The big news around the Heartland on FIRE household this week is we’ve taken the plunge and decided to move all of our investment funds from Edward Jones over to Vanguard.
This is a big deal here for a number of reasons:
- The amount we are moving comprises more than 50% of our net worth and 64% of all our investments.
- This also includes our daughters’ 529 and custodian plans. We are making this decision for them too.
- I’ve been with Edward Jones since my teenage years. With 34 staring me in the face next week, it’s probably been about 20 years. It’s hard to turn your back on 20 years of anything.
- I’ve known my financial advisor and her family for nearly a decade. I even supervised her son for a few years at a previous job. She and her family are good people. I hate disappointing good people.
- My parents and siblings are still invested with the same advisor.
Do you think we’ve put any thought into this?
So, why would I turn my back on all this and jump ship to Vanguard?
In a word: FEES
When you look at the expense ratios of the mutual funds were are(were?) invested in it looks bad: They range from 0.07% up to 1.32% with an average of 0.63%. But two other factors make this much worse…
Assets Under Management (AUM) Fee – My Roth IRA is(was) in an account that charged an AUM fee of 1.25% per year. My advisor had tried to get me into lower expense ratio funds to counterbalance this fee but the AUM was a large hump to get over. Factoring that fee into the math I calculated a weighted average expense ratio of 1.00%. Ooof!
Upfront Sales Charges – The majority of our money with Edward Jones is invested or has been invested in American Funds Class A shares which have upfront sales charges. The alleged benefit of the Class A shares is that they have lower expense ratios compared with other share classes. For American Funds, these Class A sales charges start at 5.75% and decrease as you reach various “breakpoints” or account values. American Funds are not alone in offering this style of share class, but they are probably most well known for this practice.
What type of “low” expense ratios do you purchase with this sales charge?
Our Class A expense ratios range from 0.29% to 1.10%, with an average of 0.66%. Compare that with Vanguard’s Total Stock Market Fund (VTSAX) expense ratio of 0.04%.
W.T.F?! I paid extra for that!
Ok, Ok, Ok… surely these funds that we paid handsomely for are superior to the lower cost index funds we hold and must have been outperforming them, right?
Wrong. If you have been following our monthly updates (Progress Updates 1, 2 and 3) you can see that has not been the case. I figured when the market dropped at the end of January that these funds might hold there value a bit better than the index funds… in the words of Rafiki:
The Edward Jones accounts fell in the middle of the pack in the dropping market. So again, I ask myself, what am I paying extra for?
Resources that Helped Us Make the Decision to Move
These three books helped push me over the edge. (Full disclosure… these are affiliate links, you won’t pay more, but this blog will earn a commission).
The Little Book of Common Sense Investing – John Bogle
The Intelligent Investor – Benjamin Graham
The Simple Path to Wealth – J.L. Collins
The Simple Path To Wealth convinced me that this (taking a DIY investing approach with Vanguard) is something that I could do. The Little Book on Common Sense Investing presented the clearest case on how using “helpers” or brokers/advisors can significantly eat at your earnings. The Intelligent Investor best covers the mental aspects of investing and how the investor’s greatest enemy is themselves. If I had to rank them, I would probably go with #1 The Simple Path to Wealth, followed very closely by #2 The Little Book of Common Sense Investing, then #3 The Intelligent Investor (this one gets dinged a bit due to readability, but is still great and timeless).
Our Strategy Going Forward
Once everything is finally rolled into Vanguard we plan to fully index the balance. The portfolio will look very simple: Total Stock Market Fund and Total Bond Market Fund. We are still kicking around whether to add or leave off the Total International Stock Market Fund. This is a massive departure from the numerous funds we are invested in at Edward Jones. The idea is to diversify away all risk outside of the inherent market risk and to make our investing as hands off as possible.
The allocation will be the biggest decision point. Personally, I’m feeling rather aggressive, albeit not as aggressive as the 100% Total Stock Market allocation J.L. Collins recommends in his Wealth Accumulation phase. The bond portion will likely be 20% or less, since our retirement horizon is more than a decade away.
The Talk
I was absolutely dreading the call to my current advisor for the reasons I outlined earlier. That said, she handled the news in a very professional manner. She quickly realized I had set my mind to making the transfer and didn’t try to convince me otherwise. Perhaps our conversations in previous meetings set the stage for this (i.e. the discussion of minimizing fees was a point of contention for the past couple years). Whatever the reasons, she was almost supportive of the move. For that, she has my respect.
The Transfer Process So Far
Initiating the transfer through Vanguard’s website was a piece of cake. It probably took about 30 mins total to initiate 9 different transfers. The questions were fairly straightforward. Surprisingly, the Roth transfers required no up front paperwork beyond the online forms. Unfortunately, there is paperwork necessary to formalize most of the transfers… but what would you expect? Some of the accounts say they will transfer within 4 to 5 days following receipt of the transfer request. Others say 4 to 6 weeks. Eeek!
There was one kinda annoying catch so far: The Medallion Signature Guarantee
Most of the transfer paperwork requires a Medallion Signature Guarantee (MSG). It works like this (theoretically)… you find a bank or credit union that offers the MSG service, take your forms there and sign in front of the officer. They, in turn, stamp the forms. You then mail them to Vanguard.
A word of caution: Many institutions will not provide the MSG service unless you are a member or account holder. Some will charge fees on a “per stamp” basis. Additionally, at our bank the forms are not actually stamped in your presence. They are scanned, reviewed off-site, stamped and returned to you. This is a bit time consuming and has been, by far, the most frustrating aspect to-date.
I am relieved to have finally made the jump to Vanguard, and in particular, to have the breakup with my advisor behind me. At the same time I am quite anxious to get the transfers completed so I can turn my sights to other things and not worry about excessive fees anymore.
Part 2 will cover the final steps to complete the transfers, any other hiccups along the way, and touch on our allocation thought process. So stay tuned…