
- Start date
My preference would be to list it an as expense. If there is a major recession and a person is looking for ways to stabilize or improve their situation, FA expenses would be one of the many discretionary expenses that would be easy to eliminate.
jimbee
Thinks s/he gets paid by the post
- Joined
- Oct 11, 2010
- Messages
- 1,227
It is an expense.
- Joined
- Nov 27, 2014
- Messages
- 9,208
The problem with considering it as an expense is that it won’t track with inflation. If we have a significant market increase like we’ve had in the past or, a downturn, it will track with that. However, since your retirement plan probably has a single number for an inflation estimate and one for your portfolio return, it will probably not matter which method you use.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Is it a % of Assets Under Management, or a fixed fee or a combination?
As Jerry1 just posted, of it is a % it should go under the investment expense entry.
What do you get for $20K per year? That's a lot, especially ongoing.
-ERD50
As Jerry1 just posted, of it is a % it should go under the investment expense entry.
What do you get for $20K per year? That's a lot, especially ongoing.
-ERD50
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If the $20k is a flat fee type of cost that increases with inflation then include in expenses.... or put in in as off-chart spending and check the Inflation-adj? box.
If it a % of AUM then consider adjusting the expense ratio input to reflect it there.
If it is just a flat fee but doesn't increase with inflation then put in in as off-chart spending and uncheck the Inflation-adj? box.
Last edited:
We have less than half of our portfolio, most of the taxable accounts in FA.
I've been looking at other FAs (Personal Capital, Fischer and others) just to educate myself before I make a decision next year when I can sell some stocks to make a change (first year of no income for taxes).
I'm 90% going to do this myself... I've done well since the 90's and the last few years have beat the FA by a few % before hie .85% on assets which is on top of fund expenses. I'm just not sure if I will move the money to my existing Vanguard, Fidelity or E*Trade Accounts. Probably E*Trade only because my other accounts are pretax only right now.
As for the model, I think the optimal treatment is such:
For Firecalc, exclude from expenses but increase the expense ratio to include the effect of the FA. If my avg expense ratio is 0.5% and half my portfolio is subject to asset charges of .8%, then increase the expenses from 0.5% to that plus 0.4% or .9%. That way the charge changes as my portfolio changes, not changing as inflation changes as it would now.
For the rule of thumb Safe Withdrawal Rate, include the FA expenses this year in my expenses versus the assets since most guidelines don't include FA expenses. In my case, even before Soc Sec and pensions kick in, my 3.1% SWR would drop to 2.6% if I lose the FA... makes me feel much better about my FIRE choice.
I've been looking at other FAs (Personal Capital, Fischer and others) just to educate myself before I make a decision next year when I can sell some stocks to make a change (first year of no income for taxes).
I'm 90% going to do this myself... I've done well since the 90's and the last few years have beat the FA by a few % before hie .85% on assets which is on top of fund expenses. I'm just not sure if I will move the money to my existing Vanguard, Fidelity or E*Trade Accounts. Probably E*Trade only because my other accounts are pretax only right now.
As for the model, I think the optimal treatment is such:
For Firecalc, exclude from expenses but increase the expense ratio to include the effect of the FA. If my avg expense ratio is 0.5% and half my portfolio is subject to asset charges of .8%, then increase the expenses from 0.5% to that plus 0.4% or .9%. That way the charge changes as my portfolio changes, not changing as inflation changes as it would now.
For the rule of thumb Safe Withdrawal Rate, include the FA expenses this year in my expenses versus the assets since most guidelines don't include FA expenses. In my case, even before Soc Sec and pensions kick in, my 3.1% SWR would drop to 2.6% if I lose the FA... makes me feel much better about my FIRE choice.
- Joined
- Nov 27, 2014
- Messages
- 9,208
Yep. I have an FA, which was discussed at some length on this board. There were pros and cons but I don't think anyone claimed that it wasn't expensive. Given the expense, I have no, absolutely no, hesitation to e-mail or call the FA when I have a question. I may also ask it here, but he gets contacted and I expect (and so far I get) a well thought out professional answer.
I don't do much tracking (other than mental accounting and roth conversions and taxes), so I don't know if you'll count my opinion. What is your purpose for tracking? If it is to understand your investment returns after expenses, then the FA fee reduces your investment returns. If your just looking at expenses, then the FA is just an expense.If your want to compare with others, then you need to know the defined protocol.
I don't pay a FA at this point. I expect I may later in life.
- Joined
- Nov 27, 2014
- Messages
- 9,208
Exactly. When I was at Fidelity, they knew a bit about taxes and RMD’s and such, but they did not have good tools and strategies to minimize taxes. I kind of got a blank stare when I started asking those types of questions. Some advisers at Fidelity may know more than others, but their only real focus is on investment/portfolio advice.
My FA is a Certified Financial Planner. They have tools and skills to do all kinds of planning. Still expensive but at least the services are comprehensive and well done.
