Paying for Financial Advice or Services

For several years, I have been making use of an investment portfolio tool offered by Schwab. They have a series of several pre-determined portfolios to choose from (to match your desired risk characteristics) and they manage your account to the portfolio style you have selected. For this money with a long term horizon, I have selected a portfolio that is something like 82.5% stocks, 15% bonds and income generating funds and 2.5% cash. They use an evolving list of 15 to 20 quality mutual funds to maintain the portfolio’s stats as market conditions change over time, but the funds themselves are high volume, highly liquid, spread out over large cap, small cap, mid cap, and international allocations.

If I make a deposit, they will automatically buy allocations across the target portfolio to keep the target portfolio balances. It’s easy. I deposit money and within a day or two it is deployed. I pay about 12 bp per quarter for this service. That’s roughly 0.5% per year.

I am growing dissatisfied for these reasons.

  1. They make trades that I feel are unnecessary. I don’t explicitly pay for these trades, but I pay indirectly. There’s likely a bid-ask spread that I am effectively covering. If they rebalance anything, I am subjected to wash-sale rules and disallowed wash sale losses on any money that I have deposited in the prior 30 days. They generate realized capital gains, even in a year with poor stock market results.
  2. The results have been poorer than just investing in DIAmonds - even though 17.5% or more of my assets are deployed in bonds and cash which should stabilize the results.
  3. The fees suck
  4. I am on my 5th account manager in the last 10 years. This one is young and brash. He keeps trying to explain things to me that I understand. I know WTF risk is. I am not using them for financial advice. I am using them for the ease at which I can “fire and forget” cash deposits that get auto saved on payday, which then get dollar cost averaged into the market every month without me having to remember to do it.
  5. The largest trades they make seem to be rebalancing from one fund into NOT a different style fund, but a like-minded fund. For example, they rebalanced big this year out of the Schwab US Large Cap growth fund into an S&P 500 fund, which is, you guessed it, a US Large Cap growth Fund. That trade generated capital gains tax, even though the account has lost big money this year. If I am making regular deposits, they can rebalance across categories with new money. They don’t need to trigger wash sale problems for me.

Does anyone work with another investment bank/asset manager that has better investment management products? Like Fidelity or Vanguard? What about more “boutiquey” money managers like Edward Jones?

You dont use low fee index funds? There’s your first problem. Second problem is you don’t have real estate as an asset class.

Find a low fee advisor that puts your investments in a split of index funds, bonds, re and some cash, who rebalances once a year, and then forget about it.

Activity/chasing short termgains is your single biggest enemy, followed by lack of diversity (index funds), followed by improper asset allocation.

I feel confident that’s the summary of a whole lot of math done by people a lot smarter than I am.

The goal isn’t high returns year over year. The goal is the highest yield over the timeframe to your retirement or longer.

The exception to this is when you get deeper into 7 figures and tax planning starts to impact results. But for everyone else, dial it in, then set it and forget it.

Yeah, what the crustacean said.
I use Vanguard.
In the end, nearly every single active manager can’t do better than index funds after accounting for fees & expenses. <— I read that on the internet.


Space Lobster…

  1. The funds themselves that Schwab has chosen are overall very good choices with low fees. The 15 to 20 funds are not the problem.

  2. Real Estate is not part of THIS account. I own both property and REITs in other accounts that are part of a long term hold strategy. This account is specifically for dollar cost averaging the money that I want to go into the stock market.

  3. This IS a low fee advisor that puts my investments into index funds, bonds, and cash (real estate addressed above). The issue is that I am putting money in on a monthly basis. They automatically buy every time I put money in, but they rebalance in a willy-nilly fashion that I don’t like bc realizing cap gains and disallowed wash sales because they rebalance when they feel like it and NOT by redirecting my monthly deposits.

  4. This account does not chase short term gains. I do NOT see it as having a lack of diversity, and the asset allocation is one of MY choosing - they have many other allocations that I could have chosen.

The point of dollar cost averaging is to use index funds to get into the market at a steady pace over time. Again, I am not using Schwab because I want to give away my decision making on my investments. I am using Schwab because they make it quite easy to deploy money on the 1st of the month without having to actively think about it.

Ask them if they have a similar service that is more tax efficient, one that looks to minimized realized taxable gains from year to year. It may be that they have several similar services that are all priced reasonably the same. But it sounds like you are looking for some more hands on tax efficient portfolio management that may not fit into a super low cost structure like the one you describe.

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Yes, exactly. The point is to ask some of you guys if you have any knowledge of good choices of portfolio management that considers tax efficiency as well as low costs.

Unfortunately they all kinda suck and solely exist to slowly siphon money from your account.

Which is why I think it is worthwhile to fire them and just DIY. 0.5% seems like a small figure, but compounded over a 30 year career followed by 30 years in retirement, this fee will drill a massive hole in your money bags.

Best way to start is invest in a whole market ETF (I choose ticker symbol VTI that holds 4,000 US stocks of various sizes in various industries). The expense ratio is a low 0.03%. You can move to a less general fund once you have decided how you want to weigh your holdings.

The sooner you realize financial advisors are not really that savvy (they are generally young, don’t have much money of their own, and don’t have a great financial track record) and they are out to try to maximize their earnings (not yours) the sooner you will be able to maximize your money bags.

I suppose my recommendation is focus on the fund manager (who is managing your ETF/mutual fund) rather than your financial advisor.

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I am meeting with my Edward Jones advisor on Friday. I am not deep into 7 figures, but tax considerations are becoming much more relevant now that I am exhausting my HSA and 401k options and looking for options to reduce current year taxes (I don’t think I have much hope on this) as well as in future years as I pile up money in taxable accounts. I think she will be able to provide valuable insights into those issues rather than just pick funds to invest in.

My parents are now in RMD land and get to pay a lot in taxes each year as they cash out. What are the things I can do today to avoid as much of that as possible. I am sure I can figure out some of them with the power of the internet, but could end up missing something substantial.

If your earnings are primarily W-2 then your options are pretty limited to what your employer offers. Of course growth in an index life insurance policy is tax free but then you are faced with very steep 2-3% fees every year, plus your growth will probably be capped.

You can avoid the horrors of RMD by paying taxes upfront while you are still earning (Roth contributions instead of traditional)

In the mean time just keep investing, capital gains tax on earnings should be minimal once you are retired and not pulling in additional income.

I am very curious what advice your EJ advisor has to offer you

I understand your frustration, especially if you expect to have lower taxes in retirement than now.

But do keep in mind that the realized gains and wash sales are all increasing your basis and reducing your tax liability down the road. So other than a changing tax bracket, it’s only affecting when you pay the taxes. But the changing tax brackets can be a reason to want to defer the taxable income. Especially if you’re on the edge of phase-outs where marginal tax rates can be quite steep.

Personally I’m a fan of Vanguard target date funds. I mostly just throw my money in there and forget it.

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I don’t know if / how much your parents give to charity, but you can use the RMDs to make charitable contributions (directly from trustee to charity) and then the income never hits your taxes. So they should be doing 100% of their charitable giving out of their RMDs. Of course if their charitable giving is low relative to the size of the RMD this doesn’t help much. But I suspect that a lot of people in RMD land who DO give at least some money to charity are not taking advantage. And even if they only give a little, still do it from their RMDs as every little bit helps.

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The effect is they are forcing me to pay double the tax NOW rather than half the tax in 20 years.


Yeah, that’s not so good.

Not necessarily the best solution, but here is one:

I subscribe to a newsletter whose philosophy is market timing based on a formula approach. Briefly, the author chooses one or more funds that he thinks do well during the period when he wants you to own them. If the current value exceeds the 39 week average, he wants you to own them. If the current value falls below the 39 week average, he wants you to sell them, and then wait until they start exceeding the 39 week average again. There is a little more to his formula to prevent rapid buy/sell/buy, etc.

The profit upon selling is of course taxable. There is no investment fee to the author, except the newsletter charge.

He is a market timer, but he does not claim to choose the optimal point to either buy or sell.

The next time the formula says to buy, his recommended funds may be different than the previous time. He measures fund performance only during the period when he wants you in, so this is not quick lookup, and this is what keeps subscribers paying to renew.

Historically, the buy/sell formula causes a sell about once a year. I think the newsletter worked reasonably well for me over the years.

Is this the same one from 25 years ago where you worked out the buy & sell triggers and wondered if using his system was ethical without paying for the newsletter? The style you describe seems like “Buy High and Sell Low” Can that really make money in the long run? I guess I am more of an efficient market theorist and I want to DCA (dollar cost average) by consistently buying $X every month.

I am looking for something that is passive. I want to have a system where once a month $X gets transferred from my checking account and into an account that gets invested in a portfolio of my choosing.

My choice of portfolios is


Several (diversified) low cost, index based ETFs across a variety of styles: Large Cap, Mid Cap, Small Cap, International. I want to buy and hold. I don’t want to churn/turn over these assets. Adjustments to my desired asset allocation can and should be done by tweaking the allocation of the new money every month, not by selling/decreasing assets in one class to buy/increase assets in another.

I want to avoid the need to remember and execute the “Ok, it’s the first of the month, I have to log in a make trades to buy 14 different mutual funds today.”

The closest thing Schwab has is one of several specifically defined portfolios. The makeup of the portfolio is fine. The problem is the rebalancings they make every few months. They tweak the allocations amongst the 16 or so funds they use. That is touted as a benefit but I see it as a problem because 1) It is unnecessary 2) It is ineffective 3) It causes the realization of capital gains that I prefer to defer 4) It causes disallowable wash sale losses and 5) They charge me many dollars a year for their efforts.


Yes, this newsletter has been around 25 or more years.

I don’t think it is “Buy High and Sell Low” - you buy while the market is rising (current price > 39 week average). This is so when you initially buy, and with once a month new money too.

I liked this system because it gave me a decision point about how much noise to tolerate. I didn’t care when the market fell X% in a day, if the current price was still greater than the 39 week average.

It’s been shown that this stuff rarely if ever beats not timing the market, and when it does, it’s random.

I’m honestly surprised that anyone here’s response is ‘yeah, but my guy…’. I mean, do what you want with your savings, but I stick to what the math tells me as best I can.

Since you are with Schwab, have you considered using their “intelligent portfolios” service where they try to rebalance using tax loss harvesting?

Well, I had dismissed this. I am not 100% certain, but I think the fees are larger.
Do you use this? Has it worked out to your satisfaction?

I do use it. With past market dips it did seem to work well to take the opportunity to harvest some gains with offsetting losses to avoid taxes.

I believe there is a minimum balance to avoid a fee which I met.