Wealth Management Company Worth It?

[Deuce]

I would cut my losses at the end of your term and go to a Schwab, Fidelity or Vanguard managed fund.

 

[RobbieB]

Cut his losses? What losses? His dudes are on top.

Maybe wait for some losses and then cut?

 

[RetiredAt49]

Cut his losses? What losses? His dudes are on top.

Maybe wait for some losses and then cut?

Yeah… my portfolio has increased more than 20% since April 2021 so not complaining… my Wealthfront and betterment accounts are up around 8-9%.

What returns have you guys seen since April (or even the beginning of the year)?

 

[RobbieB]

You should know that there is loathing of anything other than Vanguard or Fidelity index funds here. A deep hatred of "fees", even though they earn them by outperforming with fees included.

Can't go on forever. Nobel prize winners have said so. Charts and graphs...

 

[travelover]

You should know that there is loathing of anything other than Vanguard or Fidelity index funds here. A deep hatred of "fees", even though they earn them by outperforming with fees included.

Can't go on forever. Nobel prize winners have said so. Charts and graphs...

Loathing and deep hatred? Man, I need to up my game .

 

[RobbieB]

They have been described as "thieves with hands in your pocket" no less.

I'm sure it's true if you are way below "the norm", but that's why I look eh?

 

[aja8888]

You should know that there is loathing of anything other than Vanguard or Fidelity index funds here. A deep hatred of "fees", even though they earn them by outperforming with fees included.

Can't go on forever. Nobel prize winners have said so. Charts and graphs...

Some of us are with Schwab...me for 37 years in a row. Some folks here longer than that!

 

[RobbieB]

Yeah, Schwab.

 

[aja8888]

Yeah, Schwab.

Schwab has offices you can visit in person if you need help. Vanguard...not. Imagine, face to face with another human!

 

[RobbieB]

Yeah, I like that.

 

[Theophrastus Bombastus]

So earlier this year I sold my home and netted $1.8 million. I was frozen in fear what to do with that sum of money so decided to work with a wealth management company.

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.

Great, I'm glad to hear it! Let us know how you're doing in 10 years.

As for me, after decades of wealth MISMANAGEMENT by a series of silver-tongued, so-called professionals, I have become a do-it-yourselfer for nearly a decade.

After I switched, I kept a track record of the 'manager's portfolio' and my 'do-it-yourself' portfolio on Morningstar. Before I left, I spoke with him and was reassured that he would not be changing the portfolio for years. I started with less than you invested.

The 'manager' had a buy and hold philosophy of actively managed (prone to manager's bias and eventual underperformance), high expense ratio funds, often getting a 12b-1 kickback IN ADDITION to my paying for his services, essentially a hand holding call to confuse me once or twice a year into thinking I couldn't do it without him.

My portfolio consists of low ER INDEX mutual funds and ETF's with the same philosophy of no trading or tinkering other than highly infrequent rebalancing (just a couple of minor rebalances in those years). I also felt highly uncomfortable having such a high exposure to equities based on the professional's advice, so I reduced it significantly when I regained control over my hard earned money.

Results:

After nearly a decade of doing it myself:
I sleep at night.
Don't obsess about watching the market or financial news, AKA financial porn.
Have a portfolio net worth closing in on mid-six figures higher than what the manager's portfolio would have done.

What's the difference?
1. Less risk
2. I got the pickpocket's (er, professional's) hand off of my wallet.
3. Actively managed portfolios are a sucker's bet over the long term. Anyone can have a hot streak in the short term. Bet you can't flip 'heads' fifty times in a row - and if you do - you will not be able to do it again!
4. I KEEP the difference by not paying for useless, obfuscating advisor's gobbledygook!

I am just one person and this was my experience.

So, by all means, carry on with your style of investing if you're happy.

 

[target2019]

Yeah… my portfolio has increased more than 20% since April 2021 so not complaining… my Wealthfront and betterment accounts are up around 8-9%.

What returns have you guys seen since April (or even the beginning of the year)?

VOO (S&P 500) or use similar for comparison.
https://finance.yahoo.com/quote/VOO/?p=VOO

YTD is +24.24%.

If it were me I'd transfer Wealthfront and Betterment to a Schwab brokerage, and have a go at my own management skills. Keep it simple.

 

[OldShooter]

Schwab has offices you can visit in person if you need help. ...

So does Fido. With either house and the amount of money you are bringing, they will assign an advisor to you at no cost. IMO the person is much more important than the company name over the door. If you're headed that way, I'd suggest contacting the branch managers with a list of preferences in an advisor. Sex, age, experience, investing interests, etc. Specifying sex and age many sound politically incorrect but many men look forward to a day when their wife might be left alone to manage the money. At that point you do not want your trusted advisor to have aged out of the workforce and your wife might prefer a female. So these are IMO valid criteria.

 

[ERD50]

Great, I'm glad to hear it! Let us know how you're doing in 10 years.

As for me, after decades of wealth MISMANAGEMENT by a series of silver-tongued, so-called professionals, I have become a do-it-yourselfer for nearly a decade.

After I switched, I kept a track record of the 'manager's portfolio' and my 'do-it-yourself' portfolio on Morningstar. Before I left, I spoke with him and was reassured that he would not be changing the portfolio for years. I started with less than you invested.

The 'manager' had a buy and hold philosophy of actively managed (prone to manager's bias and eventual underperformance), high expense ratio funds, often getting a 12b-1 kickback IN ADDITION to my paying for his services, essentially a hand holding call to confuse me once or twice a year into thinking I couldn't do it without him.

My portfolio consists of low ER INDEX mutual funds and ETF's with the same philosophy of no trading or tinkering other than highly infrequent rebalancing (just a couple of minor rebalances in those years). I also felt highly uncomfortable having such a high exposure to equities based on the professional's advice, so I reduced it significantly when I regained control over my hard earned money.

Results:

After nearly a decade of doing it myself:
I sleep at night.
Don't obsess about watching the market or financial news, AKA financial porn.
Have a portfolio net worth closing in on mid-six figures higher than what the manager's portfolio would have done.

What's the difference?
1. Less risk
2. I got the pickpocket's (er, professional's) hand off of my wallet.
3. Actively managed portfolios are a sucker's bet over the long term. Anyone can have a hot streak in the short term. Bet you can't flip 'heads' fifty times in a row - and if you do - you will not be able to do it again!
4. I KEEP the difference by not paying for useless, obfuscating advisor's gobbledygook!

I am just one person and this was my experience.

So, by all means, carry on with your style of investing if you're happy.

Well done!

-ERD50

 

[ERD50]

.... I also dropped $50,000 into both Wealthfront and Betterment and the WMC is still beating them by nearly double.

I do recognize that it’s too early to judge but at least the WMC (net of fees) has been doing better than most ETF’s, S&P 500, and my two robo accounts.

I can understand someone feeling that they need to do this test, but really, it is pointless.

All the history, all the data (OldShooter posts it over and over again) shows that these managers are very unlikely to outperform a simple DIY portfolio. And if they do, there was no way to know who and if they can repeat it.

For a comparison, we know that seat belts help reduce injury/death. All the data shows this. You could decide to not use your seat belt for a year as an experiment, and you probably would not have any problems. That does not make it safe.

IOW, the big picture data is way, way, way more meaningful than any little experiment you may try.

Good luck.

-ERD50

 

[RetiredAt49]

Ok so I’m convinced to drop the WMC and go for a DIY 3 fund portfolio - set it and forget it.

Now, I don’t want to get slammed in taxes so what’s the best approach for transferring my brokerage account into Vanguard/Schwab/fidelity and convert the 80 individual stocks to 3 fund ETF’s? I believe I can transfer them “in kind” but should I keep them as individual stocks until the 1 year mark? Any other tips?

 

[OldShooter]

Yes, in kind, and make sure you have good basis information on each stock. This can get messed up in a transfer; maybe your statements from the WMC will have the info though. Do not trust Quicken; I know from personal experience that Quicken is easily confused by account changes.

From there is it a game of tax efficiency and risk reduction. I have no idea how you should do it. Here's how I would do it:

I would immediately ditch all high-flyers regardless of tax consequences. Tesla comes to mind. Anything Cathy Wood holds. laugh

Small holdings, small gains, can be ditched just for tidiness.

Less dangerous stocks, larger holdings, can be held until the gains become long-term, possibly longer than that. It depends on how urgent I felt about simplifying the portfolio.

Manage sales to minimize marginal tax rate and maximize the use of lower LTG rates.
​

Always remember: Do not let the tax tail wag the investment dog. Your goal is not to minimize taxes. It is to maximize the amount of money in your pocket at the end of the game. (People seem to get such joy out of starving the tax man that they tend to forget this.)

 

[ERD50]

Ok so I’m convinced to drop the WMC and go for a DIY 3 fund portfolio - set it and forget it.

Now, I don’t want to get slammed in taxes so what’s the best approach for transferring my brokerage account into Vanguard/Schwab/fidelity and convert the 80 individual stocks to 3 fund ETF’s? I believe I can transfer them “in kind” but should I keep them as individual stocks until the 1 year mark? Any other tips?

Sounds good.

Yes, transfer in kind. FYI, the one year mark for long term cap gain rates vs short term is from when you bought them, not the date they were transferred. Just make sure those dates get transferred accurately (they should, I think it's the law).

After that, I would just pick and choose and try to net out gains and losses (if any are negative). Use a tax estimate program to see how much you can sell before hitting a higher tax bracket. Are the holdings fairly equal? If you seem to be heavily $$ concentrated in one sector (finance, tech, etc) or a few stocks, you could look into moving those first.

With 80 stocks, if fairly evenly divided, you probably have decent diversification and shouldn't have to worry too much about that. The main thing was getting out from under that 1.15% AUM fee.


edit: cross-posted with OldShooter - good advice there also

-ERD50

 

[Another Reader]

You will want to look at how his fees are charged. Typically, they are quarterly, so he will charge fourth quarter fees and deduct them from the transfer amount. It would be best to get this done ASAP, so he doesn't drag his feet and get to charge you first quarter 2022 fees.

 

[RetiredAt49]

Well I tried to convince my wife that the AUM fees we are paying aren’t not worth it but she said “I don’t want you spending a ton of time researching, fretting over, second guessing yourself, rebalancing, etc. during retirement. Let the WMC handle it and let’s go have some fun”.

It’s hard for me to “let it go” cuz I think a simple couch potato portfolio would work great and possibly beat our well known Wealth Management Company but we are both in second marriage and we each brought about $2.5 million to the marriage…

 

[OldShooter]

Well I tried to convince my wife ...

That's probably not a problem than SGOTI can solve.

Long shot: Get her to read "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

Bill is so laid back that the book includes a recipe for pumpkin pie. His mantra on investment management is: "Ignore Wall Street and get on with our lives."

 

[ERD50]

Well I tried to convince my wife that the AUM fees we are paying aren’t not worth it but she said “I don’t want you spending a ton of time researching, fretting over, second guessing yourself, rebalancing, etc. during retirement. Let the WMC handle it and let’s go have some fun”.

It’s hard for me to “let it go” cuz I think a simple couch potato portfolio would work great and possibly beat our well known Wealth Management Company but we are both in second marriage and we each brought about $2.5 million to the marriage…

Well, you gotta do what you gotta do.

But it sure doesn't sound like you got through that a couch potato portfolio doesn't involve "spending a ton of time researching, fretting over, second guessing yourself,", and rebalancing is easy, if you even need it (I seldom do it).

It's called the "couch potato portfolio" and not "The IRONMAN portfolio" for a reason! It takes a "couch potato" level of effort.

"and let’s go have some fun” - you can do the couch potato portfolio AND have fun! That's the point. Maybe mention that you will have $X of extra fun, using the fees the company would charge (probably for nothing).

Heck, try it for a couple years, if it is so much work that it keeps you from having fun, go back.

-ERD50

 

[ocean view]

OP - can you convince your wife by showing her what your portfolio would have done in 2021 if you had gone “couch potato”?

Create a what-if portfolio in a spreadsheet, allocated based on your AA to your 3-4 MFs. Start with the actual portfolio value on 1/1/2021, update balances for distributions and EOY stock prices. Assume distributions were not reinvested for simplicity, if needed. Then just compare end of 2021 what-if balances to your actual WM 12/31/21 balance net of AUM fees.

Once she sees the impact of AUM fees on the overall portfolio value, she may come around.

Good luck!

 

[RetiredAt49]

OP - can you convince your wife by showing her what your portfolio would have done in 2021 if you had gone “couch potato”?

Create a what-if portfolio in a spreadsheet, allocated based on your AA to your 3-4 MFs. Start with the actual portfolio value on 1/1/2021, update balances for distributions and EOY stock prices. Assume distributions were not reinvested for simplicity, if needed. Then just compare end of 2021 what-if balances to your actual WM 12/31/21 balance net of AUM fees.

Once she sees the impact of AUM fees on the overall portfolio value, she may come around.

Good luck!

I can’t complain because they slightly beat the S&P 500 portfolio (net of fees) last year…. The only hope I have right now is that she gets tired of our FA - he tends to call us frequently and that is starting to drive her nuts [emoji854]

 

[target2019]

I can’t complain because they slightly beat the S&P 500 portfolio (net of fees) last year…. The only hope I have right now is that she gets tired of our FA - he tends to call us frequently and that is starting to drive her nuts [emoji854]

I would find ways to point out after each call that you're paying for management, but there is also a hidden agenda on their part to sell even more products to you.