OT: Help needed

Investment Analysis Clubs Macro Economic Trends and Risks
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Hello. I don’t think this is the right place to have my concerns addressed, but perhaps I could get pointed in the right direction by some of the kind-hearted folks who hang out here.

My wife has an account with Fisher Investments that I would like to get out of. Its management fee is 1.25% and from time to time it spits out a lot of capital gains as it rebalances country and sector weightings. The management fees plus the 2022 capital gains tax extrapolated from Q1 will add up to close to 3% of the account value. With the 4% withdrawal rate in mind, that doesn’t leave much for living expenses.

Please, no negative stories about Fisher or managed accounts – I’ve seen them all. The concern is, How to get out of this? The account is all large-cap stock concentrated in the US but spread out internationally. A liquidation would cost around 16% of the account value in cap gains taxes, more if the federal tax rate goes above 15% at some level.

Quitting Fisher without liquidating would leave us with a basket of stocks that we wouldn’t know what to do with. We could just hold on and enjoy taking the full 4%, hoping that performance doesn’t lag the market too much. Or sell randomly a little at a time and put the proceeds into an index or somewhere else. Getting ourselves educated from scratch to really know how to handle this seems too daunting but I’m willing to try.

Suggestions will be immensely appreciated.

–fleg

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In your position, I would transfer the assets to Fidelity Investments. They have excellent customer service. Ask if they can help you make a custodian to custodian transfer of assets from Fisher to Fidelity without selling the assets. I have attached the link to the form to transfer assets. You can probably complete this online, but don’t hesitate to phone them if you need help.

https://www.fidelity.com/

https://www.fidelity.com/customer-service/transfer-assets?cc…

Wendy

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I forgot to mention…

Even before you transfer your assets, analyze your asset allocation. You should analyze the balance of stocks, bonds, cash and other investments. Do your wife separately and then, if you want, add your own assets to hers and analyze your asset balance as a couple. Analyze your retirement and non-retirement assets. It may take a while to set up your spreadsheets but worthwhile.

Once you know where you stand, decide your portfolio balance based on your personal risk tolerance and long-term objectives. Fidelity has calculators you can use to adjust your balance based on the parameters that you input.

https://www.fidelity.com/calculators-tools/retirement-calcul…

Once you have done this, don’t hesitate to return to the METAR Board to ask for advice. We all love to kibbitz. But you will get very different advice since each METAR has a different risk tolerance and we are all very opinionated. :wink:

Wendy

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I agree with Wendy on transferring assets to Fidelity.

Also if you have mutual Funds check into soundmindinvesting.com.

Wayne

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You can transfer assets in-kind (except in the case or proprietary funds) to another brokerage with relative ease. You should be able to ask the new brokerage to review all holdings to ensure that they can hold them. Such is a common practice with account transfers.

As far as how to get rid of the holdings, it sounds like you have answered that question yourself a bit, sell to get your 4%. You can also sell losses to offset the gains (loss harvesting) as well as pick the individual lots you want to sell to reduce tax implications as needed.

A liquidation would cost around 16% of the account value in cap gains taxes, more if the federal tax rate goes above 15% at some level.

You sure on the math of that?

Let’s do a hypo:

500k cost basis, 1.5MM account value (1MM in unrealized LT gains).

Max cap gain tax rate is 23.8%. A full liquidation of the above account would result in a max tax bill of $238,000, or about 16%. Are you sitting on that much in cap gains even after the gains from last year?

more if the federal tax rate goes above 15% at some level.

You would be well above 15% if your tax rate on cap gains cost you 16% of your entire account value. I have to conclude your math is off.

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No need to liquidate. Open an account elsewhere and transfer all the assets.

The Captain

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Wendy, after thinking it over, suggests you analyze before moving. Usually I would agree (always think before taking major steps), but Fisher is a rather egregious entity and I see no downside in simply jumping to Fidelity while in your current investments.

Then think hard and rather quickly.

This board exists to help on that last sentence.

david fb

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Nothing wrong with Fidelity but one should compare brokers to see which one fits best. There is not that much rush to get a new broker and you might as well find the best one for you.

The Captain

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Quitting Fisher without liquidating would leave us with a basket of stocks that we wouldn’t know what to do with. We could just hold on and enjoy taking the full 4%, hoping that performance doesn’t lag the market too much. Or sell randomly a little at a time and put the proceeds into an index or somewhere else.

“sell randomly a little at a time and put the proceeds into an index or somewhere else” sounds good to me.

After transferring the stocks, there is no hurry to sell. A random selection of stocks will likely return within +/- 4% of the index (5-year Compound Annual Growth Rate, tracking error will be higher in single years). Sell as needed to balance sectors (e.g. sell tech stocks if too many are held), and to manage taxes (there is a 0% rate up to $X).

“Pick 20 random stocks, attempting to match the S&P 1500 equal weight 5 year CAGR… Excess return for the 63 portfolios (rolling 5 year CAGR minus benchmark) averaged 0.8% since 1994, with a 3.6% standard deviation. Over the most recent 5 years, {Profitable2021} CAGR for the 63 portfolios ranged from 8 to 23. {SP1500EqualWeight} CAGR ranged from 15 to 17.”
https://discussion.fool.com/diy-sp1500-equal-weight-screen-34858…

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Thank you for all the great replies! This is exactly what I was looking for! Fidelity sounds good. I understand that Vanguard has lower fees, but I heard that decades ago. And I believe there is a Fidelity office near where I live.

A liquidation would cost around 16% of the account value in cap gains taxes, more if the federal tax rate goes above 15% at some level.

You sure on the math of that?

According to the latest statement, the unrealized capital gains are a bit over half the value of the account. We pay 24% in capital gains tax (15% Federal, 9% Oregon). 24% of half of something is 12%. A little over half pushes it closer to 16%, maybe not all the way there but close enough. I checked and we are well below the threshold for the 20% federal rate.

Now I need to convince the wife to make the switch. She likes the Fisher crowd as they are personable and responsive, as good salesmen usually are. So bring on the negatives about Fisher! I need ammunition.

And thanks again.

–fleg

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(9% Oregon)

Criminy! My fault for not considering state taxes - not even my own which are less than 4% but certainly not zero.

So bring on the negatives about Fisher!

I have no reason to disparage another professional based on the sins of their company but if you need some ammo, you might be simply show her comparison performance of what the same allocation in stocks and bonds (US index funds mind you) would have done compared to what Fisher did.

Likely, Fisher has X percentage in international investments and in most cases, they have lagged US stock performance for the last decade.

Then show her the total fees you paid for that lack of performance - and tell her what vacation/jewelry/new car/home improvement she could have had with that money.

My guess is that your performance would have been substantially better in just two index funds (and if not, keep looking until you find two or three that are better! ;P).

Such managed accounts are not generally designed to beat the market (net of fee). They are designed to help keep a person invested based on their risk tolerance. The vast majority of individual investors lag market performance by much more than any managed account fee because they are always getting out at the wrong time - so it is essentially a fee, a form of insurance, from oneself. If one does not need protection from themselves, then they should do better on their own over the long haul.

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I have no reason to disparage another professional based on the sins of their company

I gave a wrong impression. We saw Fisher when he spoke to a client meeting here in town. He seemed like a good guy who wants the best for his clients. This was in 2009 or 2010 and he was mortified that he failed to call the 2008 bear market. I was looking for bad reviews of the company’s performance, if such exist, not personal attacks.

If they do manage to call the next bear, and act on it, that could make up for a lot of fees. I believe they saved clients part of the 2001 downturn, but that was before our time. And you can’t count on it happening again.

show her the total fees you paid for that lack of performance - and tell her what vacation/jewelry/new car/home improvement she could have had with that money.

The PowerPoint presentation is already taking shape in my mind.

–fleg

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So bring on the negatives about Fisher! I need ammunition.

There’s only one thing you need, and you stated it in your original post. I quote it here - “The management fees plus the 2022 capital gains tax extrapolated from Q1 will add up to close to 3% of the account value. With the 4% withdrawal rate in mind, that doesn’t leave much for living expenses.”

Let’s say that the account is $250,000 or so, and let’s further say that you plan to withdraw $10,000 a year out of it (about 4%). If the tax+fees come to about 3%, that means that tax+fees are $7,500 a year, leaving you with $2,500.

On the other hand, if you instead put the money into an efficient ETF, the tax+fees will likely be
somewhere between 0.25-0.35%. So when you withdraw $10,000 (about 4%) each year, the taxes+fees will be about $750, and the amount you get will be about $9,250. NOTE: There are still normal capital gains taxes on some of the 4% each year, but that also applies in the above managed account case.

$9,250 is quite a bit more than $2,500. Heck, it’s a really nice cruise each year. Or enough money for a really nice car every 7-10 years. Or enough money for a high-end kitchen remodel in 10 years. Etc.

(to be completely fair, this isn’t a complete analysis, because eventually the capital gains taxes are likely to be higher in the unmanaged account than the managed account, but that comes with the territory when drawing from ALL investments.)

It is also possible that the managed account will perform better than the plain old ETF (say, S&P500, or VTI, or whatever), but statistics show that that isn’t at all likely (very very very unlikely) over medium and long periods of time.

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