YOUR MONEY: Factor fees into investment decisionsQ: I received a letter from my financial adviser that said I would have to pay a higher percentage in fees because my account size fell below $250,000. The reason my account fell below $250,000 is because the adviser lost money on the investments. To charge me more seems outrageous. Do you agree?
By: Gail MarksJarvis, Chicago Tribune
Q: I received a letter from my financial adviser that said I would have to pay a higher percentage in fees because my account size fell below $250,000. The reason my account fell below $250,000 is because the adviser lost money on the investments. To charge me more seems outrageous. Do you agree?
A: I find it distasteful, too, because of the sharp decline in the market over the last couple of years. You would think a conscientious adviser would be reluctant to charge higher fees after these circumstances.
Still, some of the large brokerage firms are rigid. They charge the highest fees to clients with $250,000 or less in accounts — sometimes the fees can be 2 percent of assets or more annually. When your account goes over $500,000 fees go down, and usually at $1 million they are at the lowest levels.
Fees of 2 percent might not sound like much, but the impact, even compared to 1 percent, is huge. Over a lifetime of investing, paying an extra percentage point can reduce your nest egg by hundreds of thousands of dollars.
I would not balk at an adviser who charged about 1 percent, paid close attention to you and your account, and selected sound investments. I also would not blame an adviser if together you agreed on a portfolio that fit your stomach for risk and had stock mutual funds that declined 40 percent last year. The leading market benchmark dropped roughly 40 percent, so it would have been typical for your stock funds to drop like that too.
But if you went through the downturn without hearing from your adviser, that's a different matter. If your first contact, after all this market devastation, was a letter stating you'd be charged more, I think you could do better.
With such an account — and $250,000 is considered small by many top advisers — you could have a challenge finding another low-cost adviser at a large firm.
If you are simply saving for retirement and do not need advice frequently, you might consider a certified financial planner who will charge you an hourly fee for perhaps one or two hours of advice.
If you simply need to know how to divide your money between stocks and bonds, and want mutual fund suggestions, a couple of hours of advice a year might be adequate. If you need more help than that, an adviser that charges you a percent of assets and works with you regularly might be better.
You can find a certified financial planner at CFP.net or NAPFA.com. For a certified financial planner who will charge you by the hour, try GarrettPlanning.com. Interview three planners to make sure you are comfortable before deciding, and make sure fees are discussed thoroughly in free consultations.
Q: Since 1983, I've been a customer of Merrill Lynch. First I had an IRA there and then a Roth account. I closed the account and transferred it to a low-cost firm. Merrill charged me $75 to do this. How can they do this? Also, the process is taking 30 days. Is there something wrong?
A: Unfortunately, fees to transfer accounts are quite common. So consider a firm's fee structure before starting to do business there. Ask about transfer fees and administrative fees in addition to commissions and other charges. Fees vary.
It's easy for a firm to impose a transfer fee on a customer. Because you are leaving anyway, the firm does not have to worry about losing your business. And the firm might not be in a hurry to give up the assets either.
There probably is nothing wrong with the delay, but I would check on the status. I generally advise people when moving an account to another firm to have the new firm handle the transfer for them. You simply fill out a request form with the new firm, and that firm does the work for you. There's an incentive to handle the matter quickly because the firm wants to have your assets.
Also, when moving an IRA, Roth IRA or rolling a 401(k) into an IRA, be cautious about removing the money yourself, pocketing it, and taking your time about moving it into another account at another firm. IRAs and 401(k)'s are not taxed as long as the money stays invested until you retire at 59 1/2 or later. But if you remove the money while deciding to move it elsewhere, you can trigger taxes if you hold onto the money too long.
Letting a reputable financial planner, mutual fund company or broker handle the transfer for you generally makes the transaction seamless. But you should always check to make sure the move occurs within a couple of weeks.
(MarksJarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement Without Living Like a Pauper or Winning the Lottery." Contact her at firstname.lastname@example.org.)