Something is nibbling away at Donna Shaw's nest egg -- devouring it, actually. A stiff $100,000, representing a sizable chunk of her total retirement savings, has gone to advisory and fund fees since she opened a brokerage account 11 years ago. Over that period, Shaw's investments have returned a modest 4.2 percent annualized, net of expenses. With just a tiny pension and a Social Security benefit from her former husband (now deceased), Shaw is concerned about the high fees because she could be drawing on her investments for 20 years or more. So she's considering writing a "Dear John" note and switching to an adviser who will charge her less and do at least as well.
Shaw, who retired in 2002, is considering investing in index or target-date funds through a discount broker or low-cost fund manager. But poor choices or missed opportunities could leave her starved for income.
"Most people need professional investing help," says Mike Piershale, of Piershale Financial Group, in Crystal Lake, Ill. But he suggests that with a better adviser who charges about 1 percent -- Donna's charges closer to 2 percent -- and a diversified portfolio, she could have secured an annualized return at least 1.5 percentage points better over the 11 years. If so, Donna's portfolio would be more than $100,000 larger, he estimates.
Piershale also takes issue with the makeup of Donna's accounts. She has a Roth IRA, a regular IRA and a taxable account. Surprisingly, each holds nearly the same 15 mutual funds -- and in the same weightings, to boot. "Those identical accounts are a red flag," he says. It should be elementary for any adviser to arrange the funds so Shaw gets the most tax-efficient returns. When Shaw began working with her adviser a decade ago, she was transitioning from work to retirement and needed an action plan. But building a retirement portfolio is like constructing a house, says Sheryl Garrett, of the Garrett Planning Network. "It's a lot of work upfront. But once it's built, all you need to do is clean it," she says. "Unfortunately, a lot of financial planners price their services as if you're building a new house every year."
Garrett recommends that Shaw discuss her options with Vanguard or Charles Schwab. She ought to be able to keep her mutual funds, or most of them, and match the funds to her tax situation. Then she should start courting local fee-only advisers and pick one who is willing to meet with her occasionally to review the risks and asset allocation but who won't demand that she pay a percentage of her assets.
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