I totally blew it! Need investment help

[CABarb]

Hi,


I got laid off last September and so met with my Fidelity Advisor and told her the new tax law will mean I will have to pay more in taxes. Sure enough, I ended up paying a little over $24K in additional taxes. My payroll taxes were low because I took an exemption as "Single plus 1", but my Fido accounts did well and my total income was in the 6 figures.



Early in the year, I met with the Fidelity Advisor and she had me placed in the Professionally Managed Accounts where my investments would placed me in tax advantaged investments. It scares me what they've done with my investments!! I have worked for start ups where I invested in ROTH IRAs and she had me transfer my 3 ROTH accounts over to Fidelity. I also had my traditional IRA with Fidelity so that's two different IRAs.



What scares me is the amount of different investments they have put me into. I feel very insecure and want out. The Advisor told me I would "probably" be charge a 1% fee or maybe a little less." When I called her about the number of investments in each account, she said not to worry and that I would benefit taxwise.



I want out of the Professionally Managed Accounts and go back to managing my own money. I know she will tell me I've done better this year but that is because I brought in money from other places. I don't like being scared. I feel like I'm being ripped off.



I want to retire soon and need to get a handle on things. How do I go about taking over my own investments without them changing things on me. I can post the holdings in each account if that helps.


Thanks in advance.

 

[Golden sunsets]

Whose money is this, yours or theirs? Seriously, I would open a new account, or accounts (taxable, Roth, TIRA) at a different institution like Vanguard and have that institution handle the transfer of assets into the newly set up accounts. But I would hope that you have a solid investment plan thought out to move forward on your own before taking this step.

 

[gwraigty]

I'm a happy Fidelity customer, but have never used their Professionally Managed Accounts. You should just be able to open a regular brokerage account/IRA/Roth IRA with them, and transfer the funds. If these are investments that are only available in the PMA, then I'd guess you'll have to sell the holdings first. It's your money. You can manage it how you like.

 

[CABarb]

I had always managed my own money. Recent deaths, layoff, etc had me stressed and I did want to lower my taxes. I'd invested in equity stocks and did very well, but I have no write offs so suffered taxwise.



I have joined a Bogleheads group and will be going to their next meeting in June. Fidelity has left my old accounts active still so I can have the money transferred back but it will be a mess to deal with own my own.



In my Trust account alone, I have 186 positions!! Some with just a single share. Is this even legal what they are doing?



Is there anyone I can contact about this many trades in a single account?

 

[OldShooter]

Go to another brokerage (I use and recommend Schwab) and open whatever number of accounts is necessary (roths, inherited roths, iras, etc). For each one you can fill out an asset transfer form that Schwab will send to Fido. On the form you can specify whether the account is to be liquidated and the value sent as cash or whether the securities themselves are to be transferred as-is. Either way you will never have to have contact with the Fido advisor so she will not have an opportunity to hassle or argue with you.

Plenty of people will jump in here to discuss advisor options. However you go, plan to interview several people. Personal chemistry is a big part of a successful relationship. Also be sure to explain your concerns about too many investments and make sure your chosen advisor understands and will comply.

NB: IMO is is common for advisors to make portfolios look complicated in order to scare clients who might consider managing the money themselves. If you search for "two fund portfolio" and "three fund portfolio" you will see that complexity is unnecessary. Your instinct is good.

The idea that she is investing your Roths and IRAs so you benefit taxwise is so stupid that alarm bells should ring. These are tax-sheltered accounts, so there are no tax considerations in investment choices other than to avoid investments designed to avoid taxes.

 

[Jerry1]

The first thing to do is calm down, take a breath and get the information you need to make a better decision going forward. Understand why they have you in what they put you in. Understand the tax implications of changing. Know what your plan is going forward, then look for a broker to handle everything. There’s no reason you can’t stay with Fidelity but worry about that later. A month or so while you assess the situation with a clear mind is not going to hurt a thing and will likely help you make the best situation going forward.

 

[Lsbcal]

...
In my Trust account alone, I have 186 positions!! Some with just a single share. Is this even legal what they are doing?
...

If these are individual stocks then they are perhaps helping you manage your own private mutual fund for tax purposes. Could it be you have overemphasized the lowering of taxes? Maybe this is a mechanistic method they have to get you what you want? For instance, I can imagine they have a fund that is designed for investors like yourself and the best way to transfer tax gains/losses is to create a prorated position for you in each stock. Without a lot more info and historical performance data there is no way to get even an inkling whether this makes sense.

 

[HI Bill]

...I ended up paying a little over $24K in additional taxes. My payroll taxes were low because I took an exemption as "Single plus 1", but my Fido accounts did well and my total income was in the 6 figures.

So....you under-withheld your payroll taxes, and had short or long-term capital gains on the investments, and/or were taxed on dividends and IRA distributions as ordinary income.

We're missing a lot of information here. You're over 59.5, so you shouldn't have any early withdrawal penalties. Dividends are taxed as ordinary income. IRA withdrawals are taxed as ordinary income, except for ROTH IRA.

To pay more than $24K in Federal taxes, if you're still single, you'd likely have to have more than $110K in income. Did you ask Fidelity to withhold taxes on the money your took from the accounts? This is usually required for IRA distributions, but it's not required for taxable distributions (although I'd want to, so you don't end up owing a lot at the end of the year), I believe. I'm a little confused why you think having a managed account resulted in you paying more in taxes. You need to calculate your income and taxes (at the beginning of the new year), and adjust your withholdings accordingly.

 

[CABarb]

Thanks for your inputs.



Jerry, I do need to be calm about this and meet with the advisor and the Senior Portfolio Specialist. The SPS named Thomas told me my fees are .88 annually just a few minutes ago. I emailed the local Fidelity office and will be meeting with the lady and Thomas to discuss my portfolio. I was told there no fees with my holding and they are all Fidelity holdings. Hope I explained it well. Need to walk away and not get overly stressed. But, I have contacted a local Boglehead and hope to meet/talk with him. He is a long term investor and knows much more about investing than I do.

 

[CABarb]

HNL Bill, I paid more in taxes because the portfolio (equity stocks mostly) did very well. It was in the last quarter that taxes owed went up and a little to late to take action. I got laid off in September from another start up which went bankrupt.

In February of 2019, I met with the advisor Maggie L at my local Fidelity and it was too late to take out taxes for last year. I did check taxes owed at least once a quarter and it wasn't that high. But end of year, it went up considerably.

The new portfolio is set up to be a tax advantage account. I want to retire and live off my investments as well as leave something to my son.

I started investing in the late 90s because I was married to a man who didn't want to work. I had worked 7 days a week, 12 hours a day and invested mostly in No Load stocks. Magellan Fund was my first investment.

Because I worked so much and was exhausted, I let my husband take over the banking part where he invested my money in more stocks. Two years after his death, I decided the fees were too high and started managing my own money again. The greedy in-laws have tried to contact me about financial help with sob stories. I've learned how to stand up for myself and say no to a SIL who wanted to move in with me after selling her house for a huge profit. She claimed to be homeless.

Life has been hard. I had no voice then. I do now because of my son.

I am going to stay calm and meet with the Fidelity Advisor to get a good understanding of my investments. I need something in writing and not over the phone. I appreciate all of the responses.

 

[RunningBum]

The idea that she is investing your Roths and IRAs so you benefit taxwise is so stupid that alarm bells should ring. These are tax-sheltered accounts, so there are no tax considerations in investment choices other than to avoid investments designed to avoid taxes.

I suspect we are getting a very disjointed picture here. From another thread that the OP started there is a revocable trust fund that I assume is in a taxable account. Hopefully that's where the tax management is coming into play, but we can't always tell. That said, I agree with your other comment about making things look complicated to lock in a customer. In that other thread people here recommended against the Fido services. It's too bad the advice wasn't heeded.

 

[Lsbcal]

Thanks for your inputs.

Jerry, I do need to be calm about this and meet with the advisor and the Senior Portfolio Specialist. The SPS named Thomas told me my fees are .88 annually just a few minutes ago. I emailed the local Fidelity office and will be meeting with the lady and Thomas to discuss my portfolio. I was told there no fees with my holding and they are all Fidelity holdings. Hope I explained it well. Need to walk away and not get overly stressed. But, I have contacted a local Boglehead and hope to meet/talk with him. He is a long term investor and knows much more about investing than I do.

You are a smart lady who has been through a lot but come out on top. I would be careful about taking any one person's advice. Some people present themselves as very knowledgeable but I'd be skeptical. I have been on the Bogleheads for many years but would not feel to comfortable suggesting a portfolio for another. In the end it is your decisions that count.

Fidelity fees overall of 0.88% are not too bad if that is the total fees including any ER's, etc. I think you can get this down to maybe 0.2% by picking some broad based funds. But will those funds be best overall after taxes? Maybe Fidelity or a fee only CPA can tell you this.

Perhaps you can ask Fidelity to present two portfolio choices. One that is the current one and one that is a simple collection of a few index funds.

 

[Starsky]

How do I go about taking over my own investments without them changing things on me.

No need to panic, you can just tell them you want to manage your own money. They won't punish you for that. You can turn them off anytime.

Lots of Fidelity customers manage their own money and use the excellent Fidelity research tools to make their own decisions. They have an very good online platform and good investment funds, but their management services are useless to the average investor IMO.

I let them manage my Mom's money for a year to see how they would do; and then I took it back from them because their services were so opaque. I never heard from them about my holdings unless I asked for it, I held a much bigger list of funds than ever before, and their total returns were less than bond returns that year. Their uber-diversification felt very lazy as a way to manage risk.

Active management is their "black box" backed by lots of research, but completely generic in execution. They don't manage your funds. They manage their funds and allow you to tag along for the ride. It's very impersonal, and I think that's one thing that makes it feel so out of control.

P.S. As an example, when FBIOX was tanking, they never suggested lowering our position and instead encouraged me to hang in. I wonder why That cost me a ton of money.

 

[RunningBum]

In my Trust account alone, I have 186 positions!!
....
I was told there no fees with my holding and they are all Fidelity holdings. Hope I explained it well.

I don't think Fidelity even has 186 different mutual funds, do they? You have to understand what you have and question them when they say something that conflicts.

 

[HI Bill]

HNL Bill, I paid more in taxes because the portfolio (equity stocks mostly) did very well. It was in the last quarter that taxes owed went up and a little to late to take action.

If equities do well, only the realized gains and dividends are taxable. If you don't sell, you don't incur taxes, except on dividends. Is your broker churning your investments to generate sales commissions?

I'm confused.

 

[Sunset]

I had always managed my own money. ..... I did want to lower my taxes....... suffered taxwise.

.

Letting Taxes avoidance wag the dog is not always good.

I WISH I needed to pay $2M in taxes next year.

It means you are making money like crazy.

I have a an old relative who proudly told me he is not paying taxes. It's because the bank put close to $200K in 0.01% CD's. Yeah he is not paying taxes AND not making any money.

 

[MarieIG]

I don't think Fidelity even has 186 different mutual funds, do they? You have to understand what you have and question them when they say something that conflicts.

What I suspect is that OP got hit with the tax due to under withholding, and because her funds declared huge capital gains; felt nearly hysterical, called Fidelity, and they told her that they would handle her account to manage taxes. The 186 is probably different stocks not funds, and she probably is not being charged for the churning but for the AUM fee.

I did not under withhold but did get hit with high capital gains because of one of my funds and they offered to manage my account to reduce taxes by holding a basket of stocks. For a fee of course. In my case, the nemesis was Dreyfus.

I second the advise to stay calm at this point and work on understanding the situation better before making any quick moves.

 

[scrabbler1]

CABarb, FWIW, I am a Fido client and while I would never consider handing off management of my portfolio to a PMA advisor, I have enough money with them to warrant a free "Account Executive" I can meet with and discuss my finances with whenever I wish.


All of my income is investment income, most of which from my Fidelity portfolio, so I have zero taxes withheld. I incurred a lot of taxes due thanks to the unexpectedly high cap gain distributions at the end of last year, so I paid a lot extra in estimated taxes, including the payback of the ACA subsidy I had received throughout the year. Maybe you move to index funds to lower the tax bite?


I don't think you need a lot of different funds to invest your money. At most a few stock funds and a few bonds fund would be plenty, and very much manageable.

 

[pb4uski]

186 positions is totally ridiculous. Fire them and do it yourself or move it all to Vanguard and put it in one to five funds in each account.

 

[Texas Proud]

You only pay taxes on the money earned outside of IRAs... so there is NO reason to be moving IRA money into tax reducing funds... or individual stocks...


I would not want to own 186 different individual stocks, especially if there are some that have 1 or so shares... if I can not buy 100 shares I do not want to be invested in that stock (but to be fair I have very little in individual shares and have mutual funds)...


I would NOT want to pay .88 fee... and I bet you are paying that... it is your money, if you do not want them to deal with it then tell them so and do not listen to their sales pitch... if they give you a hard time move the money... simple..

 

[Brat]

I don't think Fidelity is responsible for the large number of positions. I think the OP basically inherited them. She needs analysis of her basis on each investment and a plan. Based on the comment about working for a failed start-up her tax situation may be more complex than an investor with long time publically traded stocks. I recalled my DD's comment a few years back about an employee of a start-up owing more in taxes than his stock in the business was worth.

Fidelity's investor advisor service is a great place to start. If her or her husband's employer has an EAP they might provide her with access to a counselor who would help her deal with 'needy' relatives like the one who is 'homeless' because she sold her house.

As others have recommended, take a deep breath. Maybe create a spreadsheet, list each investment - when it was acquired and its value on that date, leave space to enter her plan for that investment. I helped a widowed neighbor through that process; just determining basis, where dividends were reinvested since her husband passed, was no small task. Taking a profit on a long term investment when the proceeds are better invested elsewhere is a good thing.

My suggestion is not to invest proceeds in sector funds, even if they are highly recommended by Fidelity. Buy total market funds until you have done enough research to understand your risk tolerance and investment goal.

 

[RobbieB]

Qualified dividends and long term capitol gains are a great way to make dough. I love to pay a lot of tax, it means I made a lot of dough.

 

[Doribe]

I've been consolidating in Fidelity. When I met with the FA he recommended professional management. He sent me a sample distribution. Like CABarb's portfolio he had me in a huge amount of funds/ETFs. I think they do that to make it look complex.

Just tell the FA you don't want the service.

 

[MRG]

Long time Fidelity client. I've looked at their professional management and it was a joke. Seems like the full cost was north of 2% AUM. Run away.

 

[athena53]

No, you did not totally blow it. Once you do your own research and decide what you want your portfolio to look like (and if I had it to do over again I'd use a simple allocation of ETFs although my current mix is doing well), tell the folks at Fidelity what you want to do. For the after-tax accounts you do need to factor in the cost of selling investments but, as other have said, that shouldn't be the sole driver of your decisions.

If you don't like their proposed answers, yank the money and go elsewhere. I've been the primary decision-maker on my investments for years; first husband was a spendthrift, second was a dear man who shared my financial priorities but wasn't interested in being involved in day-to-day decisions. I have a financial advisor but in the end, I'm the one who lives with the consequences of my decisions so I'd never let anyone sell me something that doesn't make sense.

Good luck- you can do this!