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Last summer, I wrote about a frustrating dynamic in our household: I manage my portfolio with low-cost index funds, while my wife Suzie pays nearly 2% annually to a wealth manager. Several comments asked for an update on my campaign to win her over to a lower-cost approach that would benefit our combined future wealth.
My initial efforts got Suzie to open a Vanguard account, which we funded with cash in a money market fund. This let her get comfortable with the platform. The plan was to gradually transfer money from her wealth manager into a simple 60/40 allocation between a global developed markets fund and a global bond fund. But we never got there. Despite gentle encouragement, Suzie couldn’t bring herself to give up the psychological safety net her advisor provided.
We hit a stalemate. Suzie acknowledged the fees were excessive, but she wouldn’t actually make the move. The issue simmered in the background for six months until her next scheduled review meeting at a local coffee shop. Beforehand, I asked if I could push hard on the fees and hint that we might move the account if they couldn’t negotiate. She gave me the green light.I accepted their free coffee and, after some small talk, got to work. When they claimed active management outperforms, I asked to see their net-of-fee performance benchmarked against a basic 60/40 portfolio. The meeting stretched on much longer than expected—I even got a free lunch out of it.
The compromise we reached isn’t something I’d choose for myself, but it’s a massive improvement for Suzie. Though I’ll admit, I was skeptical about the timing.
It seems they’d recently partnered with a large UK investment firm to offer lower-cost portfolios to clients. Had this option always existed and they just hadn’t mentioned it? Or did our threatened departure conveniently coincide with this new partnership? I never got a straight answer. While the advisor presented this alternative to their proprietary solutions, I spotted Vanguard funds in the mix. After some follow-up questioning, we learned they could offer standalone Vanguard funds at the same cost as going direct through Vanguard.
Suzie now holds a 60/40 portfolio of low-cost Vanguard index funds with total fund expenses of 0.19%, plus a separate advisor fee of 0.39%. In return, the advisor has committed to providing financial planning that incorporates both of our portfolios into coordinated tax optimization and estate planning strategies.
Is 0.58% in total fees what I’d choose for myself? Absolutely not. But if the promised holistic service actually materializes, and that’s something we’ll only know over the coming year. It could represent reasonable value, particularly since I’d be benefiting from tax coordination and estate strategies we weren’t paying for separately. Time will tell whether these services deliver or whether they were simply the language needed to justify the fee when I pushed hard on costs.
But here’s what I’m thinking: being right about fees doesn’t matter if your partner won’t act on it. For six months, we had an impasse while Suzie’s wealth manager collected nearly 2%. Now we’ve cut those fees by 70% and Suzie still has the reassurance she needs.
I feel progress isn’t always about getting to optimal. Sometimes it’s about finding what your partner can actually live with, and, to my mind, that’s worth far more than being theoretically correct. In life, a good compromise is better than no compromise.
A note on cultural difference: In my first article on this issue a few comments asked why we had separate portfolios. Our investments are held in accounts which by UK law must be individual accounts—joint pension or tax-advantaged accounts simply don’t exist here.
Great article and thanks for sharing. For your situation, you made amazing progress. Somehow I lucked out and learned about Bogle and Vanguard. I am a self advisor, and am very satisfied especially in retirement with the S&P 500 index funds from both Vanguard and Fidelity. Dad taught me well, never have all your eggs in one basket even for the largest companies, no company is too big to fail, and I will include our US Government with $44 trillion and counting deficit.
The classic dilemma: use inflation to shrink the debt, or keep rates low to avoid drowning in interest payments? Honestly, I’m just relieved this particular headache belongs to people earning far more than I do.
Giving 95% of my investable assets to a Financial Manager was the best thing I ever did. Well worth the 1.25%. I actively trade with the remaining 5%, and that scratches the itch. I can’t make emotional errors with most of my funds anymore. There is more value in the expense than most people think about. I’m sure I’m in the minority, but I needed that moat to be smart with my money.
Know thyself! 😀
…you are doing what’s right for you.
Congratulations! Most active managers would not make the concessions that you were apparently able to negotiate. And, while 0.58% is a whole lot better than 2.0%, 0.19% would be even better.
I help several family members with their investments (I am not a registered advisor, but worked in the Invest biz) and am always astonished by how little people know about the fees, direct and indirect, that they are being charged. They also (falsely) believe that using a fee manager will generate superior returns, when research suggests just the opposite. And, they have no real comprehension of the compound effect that paying fees will have on the long term performance of their investments.
This problem is largely due (in my opinion) to professional asset managers making the investment process look way more complicated and opaque than it needs to be, presumably in order to justify their fees. With a little help and a small universe of low fee funds, it is entirely possible for a non-professional to achieve good long term performance at a moderate cost.
I’m already a believer in low-cost index funds—always have been. My wife’s advisor’s fee reduction wasn’t actually that significant. I negotiated it down from 0.5% to 0.39%, but most of the savings came from replacing their expensive proprietary managed funds with low-cost index funds. The advisor seemed fine with the arrangement since he kept both the majority of his fee and his client.
I had a similar experience with my spouse, who was stock-market averse. In 2004 I convinced her to contribute to a 403b and suggested Vanguard. I also suggested target date funds and she asked for help and I selected two. However, in 2009 Vanguard was dropped as the manager and she was forced to pick from a new list. All of the stipulated firms only offered managed accounts.
I went through the list and found one which, among other things, charged a much lower fee, about 0.5%. So, after an interview she went with that firm.
When she retired because of health issues I attempted to get her to consolidate and move all funds to Vanguard, but she wouldn’t. She used the manager of the other 403b as another source and I didn’t have a big problem with that. However, I did create a spreadsheet comparing her Vanguard performance to the managed account. Vanguard did better and this was obvious with the graph I showed her.
She finally agreed to move her managed account to a self-managed brokerage. To do so required a conversion from 403b to IRA. The new firm was very helpful in navigating the forms. That ended the fees.
Now, I don’t fault her for her reluctance. For one thing, she tends to view the stock market as a crap-shoot. She watched relatives invest for years and go down in flames from time to time. One uncle was severely burned in the 2008 fiasco and never recovered. All got hit in the Dot-Com plunge. One was even a day trader for a time and that didn’t turn out well. For another thing, she really hates the volatility which is inherent when investing.
I think the fact that she overcame her great reluctance in 2004 and continues to invest to be a significant accomplishment for her. According to Firecalc, her decisions will increase retirement spending by $20,000 per year.
I know the nervousness you mention with your wife. When I originally encouraged mine to set up a Vanguard account—with the idea of eventually transferring her portfolio—she was literally hyperventilating over a small transfer into a money market fund. It made me realize that some people genuinely need the hand-holding an advisor provides.
I just watched WealthTrack this morning, which had Jonathan on as a guess a few times over the years.
Retirement expert Christian Benz, from Monringstar was on, she recommended not to pay an active manager more than 1% of the total portfolio but to aim for 0.5% or lower so 0.58% is right in the ballpark.
Christine Benz recommends the same fee range? so I didn’t do too badly. Still, I can’t help wishing there was no advisor fee at all. But I guess we can’t have everything—I should quit while I’m ahead and still in my wife’s good books.
Mark – kudos to you & your wife for what I believe was a successful intervention and checks the “good enough” box. After all, humility & compromising make our lives less turbulent and a lot “sweeter”, especially with our significant other. Nice job.
I’m very happy with “good enough”—sometimes that’s a high bar to aim for.
For those interested this is the original post Mark mentions: https://humbledollar.com/forum/the-high-cost-of-financial-advice-a-tale-of-two-portfolios/
Several comments asked for an update on my campaign to win her over to a lower-cost approach that would benefit our combined future wealth.
It was me that asked.
Today Mark posted:
In return, the advisor has committed to providing financial planning that incorporates both of our portfolios into coordinated tax optimization and estate planning strategies.
For anyone that is interested here was my back and forth with Mark:
Question Mark: Do you and your wife’s advisor also look at your combined portfolios from a total allocation standpoint?
No. Although he’s aware of my portfolio’s overall size and that it’s somewhat more aggressive than Suzie’s, I haven’t disclosed its specific details, and he hasn’t inquired
Seems like not knowing your allocation and reconciling the difference he can’t really give your wife good advice.
David; Thanks for your excellent points. Reflecting on them overnight, I think it wouldn’t hurt if I engage more fully with the advisor for possibly more holistic and comprehensive advice whilst Suzie is still a client. I appreciate the perspective.
You’re more than welcome. I’d be interested in your perspective on how the potential meeting went.
I shall post on the outcome. Although it’ll be a couple of months when we head back down home.
Mark: I’m glad my recommendation has resulted in a significant decrease in your costs. As readers know Jack Bogle is my investing Idol, and I live by one of Jack’s sayings that, “you get what you don’t pay for.” (I practice what I preach-my expense ratio is .04%)
Several years ago when I was between jobs I considered studying to be a CFA. I did not follow through as I felt that no one would pay me an hourly rate for first determining their goals, and then just investing in broad index funds, with periodic follow-ups. Little did I know that would be the direction the financial services industry would head years later. But at least I helped one person.
David, you were definitely the inspiration for my follow-up. Our comment thread was on my mind when I was negotiating with Suzie’s advisor. It just shows that Humble Dollar is a great community where we can all learn from each other—if we’re humble enough to listen.
Glad I could help
My wife and I both have 403(b) accounts as well as a brokerage and Roth accounts with Fidelity. About 10 years ago – five years before retirement – after consulting with a good friend who later introduced me to HD, I began managing our portfolio w/o an advisor. We’re saving about 25k/ in advisory fees and Fidelity does a no-cost review of our portfolio each year. Our portfolio is diversified ETFs and mutual funds. For better or worse (after 40 yrs mostly better) I manage all of our retirement and brokerage funds. I keep my wife well informed, I do not actively trade, and this works for us.
When I was encouraging Suzie to switch to Vanguard, I shared an article about how low fees compound over time. The numbers were stark—we’re talking hundreds of thousands of dollars, possibly more, over a 30-year period.
Rob Berger has done videos showing how this can be millions. Good to hear you cut your fees.
Mark:
Very similar situation here. My wife taught 31 years in a public school system. Aside from contributing bi-weekly to her pension, she was limited to a 403(B) account. The employer limited her to a small group of insurers with fees similar to those assessed to your wife. Her adviser for many years was a family friend who met with her semi-annually and offered good advice. When he retired, the account was transferred to his successor who met with her early on. Then the meetings stopped. At this point, my wife was retired. The only contact the last few years was a Christmas card and wall calendar. Last summer I finally prevailed upon her to rollover her 403(B) to a Schwab IRA containing index funds. We will miss the wall calendar, but those can be purchased for $15 around here
Michael, I think you both made a smart trade. Paying for a calendar instead of high AUM fees is a win—and if you’re anything like my wife, you’ll save enough in fees to cover a half decent vacation.
Red Flag alert when couples have separate accounts. IF SO make sure you have copies of their accounts forever and the same with tax returns. KEEP THEM FOREVER. Divorce is rampant and raises its ugly head in settling finances in divorce
I don’t think there’s any “red flag” signalling. My wife and I have been together since college. We both have access to each others accounts and my wife’s portfolio is larger than mine.
“Red flag alert” seems overly dramatic. We came to the marriage with separate accounts and never merged them. We have separate accounts but manage everything as one portfolio, and we both have full access to each other’s accounts. Also, if one account is compromised, the other isn’t affected. Except for the additional 1099, so what? I have no concerns.
That sounds like a very good solution. Well done both of you.
Aiming for optimal and getting 70% of the way there seems pretty good to me.
I sure don’t have a problem with an advisor charging .39 for their services, after all, everyone needs to feed their family. I think most people need the assurance that an advisor provides. However, in my mind, the deal breaker would have been knowing that they would have gone on in perpetuity charging 2%, had I not questioned the expense. Trust is a hard thing to earn back.
Mark, we have discussed this before on HD, perhaps before your time, but I have to say with a married couple I simply do not get the hers and mine thing.
A married couple with separate portfolios, one with an advisor, operating on different investment ideas is something I can’t comprehend.
What happened to ours? Why separate?
Everything we have, every investment account is in joint ownership except the rollover IRA which we can’t legally do, but once there is a withdrawal it goes into a joint account.
Did you miss my last paragraph? In the UK, we have two main tax-advantaged accounts—one that’s tax-free going in and one that’s tax-free coming out. Neither can legally be held in joint names. The same applies to cash savings: we each have separate tax-free savings allowances that can’t be combined, so keeping savings separate is actually more tax efficient. We also don’t have joint tax filing here—everyone files individually and is responsible for their own tax position.
You can’t have joint tax advantaged accounts (IRA, 401k) accounts in the US either
I did, but I didn’t realize you were talking only about tax- advantaged accounts. Sorry.