Does it make sense to transfer our IRA to a different branch?
We are considering transferring our IRAs from Wells Fargo to Vanguard or Fidelity. Would this be a good strategy when we're about 2-3 years from retirement just to save fees?
Thank you for your question. Fees can definitely impact your IRA's, even for just 2-3 years. Also, keep in mind that although you are 2-3 years from retirement, you would most likely not be taking all the money out of your IRA's in one lump sum, but drawing on them for many years, thus the fees you will be paying can make a big difference.
Here are the rules on rollovers from the IRS. Please consider me a resource should you have additional questions or wish you have an objective review of your current IRA's and what other options exist.
If your goal is to reduce fees and expenses, then the answer is YES.
Both of the firms you mentioned have a much lower cost business model compared to your current bank. Make sure you transfer the accounts to a tax qualified account (another IRA) in order to maintain the IRA’s tax deferred status. Here is a quick guide from Investopedia on how to avoid mistakes.
The amount of time you have until retiring is irrelevant because your investment accounts will still be subject to fund expenses, commissions, fees, transaction charges, and any additional fees you’re paying, even during retirement.
This makes even more sense if you are self-directing your investments and you don’t value guidance from a “financial advisor” at that bank. If you are working with an advisor at the bank, most likely they are a broker, and according to the Investment Adviser Act of 1940, brokers do not provide fiduciary advice outside of information related to selling a product. Therefore, that broker is simply a salesperson and isn’t legally obligated to place your best interest first.
Stephen Rischall, CRPC
Hopefully you’re not making a hasty decision based on the recent bad rap about Wells Fargo. Here are some factors you may want to consider before jumping the ship.
Fees are obviously one consideration from your statement. The best way to compare compensation arrangement is to pay a visit to Vanguard and Fidelity branch and ask them what their fees are like and how they will manage your portfolio differently. Show them your current statement. Most advisors offer a free consultation for the first meeting, so take advantage of the time to learn the pros and cons of your existing portfolio, and compare notes from Vanguard and Fidelity to see if their assessments are on par with or drastically different from your current investment strategy.
Besides fees, pay attention to each financial institution’s investment recommendation line-up. Are they all from the same fund family, or different ones? Vanguard and Fidelity are good fund families offering great low-cost investment options, but not all of them are superb. Once in a while, there are some dud funds. Ideally, you want to have your advisor, who is unbiased by his/her working relation with the fund, always put your interest first. This brings up a follow-up suggestion. While you’re shopping for a new home/advisor to guard your portfolio, why not give an independent financial advisor a try? He/she is not affiliated with any fund family and able to choose the best underlying funds based on your goals and objectives, instead of whom they’re working for. Best!
The choice of how to manage an IRA can be complicated. As you consider changing custodians, I would like to suggest that you consider a few components that I think are important.
1. Do you want to work with an advisor or manage the money yourself? Although there will be costs associated with working with an advisor, you need to decide if you have the knowledge and the time to make your own investment decisions.
2. How are your fees charged? There can be platform compensation, advisor compensation, product compensation, and fund compensation. Basically, there are three models: fee only, fee and commission, and commission only. There are advantages and disadvantages to all of these, and sometimes, it may be hard to find all the charges. Make sure you know if the platform, itself, charges an annual fee to hold your account. How much does your advisor receive? If you are not sure, ask. Sometimes, advisors receive payment from product creators (like annuity companies). No one is working for free. Find out how much the advisor is being compensated by the product creator, as well. Additionally, some products have additional fees. Find out what they are. Finally, mutual funds, exchange traded funds, closed end funds, and any other type of fund also have fees. These are sometimes also known as "expense ratios." Determine the expense ratio for each holding.
3. What are the credentials of your advisor? Today, there are a myriad of financial designations. Some of them are quite good, and some merely involve staying conscious for half a day. My opinion is that the CERTIFIED FINANCIAL PLANNER practitioner designation is the gold standard because of its experience requirement, training requirement, college degree requirement, and extensive comprehensive exam. You can learn more about the designation at letsmakeaplan.org. Other credentials are also good, but you should ask your advisor what, specifically, he or she had to do to receive the designation. Trust me--if it was a lot of work, they will be happy to share.
4. Is the advisor willing to be a fiduciary? The Department of Labor has required that starting next spring, anyone who works with your retirement money must be your fiduciary. Simply stated, this means that they must act in your best interest rather than their best interest. Although this sounds very reasonable, it has been fought extensively by much of the financial world. Ask your advisor to put his or her fiduciary duty to you in writing.
Once you have answered these questions, you will be in a much better place to decide how to manage your IRA. Moving it may be a good decision for you, or you may decide you want to leave your money where it is. Either way, you will be making your choice from a sound foundation.
Be Prosperous! Peggy
Absolutely, assuming your investment philosophy is that of low-cost, well-diversified investments. Considering that the average equity fund at Wells Fargo is about 1% higher than a comparable fund at Vanguard, just over the next 2-3 years can be a substantial amount of savings for you. Also understand that just because you are planning to retire in 2-3 years, that doesn't mean you are going to liquidate your entire IRA at that point (at least I sincerely hope you aren't planning to do that). You're going to have that IRA invested for much longer than 2-3 years, and the savings from fees alone will compound to a very substantial amount over your retirement.
With that said, any time you look at fees, whether it be for investments or advice, you must consider what you are receiving for those fees. Paying 1% might make sense if you are getting comprehensive advice, plan design, and ongoing plan management and implementation. If all you're getting for that 1% is a mutual fund, then I'd strongly advise moving to a lower-cost alternative.
Best of luck in your impending retirement.