I mentioned a few months back that I finally dumped Edward Jones after 9 years of investing with them and brought my Roth IRA over to Vanguard. I’ve had a few people email me and ask about the reasoning behind this, as well as the process, so I figure I’d write it out in a blog post in case others were interested as well.
Now let me just say this before I get into the post; I don’t hate Edward Jones. I don’t hate financial planners in general either. I just want to encourage those who may be too scared to even THINK about managing their own investments to take some numbers into consideration, as well as pick up a copy of the book, “Millionaire Teacher” (either through the library, or using my affiliate link here). That book can explain MUCH better than I the impact of paying outrageous fees on your investments, no matter the type of account.
So, without further ado, my sad tale of heartbreak, learning, and redemption.
A Beautiful Beginning….Or So I Thought
Our relationship started as normal as any. I would drive by and see you out my car window, your bold white letters hanging over a professional-looking exterior of a building, reciprocating my glance in your reflection of darkened windows. Images of 10% returns and tax deferred savings danced in my head, as I finally drummed up the courage to introduce myself. Well, actually, my mom used to work there, and I had just inherited a ton of cash, and she thought it wise to stash some of it away before I wasted all of it. Good call mom.
Our relationship was cordial, as you walked me through the portfolio options and asked what my goals were. I could tell something was off, but again, everything seemed so professional, why would I need to worry. Things moved quickly from there. I remember signing some papers, and then some more papers, and then getting a stack of papers to bring home and NOT read because they were drier than reading a dictionary’s appendix. I was signed, sealed and sold on the thought of my money being well taken care of and growing without worry. I mean, I had a professional on my side, my money was safe.
Things Got Rocky
In 2008, I started getting more and more letters of concern from you, but they were mostly incomprehensible and always ended with reassurance. As did all the invoices for my yearly Roth IRA “management fees” that were usually taken out of the Roth directly. Oh well. As the portfolio started declining, I continued to get more and more letters indicating that though things looked bad on the outside, we would prevail. Our relationship was distant, but we could stick it out.
Luckily, I stayed and my portfolio returned and then some. The letters of concern disappeared and things were back to normal….if by normal you mean no communication, and only the occasional invoice and call to update my address. Sure, our relationship had grown stale, but it was probably because I lowered my contributions and prioritized my home and growing family. I waited for your call to connect, maybe review the portfolio and talk about updated goals and risk tolerance, but it never came. You stayed steady collecting your $40, and I stayed ignorant of what was really going on.
My Shocking Discovery
Something strange happened. As I started getting a better handle on my finances, I started seeing people I respected and looked up to mention things called “index funds” and preach the hatred of “high-fee mutual funds, especially those front-loaded ones.” I didn’t feel the connection at the time, because there was no way you would have mismanaged my money and collected such a large sum up front for no reason. We had a spark, and shared interest, and that was to grow my portfolio with minimal interruptions.
But the pivotal moment happened when I sent a friend my portfolio information to review and ask what he would do in my shoes. He took a look, and with a sorrowful look in his eyes, told me what I never wanted to hear.
“Hey buddy. I know you’ve been through a lot, and you have 9 years of history here. But your Roth IRA is invested in front-loaded mutual funds at 5.75% and an annual fee of 2%.”
I. WAS. CRUSHED.
My Broken Heart Lead To A Few Learned Lessons
How could this have happened right under my nose? From the beginning is was doomed, I was being gouged and didn’t have a clue. Then I remembered back to that that uneasy feeling I had just before signing the papers. Did I even read the details of what was happening to my money? I put in $10,000 in 2 years and $575 of that was swept away immediately. How could I not have seen the evidence?!
What hurt more was not the initial lie, but the fact that I was being charged year after year after year an exorbitant fee and our relationship kept humming along like it was nothing. NOTHING! That is the word that perfectly described our relationship, and it’s also what I was going to be left with after paying such high fees for my money to sit in mediocre funds that did NOT outperform any of the Vanguard Stock Market Index Funds. So I decided to take some action and learn how to end this relationship and get my portfolio back!
I read through a few sites, and the book, Millionaire Teacher, and realized how bad things really were. I learned a few things:
- Commission-based financial planners are trying to survive in an industry that looks after the interests of the planner first, not the investor.
- Over 80% of managed mutual funds are regularly beaten by low-cost, passively managed index funds
- Not only do index funds beat the managed funds, but their low fees can save you TENS OF THOUSANDS or more over the lifetime of your portfolio. (See the snapshot from the Bogleheads Wiki page.)
- It is not scary to managed my own portfolio, but I was going to be cautious, because I knew how much it hurt to be burned.
Armed with my lessons learned, the knowledge of how much I would be saving in the coming decades, and a disgust for all things front-loaded (I’m looking at you, washing machines), I decided to do the dignified thing and make a phone call to break up.
Surprisingly, the call went much smoother than I thought. That’s probably because I called Vanguard instead of calling Edward Jones and breaking up directly. Because hey, why not enlist the help of the world’s largest “no-load” mutual fund company. BOOYAH!
I was able to give them the details of my current Roth IRA, create an account with them, setup the full transfer out of Edward Jones, and pick a Target Date Index Fund to start my self-managed venture. This new relationship was already starting to feel like home, and provided me everything short of fresh baked brownies as a welcome gift (though the no-load, 0.18% expense ratio fund tastes better than any brownie). They took care of the details, and I was able to breathe a sigh of relief, knowing that my portfolio was no longer going to be poked and prodded, leaking fee money all over the place.
But Edward Jones did let the door hit me on the way out. I was slapped with a $95 cancellation fee, $40 annual fee, and some other junk for good measure to ensure that I would NEVER come knocking at their door again. Fair enough, I thought, as I failed to read the T&C in the beginning, I guess I signed up for this painful exit.
It was finally over.
My New Life Without A Financial Planner
It’s kind of scary, but surprisingly freeing. I feel like I have so many options, and there are plenty of funds in the sea to choose from. My money is still parked in a target date fund, I’m still cautious and haven’t jumped out completely on my own. Knowing that my trusty target date fund is still going to beat 80% of the managed funds out there warms my heart, and the itty bitty expense ratio helps me sleep at night.
My confidence is back, and with Vanguard by my side, I feel the world is mine for the taking. Or….at least tax free returns.
Disclaimer: I’m not a financial planner or professional blah blah blah. This is for entertainment purposes only, and any decision made off information obtained here is probably awesome, but you should consult a professional……………..