The Wealthy Index Investor and the SMA: A 'Horror Story' From Rick Ferri

What You Need to Know

The move could have cost hundreds of thousands in taxes, Ferri said.

Financial advisor Rick Ferri, who hosts the Bogleheads on Investing Podcast, shared on X (formerly Twitter) this week what he called an advisor “horror story” about a potentially costly recommendation his client didn’t follow.

“A client transferred $5.0m of VTI in a trust from Vanguard to Fidelity. The shares have $2.5m in unrealized gain,” he posted Tuesday, referring to the Vanguard Total Stock Market Index Fund ETF.

“A Fidelity ‘adviser’ recommended selling VTI, paying tax, and using a higher fee SMA (separately managed acct.) for tax efficiency,” Ferri reported.

In a follow-up post, he added: “The client didn’t sell. They called me to ask my opinion, and I gave it to them.”

When someone on X suggested making a call to a Fidelity higher-up to ask about the advice, Ferri replied: “This was a Fidelity office. Usually the office manager is the one who would receive this complaint, and usually it’s the office manager who pushes their advisers to sell SMA products.”

With the big unrealized capital gain, selling VTI could have cost the client hundreds of thousands of dollars in taxes, Ferri said in an interview with ThinkAdvisor on Wednesday.

The Fidelity representative was “oblivious to what’s in the best interest of the client. He’s clearly doing what’s in the best interest of Fidelity,” Ferri said.

The advisor, however, said he understood why the financial services giant would try to sell the client on an SMA.