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Should I keep my IRA with PNC bank with a 1.4% annual fee or switch my IRA to Vanguard which charges a minimal fee?

Feb 01, 2015 by Carol in  |  Flag
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3 votes

Carol,

Fees are indeed an important consideration when evaluating investments and investment advisors. But fees are by no means the ONLY consideration. Investment writers tend to focus on the fee issue because it is concrete, unambiguous and can be easily compared. Comparing investment performance takes more work and, as we all know, "past performance is no guarantee of future results". Having said that, comparing the performance of similarly focused investments/investment managers over time is one of the best ways we have to gain insight into how those investments might perform relative to each other and other similar circumstances. Often the difference in performance is much, much greater than the difference in fees. For example, if fund A has consistently earned 2% better returns than fund B but fund B charges a fee that is .5% lower, you would be better off with fund A because your net returns would be higher by 1.5%. Focusing only on minimizing fees and you would mistakenly choose fund A. As others have pointed out, there is not a simple yes or no answer to your question. Look at what you are getting for the higher fees at PNC and if those extra services/advice/performance is worth it, then you may want to stay put. You would also be wise to not only compare PNC to a Vanguard account, but also look at what you might from other independent investment advisors.

1 Comment   |  Flag   |  Feb 02, 2015 from Fort Washington, PA
Chassidy Nicole Camp

Agreed. Fees is NOT necessarily a dirty word- unless you don't get what you are paying for! With proprietary companies you are significantly limited to the investment options they have on their shelf. Let's add to that- the investment products available to individual investors through the independent channel tend to be much more favorable for the clients. This is due to the basic economic strategy by the financial institutions that realized the need to have better products available before an independent advisor will even consider it for their clients. In my experience, and just the basic principals behind why one would chose to be an independent advisor, it is because it enables us to have access to the best products and services for our clients. This is just simply not a feasible scenario when working with a captive or proprietary company.

Flag |  Feb 02, 2015 near Madison, WI

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2 votes

This all depends on what you are getting for the fee that you're paying. If you have an advisor that is working with you to coordinate all of your finances, you should evaluate the services that you are receiving as it very well may make sense. If however, these are simply high cost mutual funds and no additional value is being received, you may benefit from a low cost solution.

In 2014, actively managed funds saw significant underperformance as the overall US equity market seemed to defy the odds, shrug off any bad news and effectively turned any risk mitigation that managers tried to build into their portfolios against their performance.

This year, we are more likely to see active management outperform passive strategies as stock selection will play a bigger role in total return.

If you do go the low cost route, make sure you keep an eye on the portfolio at least once a month.

Comment   |  Flag   |  Feb 01, 2015 from Manhattan, NY

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2 votes

While it appears the gentlemen have answered the technical aspects of your question above, I feel it is important to note that- working with a proprietary company- such as a bank or other large names we see on every other building. ( I think of them the Starbucks of the financial industry.) They have great marketing strategies, they are everywhere, and they have created easy access to investment tools for the masses. Only problem is, no one wants to be considered "the masses"- YOU ARE AN INDIVIDUAL! With very specific needs and goals, that most of these financial "Starbucks" simply can't provide at an optimal level. This can have some significant drawbacks and limit your planning potential.

Two words- Independent advisor. Seek out one that;

a.) Has the proper licensing and track record/years of experience in creating holistic financial plans.

b.) Many of them will create a comprehensive analysis of ALL the fees (transparent and non-transparent)- and asses your current fees to uncover your REAL RATE OF RETURN. With more flexibility to lower them for you under certain conditions, this is a huge advantage we have. They will analyze ALL the aspects of your financial plan and asset allocation plan; accounting for taxes, income requirements in retirement, social security strategies, estate planning issues (i.e. proper beneficiaries/properly labeled), and

c.) Help you to create a comprehensive plan to lower fees where possible, create safety from down markets, ensure that you won't outlive your money, that you can maintain your lifestyle in retirement (or possibly live the "DREAM" retirement you have), and can bring to the table a highly qualified team of (or set up relationships with your existing) estate planning attorneys/tax accountants/and your heirs- In order to make sure no stone goes unturned.

Lastly- BEWARE of Insurance producers and unregistered financial professionals posing as financial ADVISORS! They are NOT the same. I always suggest to my clients and prospective clients to go to http://finra.org/brokercheck and see what their qualifications are and if there have ever been any complaints filed.

Best of luck to you!

Chassidy N. Camp, COO | Senior Financial Advisor Retirement Income Advisors 2810 Crossroads Dr. | Ste. 4000 Madison, WI 53718 (608) 819-4901

Comment   |  Flag   |  Feb 02, 2015 from Madison, WI

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Larry R Frank Sr Level 20

The real question is who is picking your investments for the fee you are paying; is it PNC? or are you? Who would pick the investments if you moved to Vanguard? Vanguard does have an adviser service for a fee as well.

The fee you are paying should be for more than just investment selection, it should include other things (see blog post http://blog.betterfinancialeducation.com/behavior-corner/are-advisers-worth-fees/ which summarizes this Market Watch article: http://www.marketwatch.com/story/are-financial-advisers-worth-their-fee-2012-09-26?pagenumber=2 based on Morningstar research.

Vanguard also did research on the value of adviser fees over and above just picking investments ( http://www.fa-mag.com/news/quantifying-the-high-value-of-advisor-advice-17405.html?issue=225 ).

You might consider looking for a fiduciary adviser (advice in your interest only instead of product sales) that is fee only - and whose fees may be lower than what you pay now - and whose advice would be more than investment selection; at www.napfa.org.

The answer to your question is to be pound-wise rather than penny foolish. This is a really good question Carol that many people are asking.

Comment   |  Flag   |  Feb 01, 2015 from Roseville, CA

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I think it is important for you to understand that PNC is a publically traded company that has a duty to maximize shareholder value. Vanguard is owned by the fund holders and most of their profits are returned to the fund holders in the form of lower costs. PNC's number one priority is to make a profit to reward shareholders. It is up to you to think about who will look out for your interests more.

Comment   |  Flag   |  Feb 01, 2015

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There's not enough information in the question to provide a sincere answer. Are any services being provided for the fee at PNC, such as portfolio management in line with risk tolerance and time horizon? Would the account at Vanguard be self-directed, and if so, are you comfortable managing the investments yourself and bearing that responsibility? What would be the basis for any fund allocation used at Vanguard? I suspect that the underlying question is really about service and management versus self-direction and self-execution. If the fee keeps you from making bad decisions, it may well be worthwhile. Most of us here charge fees for our services provided, but that does not keep us from using index products in our client allocations. Take a moment to articulate your expectations of a financial institution with respect to your investments, and that should lead you to the correct answer.

Comment   |  Flag   |  Feb 02, 2015 from Fairfax, VA

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