Vanguard Portfolio Advisory Service AA

[Midpack]

I just got my first look at my sister’s AA, it’s not horrible IMO. She was totally naive re: investing, didn’t have any idea what she was invested in - constructed and managed entirely by PAS. There’s probably some back story to the two trivial positions she held, I’ll never know why, but there may well be an explanation.

They suggested she do some tax loss harvesting early this year, she had no clue and she asked me about it. When I told her she must have some losses to offset other gains - she said “I don’t have any losses” - ‘I told my advisor not to invest in anything that could go down.’ Now that I’ve seen her AA, she does of course have some CG gains, some losses.

I’d say they protected her from herself somewhat, which is what an advisor should do.

That said, even at 0.30% advisory fee, she was paying WAY TOO MUCH for such a simple portfolio given her total $.

Just for anyone who wonders what Vanguard PAS might do with their nest egg.

 

[Luvtoride]

You get what you pay for

 

[Lorenzo]

For many years—more like decades—I paid 1% to a FA who had me in an even simpler portfolio. Live and learn.

 

[Slim11]

I did something like that in my fido go account. Yes its not rocket science, but if you dont know , then you dont know. This is worth the .30 percent. I assume they made money, and while you could have set it up, they couldn't. And if you set it up and it went bad, your sister would have blamed you. .30 isnt a bad percent for peice of mind and to realize that you dont have to get involved.

 

[RetiredHappy]

We paid 0.8% to Merrill Lynch for about a decade and they had each account in 20+ holdings. We cannot get rid of them in our taxable accounts without incurring significant capital gains. We have more than a million dollars in capital gains in our taxable accounts. It sucks that we cannot get rid of the laggards. We did get rid of the bond funds last couple of years because they were all in the negative.

 

[audreyh1]

Seriously 0.3% is a bargain for a naive investor to be in a decent simple low-cost fund portfolio with minimal churning. They could do way way worse.

 

[HarveyS]

We paid 0.8% to Merrill Lynch for about a decade and they had each account in 20+ holdings. We cannot get rid of them in our taxable accounts without incurring significant capital gains. We have more than a million dollars in capital gains in our taxable accounts. It sucks that we cannot get rid of the laggards. We did get rid of the bond funds last couple of years because they were all in the negative.

I'm not a fan of advisors, but to me it sounds like your advisor did OK if you have such high capital gains. Champagne problem!

 

[mrfeh]

Seriously 0.3% is a bargain for a naive investor to be in a decent simple low-cost fund portfolio with minimal churning. They could do way way worse.

The percentage aspect irks me (as opposed to a flat fee).

The portfolio looks fine, but why should somebody with $2M pay twice as much as somebody with $1M? It takes the exact same amount of work to handle both.

 

[sakowitzm]

I'm not a fan of advisors, but to me it sounds like your advisor did OK if you have such high capital gains. Champagne problem!

I had the same reaction. However.... I loathe Merrill Lynch. From 30+ years ago when they "managed" my small employer's 401(k). Oy, the things they did... and didn't do. More recently, I liberated my girlfriend's investments from ML. In her TIRA, where they could not take fees, they had her in a fairly nice, spread of index funds. But in the taxable account, where they could get 2%+ they had her in - literally - more than 30 positions, churning each one ad nauseum. Made my stomach turn.

 

[VanWinkle]

Simple is good in investing unless you want to handle it like a bar of soap(it usually gets smaller the more you handle it). The PAS portfolio looks good to me and for .30% fee, she could do infinitely worse. I am sure CEFs and leveraged funds might look glamorous, but I think they have her on the right path.

 

[MRG]

I use PAS for almost half our assets, and self manage the rest. Decent returns and ZERO pressure to buy anything. I contrast that with the three days I spent with a Fidelity annuity salesman.

Its really for my wife, who has zero interest in managing money. If I pre-decease her or lose my abilty to manage money she knows to call Vanguard and have them pull the rest over.

They generally do two calls yearly for those who like to talk.

 

[RetiredHappy]

I'm not a fan of advisors, but to me it sounds like your advisor did OK if you have such high capital gains. Champagne problem!

When we took it over it was maybe half of that. We have grown it more for the past 3 years. But my taxable account is pretty substantial in the first place, with taxable to deferred 50-50. They also churned alot, and it didn't bother us in the tax deferred account. I got six digits realized capital gains one year and that's when we pulled our money out from ML.

 

[VanWinkle]

I use PAS for almost half our assets, and self manage the rest. Decent returns and ZERO pressure to buy anything. I contrast that with the three days I spent with a Fidelity annuity salesman.

Its really for my wife, who has zero interest in managing money. If I pre-decease her or lose my abilty to manage money she knows to call Vanguard and have them pull the rest over.

They generally do two calls yearly for those who like to talk.

Thank you for stating the difference in a clear manner. I often recommend Vanguard, Fidelity, and Schwab for brokerage accounts, but I always secretly hope they use Vanguard so the up-sell attempts are at a minimum. I agree 100% with your succession plan as it matches mine.

 

[VanWinkle]

You get what you pay for

Actually you "get what you don't pay for" according to John Bogle.
Paying more for advisor services is definitely not a correlation to
your investment returns.

 

[audreyh1]

The percentage aspect irks me (as opposed to a flat fee).

The portfolio looks fine, but why should somebody with $2M pay twice as much as somebody with $1M? It takes the exact same amount of work to handle both.

That’s the conventional way they do it. The big outfits give some discounts to higher portfolio sizes, but they start with much higher AUM fees. The 0.3% is still a bargain, it’s just that in this theoretical case the little guy is getting the better deal in terms of effort. But smaller portfolios also tend to be simpler and larger portfolios more diversified. Not necessarily for the better anyway.

 

[COcheesehead]

I find it kind of funny that they have total bond and then five more bond flavors on top of that.

 

[frank05]

We paid 0.8% to Merrill Lynch for about a decade and they had each account in 20+ holdings. We cannot get rid of them in our taxable accounts without incurring significant capital gains. We have more than a million dollars in capital gains in our taxable accounts. It sucks that we cannot get rid of the laggards. We did get rid of the bond funds last couple of years because they were all in the negative.

If they are laggards now after turning in stellar returns, it is time to unwind your positions even if you incur a tax. You can do it over several years and look at contributing some of the shares with the highest gains to a DAF. This is the strategy I use with my company shares which has experienced high gains over multiple years.

 

[RetiredHappy]

If they are laggards now after turning in stellar returns, it is time to unwind your positions even if you incur a tax. You can do it over several years and look at contributing some of the shares with the highest gains to a DAF. This is the strategy I use with my company shares which has experienced high gains over multiple years.

These laggards had never turned in stellar returns. Some only turned in an average of 3 to 5 percent returns and I have held them for more than 10 years but because of large sum of money, by selling them, I would get into further NITT and IRMAA.

 

[imjustawarrior]

I find it kind of funny that they have total bond and then five more bond flavors on top of that.

Agreed.

With Vanguard PAS, 3 max should be necessary. I think they want everyone to have total bond and total international bond. I could then see a short term bond fund for near term spending sort.

Midpack, overall, there is nothing wrong with the portfolio, especially for a managed portfolio. A lot of managed portfolios are overly complex with a bunch of churn.

 

[mrfeh]

That’s the conventional way they do it. The big outfits give some discounts to higher portfolio sizes, but they start with much higher AUM fees. The 0.3% is still a bargain, it’s just that in this theoretical case the little guy is getting the better deal in terms of effort. But smaller portfolios also tend to be simpler and larger portfolios more diversified. Not necessarily for the better anyway.

I definitely wouldn't call .3% a bargain. On a $2M portfolio, that's $6000 every year, for a portfolio anybody could put together and manage.

Some people may not want to do it, but that's a large price to pay for convenience, IMO.

 

[Lorenzo]

The portfolio looks fine, but why should somebody with $2M pay twice as much as somebody with $1M? It takes the exact same amount of work to handle both.

My former FA charged something like 1% for balances up to 1M, then 0.75% for the incremental amount from 1M up to 2M, then 0.5% for any further incremental amount above 5M, etc. So, it was not quite linear. But it was still a lot.

 

[Lorenzo]

I definitely wouldn't call .3% a bargain. On a $2M portfolio, that's $6000 every year, for a portfolio anybody could put together and manage.

Some people may not want to do it, but that's a large price to pay for convenience, IMO.

I would argue not "anybody" could put it together and manage it--at least not confidently. People pay to have others do their tax returns, maintain their lawns, change their oil, etc. Is $6000 for managing $2M in retirement savings so large in proportion to paying for those other services?

 

[rkser]

Somehow I got lucky right at the start of my investing 30+ yrs back, when I knew nothing, I landed on the Bogleheads Website. It has guided all my few index investments all along so far.

A proud DIYer with no Financial Advisors yet, apart from my pestering questions on this & Bogleheads Forums.

 

[audreyh1]

I definitely wouldn't call .3% a bargain. On a $2M portfolio, that's $6000 every year, for a portfolio anybody could put together and manage.

Some people may not want to do it, but that's a large price to pay for convenience, IMO.

Far higher fees with a more traditional firm. But that’s kind of the whole point. Not anybody can put these portfolios together and manage them which is why they look for help and want someone else to take care of it. It’s too intimidating to DYI for many many people. The barriers are high such as ignorance, plus the fear of seriously screwing up and losing a lot which is a valid fear.

 

[Midpack]

But I seriously doubt any financial advisor builds a unique portfolio for each client. They all have a basket of equity holdings they like, and a basket of fixed income holdings they like - and all they do is arrive at an equity:fixed income allocation for each client. [Four Pillars readers will recognize the method] All clients have the same equity holdings and the same fixed income holdings - just in different AA ratios. Of course if the client has funds or stocks they insist in holding for whatever reason, the FA accommodates that to make the client happy. And the equity and fixed income basket may evolve over time, which makes the client think the FA is actually doing something. Given how this really works, 0.3% is steep, the typical 1% is robbery - a “tax” on the uninformed...

Again I know well two people who became very successful EJ advisors, still are. Neither had any background in investing or anything financial, one was in law enforcement and the other was an art major. They’re salespersons, parroting back office selections, nothing more.