"I Didn't Go to School for This"

Wealth Management

By Victoria Rogers

I recently had a conversation with my sister-in-law. She’s a NICU RN who changed jobs a few years ago. She has a 403(b) plan with her old employer. Like many of us, she just left it there. She finally asked her advisor if she should roll her plan into her IRA and let him manage it. Ordinarily, this is a great idea, but her advisor is with a high-cost financial services company. His fee comes from the internal expenses of the funds and annuities she is invested in. She needs his service; she often has questions and concerns. She calls her advisor regularly, and he talks her through her problems. When she asked him if she should roll it over, his response was “Sure, bring it over and I’ll grow it for you.” She then called the plan administrator. He advised her to keep it in the plan, since the internal cost was so low.

Confused, she called me to ask my opinion. I told her that her advisor is a great guy and his advice is good, but his products are extremely expensive. She doesn’t see those fees, since they are built into the internal expenses, but they are a drag on performance. Right now the annual expenses on her 403(b) are less than $1 for every $100. If she rolls it to an IRA with her advisor, depending on share class, expenses could double or even triple. She may also pay loads associated with the new funds. A load is a one-time fee assessed on the purchase or redemption of a fund. Plus, she would be limited to the fund families her advisor represents.

She’s perplexed. She understands it would be in her best interest to leave the account where it is, but she’s concerned that no one is managing it. It has not been rebalanced since she left her former employer. She has no one to advise her about appropriate investments. Her advisor will not assist on an account he doesn’t manage. “Vicky, I didn’t go to school for this. When I started working, we expected to retire with social security and a pension. Now we have these accounts that are invested in things I don’t understand. I’m looking for a class to help me understand all this.” Her plan proudly offers 196 investment choices. If you choose rebalance, it displays a spreadsheet with 196 line items. There are no models, no suggested allocation. What is the answer?

Don’t be afraid to pay for advice. What good is a low-cost plan if you have no idea what to choose for investments and don’t know how to monitor your choices? That being said, shop around and ask questions. What type of investments do they recommend? Do they represent a particular product or fund family? How is the advisor paid? Are the fees internal or deducted from the account, or both? Are there additional transaction fees? Have the advisor quote the fees by percentage. With the push for disclosure, this information should be readily available. If you can’t get a quantifiable answer, find another advisor. You hire a plumber to fix leaks, is your financial pipeline any less important?

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.