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Hired a financial advisor who has claimed to be fee-only for a plan as we are 2-5 years away from retirement. Wanted help with projections but especially with two areas: amount and timing of conversion to Roths and 2. real estate as we contemplate a new or second place. Worried I received an annuity salesperson/asset manager in disguise as the first recommendation is to “simplify” our 401ks (almost all in Schwab target ETFs) with the creation of two funds—one actively managed (presumably by them) because they “can do better” and the other to a Prudential Flex Guard account. One criticism of ETFs they have made is:
“Expense Impact:
Funds can add an unnecessary layer of
expense, as opposed to direct ownership of
securities through separately managed
accounts.
In addition to the fees, the clients could run
the risk of embedded cap gains that
precede their ownership. When securities
significantly appreciate, managers will
rebalance portfolio positions and taxable
gains may be realized by the investor.”
I understand there is a relatively low cost to manage these ETFs but had not heard of the cap gains issue.
And as far as the FlexGuard product—are not target date funds managed to hedge as they get closer to the target date?
I also agree with the “Run, don’t walk” comments. Actively managed funds RARELY outperform index funds in a single year, and almost never in a longer time frame. Plus, I suspect they want a 1% feed to get you sub-standard returns. William Bengsten just updated the 4% rule. Check that out. I believe the book about the update will be released later this month.
The two key things to look for in any financial advisor are
(1) they are a Certified Financial Planner (CFP), or Chartered Financial Analyst (CFA), and
(2) they will be acting as a fiduciary, which means the advice they provide must be in your best interest.
If these folks you’re working with aren’t a CFP/CFA and legally acting as a fiduciary, move on before you lose your shirt, an arm, and two legs.
After that, it’s ideal to find an advisor who provides service based on a set fee, but I’d be willing to consider ones who charge a fraction of assets if that fraction is tiny, as it is at Vanguard’s advisory services (starts at 0.3%): https://investor.vanguard.com/advice/personal-financial-advisor
Separately managed accounts are just a fancy name for “rip off” from what I’ve seen: https://humbledollar.com/2021/05/staying-wealthy/.
ETFs are just a wrapper which make it convenient to own that fund at any brokerage, and can be very cheap AND well-managed, as is the case with Vanguard Group’s funds.
If you’re looking beyond Vanguard’s ETFs or mutual funds, you have to be careful as Wall Street has ratcheted up risk in almost any ETF created in the last ~4-5 years. For more, read this piece by Jason Zweig, if you have a WSJ sub:
https://www.wsj.com/finance/investing/how-index-fund-investing-turned-into-an-extreme-sport-d555b5ed?reflink=desktopwebshare_permalink
Forget all you have received from your above advisor and ask around for Trusted Fee Advisor. You might start with a valued advisor from Fidelity or Vanguard, only fee based, for more Ideas before you find another local Trusted Advisor.
Run as fast as you can. He is a salesman. You have tax deferral in a 401k. You do not need an annuity, which offers tax deferral as well. I have Schwab ETFs. are cheap and I have never had to pay capital gains yet, which does happen in a mutual fund when they sell a holding. If you want advice find someone who charges you a fee for advice and does not sell products. Maybe find someone who will give you advice on your Roth conversion and charge you hourly. You don’t need to pay an annual fee for ongoing advice for that. Thats a tax related question. General consensus is convert to a Roth when your income is low.