Author Topic: Mandatory advisor fee?  (Read 2640 times)

NoStacheOhio

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Mandatory advisor fee?
« on: December 08, 2015, 07:25:52 AM »
I'll try to be concise, but something has been bugging me about my wife's 401k.

She works for a small company (<10 people), and they don't do matching, or really offer that much in the way of benefits. Working on an exit strategy, but that's a different discussion.

We elected for the self-directed plan, which is through Schwab Alliance. It took almost a year for them to actually set up the plan, because they didn't know how to do it. In the process, we were assigned an "independent wealth advisor," who is local, and doesn't work for Schwab. After we finally started getting money in the account, I noticed they were taking an advisor fee. I called up Schwab to see about removing the advisor, and the fee along with it. They told me that shouldn't be a problem, but we needed to do it through the advisor.

The advisor said we had to have them on the account. I'm not sure they're actually being 100% truthful here, or how to go about investigating. Since we called, they've started reaching out to her more, sending birthday cards, writing notes on quarterly statements, etc. She doesn't particularly care one way or the other, but I just want them to go away. They took a whole dollar on a ~$1400 balance for doing nothing!

If I would've known what a headache all of this would be. I would've just contributed more to my 403b and her Rollover tIRA (both Fidelity).

matchewed

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Re: Mandatory advisor fee?
« Reply #1 on: December 08, 2015, 07:31:12 AM »
I'm not sure on the details as they're vague, but if the plan is through Schwab and they say you don't need the advisor then just fire the advisor. There is no legal requirement for needing an advisor and if the advisor won't let you fire him/her then just switch to a different plan that is lower cost for you.

NoStacheOhio

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Re: Mandatory advisor fee?
« Reply #2 on: December 08, 2015, 07:35:37 AM »
We can't switch plans (other than just not contributing and using the money elsewhere), and can't rollover until she quits. I'm just trying to figure out what words we need to tell the advisor to get rid of them, or if they're violating any kind of SEC regulations by saying we have to use them.

matchewed

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Re: Mandatory advisor fee?
« Reply #3 on: December 08, 2015, 07:38:53 AM »
Get the paperwork on the plan. The plan itself dictates the rules of the plan.

Frugalman19

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Re: Mandatory advisor fee?
« Reply #4 on: December 08, 2015, 07:39:34 AM »
I think you need to have the advisor, if they are taking $1 for a $1400 balance that is .07% which most likely won't even cover the costs of their shipping and paper, you say they do nothing, but you have no idea the paperwork involved with 401ks. I know I've worked with clients who have had similar situations and it was because Shwab is the custodian on the account, they have costs as well. I've never seen a fee free self directed option on a 401k. And I work in the industry.

NoStacheOhio

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Re: Mandatory advisor fee?
« Reply #5 on: December 08, 2015, 07:42:14 AM »
I think you need to have the advisor, if they are taking $1 for a $1400 balance that is .07% which most likely won't even cover the costs of their shipping and paper, you say they do nothing, but you have no idea the paperwork involved with 401ks. I know I've worked with clients who have had similar situations and it was because Shwab is the custodian on the account, they have costs as well. I've never seen a fee free self directed option on a 401k. And I work in the industry.

Schwab is the custodian on the account, the advisor is a completely separate company. I know there are always going to be fees, and if this one is unavoidable, so be it, I just want to make sure they're not full of it.

Edit: also, thank you everyone for the fast replies!

matchewed

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Re: Mandatory advisor fee?
« Reply #6 on: December 08, 2015, 07:44:32 AM »
I think you need to have the advisor, if they are taking $1 for a $1400 balance that is .07% which most likely won't even cover the costs of their shipping and paper, you say they do nothing, but you have no idea the paperwork involved with 401ks. I know I've worked with clients who have had similar situations and it was because Shwab is the custodian on the account, they have costs as well. I've never seen a fee free self directed option on a 401k. And I work in the industry.

I don't think the advisor has to be some random neutral middleman though. If any fees need to be levered it is either through the plan itself or through the funds invested in the plan. The middleman is unnecessary and I'm unaware of any requirement for such.

Frugalman19

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Re: Mandatory advisor fee?
« Reply #7 on: December 08, 2015, 07:46:16 AM »
I think you need to have the advisor, if they are taking $1 for a $1400 balance that is .07% which most likely won't even cover the costs of their shipping and paper, you say they do nothing, but you have no idea the paperwork involved with 401ks. I know I've worked with clients who have had similar situations and it was because Shwab is the custodian on the account, they have costs as well. I've never seen a fee free self directed option on a 401k. And I work in the industry.

Schwab is the custodian on the account, the advisor is a completely separate company. I know there are always going to be fees, and if this one is unavoidable, so be it, I just want to make sure they're not full of it.

Edit: also, thank you everyone for the fast replies!

I know that you think that the advisor is a separate companies but trust me, he works for Shwab. It's called a DBA. Their company could be "blank financial" but they clear through Charles Schwab and Schwab has a say in what they do. It's very common.

NoStacheOhio

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Re: Mandatory advisor fee?
« Reply #8 on: December 08, 2015, 07:56:18 AM »
They're a two-person LLC/LLP, and there's no mention of any DBAs in any of the SEC info. All the Schwab statements pretty emphatically say that our "independent wealth advisor" doesn't work for Schwab. (Not trying to be argumentative, just trying to provide as much info as I can).

Frugalman19

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Re: Mandatory advisor fee?
« Reply #9 on: December 08, 2015, 08:06:02 AM »
They're a two-person LLC/LLP, and there's no mention of any DBAs in any of the SEC info. All the Schwab statements pretty emphatically say that our "independent wealth advisor" doesn't work for Schwab. (Not trying to be argumentative, just trying to provide as much info as I can).

I hear you, yeah it is really confusing. But the independent advisor clears through Schwab. Shwab gets paid for the business the advisor does. Statement like independent advisor don't work for Shwab are because 1. Liability 2. The advisor works for their DBA. Doing business through Shwab. That's why Shwab sent you to them. I like to think of it as Acura and Honda, Honda owns Acura, but if you work at the Acura dealership, you work for Acura, not Honda. But Honda still has a major say in what you do. From my experience this fee is not avoidable, make sure you're maxing out your other retirement options first :)

Furthermore, I would guess you could find any advisor in the area that clears through Schwab and use them, so if you have any buddies or people you know, ask around, if your gonna pay you might as well like the guy.
« Last Edit: December 08, 2015, 08:08:27 AM by Awgolfer »

NoStacheOhio

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Re: Mandatory advisor fee?
« Reply #10 on: December 08, 2015, 08:14:12 AM »
They're a two-person LLC/LLP, and there's no mention of any DBAs in any of the SEC info. All the Schwab statements pretty emphatically say that our "independent wealth advisor" doesn't work for Schwab. (Not trying to be argumentative, just trying to provide as much info as I can).

I hear you, yeah it is really confusing. But the independent advisor clears through Schwab. Shwab gets paid for the business the advisor does. Statement like independent advisor don't work for Shwab are because 1. Liability 2. The advisor works for their DBA. Doing business through Shwab. That's why Shwab sent you to them. I like to think of it as Acura and Honda, Honda owns Acura, but if you work at the Acura dealership, you work for Acura, not Honda. But Honda still has a major say in what you do. From my experience this fee is not avoidable, make sure you're maxing out your other retirement options first :)

Furthermore, I would guess you could find any advisor in the area that clears through Schwab and use them, so if you have any buddies or people you know, ask around, if your gonna pay you might as well like the guy.

Got it, this is helpful. Thank you!