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Hello all.

Turning to you once again. I work for investment companies, but I am a technology expert, not an investor. For years I had my 401k on cruise control. Essentially it was in a 401k account that had Fidelity mutual funds within, and I simply spread out my allocation across the 12 or so funds they offers. At 36, I was mostly equity, split between various strategies, with some fixed income as well.

Now, as I am with a new employer with a new 401k account started up, I am rolling my 401k into an IRA with Merrill Lynch. The check has already been cut from my former 401k account and is en route to the new Merrill account. The financial advisor came via recommendation of other co-workers who use him (also not investment experts, but technology experts like myself).

So my new ML advisor sent me a package today of his proposal for my investment plan. So I began skimming through, and I am as green as it gets on this stuff, but my warning lights are going off.

He has me split out between about 8 different funds, and each one seems to have management fees and a load, and deferred fees for leaving within a year, and so on and so forth.

I had been thinking that my money would be mostly in no load generic mutual funds, since I thought those were good enough without the management fees? Another fund in the list seems to only have 3 and 6 month performance numbers, and nothing else. Does this mean it's a brand new fund, am I a guinea pig here?

The thing is, I realize I am out-gunned in any conversations I may have with this guy, as this is his domain and not mine. He's going to have great arguments as to why his strategy is my best bet. Also, if I try to choose my own adventure, I could really muck it up. I had been hoping for an advisor that was really going to help ME out and not just his own pockets, but I never really thought that could happen (only way to get that kind of service is if your friend is an experienced advisor and helps you plan for free).

Here are some funds and numbers:

Loomis Sayles Strategic Income Fund
Mgmt: 0.606
Rule 12b-1: 1.000
Other: 0.106
Total: 1.713

PIMCO Unconstrained Bond Fund
Mgmt: 1.050
Rule 12b-1: 1.000
Other: 0.002
Total: 2.052

Ivy Funds: Ivy Asset Strategy New Opportunities Fund
Mgmt: Couldn't find a reference?
Rule 12b-1: Couldn't find a reference?
Total: Couldn't find a reference?
Fund Inception: Appears to be May 2010
Manager: Jonas Krumplys
1 yr return: N/A
6 month returns: 23%
3 month returns: flat
Yr to date: -2.5%
Redemption Fees on sells/exchanges: yes
Held less than 5 days: 2%

Federated Equity Funds: market Opportunities Fund
Total Fees: 2.6%
Average Return (flat or negative over last 5 years, last strong year was 2003??? Portfolio seems to be largely cash?)

Prudential Jennison Natural Resources Fund
Total Fees: 1.898
Now looking at the returns on this fund, it seems like they are regularly strong. They lost big in 2008 ( -53% ), but they were up 71% in 2009, and up 45% in 2007. They seem to have been up between 19% and 71% every year since 2002 except for the loss in 2008, their only year below +19%. The numbers read like a successful hedge fund. 10 yr return is 426%. thoughts?

In conclusion, these funds are all over the place, and I really know very little about them. I do see that they all have annual fees in the 1.5 - 2.5% range. Is that normal? My gut tells me that its steep.

I think there is a load up front, in addition to an annual mgmt fee and such. This up front load of 1% would be a few thousand off the top. Is that unreasonable? Do I have to worry about the compounding effect of these fees year over year, or is it as simple as saying "fund makes 10%, I pay 1%, so net is 9%?)

Thanks, sorry for being all over the place. I'm in a strange place as I calculate numbers on credit default swaps and equity swaps through code all day for a living for hedge funds, yet fail to have a complete understanding of how my own retirement should work and what to watch out for when it comes to financial advisors like this guy.
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Dump the advisor. Educate yourself through reading good books -- I am sure there are others on this Board who can direct you. Then, have your money in a self-directed IRA.

Donna
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I'd suggest something like the portfolio in this article using Vanguard Funds.

http://www.retireearlyhomepage.com/tithe.html

I'm an engineer who retired back in 1994 at age 38. I'm living comfortably today just on the fees I'm not paying to a financial advisor and mutual fund manager. You may not even have to dip into capital if you cut those other peckerwoods out of the picture.

intercst
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PIMCO Unconstrained Bond Fund - Holy %^&$!! 2.052 Expense Ratio and a 3.75% load load on a bond fund!? The 1 year return on the fund is 5.17% and they are going to charge you 5.802% the first year for the honor of taking your money? This is one of those funds that are designed for clueless people who can't be bothered to look at their investments. I don't care what wonderful arguments the advisor gives you, just do the math... 5.17% return - 5.82% expense. Ridiculous.

If you have no interest in picking stocks then you probably want some nice, simple, well-diversified index mutual funds that track the stock market and will get you where you need to go. I second the Vanguard suggestion. Just about the least expensive funds around and for disclosure sake, I own several myself. My wife's 401K is locked into Fidelity and they offer some good funds in the Spartan family; expense ratios around .1-.2% None of this 1-3% BS this guy is shoveling you. If you really want to educate yourself on mutual funds read "Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition" by John C. Bogle. He is the founder of Vanguard and essentially created the low cost market index mutaul fund.

Even if your choices of funds are limited by your employers plan there should hopefully be a better selection than this. Often the selection isn't as great as I'd like but anything over 1% needs to generate impressive consistant returns to justify the espense and few funds can do this. I've read from many sources that 80% of mutual funds underpreform the S&P 500 after espenses.

Keep the deposit in cash until you read s book or two. Keep in mind that load fees tend to pay the comission of the sales people so take a moment and add up the loads this guy is wanting you to pay. Multiply that by the 401K deposit you have transferring in and get an idea of how many dollar signs are written across your forehead when the guy talks to you.
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"I think there is a load up front, in addition to an annual mgmt fee and such. This up front load of 1% would be a few thousand off the top. Is that unreasonable? Do I have to worry about the compounding effect of these fees year over year, or is it as simple as saying "fund makes 10%, I pay 1%, so net is 9%?)"

Sorry I didn't answer that question in my first post. The load fee is skimmed off of every deposit made into the fund (called a front-load). It is paid only once for every deposit. I won't be caught dead paying a load fee. Some funds charge back loads or redemption charges. Redemption charges are not always unreasonable as long as they expire after a time. For example if you need to hold the shares for 60-90 days, even a year might be OK though I don't like it. The idea behind these redemption charges that expire are to prevent/reduce rapid buying and selling of the funds shares. Every time you put oney in the company needs to buy stock for the fund and every time you sell the fund they need to sell the stock... this generates expenses. If people trying to time every little market move buy and quickly sell often they can create a large burden on the rest of the funds investors lowering their returns. These expiring charges encourage this type of pwople to go elsewhere to play their games. On the other hand some back-load fees do not expire (some funds even charge both front load and back load fees). This is just another way for the fund manager/company to get you money.

The expense ratio is an ongoing and continous expense used to pay the funds operating expenses, the managers, and give profits to the fund company's stock holders. Think of it as a little hole in the bottom of a bucket causing a little stream of money to dribble out. This will always exsist regardless of the profitability of the fund. If the fund makes 10% in a year and charges a 1% expense ratio then you make 9%. If the fund losses 15% in a year and charges a 1% expense ratio then you lose 16%.

Just to be clear, when the fund quotes you annual returns read the fine print. The returns on the "hypothetical $10,000" dollars DO include the expense ratio. They do not include any costs that would be associated with liquidating the fund such as back-load fees or taxes.
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PS: Agree you got horrible advice at Merrill. First thing Monday re-roll that IRA from Merrill to Vanguard, Fidelity, TRP or SOMEONE that will allow you invest similarly to what Intercst showed.

PPS: I have a friend who's a CBO for a Hedge fund and he invests in low cost funds for his core investments. It's OK to have fun with a small percentage of your funds, but don't pay those fees for your core.

Hockeypop
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No. of Recommendations: 5
intercst:
I'd suggest something like the portfolio in this article using Vanguard Funds.

http://www.retireearlyhomepage.com/tithe.html

I'm an engineer who retired back in 1994 at age 38. I'm living comfortably today just on the fees I'm not paying to a financial advisor and mutual fund manager. You may not even have to dip into capital if you cut those other peckerwoods out of the picture.


With the above EXCELLENT portfolio recommended by intercst, one pays 12.25% of annual income in fees and taxes.

This means someone using this portfolio will pay a TOTAL expense ratio of 0.49% of assets invested per year.

This is about as low as one can get using what´s presently out there.

Again, great job intercst!
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OK, you have all scared the pants off of me, and I was already jittery about this.

The thing is, I don't have the time to read up on 3-4 books immediately, but I do want to move in that direction where I am managing my own finances.

Right now I have a ton going on, so reading up will take me a little time, a night here, a night there, etc.

In the interim, what can I do and what are the risks?

If I literally call this guy, who now has my check in the mail to him, and I have already signed a Merrill Lynch client agreement form, what are the ramifications of saying "I changed my mind, I want to roll my money to Vanguard instead so I can invest in generic no load mutual funds" (I don't even know if what I just said is accurate).

At this point, the guy will obviously become hostile (even if he feigns professional courtesy). My guess is that first he will try to talk me out of it. Maybe offer me an alternative breakdown in investment options. Would he be able to counter with no-load options through Merrill? I was reading on a thread at bogleheads that you pay quarterly custodial fees to Merrill just to have an account of something like 0.25% per Q? For me, that would be something like $500 per quarter?

Plus, they could offer me Vanguard fund as an option right, but charge me a fee for the transactions?

As for Vanguard, is there a simple step-by-step for beginngers so that I could at least move my money there?

Is Vanguard only advisable?

Is it wise to just leave my money in cash in Merrill for a period, if so, how long, and is there a penalty if I don't roll in 30 days or less and so forth?

This stinks.
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You're darned tootin' this stinks! But, remember, it is YOUR money, not his. Tell him you have changed your mind and get the money back. PERIOD!

Others have given you good advice going forward. I truly understand the "no time to read 3-4 books ASAP" .. however there are still things you CAN do to take charge here.

My 401K at work is with Fidelity and (thankfully) one of the offerings we have available is Brokeragelink where we can go self directed with only a transaction fee of $7.95 per trade. That said, you don't sound ready to walk off that beam yet. BUT .. Fidelity also offers a 401K rollover program which is no fee, low per trade charge, automatic and free dividend reinvestment and it has a number of relatively low cost/no cost places you can park that money until you are ready to stick your toes in the investing waters. (ie. a money market sweep account, so you will at the very least collect a little interest on the money) You can then look into investing into some ETFs or start looking at high quality dividend paying stocks such as (NOT specific recommendations and in no particular order) Kraft Foods at $31 which pays 3.76%; Kelloggs at $53 which pays 3.07%; Proctor & Gamble at $64 which pays $3.01%; etc. Start looking at companies whose products you know and may use regularly.

Remember: 1) Breathe; 2) This ain't rocket science ... you don't need an advanced degree in anything to learn it; 3) You've got a great support mechanism here ... use it; 4) Breathe

Best wishes
DP (also from CT)
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Merryl should be able to offer you plently of other options, ask for a FULL list of availible options. They should have at least an S&P 500 index fund or something similar availible due to a regulatory requirment for diversified offerings for retirment accounts. If you have to put the money somewhere put it in there or a target retirement fund. Not sexy fund types but solid. I went to Merill Lynch's web site but they don't post their funds online. You need to contact an advisor for any info.

I can't confirm whatever custodial fee's Merryl charges you. Often this will be plan specific for 401K's. If they do charge you 1% extra just to hold an account then you really need to go. Many firms have termination/tranfer fees but they are usually fixed amounts. Annoying but pay them once and never deal with them again.

They could probably (or not) sell you Vanguard funds for a large commision. It takes large bulk purchases to make these fees economically feasible.

I like Vanguard but they are not the only ones out there. If Myrell does not charge a custodial fee then you could probably find some funds there that are fine. here's a link that lists what fund family's they are able to do business with.

http://www.totalmerrill.com/TotalMerrill/pages/ArticleViewer...

You stated that you are rolling over your 401K. Is this into a new employer sponsored plan or are you rolling it into a traditional IRA? If it's a traditional IRA you should be fine if it's a "trustee to trustee" rollover. Meaning you never touch the money yourself. Since you never touch it, it is not considered a distribution by the IRS. If it's employer sponsored then you are probably stuck and need to get that full list and pick reasonalby inexpensive funds w/o loads.

If the rollover was an indirect rollover where the responsibility of the check fell into your hands then you have 60 days to get all of the money into an IRA to avoid penalties. Always do a truste to truste rollover to help avoid any confusion.

Most brokerage companys have "rollover experts" that you can use to double check your options and make sure you do not get dinged with taxes or whatnot. Contact Vanguard, Fidelity or anybody else you think you might like to go with and they should be able to guide you around any taxation pitfalls. Taxes are the only thing I want advice on from a brokerage house.
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"Dump the advisor. Educate yourself through reading good books -- I am sure there are others on this Board who can direct you. Then, have your money in a self-directed IRA."


FundAdvice.com: "The ultimate buy-and-hold strategy"
http://www.fundadvice.com/articles/buy-hold/the-ultimate-buy...

Faber's Paper
http://ssrn.com/abstract=962461
http://www.mebanefaber.com/

Open a self-directed IRA at Etrade, Ameritrade, or a similar broker. We have 4 IRAs at Etrade and they don't even charge an annual fee.

BTW, did you ML broker offer you a kiss with the screw? As you walked out of his office, did you happen to overhear him calling his wife to tell her to go ahead and order the new BMW?
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The nice thing about rollovers is that you can keep on rolling. I would get the heck away from ML, because they don't know the meaning of the word "fiduciary."
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This ML advisor is full of it. (Maybe all the advisors at ML are the same.) I had an inherited IRA account at ML, and had Vanguard send them a letter requesting a trustee-to-trustee transfer. ML dragged on and on and wouldn't release the funds. I kept calling Vanguard: get the money! Finally a Vanguard rep offered to set up a three-way call between me, ML, and him. He said he'd be quiet at first (and he was). ML tried to shift the blame to Vanguard, saying that they had never received the letter, and that if it really was anything important then Vanguard should have followed up on it. It was about that time that the Vanguard rep came on the line and "followed up on it." I don't think he believed for a second the story about ML never receiving the original letter, but the ML people immediately sent Vanguard a check (after they first made sure to deduct expenses for holding my money and the more expenses for transferring it.

Anyway, that was my experience with ML. But, what you should do is use the method of trustee-to-trustee transfer. The money never comes to you but will go from ML directly to Vanguard or Fidelity or Schwab or wherever you want it to go. The first thing to do is to choose who your trustee will be: Vanguard or whoever. Then, contact them and have them initiate the transfer of the funds from ML. You don't even have to deal with ML yourself, or explain anything to the broker there. (You might want to check up from time to time with Vanguard whether they have actually received the funds from ML. If not, you might need a three-way call yourself!)

If you deal with Vanguard, you should feel free to inform them of the facts. They're honest and you can trust them. Knowing the facts, they will be able to help you in the best and most professional way.

You could follow the plan that intercst posted.

For reading, I'd suggest http://www.amazon.com/Bogleheads-Guide-Retirement-Planning/d...


--SirTas
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Anyway, that was my experience with ML.



fwiw -- i don't think i've ever heard anything good about Merrill-
or anything bad about Vanguard.
(everyone else mixed )



ie, agreeing with pretty much everything in this thread
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Last note: Because I work for hedge funds (that is my area of expertise, on the technical side), I am forbidden from investing in individual securities or ETFs. For legal reasons, I am only allowed to invest in mutual funds for which I do not have any control over the decision making process. This avoids the issue of me personally trading a security that my fund may have privileged information on (and thus have it on their internal restricted list).

So all I am really looking for is funds since I can't pick stocks or ETFs (unless I get out of the industry, which could happen one day, but not anytime soon)
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...Last note: Because I work for hedge funds (that is my area of expertise, on the technical side), I am forbidden from investing in individual securities or ETFs. For legal reasons, I am only allowed to invest in mutual funds for which I do not have any control over the decision making process. This avoids the issue of me personally trading a security that my fund may have privileged information on (and thus have it on their internal restricted list).

So all I am really looking for is funds since I can't pick stocks or ETFs (unless I get out of the industry, which could happen one day, but not anytime soon)
....


The first thing to do is to get your money away from ML. It could sit in a money market account for six months while you dedide what to do and you would still be ahead.

If you are limited by the restrictions then something like a targeted retirment 2040 (or whatever date makes sense) is a good vanilla choice even though it has some drawbacks.

The math does not quite work out, but 1% of your money each year for 33 years is something like a third of you money. 2% is two thirds of your money. Run!!!!

Greg
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HELJinCT writes,

Last note: Because I work for hedge funds (that is my area of expertise, on the technical side), I am forbidden from investing in individual securities or ETFs. For legal reasons, I am only allowed to invest in mutual funds for which I do not have any control over the decision making process. This avoids the issue of me personally trading a security that my fund may have privileged information on (and thus have it on their internal restricted list).

</snip>


Just about all of the Vanguard ETFs have a corresponding mutual fund that invests in the same securities, though the mutual fund may have an expense ratio that is a few basis points higher.

https://personal.vanguard.com/us/faces/JSP/Funds/Tools/Funds...

intercst
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I am forbidden from investing in individual securities or ETFs. For legal reasons, I am only allowed to invest in mutual funds

For almost every ETF that it is worthwhile to consider(*), there is a corresponding mutual fund.
https://personal.vanguard.com/us/content/Funds/FundsVIPERWha... says: "Vanguard ETFs are shares of conventional Vanguard index funds"

https://personal.vanguard.com/us/whatweoffer/etfs/mutual-fun...

Vanguard Large-Cap Index Fund Investor Shares (VLACX) is the same as Vanguard Large-Cap ETF (VV)

https://personal.vanguard.com/us/funds/snapshot?FundId=0307&...
https://personal.vanguard.com/us/funds/snapshot?FundId=0961&...

(*) "worthwhile to consider" means a major asset-class index fund/etf. The fundadvice{dot}com article I mentioned links to another page with fund recommendations.
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If the amount in your new IRA is large enough, Vanguard will give you personal service and advice through their Admiral service.

Dan Wiener has a newsletter for around $100 annually with several recommended portfolios of Vanguard funds, depending on how aggressive you want to be.

Merrill does not have any no-load funds. How would your advisor get paid? There are good advisors at Merrill but he has to operate within the framework of what is available to him. A good advisor is encumbered by the restriction that you can only buy mutual funds.

Vanguard, Fidelity, T Rowe Price are all good. Vanguard was the original low-cost fund family. Indexing, rather than paying top dollar to a fund manager worked so well that other funds are also doing it now.

If the check has aready been made out to Merrill, you can't intercept it. I believe they do have a policy that if you change your mind within 7 days you can have them transfer the money elsewhere without incurring any fees. Do that. The 3-way phone call with Vanguard sounds like an excellent idea.

Best wishes, Chris
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Because I work for hedge funds ..., I am forbidden from investing in individual securities or ETFs.

First, I would call your new compliance group (trading compliance) and get clarity on investing in ETF's. Typically - the line is draw on ETF's with less than a certain amount of names (ours was 15), as you can understand why; however, ETF's based on index, sector and the like are usually allowable (not legally restricted) and they just have to monitor your trading.

An account at ML, in and of itself maynot be bad, no real experience there and as some one pointed out most of the time it is complaints about ML and praise for Vangaurd. I have a traditional that I rolled over to another street firm and found in the IRA space quite reasonable fees and excellent advice through employer - While, not so sure about ML other than typical retail advisor BS - I am sure about the funds that you got offered - and in the words of King Arthur at the French castle - RUN AWAY!! In the conversation with the advisor ask him specifically to tell you - write down - the dollar figure that it will cost you to get into these funds. If it is more that a couple bucks a trade..?? question. And ask - hey can I get vangaurd XXXXX or something?

As for not having time - you really do. A couple of months in a total market fund with Vangaurd (which I beleive you can get in your ML account) or an ETF, will not kill ya! You dont have to read 3-4 books but you can definitley get some better ideas and advice than blindly following an advisor that is paid on what you buy.

For the portfolio advice -Judging from the original post - I may be way off but it seems like you have some risk tolerance and so the mix for you is probably off. For me 40% in bonds isn't where I would recommend for anyone who has growth in mind. First tho - find out about the ETF options and the fees just for maintaining the account. Don't agree to putting the money anywhere until you are told exactly what it will cost you and you do not have to do it on the first call - THIS IS YOUR MONEY
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I concur with everyone who has contributed to this thread. However, I would like to add this comment. If you invest in dividend paying stocks (which I also am doing), reinvest your dividends. My brokerage, ROTH and SEP-IRA are with Fidelity. All I had to tell them was "reinvest the dividends until further notice" and they do. It is surprising how fast you can accumulate additional stock by reinvesting the dividends.

In the meantime, I agree that you should just park the cash until you become more educated in the art of investing.

Donna
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Everything you've heard to your post so far is spot on. I'd like to add a little:

First, call Vanguard - TUESDAY MORNING!! and explain your situation and desire to move your IRA to them. They'll help guide you what you need to do. It should just be a simple transfer form to move YOUR money.

If Vanguard sends them the necessary forms request they send it Certified, Return Receipt based on another comment here.

When you move your money, make sure you don't take possession of it. Make sure it goes from custodian (ML) to custodian (VG, TRP, etc). I would also suggest you don't let ML know you're going to move your money until you have something lined up. Just tell him you're still going over the information he's provided (or haven't had time to review it yet.

DON'T LET HIM PRESSURE YOU, IT'S YOUR MONEY. Even if he does become hostile he can't stop you. You may have to pay a transfer fee to move cash, but I'm not sure - somebody said you have 7 days without a fee. Even if it's $500, you'll make that up the first quarter at Vanguard! :)

Don't let him talk you out of it, be firm but courteous and committed to moving your money. If he gives you grief about it tell him you're going to discuss his actions with the SEC. You might want to record the conversation from your end and let him know and agree to it. Make it clear you're putting him on notice to move your money. Vanguard does this as a matter of course and is a good practice to protect both parties. As someone else suggested, a 3 way conference call is an excellent idea

But do keep it in money or you'll have all kinds of fees and loads to redeem and move your money.

You've gotten lots of good advice here, please heed it. Like others I've never heard of any problems w/Vanguard, but horror stories abound at the full service guys.

Keep us posted!
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Thank you all, this post has been extremely helpful in many ways. As usual with fool.com users, I get more than I even hoped for in insight and assistance. I offer this form of assistance on technology sites where I am in my element, so perhaps its karma.

The math does not quite work out, but 1% of your money each year for 33 years is something like a third of you money. 2% is two thirds of your money. Run!!!!

Can someone quickly explain this to me?

I ran some really basic math numbers in Excel, I was comparing one scenario where I paid 2% in the first year, then 1% per year for the remaining years until age 65 (I am 36 now). I picked an annual gain percentage of 8% just for the exercise.

So each year I was paying a 1% fee on my balance (not sure this is how it would work out since there seems to be a load and then a mgmt fee, so maybe going forward I am only paying the mgmt fees, which were closer to 0.5% per year?)

At 65, my very rough and probably wrong numbers had the original investment being worth 737% of the original amount.

In scenario B, I threw the same numbers, but had the up front and annual fees at 0.25% (is this close to what it would be for no load Vanguard funds?).

Obviously there was a big difference assuming they were the same returns. At age 65, I would have made 933% of the original investment. The difference between the two was more like double the amount of my original investment.

But, if I changed the formula to allow the advisor option to be returning 1% more than the Vanguard option per year, then it was a wash. If the advisor option made 1.5% more per year, it was better to be with the advisor.

I know this is not the right math and it can't just be as simple as ROI% - fee%, so if someone could break down what I am missing that would be great (aside from the obvious answer that popular opinion is that the advisor can't do better than me investing in generic vanguard funds).

Thanks!!!!!
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When you move your money, make sure you don't take possession of it. Make sure it goes from custodian (ML) to custodian (VG, TRP, etc). I would also suggest you don't let ML know you're going to move your money until you have something lined up. Just tell him you're still going over the information he's provided (or haven't had time to review it yet.

DON'T LET HIM PRESSURE YOU, IT'S YOUR MONEY. Even if he does become hostile he can't stop you. You may have to pay a transfer fee to move cash, but I'm not sure - somebody said you have 7 days without a fee. Even if it's $500, you'll make that up the first quarter at Vanguard! :)

Don't let him talk you out of it, be firm but courteous and committed to moving your money. If he gives you grief about it tell him you're going to discuss his actions with the SEC. You might want to record the conversation from your end and let him know and agree to it. Make it clear you're putting him on notice to move your money. Vanguard does this as a matter of course and is a good practice to protect both parties. As someone else suggested, a 3 way conference call is an excellent idea


Personally, I'd avoid the conversation with the ML broker altogether. There is no reason the OP has to talk to the broker. The OP does not have to inform the ML broker that he is rolling his money over to a new broker. All the OP has to do is open the new account at the new broker [I think Vanguard and Fidelity have been mentioned], and fill out all their paperwork. Then, the new broker will initiate the transfer and take care of the whole thing.

There's nothing ML can do about it, and there's no reason for the OP to even bother talking to them. It is completely unnecessary.
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2gifts:

Personally, I'd avoid the conversation with the ML broker altogether.... There's nothing ML can do about it, and there's no reason for the OP to even bother talking to them. It is completely unnecessary.

I agree and concur. Never thought about it that way.

However, since someone alluded to the fact that ML dragged their feet and denied receipt of their original transfer request form, some type of contact may be advisable to avoid any delay beyond when a fee for transfer would kick in. Perhaps an e-mail, even from Vanguard, cc'ing the OP and a copy of the form attached, sent to ML to confirm the transfer request original is "in the mail". Just trying to cover all the bases.
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However, since someone alluded to the fact that ML dragged their feet and denied receipt of their original transfer request form, some type of contact may be advisable to avoid any delay beyond when a fee for transfer would kick in. Perhaps an e-mail, even from Vanguard, cc'ing the OP and a copy of the form attached, sent to ML to confirm the transfer request original is "in the mail". Just trying to cover all the bases.

The transfer forms could be sent via certified mail.

ML will do what they want no matter the method of communication. And they're not the only broker to take a long time to transfer assets. I've had the same delays happen when I've moved accounts. It is amazing to me how long something like that can take.

In the OP's shoes, I'd let the new broker handle it. I might make a call to move it along once the request is in process if it is taking too long, but at that point, everything is already in motion.
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"But, if I changed the formula to allow the advisor option to be returning 1% more than the Vanguard option per year, then it was a wash. If the advisor option made 1.5% more per year, it was better to be with the advisor."

Your math is accurate enough for a rule of thumb. I havn't botherd to break out the calculus on a problem like this since college. Here's a link to an article that goes into why so many activly managed funds fail to beat the stock market after their fees and included.

http://www.marketbeaters.com/beat-the-market/

The problem comes in that the overwhelming number of these fund managers can not SIGNIFICANTLY beat the market on an annual basis. There have been a few expections over the years and even some good examples of funds that beat the market for years and then lost all the gains because of one error in judgment by the manager. Fidelity's Magellan fund is a prime example of this. That fund outperformed the market by a solid margin for a long time then got hammered extra hard in the dot com fiasco. One mistake and psft!!! All the extra gains gone. It is possible to beat the market but the statistics are clear. Putting your money in an actively managed fund will give you a much higher probablility of underperforming a broad market index over the course of 20+ years.

Does this mean that it is impossible to get better than average returns from investments? Of course not, good fundemental analysis and carefully choosing a solid and diversified portfolio can yield higher gains and if you do it yourself since you do not have to poll-vault your returns over high bar set by the fees just to break even.

Good stock picking has a much higher risk/reward component to it than indexing so it will always remain popular. Actively managed funds on the other hand are almost a suckers bet. Most of these managers DO outperform the market by a slight margin more often than not but then their fees drag the returns back below the market average. Think of it like racing a muscle car vs. a sedan. You get to the end of the course and the SEDAN WINS!!? How is this possible!? Then you look down and realize the parking break was set the whole time... it's kinda like that.

The best advice I can give you is to do passive indexing until you gain enough skill/desire to buy your own stocks. Or you could do what a lot of people I know do and have a majority of our portfolios in index funds and then have a modest portion dedicated to individual stocks.

Scott
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When it comes to fees/costs and returns I like to paraphrase Jack Bogle. "Performance comes and goes, but costs go on forever."

When you couple that with the fact that no one can accurately predict the future, you can see why it is important to keep costs as low as possible.

-drip
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Let me offer a slightly different twist on your situation.

First, I agree that ML, based on their past track record, is one of the last places I would have deposited ANY of my money. Do a Google search on Merrill Lynch + SEC + Fines. I think ML holds the recond on the most frequent and highest fines and penalties from both the SEC and FINRA. Note: if you do the same but use 'Vanguard', you should find 0 (thats ZERO fines and penalties)

But to your situation...

You mention that you have little time...how much interest do you have? Those who have little to no interest in asset allocation and rebalancing, should probably seek the advice of someone who will provide the advice and execute the MF investments, rebalance at specific points and have the discipline to stay invested. Contributions, asset allocation and discipline are the difference between those who retire comfortably and those who do not.

Now, a 12th grader has enough smarts to do this...thats not the question. The question is do you have the interest to do it and stick with it.

The next question is do you plan on staying with this new employer's 401(k)? If it has a match, you should probably contribute to that level only, and direct the remainder of your retirement savings to your Roth IRA.

One final note. Beginning July of this year, qualified retirement plan service providers must report ALL expenses to the employer, who must then, beginning Nov 1, include ALL such expense information that is paid by the plan or by the employee, to each employee. Because most plans are on a calendar year basis, the first full reporting of expenses to the employees will not begin until Jan 2012. Just a guess, but I think there will be many angry employees when they found out how much it is really costing them....

BruceM
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Bruce,

All good info on Merrill. Thanks.

And some individual replies:

You mention that you have little time...how much interest do you have?

I have a lot more concern than interest. Investment as a concept doesn't really excite me, and if I were to really get into it, the reason would be fear of not making the most with my money (and not an interest to invest). Quite frankly, the entire investment world really leaves a bad taste in my mouth. I've been working at hedge funds for years now, and I have lost faith in mankind when it comes to investment. I realize it's a critical and necessary evil, but I also know it's a disgusting, convoluted, manipulated and corrupt mess.

I'd actually prefer a method of investing where I followed a typical low-cost method that had safe and effective returns over the long run. Doesn't need to be the best possible scenario, and I am not risk averse either, but I don't want to lose a lot going for all the marbles or because an advisor is milking me via fees.


The next question is do you plan on staying with this new employer's 401(k)? If it has a match, you should probably contribute to that level only, and direct the remainder of your retirement savings to your Roth IRA.

Just to clarify, my last employer had a 401k and that is what I rolled over into a personal Merrill account. My new employer has its own 401k plan that I just started contributing to when I started working there.

Can you contribute pre-tax from your pay check directly into your own TIRA account? I thought you sort of had to use the company 401k for pre-tax stuff?

As for Roth, I do not qualify due to income - one of the downsides to living in a place like CT ... middle class folk like myself are treated as elite rich on the national scale because of the cost of living here. There are people doing what I do in Arkansas and Arizona that are making probably 50% of what I make, but it cost them 50% of what I pay to have the same type of house. I drive a Honda Accord, not a Rolls. But since they set the limits for most tax related items at the national level, we get quadruple dinged all the time here in CT and NY.

One final note. Beginning July of this year, qualified retirement plan service providers must report ALL expenses to the employer, who must then, beginning Nov 1, include ALL such expense information that is paid by the plan or by the employee, to each employee. Because most plans are on a calendar year basis, the first full reporting of expenses to the employees will not begin until Jan 2012. Just a guess, but I think there will be many angry employees when they found out how much it is really costing them....

Ouch, I was naive enough to think that company 401k plans were fee free, since I don't remember seeing any fees in my statements or through the website.
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Quite frankly, the entire investment world really leaves a bad taste in my mouth. I've been working at hedge funds for years now, and I have lost faith in mankind when it comes to investment. I realize it's a critical and necessary evil, but I also know it's a disgusting, convoluted, manipulated and corrupt mess.

Hmmm. Sounds like you might be a good candidate for another line of work :-)
But your observations are correct....the financial services and products industry, particularly the latter, does seem to draw to it the seemiest of people many of whom remind me of bank-robbers...just smarter about it, but the same ultimate goal.

Can you contribute pre-tax from your pay check directly into your own TIRA account? I thought you sort of had to use the company 401k for pre-tax stuff?

Maybe. Since you are a participant in an employer sponsored retirement plan, your ability to deduct your TIRA contribution may be limited by your adjusted gross income (line 37 of your 2010 form 1040). If you are single (sorry, can't remember if you mentioned this or not), then your ability to deduct your TIRA contribution will start to be limited at an AGI of $56,000 with none of the contribution deductible by an AGI of $66,000. Because you cannot contribute to a RIRA due to your income, your TIRA contribution would not be deductible....although you can still make after-tax contributions to your TIRA each year...just make sure you complete and file a form 8606 for each year you make an after tax TIRA contribution. Now, if you didn't roll your 401(k) over to your IRA, and you have no other TIRA, a work-around for contributing to your RIRA would be to make an after-tax TIRA contribution and then convert it to a Roth.

Also, your new employer may offer a 401(k)-Roth, which would allow you to contribute after tax dollars to this Roth.

One other point from your discussion. You mention that you need to 'read some books' and in effect it sounds like you want to treat your self investment management as though it were part of a hedge fund that had to be precise, detailed and error free with every I dotted and every T crossed (ok...I may be stretching it a bit). But self investment management is much easier than this. You need only know a few things to get it right. As I mentioned earlier, a 12th grader can do this...its really all about your motivation to learn some basics, make your allocations, rebalance once a year and leave it alone.

Anyway, just some thoughts :-)

BruceM
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I've been away from this board for a couple weeks, and I have not read through this entire thread (yet), but let me agree TOTALLY with the first few I have read:

You are being screwed. These funds have extraordinarily high expenses, and don't have performance any better than Vanguard or other low-load funds besides.

Take the money away from Merrill, put it in a self-directed IRA, and then "self-direct" it. Depending on how much time you want to spend, buy individual stocks that you believe in, or at the very least, find a bunch of Vanguard no-load or low expense index funds and put the monies there. You can find a lot of very low cost ETF's, which act like a mutual fund for various sectors (technology, health, retail) etc. as well.

RUN, do not walk from this proposal. Horrible. Horrible squared. Cubed, maybe.
 
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So, I want to give an update on this situation.

For starters, the market tanked right after my check was cut from my previous 401k account. It is recovering now, but I am still in the black in terms of not having immediately done anything with my money. This has been comforting and has allowed me to make analyze a little bit.

I have spoken with someone at Vanguard. They were very kind, but also very straight-forward. They simple said yes I can move my money there and described the fees. Although I gave them bait a few times to trash my alternative options, they simply had nothing to say to coax me. This is good and bad. The good is that they probably feel their product speaks for itself. The bad is that people who need guidance, like myself, aren't going to get it from a Vanguard. We're entirely on our own (or so it seems).

I also had a sit down meeting with the Merrill advisor. Turns out he also advises several other senior technologists that work in my current firm (this guy gets around, it seems). I asked him some frank questions.

I said "If you take an arbitrary annual return number, like 7%, and then you throw a number like 3% down for inflation, that only leaves 4% per year of actual gain. Of that 4%, if Merrill is taking half of it, is this not crazy?". I also asked him to explain why there would be an advantage in going with Merrill over no-load low fee index funds.

His response was something like this.

1. All mutual funds have fees. Even the Vanguard index funds. Index funds are merely lower because they simply follow an index.

2. He went on to explain A shares, B shares, C shares, and I shares. His initial suggestion for me was C shares (A and B shares appear to be paying more commission on purchase/sale, which would also make it more expensive to change strategies?). With the C share model, there is a 1% 12b-1 fee on top of the funds normal expense ratio. With an I share model, you are paying a flat 1% for "MLPA", which is a full time Merril Lynch personal advisor. In that scenario, you pay no 12b-1 fee. Either way, Merrill is getting 1%. With the "I shares", supposedly you can just purchase smaller share quantities without paying fees.

3. He seemed to be pretty carefree about the idea of me moving my money to another provider. i.e. it was my money, and he was essentially only here if I really wanted someone to help me manage my money, rebalance my accounts based on markets and future predictions, etc. In other words, if I didn't have time to be a full time market watcher, that's what he does.

4. He explained that 60% of the funds he was putting me into were actively managed by proven PMs. The idea wasn't so much to beat the indexes when the market was going well, but to know when to move money to cash when black swan events occur. Minimizing damage. I understand what he is saying, but on the same token, don't PM's miss the upswings as well because they are always hedging somewhat?

Finally, I can't seem to get an apples to apples comparison on my own. I'd love to see some proof about how Vanguard funds over 30 years with much lower fees (0.25%?) and someone inexperienced like me managing allocation would stack up to an advisor-managed account with a 1% advisor fee and 0.75% fund mgmt fees. Obviously if the performance is identical it's easy, but is it?

I looked at the Vanguard 2040 Target Retirement fund. 3 year returns are actually negative, although the 1 year return is 15%. The fund has only been around for 3-4 years so there is no data beyond that.

The 2035 retirement fund has a 3.5% return over 5 years, which sounds pretty abysmal. Since inception in 2003, it has returned 6 percent over almost 7 years.

If I look at the history of most of the funds the ML advisor suggested for me, they seem to perform far better than that.

You guys and gals are all way ahead of me on this stuff though, so I presume I am really missing something.
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It's up to you, but I would stay the heck away from ML, plain and simple. If you want to pay a whole lot for nothing but simple scripted BS, then ML is the place to go. Good luck.
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I'd suggest something like the portfolio in this article using Vanguard Funds.
http://www.retireearlyhomepage.com/tithe.html


Is there something like this out there that I can use as a reference that gets updated periodically until I feel more informed through reading books? Or is the whole point of this portfolio that it's time-proof, and you can leave your money in these same funds for 5-10 years?

I'm leaning more towards just going to Vanguard. There is something about controlling my own destiny that is appealing, if if I actually mess it up by making mistakes.
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3. He seemed to be pretty carefree about the idea of me moving my money to another provider. i.e. it was my money, and he was essentially only here if I really wanted someone to help me manage my money, rebalance my accounts based on markets and future predictions, etc. In other words, if I didn't have time to be a full time market watcher, that's what he does.

You don't need to be a fulltime market watcher. There are plenty of "couch potato" portfolios that only need your attention once a year. Take 10 minutes of your time once a year and save the XX% that you'd be paying to Merril.



4. He explained that 60% of the funds he was putting me into were actively managed by proven PMs. The idea wasn't so much to beat the indexes when the market was going well, but to know when to move money to cash when black swan events occur. Minimizing damage.
Yup, that's the plan. That and blowing smoke up your a**. As Mike Tyson said, "Everybody's got a plan -- until they get punched in the mouth." Ask him what his "proven PMs" did in mid September 2008.
The market lost 29% from Sept 18 to Oct 27.
I assure you that the PMs that I use for one of my accounts didn't see that coming.

Make him show you a 5-10 year chart comparing his recommend funds vs. the S&P500. Not the "10 year return"---the chart showing daily prices. When the S&P takes a dive, do his funds stay flat?

I understand what he is saying, but on the same token, don't PM's miss the upswings as well because they are always hedging somewhat?
The charts will show if this happens.
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As for Roth, I do not qualify due to income - one of the downsides to living in a place like CT

But there are ways around "not qualifying". My financial planner showed me if you put it into a regular IRA you can "roll" it into a Roth at the end of the year even if you make way too much to qualify.

So that's the back-door method of getting into a Roth. Once it's invested in a regular fund it can be rolled to Roth.

If you take a tax deduction when you put it into the regular you'll have to pay that back, though - but you probably make too much to take the deduction anyway, so it's a wash.

SG "Rollin' rollin' rollin...keep that Roth a-rollin'....rawhide!"
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I just signed up for a Vanguard account.

Now I just need to do the paperwork and have the capital transferred. Should be easy since my money was sitting in a cash / money market account at Merrill while I was making my decision. The other benefit of this is that the market dropped 3 weeks ago a day or two after my check was cut, so if I can get the money invested quickly enough, I luck out and get a 1-2% gain just from the timing of transfer.
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:)

So you took the money and ran from the Horrible^3 ML!

Did you ever call your trade compliance person and ask about investing in index/sector ETF's?
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I have not asked yet, but I know others do it. The only question is whether or not some people are grandfathered since the compliance group is claiming their policy now is to disallow it. I think I can make that work though for now.

In the interim I will just put my money into the 2040 target retirement fund until I can read enough to make a decision about how to arrange it myself.

Advice, as always, is welcome!
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OK, the money is now in Vanguard. For now I threw it in the 2040 retirement account, but I am already starting to fret that I should have a better allocation than that.

The breakdown of the 2040 is pretty simple:

Vanguard Total Stock Market Index Fund Investor Shares 63.1%
Total International Stock Index Fund Investor Shares 26.9%
Vanguard Total Bond Market II Index Fund Investor Shares 10.0%

Now I need to do some reading on how to manage my money. Right now I guess I leave it in cruise control using the 2040 ... but is that really the right option?
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Now I need to do some reading on how to manage my money. Right now I guess I leave it in cruise control using the 2040 ... but is that really the right option?

It wouldn't be for me. Or for someone who wanted to take a more active control over their investments, using more asset classes, perhaps doing QTAA timing, etc.

But for someone who wants to make a "one-decision one-time" investment it's a pretty good choice. These allocations will stay the same until 2018 before they start tilting more toward bonds, so you've got plenty of time to study & learn at your leisure.

But the BEST thing you've got is that you avoided the bullet of paying a load. Second best thing is that you have much lower E/R than those ML funds would have charged you.
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HELJinCT writes,

OK, the money is now in Vanguard. For now I threw it in the 2040 retirement account, but I am already starting to fret that I should have a better allocation than that.

The breakdown of the 2040 is pretty simple:

Vanguard Total Stock Market Index Fund Investor Shares 63.1%
Total International Stock Index Fund Investor Shares 26.9%
Vanguard Total Bond Market II Index Fund Investor Shares 10.0%



A 90% stock portfolio is pretty aggressive, even for a 30-year-old. Just leave it alone, and you'll have more money than you know what to do with with you're 65.

intercst
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If you go with Charles Schwab or Vanguard you can invest in no-load index funds. No management fees; total fees are well under 1%. If you want some advice, you can pay a flat fee with Schwab or Vanguard and have an advisor review your portfolio. Whenever you go to a full service broker like ML, they get you coming and going. There have been many studies done and actively managed funds almost never beat the market. You will save thousands upon thousands. I was with a full service broker and got fed up. I transferred everything to Schwab and I couldn't be happier. I recommend you read this book - "The Investor's Manifesto Preparing for Prosperity, Armageddon and Everying In Between" by Willam J. Bernstein. Good luck!
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