Considering Moving IRAs from LPL To Vangaurd

[BanjoAndy]

Howdy folks,
My wife and I currently have IRAs invested with LPL.  Over the past few years I’ve learned a lot about and am looking at improving how our money is invested and I think that one way to do this is to move my money out of the LPL accounts and into similar vanguard accounts as the fees are substantially lower (LPL has a 1.35% annual fee on our IRAs).  Before taking action however I want to 1) ensure I’m doing the correct thing and 2) convince my wife that this is a better course of action. 

One thing I’ve done is create an Excel sheet showing how the fees impact growth at 1, 5, 10, 20, 30, 40 and 50 years.  It’s shocking looking out at 50 years how the two lines diverge from each other – which makes a pretty strong case.  At this point my wife is almost convinced, but thinks I should show our financial planner the data and discuss with him.  So my questions are:

- What else should I be thinking about / What am I missing?

- If I do discuss this with my financial planner what types of arguments should I expect from him?  I don’t think you can argue with the math, but wondering what type of case he’s going to make for sticking with LPL and how I should counter.

Thanks in advance for your input and let me know if you need any more info.

[nereo]

I'm not familiar with what "LPL" is, but holy crap 1.35% is a huge annual fee. 
Absolutely GTFO and move those IRAs into lower cost funds at another brokerage*. 

What will your financial planner say? Well first off you don't need to talk to him at all if you don't want to; you can initiate the asset transfer with Vanguard and they'll handle everything.

If you do talk to the financial planner expect that they are going to fight for your business (1.35% is a ton of money for little work ont heir part over several decades, especially as your accounts grow into 6-digit nest eggs).  Often they'll try to throw financial terms at you like 'loss aversion strategy' and porfolio optimization and tax-loss harvesting (the latter of which doesn't amtter for IRAs at all, and can be done through Vanguard).  Remember, these people want your business and they want you to believe they would be better at managing your money than you.  Rarely does it work out that way (managed funds almost always trail index funds over 5+ year periods). The really disingenuous money managers will make you feel guilty, or like you are making a big mistake. The honest ones will shake your hand and say 'good luck, and remember i'm here if you decide you want more client-based support'.

*Vanguard is very good and that is what I use, but they are not the only game in town.  Fidelity has recently introduced index funds with marginally lower expense ratios, and Schwab is also a fine choice.

[Indexer]

I'm not familiar with what "LPL" is, but holy crap 1.35% is a huge annual fee. 
Absolutely GTFO and move those IRAs into lower cost funds at another brokerage*. 

LPL is like Edward Jones or Raymond James. Very high cost, advisors tend to work very independently, but LPL is known for having even less oversight of their advisors than EJ or RJ.



My advice. Don't ask your financial planner. They will argue you should stay with them. If you really want a second opinion ask a Vanguard Financial Planner.

1. If you have over $500k the consultation is free. They might even do it on smaller accounts if it's the deciding factor for moving your accounts. Doesn't hurt to ask.

2. They can help you switch to a portfolio of low cost index funds. You are paying 1.35%, and my guess is that isn't even counting the expenses hidden within the investments. I wouldn't be surprised(based on the fact that it's LPL) if that was another 1.35%.

3. They are fiduciaries, so they have to act in your best interest. If staying at LPL was in your best interest (it's NOT!) they would have to tell you that.

4. If you don't need an advisor, the consultation is free. If you actually need ongoing help the cost is 0.3%.

[nereo]

LPL is like Edward Jones or Raymond James. Very high cost, advisors tend to work very independently, but LPL is known for having even less oversight of their advisors than EJ or RJ.

Hard to imagine there's a firm that's worse than Edward Jones out there to bilk individual investors our of their money.

In case my suggestion was too vague above, I concur with Indexer; don't ask your financial planner, they'll just give you a sales pitch about why you should stay.  Contact Vanguard/Fidelity and ask them to assist you with an asset transfer.

Also - done correctly this will be a non-taxable event.  All brokerages have experience with this, but just make sure that it's done as a direct transfer from the old account into a new IRA account.

[jacoavluha]

Don’t talk to your financial planner. Just call Vanguard and tell them you want to move your money to them. Your spouse will thank you later.

[BanjoAndy]

Hey - Thank you all for the responses.  I greatly appreciate your time and input. 

So now that I'm just about to move forward with this I'm second guessing myself, as I have friends, family and my financial planner all telling me I'm crazy.  In short:

Our financial planner is being cool about things but thinks I don't understand the value I get from the 1.35% fee and wants to meet to discuss.  I've declined as no matter how you do the math in the long run when these fees are compounded over 20-50 years it is a ton of money.  Furthermore the chances of him beating the market year after year in the long term is highly unlikely.

My good friend says I'm doing the right thing, however is adamant that I need to actively manage the funds (similar to my how financial planner would), have some invested in bonds and be ready to act on market fluctuations to move money around as needed.  My plan was to just invest the IRAs in index funds and leave them be for the next few decades. 

My parents think I'm "putting my families future at risk". 

So I guess my question is - what am I missing?  Is there any reason not to do this? 
 

[nereo]

Hey - Thank you all for the responses.  I greatly appreciate your time and input. 

So now that I'm just about to move forward with this I'm second guessing myself, as I have friends, family and my financial planner all telling me I'm crazy.  In short:

Our financial planner is being cool about things but thinks I don't understand the value I get from the 1.35% fee and wants to meet to discuss.  I've declined as no matter how you do the math in the long run when these fees are compounded over 20-50 years it is a ton of money.  Furthermore the chances of him beating the market year after year in the long term is highly unlikely.

My good friend says I'm doing the right thing, however is adamant that I need to actively manage the funds (similar to my how financial planner would), have some invested in bonds and be ready to act on market fluctuations to move money around as needed.  My plan was to just invest the IRAs in index funds and leave them be for the next few decades. 

My parents think I'm "putting my families future at risk". 

So I guess my question is - what am I missing?  Is there any reason not to do this?

Ok.  If you haven't done so already I'd take some time and read through the first 16 parts of so of JL Collins Stock Series (https://jlcollinsnh.com/stock-series/)
They are short, well written, and will address many of your questions

IN response to your friend who insists you actively manage your portfolio, I'd say hell no.  I mean, if you are the type who really likes spending hours researching stocks, running metrics and finding value go at it.  But it sounds like this is not you.  Further, understand that existing stock prices are based on what a lot of smart people who spend their time analyzing stocks already think it is worth... meaning a smalltime fry like you or me is unlikely to beat the market casually tracking companies a few hours each week.
Yes, having some bonds can be a very good thing, but that does NOT mean you need to actively manage your portfolio.  The simplest way is to just buy a target date fund that has both stocks and bonds spread across domestic and international markets, and let Vanguard worry about rebalancing and changing your holdings as you get older.  Second easiest would be to hold ~3 funds; one a domestic stock index fund, one a bond fund, and another an international fund.  That's about as complicated as I would recommend for anyone asking such questions.

AS for your parents:  You are putting your future at MORE risk by staying with a high-fee service.  Year after year >80% of managed funds fail to beat their index target.  You will be MORE likely to hae LESS money by sticking with LML.  You arent' 'going it alone' by going to Vanguard - they have client advisors too, and they'll generate all the relevant tax documentation for you.

FInal note: The financial industry has a vested interest in convincing you that its too complicated to manage your own finances.  In reality, it's not that hard, and the 'services' that these high-priced houses offer do not offer you any better chance at a secure retirement.  No one is going to have your interests at heart better than you, and LML wants you to stay with them because you are paying through the nose for the exact same products you can get htrough Vanguard, Fidelity or others.

[MustacheAndaHalf]

You and your wife might want to read "A Random Walk Down Wall Street", which most likely is available at your local library.  The 12th edition of that book came out in Jan - it's been around a long time, and backs up it's claims with decades of data.

Do your family, friends and financial advisor use decades of data to make their points?  No.

Here's the scorecard for active investing (your friend and financial adviser's claim):
Past 3-5 years, S&P 500 beats ~80% of active funds
past 10-15 years, S&P 500 beats ~90% of active funds
https://us.spindices.com/documents/spiva/spiva-us-mid-year-2018.pdf

I realize there's lots of people giving opinions, but where's their data?  You can make better decisions with data than gut.

For example, your spreadsheet showing the insane fees caused by 1.35% compounding.

You're also confused about terminology... you don't have a financial adviser, you have a salesman who works for LBL.  They want your money (literally, at 1.35%).  Their odds of beating the market are much lower than they claim - see the data for yourself.

But don't ask LBL for help exiting LBL.  For that, you want to contact Vanguard and get your assets transferred there.  LBL isn't going to assist you with leaving them.

[nereo]

But don't ask LBL for help exiting LBL.  For that, you want to contact Vanguard and get your assets transferred there. LBL isn't going to assist you with leaving them.

Yup - just like any other business, they will try to convince you to stay a customer. And every 'asset manager' has training on how to retain customers who are thinking of leaving and buying index funds instead.

eta: typo.

[BanjoAndy]

Once again thank you all for the time and the sanity check.  Today I initiated the transfers - feel like a weight has been lifted.

nereo - Thanks for the JLC Stock Series links.  I'll be reading these during my lunch breaks.

MustacheAndaHalf - Thanks for the book recommendation - I just put an inter-library loan request on it.

You're all awesome and hope life rewards you with unexpected great things!

[MustacheAndaHalf]

While you're waiting to read those, maybe humor can help defuse the situation with people who are worried about your decision.  Here's John Oliver's "Last Week Tonight" on Retirement Plans:
https://www.youtube.com/watch?v=gvZSpET11ZY

And with all this reading, maybe it will be time to print out the "Financial Adviser" Certificate mentioned in that clip.

[clumlee]

I had my IRA with LPL years ago. I had class A shares so I was paying like 4-5% sales charges. Screw that. I switched to Vanguard as soon as I found out about Vanguard's fee structure (or lack thereof).

[coco1106]

  Hi,
 I am transferring my IRA from one firm to another, I am going to ask for a direct trustee to trustee transfer, I have read that this is a easy process and is not reportable to IRS since no 1099r is issued, is this correct ??

When I rollover my 401k to IRA many years ago I was issued 1099r and 5498 since it was from a 401k. I did not receive the funds it was all handled through fidelity.

Can my IRA funds be electronically transferred to the new firm easily?? I have a IRA and ROTH to transfer , am I allowed to transfer both to the new firm...........IRA to IRA    and    ROTH to ROTH.
thanks       

[bacchi]

@coco1106  Start a new thread, please.

Eh, I'll just answer it here.

1) Correct, if you don't receive any assets, there won't be any forms and you won't have to mention it on your 1040. If it's a straightforward transfer, that is, and it's not part of a divorce, inheritance, etc.

2) It depends on whether the "from" and "to" firms participate in ACATS, the electronic transfer system. Most likely, yes, it'll all be electronic.