Capital Gains Tax Burden

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Mar 10, 2008 7:21 am

My current advisor has recently switched firms from a wirehouse to a indy.  Part of this transition to follow him over included having to sell all my shares in a mutual find i have invested in since 2002 because his new firm was "not a subsicriber to this fund".  Long story short, this is creating an unecessary tax burden this year.  I was wondering what your thoughts were regarding this situation.  Is this a normal practice for RRs switching firms?

Mar 10, 2008 11:30 am

no. If you were in a solid fund the advisor never should have recommended a change. If you weren't in a decent fund then the switch could be a big benefit going forward

Mar 10, 2008 1:28 pm

It is possible, however when you go to a Indy firm that is not the norm.  Some firms have their own funds which they will not let another broker/dealer hold--rare but it does happen.

What was the name of the funds you had, that is the fund family?  By the way that being said--If you had a very large enbetted capital gain---I would not have moved it!  Now let's talk cost basis---are you sure you have the correct cost basis?  Remember this, it is the amount you put into the fund and you add all the dividends and distribution capital gains you ever reinvested to obtain your true cost basis. 
 
Please let us know what fund or fund family was sold!
Mar 10, 2008 1:29 pm

Can't spell today -- sorry!

Mar 10, 2008 2:00 pm

Thanks for the feedback.  The MF was the Legg Mason Agressive Growth Fund Class C (my broker wasn't at Legg Mason).  There was a rather large inital investment back in '02 that will make up the majority of the cost basis.  Additional shares were only purchesed through the reinvestment of capital gains distributions and dividends.

Mar 10, 2008 2:53 pm

With mutual funds, you pay a good portion of your capital gains each year so it may not be as bad as it looks on the surface.

Mar 10, 2008 3:00 pm
msregisteredrep:

Thanks for the feedback.  The MF was the Legg Mason Agressive Growth Fund Class C (my broker wasn't at Legg Mason).  There was a rather large inital investment back in '02 that will make up the majority of the cost basis.  Additional shares were only purchesed through the reinvestment of capital gains distributions and dividends.

 
I am guessing your account was at Smith Barney?  Legg Mason is owned by Smith Barney/Citi.  There are several firms out there that will not hold these.  I doubt your advisor is BS'ing you.  I bring over lots of Smith Barney accounts, and most of them have some degree of Legg Mason funds, whcih we can't hold either.
Mar 10, 2008 3:27 pm

Actually, B24, we can hold some LM.  In fact that one we can not only hold, but we can buy and sell.  There are some of Legg's funds we can't hold. 

 
msrep - From a performance standpoint, there are better funds out there. 
 
The other guys have alluded to it, but every firm has a selling agreement with a bunch of mutual fund families.  There are basically 2 lists.  One list of families we can buy and sell.  The other list we can only hold.  If the fund you have isn't on the list,  you have to sell it and move the money (like you did) or hold on to it with the old company.  Either way is going cause some sort of issue for you. 
 
Did your guy not explain that there was going to be a tax issue before you moved?  Seems strange to me.
Mar 10, 2008 3:39 pm
Spaceman Spiff:

Actually, B24, we can hold some LM.  In fact that one we can not only hold, but we can buy and sell.  There are some of Legg's funds we can't hold. 

 
 
You may be right.  I just know that I have had to liquidate LM funds before I brought them from Smith Barney and Primerica (another Citgroup owned company), because they would not transfer over.
Mar 10, 2008 3:44 pm
msregisteredrep:

My current advisor has recently switched firms from a wirehouse to a indy.  Part of this transition to follow him over included having to sell all my shares in a mutual find i have invested in since 2002 because his new firm was "not a subsicriber to this fund".  Long story short, this is creating an unecessary tax burden this year.  I was wondering what your thoughts were regarding this situation.  Is this a normal practice for RRs switching firms?

 
One other thing.  Most funds that we all deal with can be held at most firms, so it's not a common issue.  Again, his new B/D just doesn't have a selling agreement with LM, so he can't hold them.  But yeah, in a taxable account he probably should have let you know that there would be tax consequenses.  Your best bet is to talk to him about it and ask him why he didn't make this more clear to you.
Mar 11, 2008 11:10 am

You're all assuming that he could not hold the funds period. I think you're heavily discounting the fact he probably wanted to sell her some new funds and make some $. Plus if this was a large amount of $ why the heck was it in C shares? Most decent firms won't even allow large C share purchases

Mar 11, 2008 12:06 pm

I think you have to take into consideration our version of large vs the average clients version of large.  Large to her might be $25K.  C shares could've been appropriate for her.


My guess is he would have put it back into another C share fund that his fund company could hold. 
 
If she thinks he might have done it just for the commish she can ask him for a list of companies that his firm can hold.  I would guess they have a client approved doc with the list on it. 
 
Maybe she'll come back and tell us more info. 
Mar 13, 2008 3:20 pm

Again, thanks to all that responded.  First, two assumptions were made judging by some of your responses:


1.) I am not a she (the MS comes from a brief stint I did as Morgan Stanley)
2.) I never mentioned anything regarding the amount of holdings in the MF.







My holdings in this one MF are above 25K and yes, I was put right back into C shares.











Mar 14, 2008 3:32 pm

Right around 25K, give or take a few thousand.