Author Topic: Is it worth paying advisory fees for retirement accounts with Smith Barney?  (Read 6978 times)

bkapla1

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I have recently been considering starting to invest a small amount into Betterment for future savings (not retirement), until I stumbled upon articles in this forum stating pros/cons of it compared to somewhere like Vanguard, which many readers seemed to prefer.

The articles prompted the thought of how I pay, in my opinion, pretty high fees for my retirement accounts that I have with Smith Barney (separate from my gov't TSP account).  I Really like the adviser we have, but in reality have overlooked the fees for years.

I have 5 accounts with Smith Barney (an IRA for me rolled over from my previous employer, and 2 IRAs for my wife (Simple IRA and regular IRA), as well as 2 very small Roth IRAs for each or us).

I've reviewed my accounts and found that I am paying 1%/year in advisory fees for the 3 IRAs.  Then, we are paying $75/year for the Roth IRAs each, which is a huge hit considering the tiny amount of money I have in there.

I wanted to see what your opinions are on if it's worth continuing this path of paying these fees.  I'm pretty confident that the funds that we are in are good funds and that we are getting solid advice and performance.  However, is that enough to warrant paying these "extra" fees?  If not, what options do you recommend?  If Vanguard, does that mean I manage everything myself and do I risk lowering my potential retirement nest egg by having a non-skilled investor like myself managing this for the long haul?

I appreciate any input!!

matchewed

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No it is not worth paying fees for something you can do for yourself with a little bit of education and minimal time. Then further education can get you to invest in other more complex investment opportunities if you see fit.

http://jlcollinsnh.com/stock-series/

nereo

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I've reviewed my accounts and found that I am paying 1%/year in advisory fees for the 3 IRAs.  Then, we are paying $75/year for the Roth IRAs each, which is a huge hit considering the tiny amount of money I have in there.
Almost always my answer will be "no".  Paying a $75 fee for an account witha tiny amount of money in it is counterproductive. Until there's >$7.5k in each it's worse than paying 1%
Paying 1% in advisory fees means that you will be paying $1k for every $100k you have.  as your 'stach appraoches retirement size you'll be paying hundreds per week.  Also ludicrous. 
The only way time it makes sense is when your returns beat out investing in low-cost index funds.  Over 5+ year periods that happens about 20% of the time.

EDIT: put the decimal place where it outta' been.
« Last Edit: April 24, 2014, 01:49:19 PM by nereo »

NewStachian

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I've learned the MMM forum is the best place for investment advice and it's free ;)

bkapla1

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Yes, the 2 Roth accounts were funded with only $500 (with the intent to add more, but that never happened).
The 2 main IRAs are over $100k combined and so far have earned about 18% in total.

matchewed

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Yes, the 2 Roth accounts were funded with only $500 (with the intent to add more, but that never happened).
The 2 main IRAs are over $100k combined and so far have earned about 18% in total.

Sorry but the performance doesn't matter when presented in a bubble. Over a similar time frame it is doubtful that your advisor has been able to beat indices.

bo_knows

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I really try not to directly plug my own site, with the exception of my signature, unless questions are directly asked... but...

I wrote this blog post on fees specifically because I had a conversation with a friend who is an advisor for Smith Barney.

Summary: Even 1% fees will add multiple years to your expected retirement date, compared to Vanguard funds.

http://cfiresim.com/blog/2013/11/07/how-fees-affect-retirement-dates/

NewStachian

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SPAM BOT!

Kidding... nice blog entry... but you forgot to say "brought to you by Taco Bell" at the end.

warfreak2

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Almost always my answer will be "no".  Paying a $75 fee for an account witha tiny amount of money in it is counterproductive. Until there's >$75k in each it's worse than paying 1%
$75 / 1% = $7500.

nereo

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Almost always my answer will be "no".  Paying a $75 fee for an account witha tiny amount of money in it is counterproductive. Until there's >$75k in each it's worse than paying 1%
$75 / 1% = $7500.
D'oh!  I knew I dropped a decimal place earlier...  (edited post to correct error)

bkapla1

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Thanks to everyone for responding.  Bo_knows, your blog certainly helps put this into perspective.

Now, it's going to be tough to convince my wife to make a change because she really trusts our advisor and likely doesn't have much trust in my ability to do well making the investment choices myself.  I did actually have control over my IRAs long ago and was very hesitant to let someone make those decisions for me.

I guess I can simply purchase the same exact funds I'm in now with a new place, e.g. Vanguard or similar, and avoid paying that extra 1%/year.

I definitely have some research to do, but you all pointed me in some good directions to start.

matchewed

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Thanks to everyone for responding.  Bo_knows, your blog certainly helps put this into perspective.

Now, it's going to be tough to convince my wife to make a change because she really trusts our advisor and likely doesn't have much trust in my ability to do well making the investment choices myself.  I did actually have control over my IRAs long ago and was very hesitant to let someone make those decisions for me.

I guess I can simply purchase the same exact funds I'm in now with a new place, e.g. Vanguard or similar, and avoid paying that extra 1%/year.

I definitely have some research to do, but you all pointed me in some good directions to start.

Well math has always worked for me. Go find a fee calculator and run it with similar investments and see how much money 1% really will cost you over a 30-50 year time frame. Show your wife how much you can save with not paying fees given similar investments.

kyleaaa

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1% really isn't worth it. Have you considered just using a target retirement or balanced fund?

hodedofome

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Thanks to everyone for responding.  Bo_knows, your blog certainly helps put this into perspective.

Now, it's going to be tough to convince my wife to make a change because she really trusts our advisor and likely doesn't have much trust in my ability to do well making the investment choices myself.  I did actually have control over my IRAs long ago and was very hesitant to let someone make those decisions for me.

I guess I can simply purchase the same exact funds I'm in now with a new place, e.g. Vanguard or similar, and avoid paying that extra 1%/year.

I definitely have some research to do, but you all pointed me in some good directions to start.

Just remember to rebalance your funds (probably annually) and not do something stupid like sell at the wrong time. Although advisors can charge a crazy amount of money, it helps to view them as like a personal trainer. You can work out without a trainer, but some people won't get in there and do it unless someone else is pushing them. A good advisor would encourage you to spend less than you make, and keep investing and not sell at the bottom. They can charge a lot for that advice but it is worth it for those that can't discipline themselves.

EhcatsuM

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Why you have multiple IRAs? remember that the only propose is to take a deduction in your taxes.  Make the analysis of what better for you take the deduction now and pay full taxes in the future or pay the taxes now and don't pay any in the future. If your are in a lower bracket I think is better to have only a Roth, ask you accountant  how much taxes you are going to pay in the future and decide what is better for you a traditional IRA o a Roth IRA.  Also don't open one IRA every year just use one cuz you miss the power of a bigger fund.

beltim

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Why you have multiple IRAs? remember that the only propose is to take a deduction in your taxes.  Make the analysis of what better for you take the deduction now and pay full taxes in the future or pay the taxes now and don't pay any in the future. If your are in a lower bracket I think is better to have only a Roth, ask you accountant  how much taxes you are going to pay in the future and decide what is better for you a traditional IRA o a Roth IRA.  Also don't open one IRA every year just use one cuz you miss the power of a bigger fund.

Because the 5 accounts are not interconvertible without paying taxes, fees, or penalties.

EhcatsuM

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Why you have multiple IRAs? remember that the only propose is to take a deduction in your taxes.  Make the analysis of what better for you take the deduction now and pay full taxes in the future or pay the taxes now and don't pay any in the future. If your are in a lower bracket I think is better to have only a Roth, ask you accountant  how much taxes you are going to pay in the future and decide what is better for you a traditional IRA o a Roth IRA.  Also don't open one IRA every year just use one cuz you miss the power of a bigger fund.

Because the 5 accounts are not interconvertible without paying taxes, fees, or penalties.

I understand because you have a simple, traditional and Roth theres no turning back without paying taxes, fees and penalties.  From now on chose the one that work better for your goal and just fund that one.  Also if your goal is simply to invest and you don't need the tax advantage, invest in something that give you a better performance with less cost.  In my opinion I would paid an advisor any percent if the return of the investment is greater.  Example I paid 3.25% in my manage account but the return of that porfolio was 16.34% Net.  I still got 13.09% return I really don't care anyway is better than if I have made every move my advisor did.

beltim

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Why you have multiple IRAs? remember that the only propose is to take a deduction in your taxes.  Make the analysis of what better for you take the deduction now and pay full taxes in the future or pay the taxes now and don't pay any in the future. If your are in a lower bracket I think is better to have only a Roth, ask you accountant  how much taxes you are going to pay in the future and decide what is better for you a traditional IRA o a Roth IRA.  Also don't open one IRA every year just use one cuz you miss the power of a bigger fund.

Because the 5 accounts are not interconvertible without paying taxes, fees, or penalties.

I understand because you have a simple, traditional and Roth theres no turning back without paying taxes, fees and penalties.  From now on chose the one that work better for your goal and just fund that one.  Also if your goal is simply to invest and you don't need the tax advantage, invest in something that give you a better performance with less cost.  In my opinion I would paid an advisor any percent if the return of the investment is greater.  Example I paid 3.25% in my manage account but the return of that porfolio was 16.34% Net.  I still got 13.09% return I really don't care anyway is better than if I have made every move my advisor did.

I'm not the OP.  But there are many cases where what's best changes.  And a married couples can't contribute to a joint account - each one has to be separate.

EhcatsuM

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Why you have multiple IRAs? remember that the only propose is to take a deduction in your taxes.  Make the analysis of what better for you take the deduction now and pay full taxes in the future or pay the taxes now and don't pay any in the future. If your are in a lower bracket I think is better to have only a Roth, ask you accountant  how much taxes you are going to pay in the future and decide what is better for you a traditional IRA o a Roth IRA.  Also don't open one IRA every year just use one cuz you miss the power of a bigger fund.

Because the 5 accounts are not interconvertible without paying taxes, fees, or penalties.

I understand because you have a simple, traditional and Roth theres no turning back without paying taxes, fees and penalties.  From now on chose the one that work better for your goal and just fund that one.  Also if your goal is simply to invest and you don't need the tax advantage, invest in something that give you a better performance with less cost.  In my opinion I would paid an advisor any percent if the return of the investment is greater.  Example I paid 3.25% in my manage account but the return of that porfolio was 16.34% Net.  I still got 13.09% return I really don't care anyway is better than if I have made every move my advisor did.

I'm not the OP.  But there are many cases where what's best changes.  And a married couples can't contribute to a joint account - each one has to be separate.

I totally agree with that but a annual review would be enough to determine what is better that year, because he have all types of IRAs and to avoid penalties he should let them open but fund them in a way that take the most advantage in a specific year.   

beltim

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I'm not the OP.  But there are many cases where what's best changes.  And a married couples can't contribute to a joint account - each one has to be separate.

I totally agree with that but a annual review would be enough to determine what is better that year, because he have all types of IRAs and to avoid penalties he should let them open but fund them in a way that take the most advantage in a specific year.

And because financial situations change year to year, you end up with 5 accounts.  Easy.

In my mind, the biggest mistake is opening those accounts with a $75 annual fee.  There's no reason to do that when there are plenty of free Roth IRA options out there.

EhcatsuM

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I'm not the OP.  But there are many cases where what's best changes.  And a married couples can't contribute to a joint account - each one has to be separate.

I totally agree with that but a annual review would be enough to determine what is better that year, because he have all types of IRAs and to avoid penalties he should let them open but fund them in a way that take the most advantage in a specific year.

And because financial situations change year to year, you end up with 5 accounts.  Easy.

In my mind, the biggest mistake is opening those accounts with a $75 annual fee.  There's no reason to do that when there are plenty of free Roth IRA options out there.

Thats to bad, change them as soon you have the opportunity most company have decreasing penalties and last only a couple of years.  But remember if the return of investment is big enough to keep the account growing don't change it for a cheaper one with lower performance. 

bkapla1

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Yes the multiple accounts were based on need.  My IRA was a rollover from my previous employer.  My wife was a business owner, so she had an IRA and a Simple IRA.  We haven't contributed to these in years.

The 2 roths we opened with $500 each with the intent to make deposits, but that hasn't happened yet.

I now have a TSP, as I'm a gov't employee now, so that is where I contribute now.  My wife will soon start contributing to her employers 401k soon once she's eligible.

RapmasterD

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No not worth it.

Betterment's fee of 0.15% for assets over $100K is definitely among the more reasonable, but for what they actually provide I don't think you need them. As others have said, get educated. Try the Boglehead forums -- for one.

TomTX

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