Fees Taking a Third of Profit ?

[Katsmeow]

I know exactly what is in my accounts, but as I said I am not comfortable putting out my info to total strangers. I understand ya'll are trying to help me, but this is not the way. If I am paying to much in fees I will discuss this with my FA. I am not in the position to take out my money and put it somewhere else without getting my monthly dividends.

I can you the names of the funds.

I can understand not wanting to put out here exactly how much you have in each account. Another way to do it is to show the percentages.

AS I understand it there are basically 5 kinds of fees you can have (maybe there are more but these are the ones I can think of).

1. A fee you directly pay your FA. In your case it sounds like it is 1%. That isn't highway robbery, exactly, but is for many people a waste of money. You seem to think that the FA brings added value, but for many people who come here they could do just as well on their own. This is often because they use index funds and there just isn't that much that an FA can do. The idea that an FA can identify what funds will do well in the future is one that many people will reject.

2. The expense ratio of your fund itself. Most of our money is at Vanguard and I think our expense ratio is around .20. I haven't looked up all your funds but most non-index funds have higher expense ratios.

3. A front end load (sales fee) you pay to buy some funds. You would need to check into this on the funds you already own.

4. The same as 3 but one you pay when you sell a fund.

5. Commissions or fees to execute a trade. This is how churning an account ends up costing a lot of people. Every time they sell and buy something else they pay a fee. Do you pay a fee for trades? If so, what is that fee?

How often does your FA have you sell something and buy something else? What kind of fee does that generate? Why are you selling and buying something else.

 

[reubenray]

Fund Expenses: We can't tell how good or bad the whole situation is without some idea of your weighting (percent) in each fund. Overall, the expenses of these funds aren't "crazy", but most are still about 0.5% above low-cost index funds. That's .5% every year. Together with what the FA is getting paid, it's about 1/2 of what reubenray can sustainably take out of his funds every year. The FA and the fund companies will be getting as much every year from reubenray's investments as he will. Did they work for this money for decades as he did?

That's a lot of money to give away.

Is that what you want?

Short-term fixed income - 7.4%
Intermediate fixed income - 21.2%
High-yield fixed income - 5.2%
International/emerging markets debt - 7.9%
Large cap equity - 26.1%
Mid cap equity - 6.5%
Small cap equity - 9.3%
International equity - 5.2%
Emerging markets equity - 6.7%
Other Holdings - 4.5%

 

[samclem]

Is that what you want?

Short-term fixed income - 7.4%
Intermediate fixed income - 21.2%
High-yield fixed income - 5.2%
International/emerging markets debt - 7.9%
Large cap equity - 26.1%
Mid cap equity - 6.5%
Small cap equity - 9.3%
International equity - 5.2%
Emerging markets equity - 6.7%
Other Holdings - 4.5%

We still can't tell you how much the expense ratio (ER) is. For each fund, what's your percentage? (for example, what percentage of your holdings is in MTRPOLTAN WST T/R BND-I MWTIX)?

Breaking it out as you've done above is helpful (it tells us your asset allocation), but we can't tell you about your annual expenses. The payoff: it will be possible to suggest different (lower cost) funds that leave you with the same basic asset allocation, but with lower annual fees.

 

[target2019]

I know exactly what is in my accounts, but as I said I am not comfortable putting out my info to total strangers. I understand ya'll are trying to help me, but this is not the way. If I am paying to much in fees I will discuss this with my FA. I am not in the position to take out my money and put it somewhere else without getting my monthly dividends.

I can you the names of the funds.

Here is an example that may shed light on your portfolio.

You hold JP MORGAN CORE BD FD WOBDX:

0.57% expense ratio
2.67% yield
Credit Quality is medium
YTD Return*: -1.69%

A comparable fund which many investors hold is Vanguard Total Bond Market Index Adm VBTLX:

0.10% expense ratio
2.47% yield
Credit Quality is high
YTD Return*: -1.95%

Your WOBDX has within it more longer term debt, and the bond quality overall is less. When interest rates rise, your fund will lose more in NAV. For now, that is something to note.

Another point is that one core bond fund costs .47% more than the other. In addition, let's say your advisor really does charge 1%. You have -1.47% headwind. Can your bond fund outperform VBTLX over the next year?

Finally, let's say you hold 20% of your allocation in the WOBDX fund. That means your effective expense ratio is .114% (20% x .57).

If you create a spreadsheet as I suggested, and plug in these type of numbers for all your investments, you will be far much wiser for the effort.

You may realize that -1.47% headwind over 20 years means you will be earning approximately 24% less over a 20-year period.

When you do this same set of calculations for stock funds in your portfolio, the numbers will be more negative, I am afraid.

One more example, than gotta run. Here's a stock fund comparison.

Artisan Small Cap Value Investor (ARTVX)
0.68% yield
1.22% expense ratio
YTD Return*: 17.65%

Vanguard Small Cap Value Index Admiral (VSIAX)
2.10% yield
0.10% expense ratio
YTD Return*: 24.23%

Hmmm...do I want to pay an advisor 1% every year for the rest of my life to put me in ARTVX, or do I want to hold VSIAX?

I hope this helps you.

 

[padlin00]

Your original question is if you should look into changing the 1/3 profits you give to the FA.

Yes, you should.

Biggest savings is getting rid of the FA and do it yourself, saving about 1% of your total account balance, around $4000. There are also fee only (hourly fee) advisers out there who do not get a percentage of your total portfolio each year.

Next get rid of the actively managed funds where you can get lower cost index funds that perform the same or better then what you have. A short look at your large cap funds shows you're paying about .5% more for the same performance as the equivalent Vanguard Indexes.

I would also suggest you simplify the portfolio, you have 22 investments, you can easily cut it in half, and could go all the way down to 1 fund if you so choose. Meaning management can be as easy as you want with little or no lose in performance.

 

[reubenray]

I can't remember for sure, but I believe the 401k fund is managed by a group of persons instead of a single FA. It is a package of some type. I will have to check with my FA how this works if I want to delete certain funds out of it and put them somewhere else.

Below are my percentages of the funds in this "package".

JBFFX - 7.4; PTTRX - 7.3; MWTIX - 6.5; WOBDX - 4.6; BFAFX - 2.8; AHTFX - 5.2;

WBFFX - 3.6; FMKIX - 4.3; GFAFX - 8.4; TRBCX - 4.6; WSHFX - 8.8; JPIVX - 4.4;

PEGZX - 3.3; JMVAX - 3.2; BUFSX - 4.9; ARTVX - 4.4; AEGFX - 5.2; NWFFX - 4.9;

LZEMX - 1.8; FTIXX - 0.9; CSRSX - 1.9; PCRIX - 1.6;

 

[2B]

I can't remember for sure, but I believe the 401k fund is managed by a group of persons instead of a single FA. It is a package of some type. I will have to check with my FA how this works if I want to delete certain funds out of it and put them somewhere else.

Below are my percentages of the funds in this "package".

JBFFX - 7.4; PTTRX - 7.3; MWTIX - 6.5; WOBDX - 4.6; BFAFX - 2.8; AHTFX - 5.2;

WBFFX - 3.6; FMKIX - 4.3; GFAFX - 8.4; TRBCX - 4.6; WSHFX - 8.8; JPIVX - 4.4;

PEGZX - 3.3; JMVAX - 3.2; BUFSX - 4.9; ARTVX - 4.4; AEGFX - 5.2; NWFFX - 4.9;

LZEMX - 1.8; FTIXX - 0.9; CSRSX - 1.9; PCRIX - 1.6;

I did a spot check on some of the larger holding and found that the fees ran anywhere from 0.4% to 1.28%. Someone may be willing to spend the time to look of the fees of all of them for you but you can do it easily enough.

Those mutual fund fees will not be included in what is shown by your FA as his fee. There's nothing inconsistent with what we've been saying here that you are paying close to 1% in fees in addition to what you are being told about.

BTW - You have a classic "fund of funds" which the FA will tell you brings the best of the best in mutual funds together with his firm's "genius" to give you an outstanding portfolio. All this is easily duplicated with index funds with lower fees and historically proven better performance.

Also, thanks for posting the added details. You should get some more specific comments on your individual funds from people with more time.

 

[tomc5179]

I'd mentioned in a previous post about a simple spreadsheet I had made to compare the fees between Wells Fargo and Vanguard. I did a little looking around and found it. Now if I can get it to upload properly with this message, you can take a look at it and see what you think.

It is a simplistic look at fees comparison and does not take into account down years, variable returns from one year to the next, etc., but it will give you a general idea of how much damage a one or two percent higher fee can do to a portfolio balance over an extended time.

View attachment fees comparison.xls

 

[reubenray]

I have to ask this question.

Is Vanguard connected to this forum in some way? From when I joined over a year ago I read a lot about Vanguard. Just checking to make sure it is not Vanguard personnel pushing Vanguard.

 

[Meadbh]

I can't remember for sure, but I believe the 401k fund is managed by a group of persons instead of a single FA. It is a package of some type. I will have to check with my FA how this works if I want to delete certain funds out of it and put them somewhere else.

Below are my percentages of the funds in this "package".

JBFFX - 7.4; PTTRX - 7.3; MWTIX - 6.5; WOBDX - 4.6; BFAFX - 2.8; AHTFX - 5.2;

WBFFX - 3.6; FMKIX - 4.3; GFAFX - 8.4; TRBCX - 4.6; WSHFX - 8.8; JPIVX - 4.4;

PEGZX - 3.3; JMVAX - 3.2; BUFSX - 4.9; ARTVX - 4.4; AEGFX - 5.2; NWFFX - 4.9;

LZEMX - 1.8; FTIXX - 0.9; CSRSX - 1.9; PCRIX - 1.6;

Reubenray,

I am not familiar with any if these funds and am not planning to look them up. However, in general, when there are so many funds in a portfolio, their holdings tend to overlap (there are only so many corporations and so many industries out there!). Overlap leads to positive correlation in results, which defeats the purpose of diversification. At times, the many funds may be working at cross purposes, e.g fund A buys shares in X while fund B sells them. As well, every one of these 22 funds has management fees which you are ultimately paying.

Following the KISS principle (keep it simple, sister) is at least as effective and considerably cheaper. We can only try to answer your original question. Deciding whether to make a change or not is your choice.

Disclaimer: I have no affiliation with any financial institution. I don't even live in the US, but in Canada, where fees are even more of a ripoff.

 

[tomc5179]

I have to ask this question.

Is Vanguard connected to this forum in some way? From when I joined over a year ago I read a lot about Vanguard. Just checking to make sure it is not Vanguard personnel pushing Vanguard.

Not to my knowledge. I think there are just a lot of people on here that like Vanguard and other places where you can get low fee index funds. Fidelity would be another place that ranks high with the forum members, IMO.

 

[FinanceDude]

I have to ask this question.

Is Vanguard connected to this forum in some way? From when I joined over a year ago I read a lot about Vanguard. Just checking to make sure it is not Vanguard personnel pushing Vanguard.

No, but a fair number of members also post on the Boglehead forums. To your point, most Vanguard reps don't push Vanguard either, because they are not licensed to do so.........

 

[samclem]

I'll give this a first shot (telling all so 20 people don't spend time on this hand-typing, etc)

 

[samclem]

reubenray,
There is no "JBFFX", but I found an "IBFFX".
Your overall weighted expense ratio for the funds you are in is 0.75%. As some folks have estimated before, this is about 0.50% or more than you'd be paying if your advisor had put your money into less expensive funds. When you do the math, you'll see that's a lot of money, and is in addition to the 1%- 1.3% that it appears you are paying to your financial advisor. The performance of these alternate lower-cost funds (at Vanguard, Fidelity, etc) would be about the same as the performace you can expect from the more expensive funds your advisor has picked. Depending on how much is in your 401(K) and the options available in that plan, there may be some limits on your flexibility right now on that money, but those will go away if you decide to roll it over to an IRA.

More to follow in a few minutes.

 

[samclem]

Reubenray,
Okay, maybe the attached document will be of some use. It's a little ugly, but contains screen captures of a Morningstar Instant X-Ray report on your holdings.

No, I'm not connected to Vanguard. They are a very good company, though. You can find low cost funds (and ETFs) with other companies, but Vanguard does have the biggest selection.

Unsolicited comments:
The overall asset allocation seems fairly typical, and I'd say it's probably okay. Your heavy weighting in large growth stocks is something I'd change if this were my portfolio. Depending on your other sources of income and your risk tolerance, your bond holdings (43% of your portfolio) may be high. Depending on their duration (Morningstar couldn't find info on the type of bonds in some of your funds) you could be in for a decline in your portfolio's value when rates go up. The number of funds in which you are invested is excessive-- a fund that constitutes 0.9% of your holdings is absolutely not going to contribute anything meaningful. You could probably achieve the same result with far fewer funds, making everything simpler.

I'm sure your FA will have a great explanation about how this degree of micro-management and attention to detail is the only possible way to produce outstanding investment results. "I've got access to a lot of research information that lets me fine-tune the portfolios of my clients" etc, etc. Hogwash. If any advisor could consistently outperform the market by even 1% the world would beat a path to his door and he'd be worth millions of dollars. He wouldn't be pushing himself on small retail investors (like you and me).

You are paying more in fees (to your FA directly and in fund expenses) than you need to. It looks like these fees will reduce your sustainable annual withdrawals, every year, by about 40-50% compared to what you would achieve by doing this yourself with low-cost funds. That's as simple and direct as I can say it. It was good that you noticed this when you did, now you need to decide if you want to do something about it.

 

[2B]

I have to ask this question.

Is Vanguard connected to this forum in some way? From when I joined over a year ago I read a lot about Vanguard. Just checking to make sure it is not Vanguard personnel pushing Vanguard.

I am personally not connected with Vanguard other than having an account there. I have been very satisfied with their service and their index funds. I freely recommend them over everyone else. I am a former Merrill Lynch, Dean Witter, Fidelity, and many other mutual fund companies. This was all prior to 2000. I still have an ETrade account that I use primarily for brokered CDs and online banking.

When my DW took over her parents finances, Vanguard was one of the few places that would allow us to open a POA account in their names. This greatly simplified our lives when dealing with their abysmal finances.

I'm not aware of anyone that regularly posts here ever identifying themselves as a Vanguard employee.

 

[RunningBum]

Not a Vanguard employee, and I'm not aware of any forum members who are. I suppose we are cult-ish, but I think their record speaks for itself. Do the research on their fees and how close their index funds match the indices they track, and how well those index funds do vs. actively managed funds, and decide for yourself.

 

[Katsmeow]

No, I'm not a Vanguard employee and not aware of anyone here being one. I think a lot of people here are focused on fees and believe that low cost investment funds are the way to go. Samclem's post is really good and makes the point well about FAs and about fees.

I see no point in paying extra fees when I don't feel I get anything in return for it. Right now I'm in a S&P fund at Fidelity that has a .50 expense while similar funds at Vanguard are a fraction of that (I have the Fidelity fund because this is a 401k and the fund in question is my cheapest option). Why would I pay .75 for a found that I could get for 1/3 of the cost or even less? (And no it isn't that the more expensive fund gets better results).

I think a lot of people here got here because they focused on getting value for many during their adult life and don't look to spend more for something than they think it is worth.

Vanguard is talked about a lot because it is notable for its low costs and it is a really big company. It is the largest mutual fund company in the US by assets:

Largest Mutual Fund Companies By Assets - Gajizmo.com

Fidelity is second and it also has a lot of low cost funds and many people prefer it. My 401(k) is at Fidelity and I will probably eventually roll it to an IRA there while DH's IRA and our taxable account is at Vanguard. I think they are both really good companies and they both have enough low cost funds available to meet my needs so I have no need to buy other more expensive funds.

 

[Dreamer]

I am not a Vanguard employee and do not know any Vanguard employees. I like their low fees, literature and their help when moving IRA's to them.

 

[Bestwifeever]

I am not a Vanguard employee and do not know any Vanguard employees. I like their low fees, literature and their help when moving IRA's to them.

Not a Vanguard employee but I own the company along with all the others who hold Vangard funds, as it is client owned.

Good luck to the OP.

 

[Sue J]

I may be one of the biggest chicken investors here. Never wanted to take on any risk, only FDIC insured CDs for me!

From what I learned on this forum and from my son (a young but very wise investor) I took the plunge and opened a Roth IRA at Vanguard a few years ago. I chose Vanguard because of the website, low fees and large assortment of all kinds of funds.

But I mostly picked Vanguard because they had a fund with a minimum investment of $1000 to open. I've added money every year to the Roth IRA, sometimes in the same fund, sometimes in a new fund.

I'm not so chicken anymore!

 

[scrinch]

Another Vanguard non-employee here. I chose Vanguard because they are built around the concept of low-fee, index-based investing. Low fees = higher proportion of returns go to the investor. There are other very good products available, but that is their bread and butter.

Disclaimer: We also have smaller amounts of money in Fidelity, Schwab, UBS, PERS, I-bonds, and a couple credit unions. Previously also BoA, Dean Witter, ETrade, Smith-Barney, and a few others.

 

[reubenray]

If I was to take some of my $$ and put it into a Vanguard Index fund how soon would I be able to get monthly dividends?

 

[samclem]

If I was to take some of my $$ and put it into a Vanguard Index fund how soon would I be able to get monthly dividends?

Different funds have different distribution schedules for their dividends. It's the same with Vanguard as with most fund companies (including where you have your money now). What many people do is have them all sent to a "holding" money market account, since they will be very "lumpy" (lots of dividends from stock funds in Sep and Oct of each year, but some on the last day of the year, etc). If you want a more steady month-to-month flow, just set 1/12th of the annual amount to be transferred to you every month. If you need to provide monthly income between now and when this "buffer" account builds up, just sell some of your assets. You'll still be >well< ahead after dumping your FA.

Here's the distribution schedule for Vanguard funds. Most funds just paid their dividends (which makes it a good time to buy them if you have any taxable accounts)

Dividends are just one source of income from your portfolio, you'll want to look at interest and capital appreciation as well.

There are lots of good books written on how to do all this. The FAQs at this site are a good place to start.

 

[Al in Ohio]

If they are charging 3%, and that is $4,000, you have about $135,000? You are generating $12,000 AFTER the $4,000 fee, meaning you are getting about 12% in dividends and interest? If your advisor is really doing this, either: they are really good; they have a Madoff scheme going; or something is wrong with this info or my understanding of it.

12% this year or last has not been hard to get. It's been a banner year for stock funds. My simplistic TRowe 401 k is at almost 14% for the year over a very basic 8 fund allocation. My other accounts are over double digit this year also. All have at least 70% equity MFs.