Author Topic: Help me break up with FA  (Read 7747 times)

SouthernLady

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Help me break up with FA
« on: February 23, 2015, 06:42:25 PM »
First time poster, long time lurker.  I am hoping to get some advice as to how to break up with my FA and transition from AUM to accounts with lower fees.  When I started with this firm, the fee structure was much different than today.  I am currently paying a blended rate of 1.84% for fees for AUM and have slowly woken up to the long term cost of this arrangement.  Additionally, I have a hard time getting the advisorís attention once or twice a year and donít feel that I am getting any advice.   I admit that I did not focus on what was happening in these accounts or the fees until recently.  I was raising my child, working a lot of overtime and recovering long term from an accident.  Now it seems to me that while the funds themselves are low fee, I am losing out due to the high AUM fees, paying for limited advice and that the accounts might be more complicated than they need to be and more aggressive than I should have.   

I was also hoping that some of you might also offer some advice with some of the 401(k) allocations as well, largely chosen by this advisor.   Both portfolios are roughly equal at the moment.

Info:

Single, age 55, very HCOLA, only child in college (so far no student loans and I want to keep it that way).

Emergency Fund not included below:  more than a yearís normal expenses in cash.  Probably too much but need to have costly home repairs this year, child is in college and there is a long time left on the mortgage so I donít want to reduce it too much right now. 

AUM, custodian is TD Ameritrade accounts, balances as of January 31:

IRA:   
   Cash TDAM US Government Portfolio               (1.49%)   

        ETFs:                                                                              (45.61%)                  
       
        iShares:  IBoxx $ Invmnt GRD Corp BD ETF (LQD)      (3.14%)
   iShares North Ameri Natural Resource ETF (IGE)      (4.8%)
   iShares Core S&P Mid-Cap EFT (IJH)                 (7.26%)
   iShares Russell 1000 Value ETF (IWD)                 (13.03%)
       Vanguard REIT ETF Index (VNQ)                     (5.42%)
   Vanguard CRSP US Large Cap Grow IND ETF (VUG)   (12.26%)

       Mutual Funds:                                                                  (52.89%)

   DFA Emerging Mkts PTF (DFEMX)                          (3.88%)
   DFA US Large Cap Value Port (DFLVX)                 (13.72%)
   DFA US Small Cap Portfolio (DFSTX)                   (7.94%)
   DFA Large Cap International (DFALX)                      (4%)
   DFA Interm Govt Fixed Incm PTF (DFIGX)                (7.34%)
   DFA Five Year Global Fixed PTF (DFIGX)                  (7.13%)
   DFA Short Term Ext Quality PTF (DFEQX)         (3.05%)
   DFA Intl Value PTF (DFIVX)                             (3.96%)
   Vanguard Short Term Treasury Admiral                  (1.88%)

Roth IRA: 

   Cash TDAM US Government Portfolio               (1.72%)
       
        ETFs:                                           (45.55%)

   iShares:  IBoxx $ Invmnt GRD Corp BD ETF (LQD)      (3.15%)
   iShares North Ameri Natural Resource ETF (IGE)      (5.1%)
   iShares Core S&P Mid-Cap EFT (IJH)                 (7.4%)
   iShares Russell 1000 Value ETF (IWD)              (12.74%)
        Vanguard REIT ETF Index (VNQ)                    (5.04%)
   Vanguard CRSP US Large Cap Grow IND ETF (VUG)   (12.13%)

        Mutual Funds:                                                                (52.73%)

   DFA Emerging Mkts PTF (DFEMX)                         (4.05%)
   DFA US Large Cap Value Port (DFLVX)                (13.93%)
   DFA US Small Cap Portfolio (DFSTX)                  (7.94%)
   DFA Large Cap International (DFALX)                  (3.99%)
   DFA Interm Govt Fixed Incm PTF (DFIGX)               (7.22%)
   DFA Five Year Global Fixed PTF (DFIGX)                  (7.13%)
   DFA Short Term Ext Quality PTF (DFEQX)         (2.82%)
   DFA Intl Value PTF (DFIVX)                            (3.77%)
   Vanguard Short Term Treasury Admiral                 (1.86%)

Taxable:   

Cash TDAM US Government Portfolio                        (4.22%)

ETFs                                                    (36.46%)

   iShares:  IBoxx $ Invmnt GRD Corp BD ETF (LQD)      (4.2%)
   iShares North Ameri Natural Resource ETF (IGE)      (4.79%)
   iShares Russell 1000 Value ETF (IWD)                (14.18%)
   Vanguard REIT ETF Index (VNQ)                    (5.14%)
   Vanguard CRSP US Large Cap Grow IND ETF (VUG)   (8.14%)

Mutual Funds                                                (59.32%)

   DFA US Large Cap Value Port (DFLVX)                (13.71%)
   DFA US Small Cap Portfolio (DFSTX)                   (9.5%)
   DFA Large Cap International (DFALX)                 (11.87%)
   DFA Interm Govt Fixed Incm PTF (DFIGX)              (15.07%)
   DFA Five Year Global Fixed PTF                              (9.16%)

401(k), held at Fidelity.  Most of the selections made by FA and have now figured out that most selections were higher fee funds:

Current allocation:

Dodge & Cox Stock (DODGX) (Large Cap Value)       32.59%
TRP Inst. LGCP Core (TPLGX) (Large Cap Growth)      25.05%
Vanguard Extended Market IDX INS (VIEIX)              16.30% (recently exchanged NB Genesis recommended by advisor for this)
Fidelity Diversified Intl K                                    15.34%
Vanguard Total Bond Market Inst                          10.72%

Funds offered in 401(k):
TRP Inst LGCP Core (TPLGX) (Large Cap Growth)               ER .59%   
Vanguard Inst Index (VINIXP) (Large Cap Blend)               ER .04%
Dodge & Cox Stock (DODGX) (Large Cap Value)               ER .52%   
NB Genesis R6 (NRGSX)   (Mid Cap Growth)                       ER .78% (converted all shares in  December to VIEIX)
Vanguard Extended Market Index  (VIEIX) (Mid CapBlend)         ER .08%
Fidelity Diversified Intl K (FDIKX) (Foreign)                       ER 78%
Vanguard Total International Stock IS (VTSNX) (Foreign)         ER .12%
NT Emerging Markets (Diversified Emerging Markets)              ER .2374%
MSIF Global RE I (MRLAX) (Reit)                             ER 1.02%
Fidelity Puritan K (FPUKX) (Blended Fund Investments)            ER .46%
Lifepath 2020, 2025 or 2030 (Blended Fund)                        ER .21%
PRU Total Return BD Q (PTRQX)   (Bond/Managed Income/ Intermediate Term)    ER .51%
MIC II CL 1 (Bond/Managed Income/Stable Value)                     ER .59%
Brokerage Link also available

I know this post is long due to the large number of funds.  I would be immensely grateful for any advice as to how to move these AUM accounts with the DFA funds to lower cost accounts and delay taxes on those in the taxable account. Any thoughts as to the 401(k) allocation would also be appreciated.   Initially, I had been thinking of moving the AUM accounts to Vanguard or Fidelity but am not sure if I will have to liquidate the DFA funds in order to do so and there will be tax consequences in the taxable account (and sales costs in the deferred accounts).   Finally, how will I figure out the basis of all of the funds in the taxable account?

Grateful Stache

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Re: Help me break up with FA
« Reply #1 on: February 23, 2015, 07:05:24 PM »
Jesus that looks complex.

First, before you make any big moves, you should find out what you want to invest in, and also why. It's really not that hard, and the following authors can lead you in the right direction: William Bernstein (Four Pillars of Investing; The Investor's Manifesto), Russell Wild (Investing for Dummies, ETFs for Dummies), Richard Ferri (All About Asset Allocation), Taylor Larimore (Boglehead's Guide to Investing). Even if you only read one or two of these, it will give you a good start.

After that, I suggest you look into an all-in-one portfolio; both Vanguard and Fidelity offer these. They are typically called "Target Date" or LifeStrategy" funds. Similar portfolios (albiet more of the do-it-yourself variety) have been popularized by the Bogleheads. [http://www.bogleheads.org/wiki/Three-fund_portfolio]

Yes, 2% fees are excessive, especially in this community. However, there is no rush. Educate yourself and make a calculated decision, especially if you have a substantial nest egg.

Best of luck,

- Grateful 

SouthernLady

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Re: Help me break up with FA
« Reply #2 on: February 23, 2015, 07:38:20 PM »
Thank you very much for your suggestions.  The issue isn't as much what to invest in on the other side, although I probably will have questions on that as well.  The issue is how to get out of this AUM arrangement as easily as possible.  Any suggestions would be much appreciated.

fa

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Re: Help me break up with FA
« Reply #3 on: February 23, 2015, 07:40:19 PM »
What is an AUM arrangement?

SouthernLady

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Re: Help me break up with FA
« Reply #4 on: February 23, 2015, 07:48:16 PM »
Assets under management.  The FA "earns" 1.84% of the assets in the accounts each year.

SaintM

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Re: Help me break up with FA
« Reply #5 on: February 23, 2015, 07:53:33 PM »
AUM:  "Assets Under Management"

Unless you have some kind of time-length contract, you can cancel by simply walking into the advisors' office and canceling.

If you are under some kind of contract, the cancellation fees will be much less than the expense ratio you will pay over time.

SouthernLady

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Re: Help me break up with FA
« Reply #6 on: February 23, 2015, 07:58:10 PM »
Absolutely right.  But what do i have to do to move these accounts?  Do I need to tell the FA to sell all of them to move them to accounts without an FA?  And as to the taxable account, how do I know the tax consequences before doing so?  The FA buys and sells assets every month. 

MDM

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Re: Help me break up with FA
« Reply #7 on: February 23, 2015, 07:59:37 PM »
I am hoping to get some advice as to how to break up with my FA and transition from AUM to accounts with lower fees.
... 
I would be immensely grateful for any advice as to how to move these AUM accounts with the DFA funds to lower cost accounts and delay taxes on those in the taxable account. Any thoughts as to the 401(k) allocation would also be appreciated.   Initially, I had been thinking of moving the AUM accounts to Vanguard or Fidelity but am not sure if I will have to liquidate the DFA funds in order to do so and there will be tax consequences in the taxable account (and sales costs in the deferred accounts).   Finally, how will I figure out the basis of all of the funds in the taxable account?

There are (at least) two issues here:
1) The fees you pay to your Financial Advisor.  If you are paying 1.84% of AUM, you can drop that to 0.0% by transferring the funds "in kind" to Vanguard.  See http://www.abcsofinvesting.net/transfer-in-kind/ and http://www.vanguard.com/pdf/v412.pdf.  Call Vanguard before filling out the form to go over any needed details, but then you just do submit the form and Vanguard does the rest.  You don't even have to talk with the current FA and broker if you don't want to.

2) The expense ratios of the individual funds.  To get out of those and into lower cost funds, you will have to sell and pay whatever capital gains are due (and any back-end load charges if applicable).

Your current broker might have the basis for you.  Does your current broker offer an "evaluate tax consequences of a proposed transaction" option on the web site?

whiskeyjack

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Re: Help me break up with FA
« Reply #8 on: February 23, 2015, 08:26:01 PM »
Absolutely right.  But what do i have to do to move these accounts?  Do I need to tell the FA to sell all of them to move them to accounts without an FA?  And as to the taxable account, how do I know the tax consequences before doing so?  The FA buys and sells assets every month.

What would happen if you called Ameritrade directly and told them you were interested in self-managing your accounts?   When I've moved assets from a managed account to one I was handling myself, I just contacted the receiving brokerage, gave them the account information and they transferred everything over for me.    You shouldn't have to sell anything first (but ask the receiving brokerage about it because I see that some of those mutual funds are "Institutional Class")

I didn't really try to figure out the tax situation in the original account (it was inherited) but once it was switched over to Scottrade, they had all the transaction history recorded and estimates of gain and loss.    The transfer itself had no tax impact because nothing was sold, I started doing that later.    Whatever your FA was buying/selling before you transfer will be listed in the tax forms sent next year.


5oclockshadow

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Re: Help me break up with FA
« Reply #9 on: February 23, 2015, 09:02:18 PM »
Call Vanguard and ask to speak to someone about doing a "transfer in kind" on your account.  I'm guessing it will take less than 10 minutes to be talking to a representative.  They'll ask you to fax a recent account statement and will tell you if any funds won't transfer and what the tax implications for the account would be.   If you decide to transfer, they will initiate it with your advisor/existing account.  In other words, you may never have to talk to your advisor about this (unless some funds won't transfer, in which case you will have to tell them what you want done with those accounts).  If you transfer in kind there should not be any taxable event (on all funds that will transfer, which should be most, if not all).  I recently went through a similar process and was impressed by how easily it all went.  Also, if you want a little hand holding going forward, Vanguard charges 0.3% AUM (in addition to your expense ratios) for that service.

jake14569

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Re: Help me break up with FA
« Reply #10 on: February 23, 2015, 09:24:42 PM »
Hi there -

I used to work at a FA firm that used DFA funds and TD Ameritrade. Mechanically, its not hard at all to 'fire' your adviser, unless you signed an agreement for a specific period of time. Couple of thoughts:

1) The fee you are paying him is way too high, and the portfolio mix looks too complex. Market rate these days for fee only advisers who invest in DFA funds is about 1.0% to 1.5% depending on your assets and the level of service provided. Personally I think its worth paying a little bit (maybe 1 to 1.25%) to have access to DFA funds, but I'm sure there are plenty of people on this forum who would disagree. I just like DFA's methodology and think its worth the fee, but not at 1.8% on top of not receiving good service. I pay much less and get great service from my adviser.

2) Letting him go doesn't have to be difficult. It happens as a course of business for these guys. Just send me an email informing him that you've decided to move your money elsewhere and to please have your accounts moved to TDA retail effective immediately. He should inform TDA and they will reclassify your accounts from Instiutional to the retail side. I don't think you will have to sell the institutional assets like the DFA funds, but you won't have to buy them. I'll ask my adviser about that and post tomorrow if he tells me otherwise. Its been about nearly a decade since I was in that industry.

3) Although you can leave the money with TDA retail side, you should be able to transfer your accounts just about anywhere. Really, you shouldn't eve have to move the money to TDA retail first. The 'new' broker will actually handle the transfers for you, you just fill out the paperwork and they initiate everything, make sure to mark to transfer in kind rather than liquidate. I believe it is required now that cost basis be included in the information with the transfer. And by transferring the assets instead of selling them, you will not be taxed. There are typically minor fees associated with the transfer, but its common for the new broker to reimburse transfer fees depending on the dollar amounts transferred.

Anyway, good luck and way to go for taking action on this. I'll re-post if my adviser corrects any of the info I've provided.


Sibley

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Re: Help me break up with FA
« Reply #11 on: February 24, 2015, 08:36:45 AM »
If you're in the US, move everything to Vanguard. Pick no more than 10 low cost index funds (I have 1, but I'm assuming you're nervous about diversification based on that extremely long list). Simple = good. Complex = nightmare for the people picking up the pieces when you get hit by a bus.

Don't know if that works for other countries though!

Capsu78

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Re: Help me break up with FA
« Reply #12 on: February 24, 2015, 09:52:29 AM »
Call Vanguard and ask to speak to someone about doing a "transfer in kind" on your account.  I'm guessing it will take less than 10 minutes to be talking to a representative.  They'll ask you to fax a recent account statement and will tell you if any funds won't transfer and what the tax implications for the account would be.   If you decide to transfer, they will initiate it with your advisor/existing account.  In other words, you may never have to talk to your advisor about this (unless some funds won't transfer, in which case you will have to tell them what you want done with those accounts).  If you transfer in kind there should not be any taxable event (on all funds that will transfer, which should be most, if not all).  I recently went through a similar process and was impressed by how easily it all went.  Also, if you want a little hand holding going forward, Vanguard charges 0.3% AUM (in addition to your expense ratios) for that service.

Very similar to my experience.  We spent more than 10 minutes, but it was for 2 of us.  FA was rather prickly but when he figured out I wasn't changing my mind he suggested liquidating everything same day and just transferring the balance. 
And with the number of funds you own, I also suggest a much smaller number if for no other reason than keeping your beneficiary designations simple and consistant.

Travis

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Re: Help me break up with FA
« Reply #13 on: February 24, 2015, 10:57:22 AM »
If you're in the US, move everything to Vanguard. Pick no more than 10 low cost index funds (I have 1, but I'm assuming you're nervous about diversification based on that extremely long list). Simple = good. Complex = nightmare for the people picking up the pieces when you get hit by a bus.

Don't know if that works for other countries though!

I had a portfolio similar to the OP before I was introduced to Vanguard and the Bogleheads.  I was talked into "diversification" by my adviser though I really had no idea what was going on. Due to my experiences I've become very cynical towards advisers who do this as it seems a way to confuse the hell out of the client and rack up the fees.

+1 to the suggestions to call your new financial institution and let them do the work. You do not need to engage your previous adviser nor do you owe him anything (thanks, screw you, I'm sorry, etc).

SouthernLady

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Re: Help me break up with FA
« Reply #14 on: February 24, 2015, 06:21:20 PM »
Thank you to all of you for your suggestions (and encouragement).  I will call Vanguard in the next few days and find out what can or cannot be transferred in kind and see where I stand.

Does anyone have any suggestions for the 401(k) allocations?

401(k), held at Fidelity.  Most of the selections made by FA and have now figured out that most selections were higher fee funds:

Current allocation:

Dodge & Cox Stock (DODGX) (Large Cap Value)       32.59%
TRP Inst. LGCP Core (TPLGX) (Large Cap Growth)      25.05%
Vanguard Extended Market IDX INS (VIEIX)              16.30% (recently exchanged NB Genesis recommended by advisor for this)
Fidelity Diversified Intl K                                    15.34%
Vanguard Total Bond Market Inst                          10.72%

Funds offered in 401(k):
TRP Inst LGCP Core (TPLGX) (Large Cap Growth)               ER .59%   
Vanguard Inst Index (VINIXP) (Large Cap Blend)               ER .04%
Dodge & Cox Stock (DODGX) (Large Cap Value)               ER .52%   
NB Genesis R6 (NRGSX)   (Mid Cap Growth)                       ER .78% (converted all shares in  December to VIEIX)
Vanguard Extended Market Index  (VIEIX) (Mid CapBlend)         ER .08%
Fidelity Diversified Intl K (FDIKX) (Foreign)                       ER 78%
Vanguard Total International Stock IS (VTSNX) (Foreign)         ER .12%
NT Emerging Markets (Diversified Emerging Markets)              ER .2374%
MSIF Global RE I (MRLAX) (Reit)                             ER 1.02%
Fidelity Puritan K (FPUKX) (Blended Fund Investments)            ER .46%
Lifepath 2020, 2025 or 2030 (Blended Fund)                        ER .21%
PRU Total Return BD Q (PTRQX)   (Bond/Managed Income/ Intermediate Term)    ER .51%
MIC II CL 1 (Bond/Managed Income/Stable Value)                     ER .59%

Any thoughts would be greatly appreciated!

Capsu78

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Re: Help me break up with FA
« Reply #15 on: February 24, 2015, 07:25:31 PM »
The only thing I will say is that I have been in the same D&G fund as you since 1997 and have rode it up and down the entire time...its my most comfortable long term hold. 

SouthernLady

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Re: Help me break up with FA
« Reply #16 on: March 11, 2015, 10:34:02 PM »
Thank you everyone for your replies.  They have been helpful .  I spent a large chunk of my day on the phone with TD Ameritrade and with Vanguard to gain online access to the accounts that they hold for the FA and find out the following information:

I can remove the FA from the accounts.  TD will allow me 30 days to name a new advisor and if one isnít chosen, the accounts will be transferred as new accounts in kind to the retail side of TD rather than the institutional side.    After the transfer, I could only hold or sell the DFA funds.  TD would charge $9.99 for any trade of the iShares (12 funds across the three accounts) or Vanguard ETFs (6 funds  across the three accounts) and $49.99 for any trade of the DFA funds (8 funds in IRA, 8 funds in Roth and 5 funds in taxable).   Since there are so many funds in three accounts (which would all be considered separate trades), these charges could cost a bit down the road.

Vanguard confirmed that they can accept all of the ETFs and DFA funds but I could again only hold or sell the DFA funds.  Vanguard would charge $7 each for the first 25 ETF trades per year made online and $20 for each trade of the DFA funds.  Still a pretty penny.

Alternatively, Vanguard suggested that at least as to the IRA and Roth IRA, I could liquidate the accounts and then have them transferred.  TD Ameritrade confirmed that the arrangement with the FA includes all trading costs and that if I liquidated the funds and then transferred them to another institution while it was still on the institutional side of TD, there would be no trade charges.   This would eliminate additional charges for these two accounts.

I could also do the same with the taxable account or I could liquidate some, transfer some and try to limit the tax hit.  The taxable account is only about 12-13% ($36,000) of the total and according to the current online records has a short term loss of $2760 and a long term gain of $8,820.  So I guess the tax hit would not be as bad as I feared.  I havenít prepared my taxes for this year but last year I barely stayed within the 15% bracket (head of household, high mortgage interest, property taxes, college credit for son, etc.).  I raised my 401(k) contribution last year but am not sure if I crossed over to the 25% bracket or not.  These capital gains would probably push me over, however.

Finally, TD charges a $75 per account to transfer if the other institutions forms are used and the other institution requests the transfer.  If TD forms are used and the request is made by me, there is no transfer charge. 

So,  I would really appreciate any advice as to the best course of action to take with this information.  If the funds are okay as they are and ok to stay this way for awhile, then maybe it doesnít matter or if only a few funds were sold at a time, the expense would not be that overwhelmingly.  Or would it be better to just get out of them now and start fresh?  I am not sure if there are only holding periods which would incur fees.


   

MDM

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Re: Help me break up with FA
« Reply #17 on: March 11, 2015, 11:01:37 PM »
Alternatively, Vanguard suggested that at least as to the IRA and Roth IRA, I could liquidate the accounts and then have them transferred.  TD Ameritrade confirmed that the arrangement with the FA includes all trading costs and that if I liquidated the funds and then transferred them to another institution while it was still on the institutional side of TD, there would be no trade charges.   This would eliminate additional charges for these two accounts.
Great option - do it.

Quote
I could also do the same with the taxable account or I could liquidate some, transfer some and try to limit the tax hit.  The taxable account is only about 12-13% ($36,000) of the total and according to the current online records has a short term loss of $2760 and a long term gain of $8,820.  So I guess the tax hit would not be as bad as I feared.  I havenít prepared my taxes for this year but last year I barely stayed within the 15% bracket (head of household, high mortgage interest, property taxes, college credit for son, etc.).  I raised my 401(k) contribution last year but am not sure if I crossed over to the 25% bracket or not.  These capital gains would probably push me over, however.
Don't worry if the capital gains noted above push you into the 25% bracket - you pay the 25% on ordinary income and/or 15% on LTCG only for the amount that exceeds the 25% bracket lower limit.
When you do this year's taxes, create another return on which you add the expected results from all your transfers to all your other expected 2015 income, deductions, etc.  That seems the best way for you to estimate the actual effect.

Quote
Finally, TD charges a $75 per account to transfer if the other institutions forms are used and the other institution requests the transfer.  If TD forms are used and the request is made by me, there is no transfer charge.
As long as Vanguard will take the TD forms, this one seems obvious....

Quote
So,  I would really appreciate any advice as to the best course of action to take with this information.  If the funds are okay as they are and ok to stay this way for awhile, then maybe it doesnít matter or if only a few funds were sold at a time, the expense would not be that overwhelmingly.  Or would it be better to just get out of them now and start fresh?  I am not sure if there are only holding periods which would incur fees.
Appears you have (with some work - good for you!) determined a good path to break free and start fresh.  Do it!