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Should I Keep My FA Or Only Invest Personally?

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  • Should I Keep My FA Or Only Invest Personally?

    I am a resident with 3-5 years left before attending time. I have been extremely lucky in life where I have no loans / debt and was gifted ~$150k in the form of a UTMA with a major financial institution / FA that also manages my parents' finances and the finances of everyone at my dad's business. I've contently let it just sit there being managed away by the FA until a few months ago when I got into WCI and looking more closely at my finances.

    I've called the FA a few times. He says their fees are 1%, which seem to be reasonable as far as FAing goes. Given that he also manages the many accounts of people in my dad's company makes me also feel a little more comfortable seeing as that should be an additional incentive for him to be (somewhat) ethical. I've generally taken the mindset from WCI to be skeptical of all FAs in general.

    Last month after reading WCI I removed $50,000 from the managed account with intentions to reinvest on my own in a taxable Vanguard account I have where I also have some holdings. He warned me that I would likely net taxed ~20% of what I remove overall. Perhaps too excited by my recent WCI and Boglehead reading I did so anyways.

    My questions:
    #1: Should I have done that, or should I have left my holdings with him given the taxable event? (if I paid the Stupid Tax that's fine, would just like to know in retrospect)
    #2: Should I keep the rest of the $100,000 in the account with him to prevent future taxable events or should I remove it and reinvest in Vanguard index funds / ETFs? Or talk to him about reallocating in some way?

    #2 is my more important and actionable question. I feel less equipped to answer which will cost me more in the long run: his 1% annual fee or the tax hit of moving on from him. One thing my family's accountant said I could do is pull out $50,000 from him a year over the next few years to help mitigate the tax hit. Regardless, I plan on investing all my future earnings with Vanguard / my 401(k)s.

    My current portfolio looks like this:
    FA Managed Account: (ETF / Fund, Amount Held, Expense Ratio)
    FDN $4,403.50 0.52
    FXL $4,311.03 0.61
    IYW $4,083.30 0.42
    LMBS $3,047.94 0.67
    GBIL $2,812.60 0.12
    FXO $2,670.36 0.63
    IYH $2,489.85 0.43
    EMLP $1,812.93 0.96
    FXR $1,449.66 0.63
    IHF $1,214.82 0.43
    IYT $1,034.33 0.42
    FXG $873.72 0.64
    FXH $282.42 0.62
    LBNYX $10,566.65 0.59
    PBRIX $7,133.70 2.61
    PIMIX $6,198.55 1.05
    GSIMX $3,723.14 0.75
    PSTIX $2,589.52 0.77
    GSMYX $2,145.06 0.94
    HYMIX $1,416.80 0.59
    LLDYX $1,350.73 0.4
    GSBIX $762.30 0.49
    Rest of money is in ~30 individual stocks (AAPL, MSFT, GOOGL, JNJ...)

    Personally Managed Vanguard Accounts:
    Taxable:
    Total US Stock VTSAX $3,000.00
    S&P 500 Stock VFIAX $14,870.39
    Total Int'l Stock ETF VXUS $1,292.25
    Mixed Fund VBIAX $13,440.75

    Vanguard Roth IRA:
    S&P 500 Stock VFIAX $3,039.69
    Total Int'l Stock VTIAX $3,028.31

    401(k):
    Vang Lrgcap Indx VLISX $701.57
    Vang Midcp Indx VIMAX $612.12
    Vngrd Dvlpd Mrkts Indx VTMGX $602.17
    Van Ttl Bond Indx VBTIX $96.52

    Checking / Savings Accounts:
    Savings $3,601.00
    Checking $45,500.00
    (most of this is from the $50,000 I withdrew from my FA but have yet to reinvest, as I want to read more Bogleheads first).

    In general I don't have any major expenses coming in the short term (not getting married, buying a house / car, etc) and most of my finances I plan on just letting sit invested for the next few decades.

    Just got into WCI, finance, etc in the past few months so forgive any dumb misunderstandings or information I should have included but omitted.

    Thank you!!
    Last edited by Rozo; 07-25-2020, 08:55 AM.

  • #2
    [QUOTE=Rozo;n218703]
    Last month after reading WCI I removed $50,000 from the managed account with intentions to reinvest on my own in a taxable Vanguard account I have where I also have some holdings. He warned me that I would likely net taxed ~20% of what I remove overall. Perhaps too excited by my recent WCI and Boglehead reading I did so anyways./QUOTE]

    Look, taking the 40k foot view, if you have the time/motivation/discipline, you will do better on your own than having an FA. That part of your quote above. Can you confirm that is exactly what he said? If so, he is a liar and I would remove everything and also report him to whatever ethics group that he is with, BBB, whatever. Hopefully you just misunderstood. You will pay taxes on your gains, long term and short term, not 10k for selling 50k; you can look up the brackets.

    Comment


    • #3
      btw, that FA portfolio is comical for a young person such as you. I appreciate the Prudent Bear fund--i actually made some money on that in the past, and also lost some money with that in the past--but is that really a good investment for you? income funds? what the heck?

      Comment


      • #4
        That portfolio is a joke. Just stupid.

        Comment


        • #5
          [QUOTE=G;n218723]
          Originally posted by Rozo View Post
          Last month after reading WCI I removed $50,000 from the managed account with intentions to reinvest on my own in a taxable Vanguard account I have where I also have some holdings. He warned me that I would likely net taxed ~20% of what I remove overall. Perhaps too excited by my recent WCI and Boglehead reading I did so anyways./QUOTE]

          Look, taking the 40k foot view, if you have the time/motivation/discipline, you will do better on your own than having an FA. That part of your quote above. Can you confirm that is exactly what he said? If so, he is a liar and I would remove everything and also report him to whatever ethics group that he is with, BBB, whatever. Hopefully you just misunderstood. You will pay taxes on your gains, long term and short term, not 10k for selling 50k; you can look up the brackets.
          So I don't think I misunderstood. He said (this was an email exchange):
          "You have a lot of short term gains as well which are taxed at regular income. It would be a mix of gains and also you have state income tax as well...Hard to say because it goes against all other income and deductions you have for the year. If you take out 50 then I would estimate about 10,000 to be safe."

          From what I gather from your responses it seems like this was an egregious overestimate at best and a blatant lie to try to scare me out of pulling anything out at worst. I actually knew it was a tax on the gains but took his word at $10k...

          Seeing as I don't use any of his financial advising it seems like the feeling is it's better to move on from him and reinvest in my Vanguard account instead given that my time horizon is decades?

          Comment


          • #6
            #1 Your personal portfolio is already cleaner than that of the FA. So whatever the capital gains tax that’s due, consider that the transition fee. It’s not a “stupid tax” since you didn’t create the stupid.

            #2 Get your most recent statement from your FA account. There should be a cost basis associated with each MF/ETF/stock. You can then figure out what the CG tax would be for selling. As a resident you’re likely in the 15% bracket, but check the tax brackets vs your income. Again, consider this a transition fee not a “stupid tax”.

            It sounds like you’re planning to educate yourself on personal finance so I think you’ll come out way ahead DIY vs your FA.

            Comment


            • #7
              • Your largest holding is a bond fund. Hint: he is not managing this account for you. He is managing an account.
              #1: Should I have done that, or should I have left my holdings with him given the taxable event? (if I paid the Stupid Tax that's fine, would just like to know in retrospect)
              •For the holdings sold, get the basis and date of purchase. Sale price - basis is your gain. Your accountant can quickly give you an estimate of taxes.

              #2: Should I keep the rest of the $100,000 in the account with him to prevent future taxable events or should I remove it and reinvest in Vanguard index funds / ETFs? Or talk to him about reallocating in some way?
              •With all of the holdings, get the basis and date of purchase. Current market - basis is your gain.
              Your accountant can easily help you peel of the greatest capital for the least tax. Long term gains and short term losses are your priorities.
              You don’t pay tax is you transfer the holdings.
              Transfer the holdings. With 50 holdings I wouldn’t worry about transaction fees, only the taxable gains. Your accountant and you can easily come up with a spreadsheet and plan for liquidating by year if needed.

              Summary: The FA is not treating you as a client. He is collecting 1% holding 50 small investments that don’t fit you as an individual. That is an average of $2k per investment. There is overlap and he calls it Portfolio Management. I call it a hodgepodge that he simply throws in the “flavor of the day. Cash available, what should I throw in?
              If you ask him about investment selection, you will get back a description of holdings objective.
              Then he will produce a chart or list of segments or allocations. That in no way is a plan for you as a client.
              •Your Vanguard accounts show you have. The ability to creat tax efficient diversified low cost portfolios across multiple accounts.
              Transfer it all and save yourself aum and transaction fees.
              •I would get the plan laid out, show your father what you currently have and what it is going to look like. The purpose is not for approval. It’s to show that the funds weren’t being invested with any strategy that fits you as the owner. That might piss you dad off. Good. I hope he takes a look at his accounts too.
              Move!

              Comment


              • #8
                3 fund portfolio. Enough said.

                Comment


                • #9
                  Just wondering what our financial advisor colleagues on the site think of that portfolio, heh heh.

                  Comment


                  • #10
                    Originally posted by fatlittlepig View Post
                    Just wondering what our financial advisor colleagues on the site think of that portfolio, heh heh.
                    That it’s a bad portfolio...
                    Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

                    Comment


                    • #11
                      [QUOTE=Rozo;n218731]
                      Originally posted by G View Post

                      So I don't think I misunderstood. He said (this was an email exchange):
                      "You have a lot of short term gains as well which are taxed at regular income. It would be a mix of gains and also you have state income tax as well...Hard to say because it goes against all other income and deductions you have for the year. If you take out 50 then I would estimate about 10,000 to be safe."

                      From what I gather from your responses it seems like this was an egregious overestimate at best and a blatant lie to try to scare me out of pulling anything out at worst. I actually knew it was a tax on the gains but took his word at $10k...

                      Seeing as I don't use any of his financial advising it seems like the feeling is it's better to move on from him and reinvest in my Vanguard account instead given that my time horizon is decades?
                      If your horizon is decades, just liquidate all of it (almost all, see below) and put it into VTSAX. If you want to hedge your bets while you learn, you can put it into Vanguard 2055 or whatever fits your age.

                      He is correct that STCG are taxed at income, which I suspect is 22% for you plus state. LTCG are taxed at I suspect 15% plus state. But his estimate of 10k on 50k would seem to suggest that 50k is ALL GAIN, right? That is not an overestimate. He is either an idiot or a bald-faced liar. (I guess it could be a slip of the tongue....)

                      I didn't catch when all this was invested. Given the ludicrous line-up, unless it was invested a few years ago of at the bottom of the last bear, I would be surprised if you have signficant CG at all once everything is sold off (you will likely have CG losses as well--hello, prudent bear). Of course, he could have been churning in the background, making the matter more complicated. Once you liquidate everything, make sure he gives you a final tally of CG, and set aside some cash into a money market fund to cover for tax time next year.

                      FWIW, my WAG is that we are due for a pretty epic pullback this fall. So you can tax loss harvest from VTSAX to obliterate all those gains.

                      Finally, you'll want to make sure you have an emergency fund, are insured, doing Roth IRA, etc etc. So you might want to keep extra cash for that stuff too.

                      Comment


                      • #12
                        Also, if your dad is invested with him, I would recommend he reconsider their relationship.

                        It is exactly this kind of situation that makes folks on this forum skeptical of financial advisors.

                        Finally, if he gives you any flak, refer him to this thread. He is invited to join and explain himself.

                        Comment


                        • #13
                          Originally posted by GasFIRE View Post
                          #1 Your personal portfolio is already cleaner than that of the FA. So whatever the capital gains tax that’s due, consider that the transition fee. It’s not a “stupid tax” since you didn’t create the stupid.

                          #2 Get your most recent statement from your FA account. There should be a cost basis associated with each MF/ETF/stock. You can then figure out what the CG tax would be for selling. As a resident you’re likely in the 15% bracket, but check the tax brackets vs your income. Again, consider this a transition fee not a “stupid tax”.

                          It sounds like you’re planning to educate yourself on personal finance so I think you’ll come out way ahead DIY vs your FA.
                          1) Thank you everyone for such quick and helpful responses! This has encouraged me to do what I was suspecting I should and prepare to move on from my FA.

                          2) I'll get in touch with my accountant this week to work through best positioning myself for the move from a tax-standpoint. From previous conversations with her taking it out spread between this year and next seems to be optimal. I'm also lucky enough to be contributing ~75% of my resident salary to my 401(k) which I think should help.

                          3) On my most recent statement, it seems like my
                          "Unrealized Gain/Loss" net of about +$30k

                          However in my account portal it says:
                          "Long Term Gain/Loss": +$11k
                          "Short Term Gain/Loss": -$8.00 (not a typo)

                          So I'm not sure which of those I would be paying CGs on, but even if it's 15-20% on $30k it still seems like I would come out ahead after a few years when fees are considered.

                          4) Will definitely be showing my dad this thread! He is also a physician and is generally skeptical of our FA, but feels like he doesn't know enough about finance and has resigned himself to paying the fee to let "someone who knows about this stuff safely manage it". I'm trying to get him to read WCI, etc
                          Last edited by Rozo; 07-25-2020, 02:22 PM.

                          Comment


                          • #14
                            Originally posted by Rozo View Post

                            1) Thank you everyone for such quick and helpful responses! This has encouraged me to do what I was suspecting I should and prepare to move on from my FA.

                            2) I'll get in touch with my accountant this week to work through best positioning myself for the move from a tax-standpoint. From previous conversations with her taking it out spread between this year and next seems to be optimal. I'm also lucky enough to be contributing ~75% of my resident salary to my 401(k) which I think should help.

                            3) On my most recent statement, it seems like my
                            "Unrealized Gain/Loss" net of about +$30k

                            However in my account portal it says:
                            "Long Term Gain/Loss": +$11k
                            "Short Term Gain/Loss": -$8.00 (not a typo)

                            So I'm not sure which of those I would be paying CGs on, but even if it's 15-20% on $30k it still seems like I would come out ahead after a few years when fees are considered.

                            4) Will definitely be showing my dad this thread! He is also a physician and is generally skeptical of our FA, but feels like he doesn't know enough about finance and has resigned himself to paying the fee to let "someone who knows about this stuff safely manage it". I'm trying to get him to read WCI, etc
                            You hopefully can get on the Edward Jones or whoever website and see exactly what the cost basis ie: gains/losses are. Then you can make a more informed decision. As noted above, rather ridiculous fund selection going on here. Props for posting your holdings in a reasonably useful format. Buy your dad the book/s..

                            Comment


                            • #15
                              Originally posted by Rozo View Post

                              1) Thank you everyone for such quick and helpful responses! This has encouraged me to do what I was suspecting I should and prepare to move on from my FA.

                              2) I'll get in touch with my accountant this week to work through best positioning myself for the move from a tax-standpoint. From previous conversations with her taking it out spread between this year and next seems to be optimal. I'm also lucky enough to be contributing ~75% of my resident salary to my 401(k) which I think should help.

                              3) On my most recent statement, it seems like my
                              "Unrealized Gain/Loss" net of about +$30k

                              However in my account portal it says:
                              "Long Term Gain/Loss": +$11k
                              "Short Term Gain/Loss": -$8.00 (not a typo)

                              So I'm not sure which of those I would be paying CGs on, but even if it's 15-20% on $30k it still seems like I would come out ahead after a few years when fees are considered.

                              4) Will definitely be showing my dad this thread! He is also a physician and is generally skeptical of our FA, but feels like he doesn't know enough about finance and has resigned himself to paying the fee to let "someone who knows about this stuff safely manage it". I'm trying to get him to read WCI, etc
                              based on those numbers, I see no reason to spread out your time over two years, unless you have a bunch more stuff that you haven't mentioned.

                              and along those lines...about that accountant.....

                              Comment

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