What is a "financial planner"? What did you expect her
to do for you? How is she being compensated? Are you paying
too much for her services? One needs to spend time educating
themselves to find the right kind of "financial planner".
There are many different kinds providing many levels of service.

If she or you weren't aware of the tax consequences, why do
you think she or you know what "diversification" really means?

If she didn't know of the potential for CG taxes due on the sale, then
she is probably unaware that your new funds may be incorrectly
located from a tax perspective. For example, in most cases it
makes sense to locate tax inefficient asset classes in tax deferred
accounts. Hopefully, your new funds are total US market and/or
total INTL index funds. Hopefully, they aren't bonds, REITs,
balanced or high turnover actively managed funds or you
may be headed for another big tax bill next year, too.

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"Don" <dwzimm[at]telus.net> wrote
snip, hopefully w/o losing context
- quote -

Oh, I see what you are driving at now. None of the few
transactions that I had and that went amiss involved
disputes over what one might call theoretical losses.

Though to me, it's nearly a hard fact that the OP's
financial planner made a serious professional mistake. The
only thing theoretical is the amount of loss. Very much to
the financial planner's credit, she's owning it and offering
compensation. I think this is the sign of a real
professional (assuming she does not bungle something else).
What's fair for compensation? John Week's suggestion of
foregoing a year of the firm's (or her) fees is one I think
might be reasonable. It's a token rather than what would be
necessarily a lame attempt to compute actual loss. Punitive
damages vs. actual, say.

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PeterL wrote:
- quote -

I agree, my post was hasty and incomplete, especially since $2,500 is
less than the amount of a loss carryover that could be used to offset
ordinary income anyway.

I would only echo points made by others:

1) neither party had an expectation up front that the F.P. was providing
tax advice, otherwise a complete interview encompassing the client's
entire tax situation should have been performed (this is the point I was
trying to make).

2) while the F.P. should have mentioned the tax effect, I don't see any
way in which it represents a loss or damages to the client, only a
surprise. The tax tail should not wag the dog, and the advice was sound
and probably would still have been followed even if the tax effect had
been mentioned up front.

One exception: if the client was in such a tight cash flow situation
that they could not possibly make a timely payment on the tax bill, then
I could see where maybe the penalties and interest on the late payment
could be the F.P.'s fault. But the OP stated only a smaller refund
resulted, hardly a catastrophe.

-Mark Bole

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On 2008-05-21 14:28:14 -0700, "Elle" <honda.lioness[at]spamnocox.net> said:
- quote -

My experience with banks has been similar. The people have always been
apolegetic and made things right after goof ups. But I wonder if losses
from stock transactions may be a different ball game. There are so many
sales people around promoting the latest hot mutual funds to
unsuspecting customers, when things go wrong it is hard to tell what
are honest errors and what is fraud.

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"Don" <dwzimm[at]telus.net> wrote
- quote -

In 25 years, I have had a few transactions with at least
three financial institutions go in a way I did not like. All
bent over backwards to please me, including offering
compensation. One time, with a Fidelity rep that was
determined to refund me a certain fee that actually was
completely correct, I was all but ordering, "Down doggy!" I
had to emphatically tell the rep it was okay; my mistake;
please do not give me money that I realized, after he
explained it, most certainly was not due. The rep finally
accepted my assurance that I had absolutely no hard feelings
and knew it was my mistake. I do this because I don't like
jacking up fees for everyone else; on principle yada.

In one instance with a brokerage I was not fully satisfied.
The initial wrong snowballed after the brokerage's 800
number reps repeatedly refused to connect me to the local
branch office or even give me the number, so I could talk to
someone I had actually met face-to-face. Being put off like
this was not good enough for my $80k (at the time) of
assets. Within hours I had commenced arrangements to move my
assets from it. The next day, after its reps finally figured
out that my foot was halfway out the door, they called,
begging and offering compensation, but not such that I felt
made whole. I said no thank you, politely told them what I
hoped would happen should I ever do business with them
again, heard them out, and walked.

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On 2008-05-21 02:21:49 -0700, "Marco Polo" <Marco[at]Polo.com> said:

- quote -


In reading over the OP's post again, I did not find anything about a
fee being paid. I wonder if it could simply be a case of a commissioned
salesman pretending to be an expert. On the other hand, the
"willingness to compensate us for some or all of the loss" does not
ring true. Something is rotten in Denmark.

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On May 20, 7:21*pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -


But the fact is the OP did not have a cap loss but rather an
unanticipated cap gain. And even if he has a cap loss, the advisor
still should have advised him of the tax consequences of the move. He
owe the advisor a swift kick in the butt.


- quote -

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On Wed, 21 May 2008 04:21:49 -0500, "Marco Polo" <Marco[at]Polo.comwrote:


- quote -

I for one did not excuse the "financial planner", but rather wondered
aloud how it could be that someone in the business for 15 years and
who had lots of clients would be unaware of such a basic tax concept.
My suspicion is that we weren't getting the whole story.

But assuming this is as presented, the "financial planner" was at
fault and should pay a penalty. The greatest penalty would be for the
OP to spread the word about her.

Also, as was previously mentioned, some "financial planners" do not
give tax advice and instead refer their customers to those who do. Of
course, how they then describe themselves as "financial planners" is
another matter...


-HW "Skip" Weldon
Columbia, SC

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I do not use a financial planner, but if I did and she said to me that "she
had just learned this rule too", I would run, not walk, to a different
planner. How can any financial planner worth their fee not already be aware
of the capital gains tax consequences of the trades they are recommending to
a client.

I am quite surprised at the number of people defending the financial
planner. This was not some random advice posted on a newsgroup, where you
get what you pay for, this was someone getting paid to provide sound
financial advice!

Marco Polo

<info[at]wedgewoodtrading.com> wrote in message
news:d7ad4e15-5c25-4b47-a051-1a6d583a0044[at]b9g2000prh.googlegroups.com...
- quote -

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info[at]wedgewoodtrading.com wrote:
- quote -


Just think if you had had a large carryover capital loss, what a great
idea it would have been, then you'd be owing your F.P. a nice dinner!

My impression is that you'd have a hard time proving damages in court,
so if the F.P. (financial planner) kicks back some money, that's gravy
for you. You might also want to ask over in misc.legal.moderated
whether you have a legal standing to collect from the F.P.


-Mark Bole

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Elle wrote:
- quote -

More generally I wonder whether the advisory/account agreement
specifically states something like "consult your tax adviser, we do not
provide tax advice". This is one of my long-standing beefs with the
financial services industry (of which I am part) -- the paradox that
taxes are an extremely important component of financial planning, yet
many doing business as financial planners disclaim tax advice as a
provided service.

"Just learned of this rule" - meaning just learned about capital gains
taxes - after 15 years in business? Either that's a sincere statement,
or a failure to admit an oversight (which is worse?). But I'm guessing
tax considerations were not a significant factor in choosing the three
new mutual funds; do you want that as part of the bundle of "financial
planning" services that you receive from an adviser?

-Tad

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<info[at]wedgewoodtrading.com> wrote in message news:d7ad4e15-5c25-4b47-
a051-1a6d583a0044[at]b9g2000prh.googlegroups.com...

The OP used a new (to them, but seasoned) financial planner who
recommended they diversify their portfolio, which they agreed to.
However, the FP did not warn them that they may incur additional taxes
due to any related capital gains associated with the diversification
of their portfolio. They paid an extra $2,500 in taxes, are a bit mad
at the FP and are curious as to what would be a fair settlement in
this matter.

Their original message has been snipped to comply with the rules of
this NG.

My response -

You took the time to meet with a financial planner to get financial
advice, but didn't think to run this idea past your tax accountant?
Shame on you for this. The resulting tax hit is yours alone!

You went to a financial planner and got exactly what you paid for -
financial advice. Had you gone to your tax advisor and asked for tax
advice you would have been told that there may be some related tax
issues due to the rebalancing. For that matter, did you even ask the
financial planner if there MIGHT be tax consequences associated with
the rebalancing? I doubt it, most people don't. However, if you did
ask and were told that there would be no tax consequences then this is
a horse of different color and my comments should be ignored.

When you first met with the financial advisor, either this one or any
other one that you've ever used, have you ever asked would you be
getting guidance on tax issues related to your portfolio? Have you
ever even told your financial advisor that you had concerns about tax
issues? Most people don't.

Most people try to do the right thing most of the time - this includes
you and your FP. Yet when we miss something our first thoughts turn
to "who can we hold responsible, other than ourselves?". In my
opinion, this is just plain wrong. We have to take responsibility for
our actions, or lack thereof. This means you as well as your FP.

You hired someone with expertise in a particular area (financial
planning), you got (what sounds like) very good advice and you
followed it. Your portfolio is likely less risky now that it was
before. Doing this cost you some tax money.

The question you should be asking yourself is this - you already admit
that what she suggested was a good idea, so would you have done it IF
you had KNOWN that there would be additinoal taxes as a consequence of
rebalancing? The answer to this question should be YES - doing the
right thing means doing the right thing, even if it costs you a little
money. But even if the answer to this question was NO, it was still
your responsibility to ask the right question of the right person.

FYI - I am BOTH a Financial Advisor and a Tax Advisor. I specifically
got licensed in both discplines because I believe that one shouldn't
make decisions in one area without considering the impact of the
other. And there is no way I can give advice in either area without
being versed in that area. Hence, I do both. Unfortunately, most
advisors focus on one aspect - this is the standard and it is how most
advisors work. It is perfectly legal and an a generally accepted
practice.

It is unfortunate that you got a surprise, but is this really much
different that having to pay tax on capital gains distributions?

Good luck in the future,
Gene E. Utterback, EA, RFC, ABA

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On May 20, 7:03*am, Dave Dodson <dave_and_da...[at]juno.com> wrote:
- quote -


Not if OP never sells and his heirs inherit the holdings on a step up
basis.

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On May 20, 6:17*am, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
- quote -

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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It's true an advisor with a big name firm should have warned
you of the tax consequences of any move. OTOH, some
questions to ponder: How long would you have waited to
diversify had she not been in the picture? Would this have
hurt you by a lot more than $2500? If in 2008 your new
allocation does, say, some $5000 better than your old
allocation, are you going to give the advisor/firm a cut of
your net? Lastly, as others suggest, long term capital gains
taxes may be rising soon, so selling and taking a LTCG in
2007 may have been prudent; it depends on other details of
your taxes. Overall it's a very tricky matter to deduce
whether her advice actually helped or hurt you, overall. So
many questions; so much speculation.

Care to share what you paid for this firm's service? I can't
tell what "big name firm" means, except that in my
experience, a lot of big name firms charge little and have
advisors who are proportionately inept. One gets what one
pays for is something to bear in mind.

I suppose I personally would either (1) let her compensate
me (because she did do wrong in not warning you about the
tax consequences) but then I'd feel obligated to keep using
her services, for the reasons above; or (2) give her up and
get another advisor, with a different firm.

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"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote
- quote -

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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On Tue, 20 May 2008 08:17:08 -0500, joetaxpayer
<joetaxpayer[at]nospam.com> wrote:


- quote -

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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On May 20, 4:07*am, i...[at]wedgewoodtrading.com wrote:
- quote -

You would have had to pay the tax eventually when you sold, and there
is talk that the favorable capital gains tax may go away. So perhaps
you sold at a fortuitous time. It may turn out that you owe her rather
than her owing you!

Dave

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In article
<d7ad4e15-5c25-4b47-a051-1a6d583a0044[at]b9g2000prh.googlegroups.com> ,
info[at]wedgewoodtrading.com wrote:

- quote -

I cannot believe that someone in the financial industry was not aware
of capital gains tax. Then again, there are people who are just that
dumb, and they seem to get away with it. I can see it go either way.

The advice to diversify looks like it very well could have been good
advice. You would have had to pay the capital gains someday, and
the rate is low right now. As a result, I don't see how you
were damaged.

If you really want to push this, get a 2nd opinion from another
planner. You want to see if your planner was doing a legitimate
transaction, or was just doing a churn and burn on you.

If it was a mistake, and you really are not out that much, then
maybe ask for a refund of her fees for the year. In any case, I'd
consider moving my account to some other planner. If she made a
mistake on taxes, who knows what other major mistake she might
make further down the line?

-john-

--
================================================== ====================
John A. Weeks III * * * * * 612-720-2854 * * * * * *john[at]johnweeks.com
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info[at]wedgewoodtrading.com wrote:

- quote -

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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