should I go it alone

[crispus]

My financial advisor charges us 3/4% to manage our portfolio. It consists of index funds with a 55/45 split between stocks and bonds. We have only about 5-7 fund/etf holdings.

We are retired and 60 years old. Should we just do it ourselves through Vanguard? It seems to me the conservative index funds are the way to go. In 2013 we had a return of almost 7% after expenses.

 

[REWahoo]

My financial advisor charges us 3/4% to manage our portfolio.

...Should we just do it ourselves through Vanguard?

Absolutely.

 

[David1961]

3 to 4% seems very high, especially considering it consists of index funds, which you can easily do by yourself.

 

[Walt34]

While .75% isn't outlandish you could reduce expenses significantly by DIY.

Since it's index funds they're not that hard to manage yourself.

 

[Walt34]

3 to 4% seems very high, especially considering it consists of index funds, which you can easily do by yourself.

I read it as three-quarters of one per cent (.75%). Perhaps I misunderstood?

 

[Dash man]

So your financial advisor will charge you $750 annually for every $100,000 you invest whether he makes you money or not. On top of that each fund will likely have an expense fee of around 1/2% - 1.5% depending on if it is a managed fund or an index fund. Picking a few low fee index funds will likely out perform this advisor in the long run.

 

[crispus]

Its .75% per annum. It's in all index funds handled through Charles Schwab which also charges its own trade fees. We have around $1 mil.

 

[David1961]

I read it as three-quarters of one per cent (.75%). Perhaps I misunderstood?

No you are correct. I misread it. Thanks for pointing this out. Not as bad as i originally thought, but still think it's better to go it alone.

 

[Huston55]

Its .75% per annum. It's in all index funds handled through Charles Schwab which also charges its own trade fees. We have around $1 mil.

So, the question is, "Is your advisor's service worth $7,500/yr?"

Or, expressed another way, if you're living on a 3% withdrawal rate, "Is your advisor's service worth 25% of your annual portfolio income?"

PS: after reading your sig line, I'd say that this advisor's fees never sleep; his tyranny is of the most oppressive kind.

 

[braumeister]

So if the advisor gets 0.75% and you make 7% after expenses, then if you kept the same investments but fired the advisor, your earnings would increase by better than 10%.

Using your own mix of index funds, you ought to be able to at least equal if not easily surpass your advisor's record over the long term.

BTW, a 7% return for 2013 was not very good. A similarly weighted fund like Wellington did much better.

 

[crispus]

It's a couch potato portfolio. re-balanced from time to time. Each trade costs $35 with approximately 12 trades a year. Some of the trades are to cash out for distributions for our income.

The thing that really pissed me off was they screwed up our distributions under the rule of 72t. We were told when we started taking our money that we could take out a full years worth of money the first year even though we started our plan on 6/1. Now three years in we are being told that the last 6 months we cannot withdrawal any money out of the IRA. So we are stuck with a huge gap and now must cut way back in order to make do for the next 2 years. This over site by our financial advisors firm is unforgivable in my mind. We were led to believe that instead of not being able to take from our IRAs the last six months that the end period for the 72t would be back dated to the first of the year.

 

[SteveL]

Just a suggestion....as another user of Schwab, I'd like to recommend that you consider using etfs instead of regular mutual funds. I believe you can duplicate your holdings, or get similar etfs using Schwab etfs, for which you will pay no fee to buy and sell.

If you post the names of your funds, we can give you the names the replacement funds.

I believe that with one million, you can go to your local Schwab office, and they will help you do the trades!
Even if you decide to use Vanguard ETFs, the cost of a transaction is only 9.95......

 

[Corporateburnout]

I self manage my portfolio with a similar asset allocation (53% stocks and 47% bonds/cash) of 8-9 index funds with an overall expense ratio of .21% and my yield last year was around 14%.

So you pay this advisor $7500 a year to under perform?

 

[NanoSour]

You know what you need to do Crispus. Just remember you don't owe your advisor an explanation of why you are making a move and it's none of their business what you are doing with your money. Cut the chord and go it alone. Just tell them you've decided to move in a different direction.

Good Luck.

 

[travelover]

It's a couch potato portfolio. re-balanced from time to time.........

And for this you pay $7500, yearly? That like not getting a new car for free every four years.

 

[growing_older]

The adviser gets 0.75 percent, plus found a way to charge you trading fees a dozen times a year, plus screwed up the 72t. I cannot imagine why you want to stick with these guys.

You have a simple index fund portfolio with occasional re-balancing. Similar portfolios at Vanguard are no fee to rebalance or take distributions. Plus you have a million dollars, so even if you want to use a Flagship adviser, it's free.

 

[Hermit]

If you have a stock/bond/cash allocation you are comfortable with, doing your own is pretty easy with Vanguard. Some people here on this forum mostly re-balance once per year while others re-balance when the allocations get out of sync by a predetermined amount, say 5%.

If you need help determining a good allocation, you might consider using Vanguard's financial planning service which is what I did. At most it will cost you ~$200 after you set up an account with them. For those with higher balances the service is free. A financial planner will discuss your situation with you over the phone and help you build an allocation you are comfortable with. They will then help you implement the plan. I my case they told me what trades I needed to make in my 401k which I made and they made the trades I needed in my Vanguard accounts.

 

[mystang52]

It's a couch potato portfolio. re-balanced from time to time. Each trade costs $35 with approximately 12 trades a year. Some of the trades are to cash out for distributions for our income.

The thing that really pissed me off was they screwed up our distributions under the rule of 72t. We were told when we started taking our money that we could take out a full years worth of money the first year even though we started our plan on 6/1. Now three years in we are being told that the last 6 months we cannot withdrawal any money out of the IRA. So we are stuck with a huge gap and now must cut way back in order to make do for the next 2 years. This over site by our financial advisors firm is unforgivable in my mind. We were led to believe that instead of not being able to take from our IRAs the last six months that the end period for the 72t would be back dated to the first of the year.

M'gosh, forgetting any other pros/cons to going it alone, this is all the reason you need. What the heck are you paying a financial advisor for if not to prevent the very situation you are now in? They're not advising, they're just taking your money.

 

[pb4uski]

I self manage my portfolio with a similar asset allocation (53% stocks and 47% bonds/cash) of 8-9 index funds with an overall expense ratio of .21% and my yield last year was around 14%.

So you pay this advisor $7500 a year to under perform?

+1 my metrics are similar. 60/40, .24% ER, 16% return for 2013.

7% for 2013 for a 55/45 portfolio is not very good. Vanguards 2015 Target retirement fund has a similar AA and returned 11.6% for the year ending 2/28/2014.

Ditch the FA - not worth $7,500 a year. With the amount you have you can get a lot of free support from Vanguard.

 

[Bestwifeever]

You don't need management of those funds, and the "misunderstanding" with the 72t is reason enough to leave your FP right now. Why not call Schwab, since your money is already there, and talk to someone there? I think your portfolio is at a level where most fees might disappear if you worked with them directly and someone there should be able to advise you about what happened with the 72T and maybe work around it.

Investing Costs: Charles Schwab: Fees and Minimums

We use Vanguard but hear only good things about Schwab.

 

[2B]

You can self manage similar index mutual funds through Schwab. I believe they have similar expenses as Vanguard index funds. The OP didn't say whether their FA had them in low expense index funds. There are certainly many index funds that have much higher expenses than the Vanguard Admiral shares. One "given" I've come to expect from the traditional FA is that the [-]mark[/-] client is put into high cost funds and with loads if possible.

 

[Hermit]

You don't need management of those funds, and the "misunderstanding" with the 72t is reason enough to leave your FP right now. Why not call Schwab, since your money is already there, and talk to someone there? I think your portfolio is at a level where most fees might disappear if you worked with them directly and someone there should be able to advise you about what happened with the 72T and maybe work around it.

Investing Costs: Charles Schwab: Fees and Minimums

We use Vanguard but hear only good things about Schwab.

I was with Schwab for many years. They are more focused on active trading. Lots of benefits if you are an active trader. I wasn't and was still mostly happy. I moved to Vanguard several years ago. I think Schwab has lowered their prices since then but I am no sure.

The one issue that got me to move to Vanguard was when I asked them for a small cap index fund. They put me in one that used an index created by Schwab. That was not a good move on my part. My opinion is that the fund went through the standard process of dieing and being reborn with a slightly different name to hide the lousy returns it always seemed to get when compared to other similar funds.

 

[rbmrtn]

I think everyone agrees the answer is yes. With the funds already at Schwab reproducing the couch potato portfolio is easy and you just gave yourself a $7500/yr raise. Low expenses and no commissions

Universal retirement tool: Build a Couch Potato Margarita portfolio | Dallas Morning News

 

[youbet]

It seems to me the conservative index funds are the way to go. In 2013 we had a return of almost 7% after expenses.

What do you mean by a "conservative index fund?"

Choosing to be "conservative" in one's asset allocation is a completely different decision than choosing to invest in index funds over actively managed funds. It's a distinction you should have well in hand.

 

[Animorph]

Is the FA doing any tax planning? If it is just investing, do it yourself. On the good side, 0.75% is on the lower cost side for an FA paid like that. Of course screwing up the 72T kind of impacts the cost/benefit ratio.