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Posted by on May 20, 2008, 5:07 am
Late in 2007 we switched to a new financial advisor to get our
financial house in order. One of the things she suggested was
diversifying a big chunk of money that we had in just one mutual fund
that we had held for a long time. She suggested 3 different funds
within the same fund family. We agreed this would be a good idea and
I knew there wouldn't be any fees around it since it was within the
same fund family.
But then we went to our accountant this year to do our taxes and he
said we incurred long-term capital gains on these movements. He said
that even though we moved them inside the fund family, it was
considered a sale to the IRS and the distribution was taxed. Our
financial planner never said one thing about this to us when she was
suggesting we do this. When I called her on it, she said he had just
learned this rule too. (Yikes.) She's been doing financial planning
for 15 years and has a huge client base with some very large clients.
(She's with a big name firm.) Is it even possible to not have known
about this? Knowing about it now, it seems like that would be
something every financial planner would have learned early on in their
career.
The difference on our tax return amounts to about $2500 more that we
would have gotten back had it not been for these sales. On the other
hand, we still most likely needed to diversify the funds in that one
mutual fund anyway.
Our financial planner has acknowledged that she made a mistake and is
willing to compensate us for some or all of the loss. But I'm trying
to figure out what is fair. Any ideas?
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Posted by joetaxpayer on May 20, 2008, 9:17 am
info@wedgewoodtrading.com wrote:
> Our financial planner has acknowledged that she made a mistake and is
> willing to compensate us for some or all of the loss. But I'm trying
> to figure out what is fair. Any ideas?
For not warning you? Nothing, really. You both should know taxes are due
when you sell stock held for a gain in an account that's not
tax-deferred. She's afraid of losing your account, that doesn't mean you
should take advantage of her.
Joe
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Posted by HW \"Skip\" Weldon on May 20, 2008, 11:22 am
On Tue, 20 May 2008 08:17:08 -0500, joetaxpayer
>> Our financial planner has acknowledged that she made a mistake and is
>> willing to compensate us for some or all of the loss. But I'm trying
>> to figure out what is fair. Any ideas?
>
>For not warning you? Nothing, really. You both should know taxes are due
>when you sell stock held for a gain in an account that's not
>tax-deferred. She's afraid of losing your account, that doesn't mean you
>should take advantage of her.
Agree with Joe. Besides, something is missing here... the idea that a
person in this business with 15 years experience and lots of clients
and who is unaware of an elementary tax concept lacks credibility.
On another matter, the OP wouldn't have saved taxes by not selling, he
would have merely postponed them. And remained non-diversified. Now
THAT would be something to be upset about.
-HW "Skip" Weldon
Columbia, SC
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Posted by Elle on May 20, 2008, 1:15 pm
> the OP wouldn't have saved taxes by not selling, he
> would have merely postponed them.
The OP has not presented enough facts to conclude this. For
example, it's possible the OP is older and plans on passing
on an estate to children, etc. whence the basis steps up,
and no taxes will be owed.
If I paid someone for financial planning advice, I would
expect "tax effects" to be part of any discussion the
planner and I had. I wonder where some of you draw the line
for what a client is expected to know.
Disclosure: I am not and have never been paid for my
services for financial suggestions. I am an individual
investor who does her own financial planning and taxes.
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Posted by PeterL on May 20, 2008, 1:50 pm
> i...@wedgewoodtrading.com wrote:
> > Our financial planner has acknowledged that she made a mistake and is
> > willing to compensate us for some or all of the loss. But I'm trying
> > to figure out what is fair. Any ideas?
>
> For not warning you? Nothing, really. You both should know taxes are due
> when you sell stock held for a gain in an account that's not
> tax-deferred. She's afraid of losing your account, that doesn't mean you
> should take advantage of her.
>
> Joe
>
The advisor definitely should've known. There is no rule that says
the client should've known. The fact that a financial advisor didn't
know about the potential of a cap gains tax is a major red flag.
I'd say ditch her fast.
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guidelines include a request for brevity and another for trimming posts to
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