Wealth Management Company Worth It?

[OldShooter]

The OP said “I was frozen in fear what to do with that sum of money”. That tells me he needs a FA of some kind. It doesn’t matter if you or I can get better returns investing with low cost index funds, he won’t. Unless you can watch the market drop by 30% (like it did March 2020) and react with nothing more than a yawn, you should not be trying to do it yourself.

Well, that is like saying the OP cannot learn. No one was born knowing how to run money, right? And the OP is here looking for advice and IMO asking the right questions. So I don't think it is reasonable to write him off. I think he'll do fine.

 

[ivinsfan]

Well said and yes, I was frozen/paralyzed because I had never had that large sum of money before. Upon the sale of my home, I spread that money across nearly a dozen Money Market accounts (because FDIC) and I was working 60 hours/week as a Director of Engineering and didn't have the time to research. Thanks to this website (and Bogleheads/others) I'm getting a better feel for things. Also about to retire so I'll have more time on my hands.

My point is that had I not put that money with a Wealth Management company I would have missed the 20+% increase. Because I'm only 49 years old, they recommend 100% equities and have me spread across 80 different individual stocks (no ETF's or mutual funds or anything with more fees).

80 different stocks?...

 

[RetiredAt49]

80 different stocks?...

Apple
Visa
Royal Dutch Shell

etc...

 

[RetiredHappy]

Can you share with us the name of the wealth management company?

 

[OldShooter]

80 different stocks?...

I don't think that is uncommon. Basically, it makes investing look complex -- convincing the [-]mark[/-] client that he could not possibly do it on his own. It also may well be "closet indexing," which lets the FA approach market performance gross of fees and makes it unlikely that he will significantly underperform. (https://www.investopedia.com/terms/c/closetindexing.asp)

I analyzed a nonprofit's portfolio a couple of years ago, maybe $15M in equities. I stopped counting at 200 stocks listed on the statement. Closet indexing to be sure.

The good news is that mutual fund fees are eliminated, so if there are no trading or other "sneak" fees, the clients at least benefit from that.

These portfolio numbers/possible closet indexing makes me question the claim of outperformance though. Others have discussed cherry-picking of dates, but the other common trick is to use price performance of a benchmark and ignore dividend returns. IIRC dividends add around 1.5% to 2% to S&P sticker price performance. Regardless of possible tricks, though, the OP just needs to be out of there.

 

[RobbieB]

Merrill Lynch does the same for me, a basket of different stocks. Beats the S&P index funds net of fees for 7 years straight.

I know, just not possible, run away!

 

[ivinsfan]

I love the term closet indexing...it''s pretty appropriate.

 

[pb4uski]

....I’ve been researching a lot since then and feel like I could/should switch to a low fee ETF/other but my account with my wealth management company is performing better (including fees) than most ETF’s I’m tracking as well as the S&P 500.

I also have $50,000 in Betterment and $50,000 in Wealthfront and my Wealth Management account is still tracking 3-4% higher.

But are they taking more risk in order to achieve that better return?

Go to Portfolio Visualizer and input their portfolio (ticker symbols and percentages of total portfolio) compared to the ETF portfolio that you are considering.

In addition to return (CAGR), look at Std Dev (volatility), and the other metrics. It might be that the outsized returns are a result of outsized risks.

Also, compare rolling returns for 3 and 5 year periods.

https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults

 

[pb4uski]

Merrill Lynch does the same for me, a basket of different stocks. Beats the S&P index funds net of fees for 7 years straight.

I know, just not possible, run away!

Robbie, do they turnover the portfolio very much? How much in annual sales compared to beginning of year portfolio value? How many different tickers?

 

[SnowballCamper]

I was working 60 hours/week as a Director of Engineering and didn't have the time to research. Thanks to this website (and Bogleheads/others) I'm getting a better feel for things. Also about to retire so I'll have more time on my hands.

Sounds like you surely have the aptitude to understand how an asset allocation smooths out the market volatility for an individual investor.

It is another question whether you have the ability to not sell an index fund of stocks when the stock market tanks. The thing to do then is to rebalance (sell off some bonds and buy more index fund). Most decent asset allocation calculators ask questions to assess this quality. It sounds like you are very risk averse from your comment about using multiple FDIC accounts. In this case an advisor can be helpful as an intermediary, but in general a very costly one IMHO.

Another option is to use a target date fund. My Roth is all in a Vanguard Target date fund, as well as my DWs IRA. The fee is slightly higher than holding a few index funds, but they do the rebalancing for you. It won't beat the S&P on up years, but sure does on down years.

 

[ERD50]

.... It is another question whether you have the ability to not sell an index fund of stocks when the stock market tanks. ....

This often comes up as an justification for an FA. That they will talk you out of selling at the lows?

I dunno, I suppose it's possible, but what are they going to tell you that you don't already know? Is a phone call really going to calm you down?

You can get the advice to "stay the course" by posting here and/or at Bogleheads. Hundreds of people will reinforce it, and provide data - for free!

-ERD50

 

[OldShooter]

Merrill Lynch does the same for me, a basket of different stocks. Beats the S&P index funds net of fees for 7 years straight. I know, just not possible, run away!

Not at all. This is statistical; many things are possible, but some are less likely. If I were looking at the portfolio results, though, the first thing I would check is whether Merril was benchmarking against the S&P total return. Here's an example where the total return number is referred to as "Dividends Reinvested."

​

Note that over the period, the total return dollars delivered by the S&P is about 25% more than the return calculated just using S&P index/price value.

I just Googled and used this calculator: https://dqydj.com/sp-500-return-calculator/ There are others out there too. I used to use one a Yahoo but they have moved it or taken it down.

Congrats on good results.

 

[SnowballCamper]

You can get the advice to "stay the course" by posting here and/or at Bogleheads. Hundreds of people will reinforce it, and provide data - for free!

-ERD50

Excellent Point!

 

[RobbieB]

Robbie, do they turnover the portfolio very much? How much in annual sales compared to beginning of year portfolio value? How many different tickers?

I'd say about 25%

Got about 80 stocks and 20 of them get switched out. Sometimes in & out. Trades don't cost anything, so churning is not an issue. Taxes are not an issue either, I reports "groups" and not individual trades.

I do compare against S&P 500 index regularly just to make sure.

 

[OldShooter]

... I do compare against S&P 500 index regularly just to make sure.

The index or the total return?

 

[RobbieB]

I do the total return.

Just checked again.

Growth of FXAIX 2021 to 10-31 = 24%
My stuff at same date = 24%

But I pulled out 140 grand last January and have been collecting 70 grand of dividends throughout the year. I add those back in to see the "percent", but that dough has not been working either.

So, again, they exceed FXAIX even with fees included. Yes, I know I'm paying fees, but they earned them eh?

 

[mrfeh]

My point is that had I not put that money with a Wealth Management company I would have missed the 20+% increase. Because I'm only 49 years old, they recommend 100% equities and have me spread across 80 different individual stocks (no ETF's or mutual funds or anything with more fees).

This sounds like a disaster.

Get out soon.

 

[OldShooter]

I do the total return.

Just checked again.
Growth of FXAIX 2021 to 10-31 = 24%
My stuff at same date = 24%

But I pulled out 140 grand last January and have been collecting 70 grand of dividends throughout the year. I add those back in to see the "percent", but that dough has not been working either. So, again, they exceed FXAIX even with fees included. Yes, I know I'm paying fees, but they earned them eh?

Quite decent for a managed account. Good for you. You'll have to use the IRR function in Excel to get the figures exact, but then you can look over a longer period. YTD (as I mentioned above) is really too short to be a good test.

Will it continue? The data says probably not. Above I mentioned the S&P Manager Persistence reports. (Persistence as in "Will good performance persist?") Those reports come every six months and are always about the same. Here is a graphic based on one of them, looking at managers who were successful over five years and then how their next five years went:

​

(I've posted this before. Apologies to the bored.)

 

[RobbieB]

I've been looking every year for the last 7 (since I retired)

Gotta keep 'em honest ya know -

 

[target2019]

Well said and yes, I was frozen/paralyzed because I had never had that large sum of money before. Upon the sale of my home, I spread that money across nearly a dozen Money Market accounts (because FDIC) and I was working 60 hours/week as a Director of Engineering and didn't have the time to research. Thanks to this website (and Bogleheads/others) I'm getting a better feel for things. Also about to retire so I'll have more time on my hands.

My point is that had I not put that money with a Wealth Management company I would have missed the 20+% increase. Because I'm only 49 years old, they recommend 100% equities and have me spread across 80 different individual stocks (no ETF's or mutual funds or anything with more fees).

Now I agree that you're in a better spot than most have remarked. Can we assume you've scoured statements and do not find any additional trading fees?

If you do want to move, everything can be moved and managed. You can trim holdings, use losses, and so on.

All the best!

 

[OldShooter]

... If you do want to move, everything can be moved and managed. You can trim holdings, use losses, and so on. ...

Yes. @bubbabubba, your best option is almost certainly to move the assets "in kind." This way the stocks are all moved, nothing is sold or bought. Once that is done you can do as @target2019 suggests, simplifying holdings and harvesting any tax losses. You may have a bit of a problem keeping track of your cost basis in each stock, but your FA or his custodian should be able to help with that. And if the custodian is a house like Fido or Schwab and you just detach the FA from the account, it should be even easier.

If you're going to a different house, they will have a form for you to fill out, including an in kind election, and they will handle everything else. I was talking to an FA one time and he says this is the usual way he finds out he's lost an account; the client doesn't actually tell him. Seems kind of rude to me but that's his world I guess.

 

[RetiredAt49]

Okay so if I move my individual stocks (currently in a taxable brokerage account at UBS), is there a way to transfer the individual stocks (E.g. apple, visa, etc.) to ETF’s without paying capital gains?

 

[Dash man]

Okay so if I move my individual stocks (currently in a taxable brokerage account at UBS), is there a way to transfer the individual stocks (E.g. apple, visa, etc.) to ETF’s without paying capital gains?

No, going to ETFs would require selling the stocks and buying an ETF. You can transfer the stocks in kind, avoiding a taxable event, do nothing, or donate them.

 

[Foghorn Leghorn]

I paid a financial advisor for many years as I thought myself too uneducated to not have one. I then did some research, read a few books and realized. Im too smart to give those guys 20% of my income for life.

( the breaking point for me was attending his (financial guru's) daughters black tie, open bar, over the top, waaaaay expensive wedding ... and realizing I was paying for it ( at least in part)

 

[target2019]

Okay so if I move my individual stocks (currently in a taxable brokerage account at UBS), is there a way to transfer the individual stocks (E.g. apple, visa, etc.) to ETF’s without paying capital gains?

No, it is not possible to avoid CG or tax hit.

You can intelligently move money to a broad ETF. Sell losers to offset gainers and transfer that amount. You do have to look at indivdiual lots to get maximum benefit.

Usually when an investor steps into the arrangment, there are unexpected consequences when moving out. But you could manage that in time as your confidence grows.