My Parent’s Financial Advisor is Charging 1.5% Fees—Should I Move Her Funds Now or Wait a Year?

There are few things in life that are actually free. And when it comes to financial advice, you can’t expect to get it for nothing — at least not customized guidance.

In this Reddit post, we have someone who found out that their parent has started using a financial advisor — and they’re not happy. They don’t like the fact that the advisor is charging a 1.5% annual management fee on top of fees of 1% to 2% for actively managed funds.

The poster is wondering if they should take their parent’s money out now and capture the gains, or wait at least a year and a day to be bumped into the long-term capital gains category.

But the issue here goes beyond taxes. And it’s important that the poster recognize what they’ll be giving up by pulling the money.

Short-term versus long-term capital gains

Let’s address the poster’s tax question first. It can be advantageous to wait a year and a day (or more) before cashing out gains from a tax perspective, since long-term capital gains are taxed more favorably than short-term gains.

However, the market has been rocky lately, and we don’t know what’s in store for the remainder of the year. If the poster waits, they may not be looking at gains at all.

Whether short-term capital gains are a problem for their parent depends on their overall tax situation. If they’re in a high tax bracket already or are worried about being bumped into one, that’s reason enough to wait. But if the gains aren’t so substantial and/or the poster’s parent doesn’t have a very high income, then short-term gains may not be a huge problem.

Is it worth working with a financial advisor?

The bigger question to address here is whether the poster is right to pull their parent’s funds away from their financial advisor because of the fees involved. And the answer is, it depends on whether the financial advisor is worth the money.

If the financial advisor isn’t doing much, then no fee is worth paying. But if the advisor is securing strong returns in the portfolio they’re managing and also offering comprehensive guidance on top of that, then their fee may be more than worth it.

The poster here should have a discussion with their parent — and their advisor — about what they’re getting out of the relationship before pulling the plug. The poster should also recognize that financial advisors can come up with sophisticated investment strategies with the potential to beat the broad market.

The poster suggests pulling the money and putting it into an S&P 500 index fund. That’s not necessarily a bad choice. But their parent may have loftier investment goals. An S&P 500 index fund will basically match the performance of the broad market – not beat it.

It’s also worth noting that a 1.5% management fee isn’t egregious for a financial advisor. Some advisors may charge more like 1%, but 1.5% isn’t unreasonable — especially for a smaller portfolio.

There’s nothing wrong with the poster shopping around for a new financial advisor for their parent if they’re not unhappy with the current one. But they shouldn’t be too quick to dismiss the idea of working with a financial advisor in general. And also, they should expect to pay for that service, as they would any other.

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