Author Topic: dump advisor now or later??  (Read 4131 times)

tmitchell

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dump advisor now or later??
« on: September 23, 2015, 08:51:54 PM »
Have a question about leaving my current advisor who charges 1%. They manage about 300k, and when I see the fees (which are basically on PAR with growth) I choke.

However I'm currently in a high tax bracket and checked with my accountant and he said I'd end up paying about 6k in cap gains if I moved the stash.

So, do I move the money now to Vanguard and manage myself, or wait until I'm in a lower tax bracket? I can't say when that will happen since I plan to work at least another 3 years FT and then probably PT for some time after that.

Thoughts??

Thanks!!

MDM

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Re: dump advisor now or later??
« Reply #1 on: September 23, 2015, 09:36:21 PM »
There are several different things for you to consider here:
1) The fee you pay the advisor for recommending the funds/stocks/bonds/etc. in which to invest, and perhaps making those investments on your behalf.
2) The capital gains you would incur if you sold any of those funds/stocks/bonds/etc.
3) The fees you pay the fund managers for any individual fund.

Does that make sense? 

It seems from the OP that you pay 1% for #1, and you have ~$40K in long term capital gains (times 15% = $6K in federal taxes; numbers will differ if state taxes are involved).

How are you doing on #3?  You might be able to move your investments "in kind" to Vanguard and not incur any capital gains.  How desirable that is will depend on the #3 fees you now pay.

ShoulderThingThatGoesUp

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Re: dump advisor now or later??
« Reply #2 on: September 24, 2015, 08:44:26 AM »
You can generally move investments in kind between brokers.

DaveR

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Re: dump advisor now or later??
« Reply #3 on: September 24, 2015, 08:52:24 AM »
1% of 300k is 3k per year in fees.  6k in cap gains is roughly 2 years of fees. If you are going to be in a higher tax bracket (FT work) for 3+ years, you'll be paying $3k * 3yr = $9k in fees. My math says make the move now.

tmitchell

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Re: dump advisor now or later??
« Reply #4 on: September 24, 2015, 10:07:10 PM »
sorry i should have said that the advisor has the majority of investments in individual stocks and the rest in a few low cost ETFs (vanguard among)

that said, if I took it over I'd move it to all index funds, which would more or less "cost" me 6k in cap gains at present.

1% of 300k is 3k per year in fees.  6k in cap gains is roughly 2 years of fees. If you are going to be in a higher tax bracket (FT work) for 3+ years, you'll be paying $3k * 3yr = $9k in fees. My math says make the move now.

this makes sense to me Dave since I'll probably work at least 2 years at this level, which is the break even point. while i plan to leave my current profession in 2-5 years, i figure i'll work at least part time for another 10 or more depending on my interest level, hopefully thanks to FU-money!!

thanks all!

K-ice

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Re: dump advisor now or later??
« Reply #5 on: September 24, 2015, 10:51:47 PM »
Why don't you move it over now in kind?

There should be no capital gains or sales.

You will then save 3K on fees.

You can slowly rebalance to get the allocation you want without selling it all in one shot.

Con, you may not want the hassle of "managing" the stocks he set up for you.


GGNoob

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Re: dump advisor now or later??
« Reply #6 on: September 25, 2015, 08:15:15 AM »
Why don't you move it over now in kind?

There should be no capital gains or sales.

You will then save 3K on fees.

You can slowly rebalance to get the allocation you want without selling it all in one shot.

Con, you may not want the hassle of "managing" the stocks he set up for you.

I agree with this. In-Kind transfer to Vanguard now. Then rebalance when you are in a lower tax bracket or when you feel like paying the capital gains tax. You could just split it and sell half now to pay $3k in tax and half next year to pay the other $3k. Doing this now while your stocks are most likely lower could also help. Soon as they go up, you'll have more gains to pay tax on.

rmendpara

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Re: dump advisor now or later??
« Reply #7 on: September 25, 2015, 08:25:49 AM »
As others indicated, look into an "in kind" transfer to a self-directed brokerage.

So long as all you hold in the account are stocks, funds, and ETFs, most online self-directed brokerages can handle those assets (ex. Vanguard, Fidelity, Schwab, etc.).

By doing an "in kind" transfer, you basically pick up all the assets you hold with the adviser currently and put them under a different account. Since you aren't "selling" anything... there won't be any tax impact. The only potential difference will be fractional shares which may not be able to be transferred depending on where you go, so maybe you have to sell some items, but that's much easier than selling everything and re-investing.

Mother Fussbudget

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Re: dump advisor now or later??
« Reply #8 on: September 25, 2015, 03:01:28 PM »
I think you answered your question by simply ASKING it.

1) Dump advisor.  2) NOW.

tmitchell

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Re: dump advisor now or later??
« Reply #9 on: September 26, 2015, 03:54:10 PM »
My only question is about managing individual stocks myself if I transfer in kind. I really don't know anything about individual stocks as I've only made a study of index funds.

Can anyone explain how to go about selling them? Do you sell the ones with a loss first or with a gain, etc??

Thanks all!

K-ice

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Re: dump advisor now or later??
« Reply #10 on: September 26, 2015, 05:35:26 PM »
I am not an expert so I am following to learn too.

The answer probably depends if they are in registered or non registered accounts.

I am Canadian & we have many parallel rules but some differences too.

From what I have learnt.

You could sell a bit off equally to balance the capital loss & gain.

I have a winner stock that I transfered inkind from non registered to Registered so they can grow tax free.

To offset the capital gain, I am depositing new savings cash equal to about half of the value into an RRSP. (Our registered retirement account that gives a tax refund when I file next year.)

I am keeping my looser stocks in the hopes they grow. They are a Canadian dividend stock so they are best to sit in my unregistered portion of my portfolio. (We get a dividend tax credit.)

In hindsight I should of had a plan to sell the losers at some point. They cut the dividend last January. Someone told me reciently that was a red flag & I should have sold then.

I think you need some rules in place like, if they loose x % then sell.  If the cut the dividend by x or x months in a row then sell.

But I'll leave it upto the stock experts to share what that % should be in practice.

Indexer

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Re: dump advisor now or later??
« Reply #11 on: September 26, 2015, 07:21:48 PM »
Have a question about leaving my current advisor who charges 1%. They manage about 300k, and when I see the fees (which are basically on PAR with growth) I choke.

However I'm currently in a high tax bracket and checked with my accountant and he said I'd end up paying about 6k in cap gains if I moved the stash.

So, do I move the money now to Vanguard and manage myself, or wait until I'm in a lower tax bracket? I can't say when that will happen since I plan to work at least another 3 years FT and then probably PT for some time after that.

Thoughts??

Thanks!!

Complete an in kind transfer to Vanguard. If you call them and tell them you want to move 300k over I'm fairly sure they will walk you through the entire process and make it easy for you. Once it is there you can sell the stuff you don't want to keep, some this year, some the next, etc. The point is that you don't have to pay 1% anymore.

Exprezchef

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Re: dump advisor now or later??
« Reply #12 on: September 26, 2015, 08:19:30 PM »
I was glad to see this topic as I am in the same boat as the OP. I as well have about a $300K mix of stocks and funds that has been in an actively managed advisor account for the past 10 years or so. The account has changed managers four times since its inception with three of those changes made in the past year due to managers leaving and changing positions. I have not been too happy. I want to move everything to a Vanguard account and split the value among the recomended Vanguard Index Funds based on my FIRE date. My fear has been the same as the OP's with the capital gains expenses that I am trying to avoid paying. If I read the replies correctly; I should contact Vanguard and let them know what I want to do and they can walk me through the transfer process that will incur the least amount of tax implications??? This whole time I have been thinking that I would need to sell everything in my current account and then transfer the funds to a Vanguard account.

Indexer

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Re: dump advisor now or later??
« Reply #13 on: September 26, 2015, 08:38:28 PM »
I was glad to see this topic as I am in the same boat as the OP. I as well have about a $300K mix of stocks and funds that has been in an actively managed advisor account for the past 10 years or so. The account has changed managers four times since its inception with three of those changes made in the past year due to managers leaving and changing positions. I have not been too happy. I want to move everything to a Vanguard account and split the value among the recomended Vanguard Index Funds based on my FIRE date. My fear has been the same as the OP's with the capital gains expenses that I am trying to avoid paying. If I read the replies correctly; I should contact Vanguard and let them know what I want to do and they can walk me through the transfer process that will incur the least amount of tax implications??? This whole time I have been thinking that I would need to sell everything in my current account and then transfer the funds to a Vanguard account.

Let's say you own American funds growth fund of america(AGTHX). Instead of selling it you can transfer it in kind to Vanguard. You will just own AGTHX at Vanguard.  No taxes. You didn't sell anything. You just moved it to a different account.
1. You aren't paying your old manager anymore.
2. You hold the holding at Vanguard so when you decide to sell it you can at Vanguard.
3. The capital gains information should go with it. So when you sell it at Vanguard they can tell you the capital gains.
4. You could sell some this year, and then some next year. Limit the gains in any particular year.

MDM

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Re: dump advisor now or later??
« Reply #14 on: September 26, 2015, 08:41:43 PM »
If I read the replies correctly; I should contact Vanguard and let them know what I want to do and they can walk me through the transfer process that will incur the least amount of tax implications???
In short, "yes."
You might frame the question as "...incur the least amount of tax and sales fees" if you are sure you will sell your current holdings.  If you want to keep the stocks and funds, that's a different story.

Quote
This whole time I have been thinking that I would need to sell everything in my current account and then transfer the funds to a Vanguard account.
While there might be some cases in which this would be true or advisable, you would be right to feel unpleasantly surprised if so.  Rather than speculate, however, call Vanguard as you posit above.  If for some reason you don't like Vanguard, Fidelity or Schwab have decent low cost funds as well.

In other words...see Indexer's comments. :)

PizzaSteve

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Re: dump advisor now or later??
« Reply #15 on: September 27, 2015, 10:59:39 AM »
You can generally move investments in kind between brokers.

+1

Now.

If Vanguard's brokerage won't transfer and hold the assets 'in kind,' look into Charles Schwab or Fidelity.  They would be happy to hold your assets with probably no fees. 

That said, your investments are probably paying too high a fee that is not worth it.  Check your expense ratios. 

For individual stocks, if you and your advisor liked them and they have gains, no reason to sell them other than diversification.   I am a Boglehead type, yet also own individual stocks and muni bond leftovers I have held for over 20 years.  When I need the money I will sell them.  The new money goes into vanguard or schwab ETFs now.

Pay the tax on any mutual funds with fees above .15 and start paying lower annual fees for better funds today.  Schwab, Fidelity and Vanguard have index funds under .1% and you are likely paying 1.5-2.5% now.
« Last Edit: September 27, 2015, 11:04:29 AM by PizzaSteve »