Author Topic: Question about the $ that will be leaving our ex-Financial Advisor  (Read 3355 times)

stully05

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I'll try to make this as short as possible - but I'll give a quick background.
I'm 31, wife is 29.  Our total income before tax is about 250k.  3.5 years ago I had 205k in student debt.  Currently I have about 70k with an average rate of 6.1% and am on schedule to payoff the balance no longer than 18 months from now.  This will free up approx 4,000 to 4,500 dollars per month with these loans gone.  I've calculated the the interest charges on the remaining balance will be in the range of $4,000 over the next 18 months.  Paying down this balance is our goal and we will be free to invest much more after.

In the past few months I've really committed myself to learning all I can about where my money is going and what it is doing.  Vanguard will be a big player in our future investing/saving.  I currently have an account open with Schwab (Individual and IRA) and my wife and I have our own respective 401k's which we both max out every year.  The problem is money that we have with "A family friend" who is a FA with Morgan Stanley.  This person was recommended to us by my inlaws as someone the family has worked with for several years.  I now view this recommendation as a poor one as we started working with this individual before I started educating myself and reading MMM. 
The money we have with this person is approx 16k in an individual acct and 27k in a rollover IRA from my wife's previous 401k.  The investment recommendations made by this person were centered around Blackrock funds.  They had a 5.25% front load and an expense ratio of about 1.2%.  I believed that because of my inlaws position that the load fees would be waived and our expense to work with this person were limited.  Basically I didn't pay a bit of attention to it and just blindly trusted them.  The returns on these investments have only been in the range of 1% since we started working with Morgan Stanley 3 years ago.  What I would like to do is take the 16k from the individual acct and use it towards student loans.  Potentially reducing the payoff timeline by 4 months.  Then transfer my wife's IRA to Vanguard. If I would have been more MMM aware we could have saved all the load fees that we were charged when her 401k rolled into the IRA (approx $1300).

So is there any reason to not do what I've outlined, or a better way to do things.  What is everyone's thought on using the 16k to payoff loans?
We've got 50k cash in a high yield savings, 77k in my 401k, 20k in Schwab between my IRA and individual acct.  My wife has >10k in her new 401k.

Thanks for any advice you can give.  This is my first post and I'm pumped! 

the fixer

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #1 on: January 14, 2014, 03:49:54 PM »
Sounds good to me. I moved away from a "family friend" "advisor" at UBS to Vanguard a year ago. It's really easy to move an IRA, just tell Vanguard what institution has the money now, and they take care of most of the work like contacting the advisor for you and providing you with any paperwork they know the institution needs you to sign.

KingCoin

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #2 on: January 14, 2014, 04:03:13 PM »
They had a 5.25% front load and an expense ratio of about 1.2%. 

Oof. It's amazing that these guys can sleep at night.

Plan sounds good.

aj_yooper

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #3 on: January 14, 2014, 06:57:49 PM »
Good job on paying off the student loans!  Once they are paid off, you can really start investing.

You have learned that there is no fiduciary duty requirement for so called financial advisers.  William Bernstein (The Intelligent Asset Allocator writes that fa  seem to see their job is to convert your account to theirs.  There will be fees, of course, to close the MS mistake.  I write with conviction on that firm as I have used them myself.

IMO, the remaining SL debt could easily be paid off by spending your Morgan Stanley depreciating asset and liquidating your savings account.  Your large income would replenish your emergency fund in no time at all.  Your debt interest rate is high enough to spend your cash to get rid of the SL debt.






KingCoin

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #4 on: January 14, 2014, 07:57:58 PM »
Your large income would replenish your emergency fund in no time at all.

Unless there's an, um, emergency.

I agree with the sentiment though. If one or both of your jobs are secure, you might think about throwing some of that cash toward the loan. You'll probably want to keep 6mo of liquidity though. At some point, sleeping at night is better than making the mathematically optimal financial decision.

stully05

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #5 on: January 15, 2014, 07:28:57 AM »
Thanks for the replies.  Collectively, we will keep the 50k as this is serving as our emergency fund, but we will put the 16k towards loans.

mpbaker22

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #6 on: January 15, 2014, 07:36:51 AM »
Sounds good to me. I moved away from a "family friend" "advisor" at UBS to Vanguard a year ago. It's really easy to move an IRA, just tell Vanguard what institution has the money now, and they take care of most of the work like contacting the advisor for you and providing you with any paperwork they know the institution needs you to sign.

Exceptionally easy.  I put this off for close to a full month because I didn't want to deal with the run around and phone tag.  Finally made the call to Vanguard, and it was about a 5 minute conversation.  They did the rest.  Phenomenal!  Now, if only they could clear trades faster!

Cheddar Stacker

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Re: Question about the $ that will be leaving our ex-Financial Advisor
« Reply #7 on: January 16, 2014, 03:02:12 PM »
Thanks for the replies.  Collectively, we will keep the 50k as this is serving as our emergency fund, but we will put the 16k towards loans.

I agree with AJ, I think you should reduce the emergency fund (EF) to payoff the debt quicker. $4,000 in interest over 18 months is worth saving. You mentioned the EF is high yield savings so you might re-coup some of that. Others will point out you could invest some of the EF for a higher return than savings and the 6% debt, but I wouldn't risk it with 6% student loans. Your income is way too high to deduct the interest as well.

If you don't want to use all your EF to pay down student loans, maybe consider using $20-30K of it. That still leaves a huge cushion and you also have your $20K at Schwab to use, although at least some is IRA so not as accessible.

If the jobs are very secure, you can also use a 401K loan as an EF. It's not ideal, but it's an EF so you take an emergency loan if you need it. Up to $50K, and the interest is paid to your 401K account so it sort of acts like a bond with a guaranteed ROR. Downside - payback is post tax, and if you lose your job you have to either repay the loan immediately or take a withdrawal.