How should I play my financial services companies against each other? I want to see how far I can take them! What concessions should I ask for from a company so that I will deign to give them my business? What are the factors in play? Any pitfalls or advice? my inclination is to go to a big company and let them consolidate the various instruments.
What is your idea of “large”? Most of these companies (Vanguard, Schwab, E*Trade, etc) have a certain percentage of customers with seven-figure portfolios and a smaller percentage with eight-figure portfolios. If you’re thinking you can get Vanguard to beg for your $100,000 portfolio, you’re mistaken.
What they will do is waive fees and offer a higher level of service for a larger account. But those terms are well defined.
Is this a theoretical question or do you have an inheritance coming your way? How much investment experience do you have? Unless you have millions, I’m not sure you’ll gain anything by pitting financial companies against each other.
Well it’s healthy enough for someone to want the business. it sounds like there’s no great advantage to not asking a big company to work to aggregate it all right away.
Inherited IRAs are tricky. If you screw things up you could end up owing a great deal of money to the government. Don’t screw around.
I had one of those. I was told (as executor) that it had to be cashed out and the estate was required to pay the tax penalty on it, perhaps because there was more than one beneficiary and the assets of the estate had to be divided. The accountant told me it could be averaged over 3 years, but that the net result would be the same.
What Dewey Finn says up there is correct. Vanguard has 20,000,000 investors and $4,000,000,000,000 in assets. It takes $200,000 to be average. Do you think your IRA will move the needle?
I inherited a share of my mother’s IRA. Because she was over 70.5 at her death I had to continue taking RMDs, but could take them based on my life expectancy, not hers. It’s not really complicated, the IRS wants you to pay the correct taxes. Consolidating is probably a good idea, it makes it easier to determine the RMD, although you can take it from any account.
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Yes especially Vanguard. It’s basically a mutual company like an old fashioned mutual insurance company: it’s owned by the investors who own Vanguard funds. It has no shareholders per se to answer to. And its people don’t work on commissions. That sword has mainly one edge: very low costs to the investor without any special ‘concessions’ and much less incentive work in anything but your interest. The minor other side to the sword though which comes up sometimes is it can be a bit like a govt bureaucracy at times. On balance it’s the best firm IMO. People who are trading oriented and know what they are doing (the two don’t always go together unfortunately or fortunately depending your perspective) might find advantage with other firms for some things they do, but still might prefer Vanguard for their basic personal investing. You don’t have to have just one firm.
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My experience too. Although, the IRS itself got mixed up on the rules. A guy was doing a remote audit of my returns and flagged my treatment of the inherited IRA as wrong. I had to go through a bit of hassle pointing to references (from the IRS) to show I was right.
OP: without stating the $ amount your question is meaningless, sorry. ‘Healthy enough for someone to want the business’ is pretty completely in the eye of the beholder. Back to Vanguard, they have levels of particular services (fees, free financial advice etc), 0-$50k, $50-$500k, $500k-$1mil, $1mil-$5mil and you can assume there are unadvertised levels beyond that. It’s not a negotiation, though with some other firms which might have such levels that might be possible near one of the boundaries.
To echo what folks are saying above - any of the well known retail brokers like Fidelity, Vanguard, Merrill Lynch are going to be very similar. You get shoved into a slot based on $$. Vanguard has the lowest fees by far. IME other firms are more interested in making money off you first, then help you make money.
If you are well into 7 figures, you might find some boutique ‘wealth management’ firms that would compete against each other. The cynic in me says they would mostly compete to undercut each other rather than give you the best deal.
Personally, I switched to Vanguard and a Boglehead philosophy. Most of the pitches I got were for 0.5-1.0% annual fees to manage high-fee mutual funds. With recommended retirement withdrawals of 4% or less, I just couldn’t see giving an advisor 25% of my annual income.
My expense ratio for my mutual funds (mostly Vanguard) is well under 0.2%. You can find a few advisors with index fund packages that will run in the 0.25-0.5% range but they are scarce. Look around the Boglehead boards for recommendations.
What does this mean to you? Here’s some thoughts that may each be applicable or not depending on what the above means to you.
AIUI:
You cannot combine an inherited IRA with any other IRA you already own. Period. The technical term is a beneficiary IRA.
If you are inheriting multiple IRA accounts from the same person’s estate, you can combine them into a single beneficiary IRA. But this must still be kept separate from any other IRAs you may already have. Including ones you may have inherited from somebody else.
If the soon-to-be-inherited IRA contains a grab-bag of investments you can certainly have whichever custodian sell & buy as necessary to consolidate the account’s holdings into just a couple issues of stock, mutual funds, etc.
If you currently have all your money at Broker X and the IRA you’ll be inheriting is at Broker Y, it’s easy and straightforward to transfer all your business to either X, Y, or some new place Z. There is generally benefit to dealing with one or no more than two providers. Stuff scattered everywhere is a recipe for confusion and higher-than-necessary costs.
And yes, the bigger the total is, the nicer X, Y, or Z will treat you. But ref the other posters for plenty of good input on that point. Small numbers of millions are not a big deal to any outfit you’ve ever heard of. Other than maybe some one-man storefront in your local town. He’d probably be overjoyed to help even for half a mil.
I understand it is a large company. I don’t think I will be important to a large corporation. OK?
I am thinking about the individual you get when you call. They will be happy to sign up a new large account for their company. I just got buttonholed for a half hour by my bank who were quite interested.
This is new to me so I hadn’t thought through whether I could consolidate or not. Based on your and others statements it looks like I will.
I could go for Vanguard. Are they clearly better than Fidelity? Is it the fees?
Fidelity has storefronts all over my town, and I’ve had accounts before with them, so I was comfortable with that idea.
I am not in 7 figures here. But your second to last paragraph is hard to understand. Can you restate it for a newbie?
OK here’s a scenario: I have over 100K in a work related pretax account. I have a small IRA, not a concern here. And I will inherit a medium 6 figure bundle of IRAs and brokerage accounts, and one Roth, from 7 different companies. I’d like to consolidate it all under one roof.
So I will end up with an Acme IRA, Acme Roth, and Acme brokerage accounts, and my small IRA is not lumpable? So it cannot be combined with any other instrument?
My guess is that the investment guy/gal at your bank was commissioned and planning to offer high-fee investment options to you, and that’s why you got the hard sell.
Vanguard, as far as I know, doesn’t give commissions to the people you deal with. So they’re not going to fawn all over you to win your account. But they will be very nice and helpful. And really, once you’ve got the account set up, you will almost exclusively manage the account online. (That’s a big reason the costs are so low.)
And regarding consolidating, as LSLGuy said, you can’t combine all of these accounts into one, but you can maintain the beneficiary IRA, your IRA and your pre-tax investments at the same brokerage and the combined balance will get you lower fees than if you keep the accounts at multiple brokerages. Also, having all the accounts in one place makes it easier to see whether your asset allocation across all accounts matches your goals.
Talking to an advisor is helpful, but remember that they get paid by taking a cut of your investments. Add in the cost of maintaining a storefront and advertising, and the cut gets bigger.
An advisor will often recommend funds which are actively managed. This means the manager is making a lot of day-to-day decisions and the fees pay their salary. While they sometimes have good returns, the truth is many of them don’t do much better than a boring index fund you can get for cheap at Vanguard. An index fund is one which has stocks which fit some profile (like the Standard and Poors 500 representative stocks or Dow Jones Industrial stocks). There is not much management, so the fees will be lower. And the funds often do just as good or better as the managed funds.
As a newbie, you may feel more comfortable talking to an advisor, but keep in mind that a larger cut will go to that advisor. In addition, if you are not familiar with investments, you may not know if what he is advising is good or not.
What you may want to do is talk with a tax or estate attorney on how to consolidate these funds. An attorney is paid with an independent fee, so he has no conflict of interest in the advice he gives.
Yes.
Those storefronts are not free. Hence they must charge more in fees than Vanguard, who is completely online.
In your first year of retirement, a common recommendation is that you spend 4% of your total account balance - for example, $40,000 for a balance of $1 Million. In following years, you adjust the $40,000 up by inflation.
Studies have shown that you are unlikely to run out of funds with that withdrawal scheme.
When I retired, a broker at a major firm, who had one of my small accounts wanted me to give him my main employer 401k. He had a package of mutual funds to recommend and he would adjust them annually to keep them balanced and get rid of under-performers. For that, he would charge 1% - or $10,000. Half was his commission and half for the mutual fund company.
I saw no reason to give him $10,000 of my $40,000 annual retirement income.
Instead, I put my million in 3 Vanguard index funds with very low expense ratios (fees). I follow what is called a ‘3-fund strategy’ and sleep well at night. If you want someone to help with that, there are some firms that will assist you for less than 0.5% but frankly, it is not that hard.
I learned a lot by reading the Boglehead Wiki and watching the PBS show “The Retirement Gamble”.
Google will find them both for you.
(While I was typing, filmore posted good stuff)
You’ll end up with an Acme Beneficiary Traditional IRA holding all the Traditional IRA stuff you inherited. And an Acme Beneficiary Roth IRA holding all the Roth IRA stuff you inherited. And an Acme Traditional IRA holding all the Traditional IRA stuff you already owned. And an Acme Brokerage account holding anything you inherited *or *already owned that is not part of any IRA or 401K.
At least until you retire, you’re stuck with your employment-related pre-tax account being wherever your employer decrees. But post-retirement that can probably be rolled into your Acme Traditional IRA.
As to who to use. IMO …
At your level the fee or performance or product differences between, e.g. Schwab, Vanguard, E-Trade, and Fidelity is close to negligible. If you need some face-to-face handholding then Vanguard is the least-good choice. They’re pretty thoroughly a self-serve only operation.
I might go visit the local Fidelity and Schwab offices. And talk to them about your situation. Yes, the person you’re talking with is a salesman who will benefit at least some from bringing you on with them. But see what you can learn and also which office feels more comfortable to you. That matters. Explore the heck out of their website and see what education they offer and how well you connect with it.
And stay the hell away from banks. Their financial services arms are designed for fleecing little old ladies. Not helping sensible folks manage whatever money they have.
I recently ran across this on the Boglehead board - it is an explanation of the strategy I am using, written by Allen Roth, a guy who writes for professional financial advisors:
Aren’t you going to miss out on growth stocks, small caps, emerging markets etc?
Nope. You own them all as a part of the index. The problem with the ones you mention is that they are “managed” funds with higher fees to pay the salary of the managers. History has shown that these managers do not always pick stocks for the funds wisely, some win some lose. Over a typical timeframe for retirement savings, un-managed index funds win.
Brokers also love to sell you these managed funds because they also get a commission to sell them to you.
This is a good intro
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005&sid=051668299353e87199eeb3d9c74e352f