Personal Capital Wealth Management Initial Call (Review)

[ontheheel]

Several months ago, I had a call with PC wealth management, before they offered to manage employer-sponsored plans, and we got maybe five minutes into the conversation before the rep realized I did not have $100k in assets that PC could manage (most of my NW is in real estate and in the Govt-sponsored TSP account).

Fast forward to last week and I had my two calls with a different rep who contacted me. My NW has jumped considerably since the last call, and they now offer to manage employer-sponsored plans for 49 basis points. My first two questions were if this would be a sales call and if they are a fiduciary. The rep assured me that this was not a sales call (90% of it actually was), and that they are a full fiduciary.

Guy was pleasant to speak with, maybe 30 years old, and knew more than your average broker trying to push a product. I ultimately decided not to go with them for a couple of reasons.

First, the cost. Their AUM fee, plus expense ratios on the index funds they invest in totals about 1%. That's a lot of money for a fairly unsophisticated investing strategy. Instead of a cap-weighted index, they break the market into 10 sectors and put 10% of your money into each sector, rebalancing regularly to maintain this weighting. The other thing they do is automated tax loss harvesting, and put more tax-efficient investments in taxable accounts and tax-inefficient investments in tax-deferred accounts. That's pretty much it. My biggest paper money account is my TSP, which only has three equity funds and two bond funds to invest in. Their strategy is impossible to implement in that account, and yet they still want to charge 49 basis points to "manage" that account.

Second, their strategy is a one-size-fits-all strategy, with the only real variable in asset allocation based on risk profile. Roughly 1/2 of my net worth is tied up in real estate, 15% in cash, and the rest in total stock market index funds. All he could talk about was how risky I was being having 100% of my money in stocks, and it took a lot of explaining and pointing out where the rest of my NW was to convince him that my investing profile at the moment was actually far more conservative than his chart was showing. Even though PC sucks in all my financial data, it was like most of it was invisible and just not accounted for in the plan they built. As soon as I started to go off script, things in the conversation began to break down. I was not being adversarial, but asking pointed questions about how (or if) these variables were taken into account when building this plan. The answers I got were mostly hand-waiving and let me know that my concerns weren't on the radar - did not compute.

Along with that, I work hard to have a negative tax liability each year, and as such, am not subject to capital gains taxes. I plan to manage my income through tax-deferred accounts, real estate depreciation, and utilizing military tax-free allowances so that I will always have a 0% tax liability. That makes the tax loss harvesting essentially moot in my case. If anything, I want to be harvesting gains at 0% to reset basis and avoid even the possibility of taxes in the future. That was also obviously a totally new concept. I don't think he understood how I could have a $330k NW and an AGI of about $52k. Once he finally caught on, he deferred to "not letting the tax tail wag the dog," which I agree with, but is also a major part of their value proposition that advocates for 1% AUM.

I asked other questions, especially related to the specific investments they use (evidently top-secret proprietary information), and if he could run monte carlo simulations on my current investments vs theirs over time (he never answered). Most of the data in the sales script was cherry picked (like being over invested in tech at the height of the dot com bubble and taking over a decade to recover), and was not flexible to ask about varying scenarios. The one chart I could get my hands on about their historical performance was not related to the S&P, but against a handful of index funds that basically reflected their investing strategy, but with 1% AUM fee tacked on. That was the closing argument, and it was basically identical performance over the past 30 years. In other words, if I truly believed in their strategy, I could pick the same investments, manage it myself, and save 1% AUM. I'll just stick to SWTSX and go it alone.

All-in-all, I determined that investing with them was a very expensive prospect, and one where they would not take the time to understand and address my concerns, along with being really cagey and opaque about how my money would be actually invested. If you're going to substantially increase my costs, you'd better be able to demonstrate that it's worth it, and that I know exactly what I'm getting into. They failed to do either.

[catccc]

Can you clarify your tax situation?  Negative tax liability that I've seen typically is for low earners that get a refundable tax credit like EIC.  Do you just mean you are below the the threshold for 15% capital gains tax and get a refund?  Because I've been at 0% capital gains tax and still leveraged tax loss harvesting to further reduce other earned income (my salary).  You can take up to $3K in capital losses against earned income.

[cool7hand]

Thanks for sharing!

[JJ-]

I have one of these followups scheduled and I'm really not looking forward to the sales pitch but I'm interested in learning about the slices they use.

 I had the initial call where we went over targets etc and he was like... You are over halfway to where you need to be and you want to retire in 25 years? I told him we also didn't have a firm target on spending as current spending is atrocious with small kids in daycare, but figured might as well use current spending anyway.  I am curious if he's going to come back with an ungodly amount of bonds for asset preservation given our current assets and that timeline but who knows.

I keep trying to remind myself it's a learning opportunity going in (in addition to the obvious sales pitch which I really am not looking forward to).

[ontheheel]

Can you clarify your tax situation?  Negative tax liability that I've seen typically is for low earners that get a refundable tax credit like EIC.  Do you just mean you are below the the threshold for 15% capital gains tax and get a refund?  Because I've been at 0% capital gains tax and still leveraged tax loss harvesting to further reduce other earned income (my salary).  You can take up to $3K in capital losses against earned income.

Sure thing, my pay breaks down roughly as follows:
-Basic pay ~ $82k
-Military Housing allowance (tax exempt) ~ $31k
-Military Food allowance (tax exempt) ~ $3k
-Rental properties ~ $6k cash flow, but with depreciation, comes out as a paper loss each year of $1-2k, providing a slight break on income

-I max out my TSP, IRA and Spousal IRA - $31,500 deduction
-I have three kids, ages 10 and under - $3,600 credit under 2017 tax law (bonkers credits since the pandemic started, but I don't count on that)

With the above information, my tax situation roughly breaks down like this:
-$82k basic pay, minus $1k real estate paper loss, equals $81k income
-$81k income (roughly), minus $31,500 tax-deferred savings, equals roughly $50k AGI (there are some other smaller deductions and credits, but go with this)
-$50k AGI, minus ~$24k standard deduction gives roughly $26,000 taxable income
MFJ Tax on $26k is roughly $2,725
-$2,725 tax minus $3,600 ACTC equals -$875 Tax liability. Add in a handful of other small credits and deductions, and we're getting paid at least a grand when we file our taxes.

Not bad for roughly $122k in total income, when allowances are included. Basically, being in the military, having three kids, a high savings rate, and investing in real estate are how I (legally) avoid income tax. I wouldn't advise having children and joining the military for the tax benefits, but that's the course we've chosen in life and it has the added benefit of being a very tax-efficient way of living. Now, I will be receiving a promotion next week, and two more raises next year that will start to impact my ability to avoid taxes forever, but it will still be a couple of years before I need to worry too much about it, and even then it will be a pretty small amount.

In retirement, I'll be able to live entirely off my pension and just try to take strategic distributions from my tax-advantaged accounts to keep taxes minimal to non-existent. I don't foresee any situation in which I pay capital gains on my taxable accounts, barring a massive liquidation in one tax year.

[MustacheAndaHalf]

... Most of the data in the sales script was cherry picked (like being over invested in tech at the height of the dot com bubble and taking over a decade to recover), and was not flexible to ask about varying scenarios.

At the end of 1996, Fed Chair Alan Greenspan made his famous "irrational exuberance" speech, suggesting asset prices were too high.  If you invested right after that speech, in 1997, and held during the dot-com crash (2000-2002), you came out ahead.  Hold through 2003, and you were up +65% overall, which isn't a bad return for 7 years centered on a crash.

-$2,725 tax minus $3,600 ACTC equals -$875 Tax liability. Add in a handful of other small credits and deductions, and we're getting paid at least a grand when we file our taxes.

Having $8,300 more gains in the 12% bracket would cost about a thousand in taxes.  Rather than striving to have a tax refund, it would actually be better to have gains that eat up that refund.  Just keep that in mind if the opportunity arises.

[catccc]

-$2,725 tax minus $3,600 ACTC equals -$875 Tax liability. Add in a handful of other small credits and deductions, and we're getting paid at least a grand when we file our taxes.

Okay, the CTC is refundable up to $1,400 per kid, so you could still reduce your taxes before credits using TLH.  It wouldn't be a huge impact, but it's something. 

We just crossed into having to pay capital gains tax for the first year ever.  Our income was about $170K last year, but we are able to get our taxable income down to $66K for 2020.  No such luck this year, our taxable income will be over $90K.  Kind of a bummer in some ways, but I guess there's no need to complain about having more money at the end of the day.

[ontheheel]

Okay, the CTC is refundable up to $1,400 per kid, so you could still reduce your taxes before credits using TLH.  It wouldn't be a huge impact, but it's something. 
[/quote]

Agreed - it's just that we don't have much in taxable accounts, we don't have losses to harvest (a good problem to have), and it's something I could do manually if I wanted to. Up till now, the juice just hasn't been worth the squeeze, much less paying someone 1% AUM for them to eek out whatever tiny losses they can find.

I do, however, believe I will start harvesting gains on an annual basis now, as long as I'm in the 0% LTCG bracket. Once I retire, we will likely end up liquidating a chunk of our taxable investments to pay cash to build out a homestead, and it would be nice to do that with investments that have been stepped up in basis every year leading up to that.

I realize paying cash for a house+property is not the most efficient deployment of capital, but we'll be able to easily live off my pension, plus have over $1M in retirement accounts, plus a couple income-producing properties. The bulk of our after-tax savings for the next 12 years will be devoted to investing for the purpose of buying land and building a house debt-free. We are likely to be in a situation where we have quite a bit more than we need and owning a (largely) self-sufficient homestead outright will help us sleep very soundly at night.

[JJ-]

Okay, the CTC is refundable up to $1,400 per kid, so you could still reduce your taxes before credits using TLH.  It wouldn't be a huge impact, but it's something. 

Agreed - it's just that we don't have much in taxable accounts, we don't have losses to harvest (a good problem to have), and it's something I could do manually if I wanted to. Up till now, the juice just hasn't been worth the squeeze, much less paying someone 1% AUM for them to eek out whatever tiny losses they can find.

I do, however, believe I will start harvesting gains on an annual basis now, as long as I'm in the 0% LTCG bracket. Once I retire, we will likely end up liquidating a chunk of our taxable investments to pay cash to build out a homestead, and it would be nice to do that with investments that have been stepped up in basis every year leading up to that.

I realize paying cash for a house+property is not the most efficient deployment of capital, but we'll be able to easily live off my pension, plus have over $1M in retirement accounts, plus a couple income-producing properties. The bulk of our after-tax savings for the next 12 years will be devoted to investing for the purpose of buying land and building a house debt-free. We are likely to be in a situation where we have quite a bit more than we need and owning a (largely) self-sufficient homestead outright will help us sleep very soundly at night.

It could be more advantageous long term to convert Traditional funds to Roth funds if you have them in IRAs instead of doing LTCG harvesting. MDM's Case Study Spreadsheet has a tab dedicated to this.

[ontheheel]

Okay, the CTC is refundable up to $1,400 per kid, so you could still reduce your taxes before credits using TLH.  It wouldn't be a huge impact, but it's something. 

Agreed - it's just that we don't have much in taxable accounts, we don't have losses to harvest (a good problem to have), and it's something I could do manually if I wanted to. Up till now, the juice just hasn't been worth the squeeze, much less paying someone 1% AUM for them to eek out whatever tiny losses they can find.

I do, however, believe I will start harvesting gains on an annual basis now, as long as I'm in the 0% LTCG bracket. Once I retire, we will likely end up liquidating a chunk of our taxable investments to pay cash to build out a homestead, and it would be nice to do that with investments that have been stepped up in basis every year leading up to that.

I realize paying cash for a house+property is not the most efficient deployment of capital, but we'll be able to easily live off my pension, plus have over $1M in retirement accounts, plus a couple income-producing properties. The bulk of our after-tax savings for the next 12 years will be devoted to investing for the purpose of buying land and building a house debt-free. We are likely to be in a situation where we have quite a bit more than we need and owning a (largely) self-sufficient homestead outright will help us sleep very soundly at night.

It could be more advantageous long term to convert Traditional funds to Roth funds if you have them in IRAs instead of doing LTCG harvesting. MDM's Case Study Spreadsheet has a tab dedicated to this.

That's a good point, and something I need to consider. If I get deployed to a combat zone in the next few years, I'll definitely be doing a large ROTH conversion, but I hadn't thought about it in the context of my current situation. I've never looked at that spreadsheet, but just searched it and found it - thank you for the recommendation.

[JJ-]

I had my call with them and I got to a couple of other nuggets that @ontheheel did not mention.

First, their investment strategy is based on the Modern Portfolio Theory. Maybe some of the other more portfolio savvy gurus can recognize which portfolio the following description matches best.

Second, for stocks, for 5/5 growth oriented folks, their recommendation is 86% Stocks with 60/20/20 in Large/Mid/Small. 25% of stock allocation is in international funds.

For diversification, they are equally weighted amongst all sectors within the market and use individual stocks for their stock portfolio. The portfolio has equal weights (10%) of stock allocation in the following sectors:
-Communication Services
-Consumer Cyclicals
-Consumer Defensive
-Energy
-Financials
-Health Care
-Industrials
-Materials
-Technology
-Utilities

They alerted me to the fact that I was overweighted in tech and financial but I could not do anything about it since I used index funds. With them, I could do something about it. Given the preference for individual stocks, their pitch against index funds was that in dips if you are long you cannot harvest losses sometimes, and with individual stocks they can do this. Also, at my liquid assets ($850k), apparently I've outgrown the need for index funds.

They use ETFs for bonds and alternatives (e.g., real estate, gold).

They have 10% in alternatives and 5% in bonds for the max growth profile. The pitch on this is to balance volatility of stocks and to have dry powder during downturns like March 2020.

I asked what this might look like assuming their average returns and what glide paths look like, and their response was "it depends".

I asked how they did their rebalancing. They said there is an automated trigger when there's a variance of maybe 3-4% that gets sent to the investment team that may or may not decide to rebalance and let the algorithms work a bit longer. 

He said he noticed we had HSAs and those are handled differently. We did not get into it into the call.

The interesting thing about tax liability. I let him know I am way long on cap gains for all holdings and selling would trigger a massive capital gains event. He sometimes it is needed to get AA in line.

The most interesting thing I noticed is that the target date fund allocations matched most closely with their portfolio recommendations, both in market sectors and market cap.

Bottom line:
Felt like a reasonable mutual fund stretched across the entire portfolio but with 0.89% AUM for non 401k, 0.49% AUM for 401k.

For what it's worth, their annualized return since end 2011 is 12.3%. Their benchmark is 11.9%. Quick check on S&P500 (don't crucify me please for that as a benchmark) is 15%

[ontheheel]

I had my call with them and I got to a couple of other nuggets that @ontheheel did not mention.

First, their investment strategy is based on the Modern Portfolio Theory. Maybe some of the other more portfolio savvy gurus can recognize which portfolio the following description matches best.

Second, for stocks, for 5/5 growth oriented folks, their recommendation is 86% Stocks with 60/20/20 in Large/Mid/Small. 25% of stock allocation is in international funds.

For diversification, they are equally weighted amongst all sectors within the market and use individual stocks for their stock portfolio. The portfolio has equal weights (10%) of stock allocation in the following sectors:
-Communication Services
-Consumer Cyclicals
-Consumer Defensive
-Energy
-Financials
-Health Care
-Industrials
-Materials
-Technology
-Utilities

They alerted me to the fact that I was overweighted in tech and financial but I could not do anything about it since I used index funds. With them, I could do something about it. Given the preference for individual stocks, their pitch against index funds was that in dips if you are long you cannot harvest losses sometimes, and with individual stocks they can do this. Also, at my liquid assets ($850k), apparently I've outgrown the need for index funds.

They use ETFs for bonds and alternatives (e.g., real estate, gold).

They have 10% in alternatives and 5% in bonds for the max growth profile. The pitch on this is to balance volatility of stocks and to have dry powder during downturns like March 2020.

I asked what this might look like assuming their average returns and what glide paths look like, and their response was "it depends".

I asked how they did their rebalancing. They said there is an automated trigger when there's a variance of maybe 3-4% that gets sent to the investment team that may or may not decide to rebalance and let the algorithms work a bit longer. 

He said he noticed we had HSAs and those are handled differently. We did not get into it into the call.

The interesting thing about tax liability. I let him know I am way long on cap gains for all holdings and selling would trigger a massive capital gains event. He sometimes it is needed to get AA in line.

The most interesting thing I noticed is that the target date fund allocations matched most closely with their portfolio recommendations, both in market sectors and market cap.

Bottom line:
Felt like a reasonable mutual fund stretched across the entire portfolio but with 0.89% AUM for non 401k, 0.49% AUM for 401k.

For what it's worth, their annualized return since end 2011 is 12.3%. Their benchmark is 11.9%. Quick check on S&P500 (don't crucify me please for that as a benchmark) is 15%

Quick note on the bottom line: Their AUM fee is exclusive of expense ratios in the underlying investments. Your actual ER+AUM fee comes out to 1% (per sales rep). They also handicapped the benchmark with an assumed AUM fee, meaning that if you just buy the investments they show in the benchmark and rebalance, you'll actually come out ahead of their benchmark (it's in the fine print).

[Radioherd88]

Several months ago, I had a call with PC wealth management, before they offered to manage employer-sponsored plans, and we got maybe five minutes into the conversation before the rep realized I did not have $100k in assets that PC could manage (most of my NW is in real estate and in the Govt-sponsored TSP account).

Fast forward to last week and I had my two calls with a different rep who contacted me. My NW has jumped considerably since the last call, and they now offer to manage employer-sponsored plans for 49 basis points. My first two questions were if this would be a sales call and if they are a fiduciary. The rep assured me that this was not a sales call (90% of it actually was), and that they are a full fiduciary.

Guy was pleasant to speak with, maybe 30 years old, and knew more than your average broker trying to push a product. I ultimately decided not to go with them for a couple of reasons.

First, the cost. Their AUM fee, plus expense ratios on the index funds they invest in totals about 1%. That's a lot of money for a fairly unsophisticated investing strategy. Instead of a cap-weighted index, they break the market into 10 sectors and put 10% of your money into each sector, rebalancing regularly to maintain this weighting. The other thing they do is automated tax loss harvesting, and put more tax-efficient investments in taxable accounts and tax-inefficient investments in tax-deferred accounts. That's pretty much it. My biggest paper money account is my TSP, which only has three equity funds and two bond funds to invest in. Their strategy is impossible to implement in that account, and yet they still want to charge 49 basis points to "manage" that account.

Second, their strategy is a one-size-fits-all strategy, with the only real variable in asset allocation based on risk profile. Roughly 1/2 of my net worth is tied up in real estate, 15% in cash, and the rest in total stock market index funds. All he could talk about was how risky I was being having 100% of my money in stocks, and it took a lot of explaining and pointing out where the rest of my NW was to convince him that my investing profile at the moment was actually far more conservative than his chart was showing. Even though PC sucks in all my financial data, it was like most of it was invisible and just not accounted for in the plan they built. As soon as I started to go off script, things in the conversation began to break down. I was not being adversarial, but asking pointed questions about how (or if) these variables were taken into account when building this plan. The answers I got were mostly hand-waiving and let me know that my concerns weren't on the radar - did not compute.

Along with that, I work hard to have a negative tax liability each year, and as such, am not subject to capital gains taxes. I plan to manage my income through tax-deferred accounts, real estate depreciation, and utilizing military tax-free allowances so that I will always have a 0% tax liability. That makes the tax loss harvesting essentially moot in my case. If anything, I want to be harvesting gains at 0% to reset basis and avoid even the possibility of taxes in the future. That was also obviously a totally new concept. I don't think he understood how I could have a $330k NW and an AGI of about $52k. Once he finally caught on, he deferred to "not letting the tax tail wag the dog," which I agree with, but is also a major part of their value proposition that advocates for 1% AUM.

I asked other questions, especially related to the specific investments they use (evidently top-secret proprietary information), and if he could run monte carlo simulations on my current investments vs theirs over time (he never answered). Most of the data in the sales script was cherry picked (like being over invested in tech at the height of the dot com bubble and taking over a decade to recover), and was not flexible to ask about varying scenarios. The one chart I could get my hands on about their historical performance was not related to the S&P, but against a handful of index funds that basically reflected their investing strategy, but with 1% AUM fee tacked on. That was the closing argument, and it was basically identical performance over the past 30 years. In other words, if I truly believed in their strategy, I could pick the same investments, manage it myself, and save 1% AUM. I'll just stick to SWTSX and go it alone.

All-in-all, I determined that investing with them was a very expensive prospect, and one where they would not take the time to understand and address my concerns, along with being really cagey and opaque about how my money would be actually invested. If you're going to substantially increase my costs, you'd better be able to demonstrate that it's worth it, and that I know exactly what I'm getting into. They failed to do either.

I actually had this call this week and they are offering 6 months free (no fees) to convince me they are worth it. I have 500k portfolio - 90% VTSAX or similar. I am considering letting them manage half for 6 months as they will diversify as you mentioned into international, retail, bonds etc - given how high the market is at the moment and the never ending inflation speak it seems like a good hedge to have them diversify half the portfolio for 6 months at no cost then from there i can choose to keep their strategy going myself or switch back to what's been working so far - overthinking it?

[JJ-]

Several months ago, I had a call with PC wealth management, before they offered to manage employer-sponsored plans, and we got maybe five minutes into the conversation before the rep realized I did not have $100k in assets that PC could manage (most of my NW is in real estate and in the Govt-sponsored TSP account).

Fast forward to last week and I had my two calls with a different rep who contacted me. My NW has jumped considerably since the last call, and they now offer to manage employer-sponsored plans for 49 basis points. My first two questions were if this would be a sales call and if they are a fiduciary. The rep assured me that this was not a sales call (90% of it actually was), and that they are a full fiduciary.

Guy was pleasant to speak with, maybe 30 years old, and knew more than your average broker trying to push a product. I ultimately decided not to go with them for a couple of reasons.

First, the cost. Their AUM fee, plus expense ratios on the index funds they invest in totals about 1%. That's a lot of money for a fairly unsophisticated investing strategy. Instead of a cap-weighted index, they break the market into 10 sectors and put 10% of your money into each sector, rebalancing regularly to maintain this weighting. The other thing they do is automated tax loss harvesting, and put more tax-efficient investments in taxable accounts and tax-inefficient investments in tax-deferred accounts. That's pretty much it. My biggest paper money account is my TSP, which only has three equity funds and two bond funds to invest in. Their strategy is impossible to implement in that account, and yet they still want to charge 49 basis points to "manage" that account.

Second, their strategy is a one-size-fits-all strategy, with the only real variable in asset allocation based on risk profile. Roughly 1/2 of my net worth is tied up in real estate, 15% in cash, and the rest in total stock market index funds. All he could talk about was how risky I was being having 100% of my money in stocks, and it took a lot of explaining and pointing out where the rest of my NW was to convince him that my investing profile at the moment was actually far more conservative than his chart was showing. Even though PC sucks in all my financial data, it was like most of it was invisible and just not accounted for in the plan they built. As soon as I started to go off script, things in the conversation began to break down. I was not being adversarial, but asking pointed questions about how (or if) these variables were taken into account when building this plan. The answers I got were mostly hand-waiving and let me know that my concerns weren't on the radar - did not compute.

Along with that, I work hard to have a negative tax liability each year, and as such, am not subject to capital gains taxes. I plan to manage my income through tax-deferred accounts, real estate depreciation, and utilizing military tax-free allowances so that I will always have a 0% tax liability. That makes the tax loss harvesting essentially moot in my case. If anything, I want to be harvesting gains at 0% to reset basis and avoid even the possibility of taxes in the future. That was also obviously a totally new concept. I don't think he understood how I could have a $330k NW and an AGI of about $52k. Once he finally caught on, he deferred to "not letting the tax tail wag the dog," which I agree with, but is also a major part of their value proposition that advocates for 1% AUM.

I asked other questions, especially related to the specific investments they use (evidently top-secret proprietary information), and if he could run monte carlo simulations on my current investments vs theirs over time (he never answered). Most of the data in the sales script was cherry picked (like being over invested in tech at the height of the dot com bubble and taking over a decade to recover), and was not flexible to ask about varying scenarios. The one chart I could get my hands on about their historical performance was not related to the S&P, but against a handful of index funds that basically reflected their investing strategy, but with 1% AUM fee tacked on. That was the closing argument, and it was basically identical performance over the past 30 years. In other words, if I truly believed in their strategy, I could pick the same investments, manage it myself, and save 1% AUM. I'll just stick to SWTSX and go it alone.

All-in-all, I determined that investing with them was a very expensive prospect, and one where they would not take the time to understand and address my concerns, along with being really cagey and opaque about how my money would be actually invested. If you're going to substantially increase my costs, you'd better be able to demonstrate that it's worth it, and that I know exactly what I'm getting into. They failed to do either.

I actually had this call this week and they are offering 6 months free (no fees) to convince me they are worth it. I have 500k portfolio - 90% VTSAX or similar. I am considering letting them manage half for 6 months as they will diversify as you mentioned into international, retail, bonds etc - given how high the market is at the moment and the never ending inflation speak it seems like a good hedge to have them diversify half the portfolio for 6 months at no cost then from there i can choose to keep their strategy going myself or switch back to what's been working so far - overthinking it?

Up to you. Just remember they manage individual assets and if you have taxable items you'd liquidate once moving over and probably again after transferring out to get back to index funds.

[Radioherd88]

Several months ago, I had a call with PC wealth management, before they offered to manage employer-sponsored plans, and we got maybe five minutes into the conversation before the rep realized I did not have $100k in assets that PC could manage (most of my NW is in real estate and in the Govt-sponsored TSP account).

Fast forward to last week and I had my two calls with a different rep who contacted me. My NW has jumped considerably since the last call, and they now offer to manage employer-sponsored plans for 49 basis points. My first two questions were if this would be a sales call and if they are a fiduciary. The rep assured me that this was not a sales call (90% of it actually was), and that they are a full fiduciary.

Guy was pleasant to speak with, maybe 30 years old, and knew more than your average broker trying to push a product. I ultimately decided not to go with them for a couple of reasons.

First, the cost. Their AUM fee, plus expense ratios on the index funds they invest in totals about 1%. That's a lot of money for a fairly unsophisticated investing strategy. Instead of a cap-weighted index, they break the market into 10 sectors and put 10% of your money into each sector, rebalancing regularly to maintain this weighting. The other thing they do is automated tax loss harvesting, and put more tax-efficient investments in taxable accounts and tax-inefficient investments in tax-deferred accounts. That's pretty much it. My biggest paper money account is my TSP, which only has three equity funds and two bond funds to invest in. Their strategy is impossible to implement in that account, and yet they still want to charge 49 basis points to "manage" that account.

Second, their strategy is a one-size-fits-all strategy, with the only real variable in asset allocation based on risk profile. Roughly 1/2 of my net worth is tied up in real estate, 15% in cash, and the rest in total stock market index funds. All he could talk about was how risky I was being having 100% of my money in stocks, and it took a lot of explaining and pointing out where the rest of my NW was to convince him that my investing profile at the moment was actually far more conservative than his chart was showing. Even though PC sucks in all my financial data, it was like most of it was invisible and just not accounted for in the plan they built. As soon as I started to go off script, things in the conversation began to break down. I was not being adversarial, but asking pointed questions about how (or if) these variables were taken into account when building this plan. The answers I got were mostly hand-waiving and let me know that my concerns weren't on the radar - did not compute.

Along with that, I work hard to have a negative tax liability each year, and as such, am not subject to capital gains taxes. I plan to manage my income through tax-deferred accounts, real estate depreciation, and utilizing military tax-free allowances so that I will always have a 0% tax liability. That makes the tax loss harvesting essentially moot in my case. If anything, I want to be harvesting gains at 0% to reset basis and avoid even the possibility of taxes in the future. That was also obviously a totally new concept. I don't think he understood how I could have a $330k NW and an AGI of about $52k. Once he finally caught on, he deferred to "not letting the tax tail wag the dog," which I agree with, but is also a major part of their value proposition that advocates for 1% AUM.

I asked other questions, especially related to the specific investments they use (evidently top-secret proprietary information), and if he could run monte carlo simulations on my current investments vs theirs over time (he never answered). Most of the data in the sales script was cherry picked (like being over invested in tech at the height of the dot com bubble and taking over a decade to recover), and was not flexible to ask about varying scenarios. The one chart I could get my hands on about their historical performance was not related to the S&P, but against a handful of index funds that basically reflected their investing strategy, but with 1% AUM fee tacked on. That was the closing argument, and it was basically identical performance over the past 30 years. In other words, if I truly believed in their strategy, I could pick the same investments, manage it myself, and save 1% AUM. I'll just stick to SWTSX and go it alone.

All-in-all, I determined that investing with them was a very expensive prospect, and one where they would not take the time to understand and address my concerns, along with being really cagey and opaque about how my money would be actually invested. If you're going to substantially increase my costs, you'd better be able to demonstrate that it's worth it, and that I know exactly what I'm getting into. They failed to do either.

I actually had this call this week and they are offering 6 months free (no fees) to convince me they are worth it. I have 500k portfolio - 90% VTSAX or similar. I am considering letting them manage half for 6 months as they will diversify as you mentioned into international, retail, bonds etc - given how high the market is at the moment and the never ending inflation speak it seems like a good hedge to have them diversify half the portfolio for 6 months at no cost then from there i can choose to keep their strategy going myself or switch back to what's been working so far - overthinking it?

Up to you. Just remember they manage individual assets and if you have taxable items you'd liquidate once moving over and probably again after transferring out to get back to index funds.

Good point - that does add to the potential downside

[JJ-]

Good point - that does add to the potential downside

I will also reiterate a point made earlier. If you go to their benchmark page with metrics for your aggressivity (is that a word?), essentially you can get the same return without their aum fees by buying their benchmark funds.

[MustacheAndaHalf]

I am considering letting them manage half for 6 months as they will diversify as you mentioned into international, retail, bonds etc - given how high the market is at the moment and the never ending inflation speak it seems like a good hedge to have them diversify half the portfolio for 6 months at no cost then from there i can choose to keep their strategy going myself or switch back to what's been working so far - overthinking it?

Why can't you invest in Vanguard Total International and Vanguard Total Bond Market yourself?  They don't have an edge over the markets.

Also keep in mind in a taxable account, diversifying will incur taxes.  Speaking of taxes, "tax loss harvesting" only works short term.  If you've held Vanguard Total Stock market for many years, it's very unlikely those shares will ever drop back below what you paid for them.  Tax loss harvesting only works for your most recent investments - but you pay their fees on all of your assets.

I've been running an experiment (that is head +100%!) where I track a few stock picks against the S&P 500.  I think it's a good idea to use a simple benchmark, rather than something a firm may have designed for it to be able to beat it.  You also don't know when they last changed their benchmark!  With the S&P 500, it's the same benchmark for decades.