I have a traditional IRA which I rolled my previous employer's 401(k) into. I've noticed that there seems to be a quarterly advisory fee, which seems to be about 0.5%. Is this reasonable? I haven't seen any other fees, but $1,600 / year seems a lot. There's about $87k in the account currently. If it's not reasonable, where can I move the IRA to?
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1This question is unanswerable unless you provide some more information. Who is the custodian of your Roth IRA and what specifically does the Roth IRA hold? Shares of stock? Mutual funds? Real Estate? Gold bars? Also, have you tried asking the custodian what the fee is all about?– Dilip SarwateJan 28, 2015 at 1:44
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@DilipSarwate First Clearing is the custodian, and I believe it holds mutual funds. I just noticed this tonight so I've not had a chance to ask them.– AndyJan 28, 2015 at 1:50
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You rolled over the funds from your 401k plan to First Clearing. Why did you choose them instead of literally thousands of other firms slavering to get at that $87k? Did First Clearing tell you about their fee structure and expenses or did they just dangle something like "We will double your money in 3 years" in front of you and so you never bothered to read their prospectus (which would include all these numbers in detail) in your haste to invest with them?– Dilip SarwateJan 28, 2015 at 2:04
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@DilipSarwate I worked with my financial adviser to do the rollover. Regarding the fee, part of my question is if its reasonable or not; the first fee I saw was "setup fee" so I didn't think there'd be others. Now that I see there is, I'm posting here to help determine if this was a good investment or not.– AndyJan 28, 2015 at 2:11
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Zomg!! Yes, that is an absolutely horrible custodial fee, your "financial adviser" got a huge commission to put you into that account and those mutual funds. Which I bet have hIgh loads. Get that IRA over to Fidelity, Vanguard, Charles Schwab, Wellstrade or any comparable discount broker. Ones which are also banks will happily give you a lot of "comps" such as free checking. At my bank I don't pay for anything, and my total IRA custodial fees are about 0.3% per year, inclusive of account fees and mutual fund loads and expenses. I pay 0.8% in my DAF.– Harper - Reinstate MonicaJul 30, 2016 at 23:11
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2 Answers
What are reasonable administrative fees for an IRA? was recently discussed here. My answer was zero.
An IRA is not an investment, it's a container representing the tax status of an account. Once you decide what to actually invest it in, you'll likely incur additional fees. Mutual funds, for instance can range from .05% per year to 2.00% or more. In your case, you are telling us you are spending 2% per year even before you decide what to invest in.
The real question I'd like to see answered is "what value can an advisor bring to one's retirement account to deserve a 2%/year fee?"
My final thought - most financial types had been suggesting that a retiree can target a 4% per year withdrawal after retiring. This rule of thumb has been debated since the lost decade of 2000-2009, and the safe number may be lower. If an advisor is taking 2% off the top, you are basically sharing half your income with him. A million dollar IRA, you get $20K, he gets $20K?
answered Jan 28, 2015 at 3:03
JTP - Apologise to Monica♦JTP - Apologise to Monica
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So zero? Are there are other fees? If not, how do they make money from my having an IRA account with someone?– AndyJan 28, 2015 at 13:33
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Whatever you buy will have some tiny cost. Stocks, a $10 (or so) commission, mutual funds, a .05-.25% expense. The selling broker gets a cut. But my broker would get $1000 on a million dollar IRA from me, at most, not the $20,000 and them some which your guy would charge. Jan 28, 2015 at 13:40
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2The issue is that you are using an advisor. If you like him and wish to put his kids through college, keep him. Else, any broker will have the fees I described. Schwab, Fidelity, Vanguard, TD Ameritrade, E*Trade, etc. (Note, I'll clean up these comments and edit them into my answer to avoid the long comment chain.) Jan 28, 2015 at 13:47
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1If you invest in a mutual fund, there are underlying expenses, .05% - 2%+. Even if he recommends a .10% fund, you will be paying that, even though you don't get a separate bill. Feb 11, 2015 at 20:54
I will give a slightly different answer which is actually an addendum to JoeTaxpayer's (soon-to-be-edited) answer.
Do NOT go to your financial advisor and ask him "How do I go about transferring my Roth IRA to ...."? where .... is whichever broker or mutual fund family that you have chosen from the list that Joe has suggested. Instead, go to the website of the new group (or call their toll-free number) and tell them "I want to open a Roth IRA account with you and fund it by transferring all the money in my Roth IRA from First Clearing." Your new Roth IRA custodian will take care of all the paperwork and get the money transferred over at no cost to you except possibly fielding a weepy call from your current financial advisor because he had just ordered his new Lamborghini and now will have difficulty making payments on his auto loan. "Why are you leaving me? After all the years we have had together?"
You will need to choose some place to put the money, and I suggest that you use their S&P 500 Index Fund, not the S&P 500 ETF, just the standard vanilla S&P 500 Index Mutual Fund. This recommendation is almost heresy in this forum, but it is better to pay the extra 0.01% fee that the Fund charges over and above the ETF until you become a little more savvy and are ready to branch out into individual stocks (which is when you really need a brokerage account). Revelation: I have never made the transition and invest only in mutual funds which does not require a brokerage account.
After doing all this, pay no attention whatsoever to your Roth IRA investment or how the S&P 500 Index is doing for the next 20 years. This will help avoid the temptation of taking all your money out just because the Index went down a little. Everybody is told "Buy Low, Sell High" but far too many folks end up doing exactly the opposite: buying because the stock market is up and selling when it starts going down.
answered Jan 28, 2015 at 14:45
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VFIAX fee is .05%, same as VOO. I agree, even if a bit higher, the fund is better for multiple reasons - exact $$ small purchases, no $10 commissions, etc. Jan 28, 2015 at 16:08
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VFIAX does have a minimum $10k though (since it's Admiral class). VOO and VFIAX are effectively identical for >$10k if you go with Vanguard (no commissions on ETFs).– JoeJan 28, 2015 at 16:27
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@Joe - yes, $10K min, but with $87K to invest, I figured that wouldn't scare Andy. A different situation than if a new investor wanted to start at $100/month. Jan 29, 2015 at 3:24