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My wife and I each have a small Roth IRA that we started through our Northwestern Mutual financial advisor. All of the money is invested in American Funds American Balanced Fund-A (ABALX). There is about $1800 in each account and we are automatically contributing $50 to each account each month. We receive our statements directly from American Funds and they charge us $10 per account per year.

I have a pension and 401K through my employer. My wife does not work now, but she may go back to work once our children get older.

Our goal for the Roth IRAs is to have an additional cushion on top of the pension and 401K. Our advisor recommended the fund we have now because we hope to retire in about 25 years and we would prefer to leave the investing to the experts rather than micro-mange it ourselves.

Our advisor recently called us and set up an appointment to "update some paperwork" (his words) for our account. I had to cancel the meeting the day before it was scheduled to take place because our child was sick, so the advisor and I talked on the phone instead. He told me that some changes are required for our account because of the Department of Labor fiduciary standard change. The transfer would be a "transfer in kind."

I am ok paying the $20 per year for the two accounts but I am concerned that $100 per year will eat into the returns that we are getting on our small investments. Maybe I am reading too much into his words, but I would not describe something that is going to cost me $80 per year as just "some paperwork."

I am hoping to get some fact checking on what our advisor is telling us. Based on Northwestern Mutual's reputation, I don't believe we are being mislead, but I don't feel like I am getting the full story. Since our plan is to invest in only one or two funds, would we be better off switching to a different broker that would not charge us $100 per year?

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    It sounds like he wants you to switch to his company instead of the current one, so he makes more money on it. There are cheaper options on the market, and they will take you gladly, and do all the transfer work for you. Look around online for large well-known companies, and switch online. You don't need to pay an advisor to fill your forms. – Aganju Feb 21 '17 at 12:21
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    Is the increase to $100/yr part of the changes to your account? You wrote $100 but weren't clear about this figure. – JTP - Apologise to Monica Feb 21 '17 at 15:39
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There is a LOT of shuffling going on in the financial services industry. I would not immediately say your advisor is acting in bad faith. The DOL fiduciary changes are quite significant for some brokers. Investment Advisors who are fee-based have less of an impact since they are already fiduciaries.

That being said, your issue is still the same. How can you get a low-cost solution to your problem? You might want to consider Vanguard, Fidelity, or another mutual fund company that can keep your costs low. However, you should understand that if you are using mutual funds, the fees are paid one way or another. 12b1 fees, commissions, and expenses are all deducted from the fund's gross returns.

You have to choose between low cost and paid advice. you cannot get high-quality low-cost advice. Fortunately, there are a lot of new solutions out there, robo-advisors, indexing, asset allocation mutual funds, ETFs, and more. Do a bit of homework and you should be able to come up with a reasonable solution.

I hope you found this helpful.

Kirk

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Considering the combined accounts you're contributing $100 per month and they want $100 per year to administer them... that's 8.3% of your contributions gone to fees each year. To me, that's a definite no. Without getting in to bad mouthing the adviser for even making the suggestion, the scale of your account doesn't warrant a fee that high.

Fees are very meaningful to the little fish investors. There are LOADS of IRA account providers. With that level of competition, there are several that have very reasonable account minimums, no annual maintenance fees, and a suite of no fee, no load, no commission, low expense ratio funds to choose from. Schwab, Fidelity and Vanguard come to mind. I know Schwab is running a big ad campaign right now as it's reduced some of it's already low expense ratios.

If I were you, yes I would move the account because you can even get rid of the $10/year/account fee. But, no, I would not move it to a higher fee situation.

In my opinion on a $3,600 account + $1,200 per year in contributions, you don't need advise. You need a good broad market low fee index fund, and enough discipline to understand that retirement is 25 years away so you keep contributing even when news is bad and the market is going down. In 10 years maybe talk to an adviser.

Using the S&P500 index daily close historical data from calendar year 2016, considering first of the month monthly deposits and a starting balance of $3,600, you would come out at the end of the year with about $5,294. That's $494 in gain on your total contributions of $4,800. They'd take $100, that's about 20% of your gain. Compared to a no fee account with a reasonable expense ratio of 0.1% the fee would be just $5.30. Bearing in mind also that your $100 per year account will probably be invested in funds that also have an expense ratio fee structure further zapping gains. Further, you lose the compounding effect of the $100 fee over time which adds up to a significant of retirement funds considering a 25 year period. If all you did was put that $100 fee in to a 1% savings account each year for 25 years you'd end up with $2,850. (Considering the average 7% return of the S&P you'd have $6,964 on just your $100 per year fees)

This is why you should be so vigilant about fees.

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It really depends on the value your financial adviser provides. Does he help with your 401K? Does he help you avoid making foolish moves? Does he really help you find funds that beat average market returns?

Many people answer "no" to all of these questions and do their investing on their own. I personally prefer Fidelity because I find their web site easier to work with, but Vanguard is another option.

At Fidelity you will have zero fee per year. You can buy Fidelity and many other mutual funds with no cost. You can buy iShares ETFs at no cost. Some funds do have a fee to purchase, but they are pretty low ($35) and are only collected when you buy, not yearly.

Now some people do go it alone and it is a huge mistake. The news tends to only report negative stock market events, and many people were scared away from 2008 and missed wonderful gains since that time.

If you pull your money out during corrections, stick with a financial adviser. If you will stop contributing because of a correction, stick with a financial adviser. In those cases the fee is well worth the cost. Also if your guy provides education in association with investment advice, the fee might also be worth it.

If you are able to stomach losses, able to keep on contributing like clockwork, and can read a Morning star mutual fund chart, then you might be best to go it alone. One thing would really help is to have a friend that is also interested in investing to share ideas with.

  • Many other fund families are just as easy to work with and have roughly equivalent offerings, depending on what you're looking for. I've been with the same funds through three bank mergers, and the only gripe I ever had with them was early on when archangel in which index was being tracked made me take $70k of long-term sell-and-rebuy --- which was a nuisance but not too much more than that. Point is, naming specific fund families probably isn't very useful and may fall afoul of the "we don't recommend" policy. – keshlam Feb 22 '17 at 2:09
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If you want a Do-It-Yourself solution, look to a Vanguard account with their total market index funds.

There's a lot of research that's been done recently in the financial independence community. Basically, there's not many money managers who can outperform the market index (either S&P 500 or a total market index). Actually, no mutual funds have been identified that outperform the market, after fees, consistently. So there's not much sense in paying someone to earn you less than a low fee index fund could do. And some of the numbers show that you can actually lose value on your 401k due to high fees.

That's where Vanguard comes in. They offer some of the lowest fees (if not the lowest) and a selection of index funds that will let you balance your portfolio the way you want. Whether you want to go 100% total stock market index fund or a balance between total stock market index fund and total bond index fund, or a "lazy 3 fund portfolio", Vanguard gives you the tools to do it yourself. Rebalancing would require about an hour every quarter. (Or time span you declare yourself).

jlcollinsnh A Simple Path to Wealth is my favorite blog about financial independence. Also, Warren Buffet recommended that the trustees for his wife's inheritance when he passes invest her trust in one investment. Vanguard's S&P500 index fund. The same fund he chose in a 10 year $1M bet vs. hedge fund managers. (proceeds go to charity). That was about 9 years ago. So far, Buffet's S&P500 is beating the hedge funds. Investopedia Article

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