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  • jfoxcpacfp
    replied




    Honestly @adrian, if you aren’t ready to be your own financial advisor, I’d recommend going with @jfoxcpacfp. I’ve been on here long enough to know she really knows her stuff, and she’s a fee-only advisor to boot. In this day and age, you don’t need to have face to face conversations with your financial advisor: phone and email are plenty. Dump your current FA and find someone who isn’t interested in leeching off your portfolio.
    Click to expand...


    Well  ops: , thank you. Appreciate that very, very much. And we actually do have f2f conversations with every client, they're just on a computer or smart device screen.

    Leave a comment:


  • djohnflatfeecfp
    replied
    A couple of other items to mention.  Not only is this advisor going to charge you based on an AUM scenario, he is going to use "active management" funds.  Odds are these will be higher cost funds, probably over another 1% in annual fees.  You could quickly be paying 2% a year in fees to be in a managed model (that is what is frequently used for smaller accounts, which is what your $200,000 portfolio would be considered).  Google Jack Bogle and 2% fees to see what paying an extra 2% a year will do to your returns over the years.  Short answer is it can eat up 2/3 of your returns.

     

    Also, if this guy is telling you the backdoor roth will be going away, which it isn't at this point, take everything he is saying with caution.  This especially applies to any fees he is disclosing, such as how much you would be paying to Merrill and him.  Make sure you get the total number and not what the advisor will make after it goes through their grid, which is roughly 40% of the total fee you would pay to the firm.

     

    I echo going through the list of approved advisors here on the WCI site, and not just because I am there;-)  You will see there are quite a few who do not charge on an AUM basis and even a few of us who charge a flat annual fee.

     

     

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  • Hank
    replied
    There’s a weird paradox in investing: it’s incredibly easy to capture the market rate of return year after year. It’s incredibly hard to exceed the market average return year after year.

    The odds of this Merrill Lynch guy earning more than his 1% AUM fee on a risk-adjusted, after-tax basis year after year are pretty slim. The odds that he screws up your ability to do a backdoor Roth and tries to collect AUM fees from your old 403(b) are pretty high. Run, don’t walk away.

    P.S. White Coat Investor’s new course might be worth trying. It costs one year’s worth of 1% AUM fees on a $40K account. You can get your money back within 7 days if you truly don’t like the course.

    Leave a comment:


  • Lithium
    replied
    I second the recommendation to go with a RA.  There are some good financial advisors that don't charge by AUM, but I'm skeptical that they are going to take the time to TLH as aggressively as a robot would.  If you want to learn to TLH yourself, I'd go with WCI's new course - the savings you receive from learning how to DIY will surpass the $399 before you know it.

    Leave a comment:


  • Gas_Doc
    replied
    Honestly @Adrian, if you aren't ready to be your own financial advisor, I'd recommend going with @jfoxcpacfp. I've been on here long enough to know she really knows her stuff, and she's a fee-only advisor to boot. In this day and age, you don't need to have face to face conversations with your financial advisor: phone and email are plenty. Dump your current FA and find someone who isn't interested in leeching off your portfolio.

    Leave a comment:


  • jz
    replied
    You are not ready/willing  to become a DIY.  No problem; TGs and robos are your friends.  Your  current tax-deferred TG funds are perfect where they are. Set-it-and-forget-it.  Use Betterment or Wealthfront  for your taxable accounts.  They both charge 0.0025 AUM to rebalance and tax loss harvest.

     

    Leave a comment:


  • PhysicianOnFIRE
    replied


    Said is a loophole which is going to close soon.
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    Not true.

    Just keep doing what you're doing. You've got plenty of time to learn about TLH (it's pretty simple), and tax-efficient fund placement can be learned in under an hour at Bogleheads.

    You got this.

    Leave a comment:


  • pulmdoc
    replied
    As previously explained, run, don't walk away from this "advisor." He is looking to actively hurt you financially for his own gain. Rolling over a 403b with a Vanguard Target Date fund into a TIRA is a terrible idea for high income people, because you eliminate the ability to do Backdoor Roth conversions. No, it is not a "loophole that is going to close soon." In case he didn't notice, Congress just passed sweeping tax legislation last month and it was not addressed, so no changes will happen until the next time Congress takes up tax reform, years in the future. In addition, the only rational explanation for the conversion is that he can charge AUM fees and potentially steer that money into even worse products.

    He may say he's independent, but I guarantee if you stay with him for 5 years 100% of the financial products he recommends will be Merrill Lynch. The financial incentive to do so is too strong.

    You are correct in your assessment that an AUM fee arrangement creates a conflict of interest that benefits the FA the more money is being managed by them. If you do not feel comfortable with the DIY approach, I recommend a fee-only advisor, which eliminates the conflict of interest regarding where your money is held.

    Leave a comment:


  • Donnie
    replied
    If all you have are tax advantaged accounts, you don’t need to worry about tax loss harvesting or tax efficient funds. Just stick with what you are doing. Target date funds are fine.

    Leave a comment:


  • jfoxcpacfp
    replied




    Thank you @jfoxcpacfp!

    You advise makes sense if I am going to DIY. But if I am going to hire a FA anyway because I do not know enough about tax efficient fund placements, tax lost harvesting and all these neat things? I am hoping that by applying his knowledge about above things, a FA would compensate the 1% fee of AUM I am going to pay him.

    Am I correct in my assumption that ANY FA I would hire would want to move my retirement accounts in a separate account where he can use his custodian and has access to a set of mutual funds and portfolios that he typically manages? Isn’t this how typically a FA charging AUM fee works?
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    FAs aren't fungible. In fact, that is one of the big motivators behind the WCI blog and forum.

    Some FAs will actually manage your 401k/403b for you. To clarify my original response, in some states, that would not be defined as custody, and in others (such as mine and probably yours), it would. You are correct that most FAs will want to roll your 403b out to an IRA, though. And, yes, this is how an FA charging AUM fees typically works.

    You should begin your search by becoming familiar with how to understand the Form ADV, which people who advise on investments must file annually. They can be kind of complicated and this blog post I wrote for WCI will help. Don't expect to find testimonials from happy clients because we are prohibited from using them. In fact, recommendations from your acquaintances is not always reliable because often they don't even know when they are getting a bad deal.

    In a perfect world, the growth in your assets would more than compensate for the 1% AUM fee. However, the fee, more often than not, ends up being a service fee paid so that you don't have to deal with handling your investments - opening, closing and combining accounts, rebalancing, and so forth. The best service a great FA can do is to help you develop a plan and stick to it so that you don't buy and sell at the wrong times. This is, of course, assuming that you have an appropriately allocated and diversified portfolio in place and working with a fee-only FA. Many FAs don't even structure the portfolios very well.

    Caveat emptor.

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  • cgossage
    replied




    Thank you @jfoxcpacfp!

    You advise makes sense if I am going to DIY. But if I am going to hire a FA anyway because I do not know enough about tax efficient fund placements, tax lost harvesting and all these neat things? I am hoping that by applying his knowledge about above things, a FA would compensate the 1% fee of AUM I am going to pay him.

    Am I correct in my assumption that ANY FA I would hire would want to move my retirement accounts in a separate account where he can use his custodian and has access to a set of mutual funds and portfolios that he typically manages? Isn’t this how typically a FA charging AUM fee works?
    Click to expand...


    There are many advisors out there (Johanna and I included) that would not recommend rolling your 403b into an IRA.  Unfortunately, there are many more salespeople calling themselves advisors and do nothing more than invest your assets in investment managers with high fees and average returns.  If that "advisor" is truly acting as a fiduciary they should be doing what it right for you regardless of their compensation.

    That said, there are many other forms of compensation for advisors that aren't traditional AUM type fees.  Hourly, monthly retainer, etc.  Someone can technically be fee-only while charging AUM, but it does have some conflicts as you found out.  They will also unlikely cover the 1% fees that they will charge you if they are only giving you asset-management services.

    Leave a comment:


  • poose
    replied
    I doubt that tax loss harvesting will cover the 1% AUM fee.

    The robo-advisor Betterment.com shows an analysis of increasing returns by 0.77% over 13 years using tax loss harvesting. So, it would partially cover your AUM fees, but not a reason to use a financial advisor.

    https://www.betterment.com/tax-loss-harvesting/

    If you want a financial advisor, check out the WCI recommendations page-- pay by fee for what you need rather than AUM. I dont think these advisors would recommend against the backdoor Roth. https://www.whitecoatinvestor.com/financial-advisors/

    Leave a comment:


  • Adrian
    replied
    Thank you @jfoxcpacfp!

    You advise makes sense if I am going to DIY. But if I am going to hire a FA anyway because I do not know enough about tax efficient fund placements, tax lost harvesting and all these neat things? I am hoping that by applying his knowledge about above things, a FA would compensate the 1% fee of AUM I am going to pay him.

    Am I correct in my assumption that ANY FA I would hire would want to move my retirement accounts in a separate account where he can use his custodian and has access to a set of mutual funds and portfolios that he typically manages? Isn't this how typically a FA charging AUM fee works?

    Leave a comment:


  • jfoxcpacfp
    replied

    1. He cannot have access to your current plan because that will mean he is taking custody and would be subject to a different and more restrictive set of regulations. In general, advisors do not want to have custody of a client’s accounts. Your 403b is through your currrent employer and technically not under your control.

    2. Same for the old 403b. He would be deemed to have “custody” because it is under the control of the old employer.


    When you r/o a retirement plan to an IRA, the advisor can use his own custodian and control the account. Basically, he wants to r/o the 403b in order to charge you for managing it. I’m not saying there is anything wrong with that but this runs counter to your goal of contributing to a backdoor Roth, which he is misinformed about. The answer he gave you indicates that he has his own agenda and is resorting to a scare tactic to convince you he is right.

    Better solution is for you to r/o the 403b into your current plan, assuming your current plan accepts rollovers. Read the SPD to find out. Of course, this cuts out the “advisor” from getting to participate in charging you fees for managing the account   . @Peds and @Ent_doc gave you good advice.

     

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  • Adrian
    replied
    I appreciate your answers guys, I really do, but can you please elaborate? Thank you

    Leave a comment:

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