Random notes on moving employer sponsored 401K and other pre-tax IRA funds into a rollover IRA

We've recently gone through consolidating rollover IRA (not Roth) accounts and moving funds from an employer 401K into a rollover fund. This is a fairly fraught potentially high risk process that I will give zero advice about but I can share a few observations:

1. It's surprisingly old fashioned. As in paper checks may get mailed! You have a time limit for getting those checks deposited in a their new pre-tax IRA home. The checks are typically written to be processed by the receiving fund. If you miss that limit you face a tax bill at the least. If the check is lost or stolen you may run into the time limit problem. This process was, to put it mildly, unsettling. We hated it.

2. The process often requires talking with a representative or two. I think this is intentional. Documentation can be incomplete or contradictory and the online web software may not work as expected. It's not that your stupid, it's them. Just assume you'll have to phone. (Our personal financial advisor warned us of this ahead of time. They were right.)

3. Representatives will try to upsell you on services. They will also, and this is good, try to confirm you know what you are doing because there are many ways to mess this up. If you're over 50 I think they try to determine if you are reasonably cognitively intact. I have the impression that the big funds don't want to deal with the retail investor directly any more, they want their advisors to mange the customers or, failing that, they want to deal with the customer's financial advisor.

4. There's an advantage to staying within a firm. Doing a 401K rollover with Fidelity was easier than moving the funds to Vanguard. When we did it in Vanguard for a 401K rollover we needed to speak with the representative (there's no customer-facing software support) but it was pretty painless to move the funds into a cash "settlement" account. (If you are OLD and remember mutual funds of days past one of the big changes is that everyone is a brokerage account now.)

5. You probably want to move cash back into the market [1]. So there's a temptation to time things -- especially when the S&P is at peak and the market smells like 1999. Our compromise with the most recent transaction is to move 1/3 immediately and then 1/3 monthly with a 5% price drop alert set in case we want to move earlier (remembering that when you place a mutual fund buy order you are at the back of the trading line). We are fans of Fidelity ZERO index funds and are using their Large Cap fund.

- fn -

[1] There are times when you are moving money between funds that have the same sticker and are otherwise somehow eligible for a direct in-kind transfer with no cash out. I get the impression that's uncommon however.

Why we can't have good personal finance software any more

This Nov 2023 blog post from the CEO of a budget/financial management software firm (Monarch) tells us a lot about why we don't have alternatives to Intuit ...

... personal finance apps, which typically rely on data aggregators (Plaid, Finicity, etc) to connect to tens of thousands of financial institutions to aggregate the necessary financial data. These data fees are quite expensive, which means a personal finance app is losing money on each free user and must make it up in some other manner...

... Personal finance apps are only as useful as their underlying data. As mentioned above, keeping this data up-to-date is a massive and expensive challenge that everyone underestimates. Subscription-based services are incentivized to constantly invest in this data architecture; otherwise, customers churn...

... Unfortunately, no single data aggregator provides complete coverage of all financial institutions. So we have integrated with all of them at Monarch. What’s more, we’ve spent years (and millions of dollars) building an intelligent data infrastructure that can route users to the best aggregator for a given financial institution. We’ve also invested heavily in AI-based transaction cleansing and classification. I believe we have the best financial data infrastructure that has ever been built for this use case. In full transparency, this is an ever-shifting landscape and there are still a few large institutions that don’t want to share their data, so our coverage is not yet 100%. We plan to get there eventually...

Intuit got the relationships early and has some leverage over banks (which seem to be normally greedy but extraordinarily incompetent). Everyone else is at the mercy of the aggregators. An evil (or just profitable) dominant vendor might spend quite a bit of money to keep this moat as deep and merciless as possible.

Quicken for DOS cannot be recreated: Why we can't have good personal finance software any more.

Almost 40 years ago we used Quicken version 2 or 3 for DOS 3.1 on a Panasonic 8086 with 640K of memory and a CPU too feeble for a modern toaster. 

Every month a 3.5" (not 5.25") diskette came in the mail with our bank and credit card transactions. We loaded that into Quicken. We entered cash transactions manually. It worked pretty well, though Quicken was plagued with database corruption bugs until the 90s. When Microsoft Money appeared one could migrate transactions and history from one to the other.

There's no modern equivalent. Today's vendors sell our data to third parties and then market products to us. Vendors have a hard lock-in. This kind of service decay is now known as "enshittification". Today in a mastodon thread I listed what drove that enshittification*:

1. The banks feared disintermediation and commodification so they stopped cooperating and/or raised transaction costs. 
2. Selling services to customers and selling customer data were both seemingly painless ways to increase margins for a publicly traded company
3. Costs and user experience both favor user data in the cloud — which aligns with selling user data and services.
4. Customer data lock strategies became irresistible and with cloud migration they were easy to implement.

Of these the first is the big one. If customers could get their data then small vendors could produce niche subscription products. But the banks aren't going to cooperate. They know better now.

I don't know if we'll ever see good products again. Perhaps if Apple or Microsoft went into banking they'd provide an API for developers to use. Of course we'd all have to use Apple's Bank for everything but, speaking for my family, they already own us.

*With two 't's per Doctorow.

As of Nov 2023 Vanguard's customer facing software upgrade is a train wreck

I've not seen this described elsewhere, so I figured I'd share here.

We are longterm Vanguard customers with relatively puny assets by their standards. We interact often with their site software. Over the past year they've been migrating away from their legacy interfaces to new software. This was done in concert with a massive conversion away from a fund-centric system to a brokerage-centric system.

The conversion has gone badly. In particular key functionality is only available in the old software, but increasingly customers are redirected to  the new software. Which is missing key features. 

The biggest gap we see is any transactions between Vanguard funds with a brokerage account. Many things that we used to do online now have to be done by phone. If you can get through their dysfunctional automated phone tree. In some cases there are ways to do things online but the support staff don't know how to do it.

Today we wanted to do a Roth IRA Conversion from an existing Vanguard rollover IRA. The software no longer supports that! It does support moving money from Fidelity though. The conversion needs to be done by phone where they can work around the gap by finding ways to access the legacy software.

Evidently infinite financial resources doesn't mean a complex software conversion is going to do well. If you're not a Vanguard customer you may wish to consider Fidelity instead.

Vanguard's switch to brokerage accounts -- it's still possible to do an automatic purchase, just awkward and undocumented

The original of this post is below. It turns out Vanguard's (algorithmically generated?) response is incorrect.

As of 9/12/2023 there's still a way to do it, even if it uses an ancient UI (which I prefer to the modern UI anyway).

The trick is to

1. Have cash in settlement fund. You no longer transfer directly from one fund to another. For example, in an IRA Rollover account, you first put cash into the Settlement fund then you setup an automatic purchase.
2. You have to ignore this misleading 9/2023 verbiage from Automatic transactions: "Automatic investments allow you to move money from an authorized bank on file into an existing Vanguard account. If you'd like to move money to your bank or between your non-retirement and Vanguard Brokerage IRA, please use our automatic withdrawal feature." It omits that you can also move money between funds within a brokerage account. I suspect it's not been updated to reflect the changes Vanguard made with the brokerage account change.

To get to this screen

1. Start with balances
2. From the top menu choose transactions then choose automatic transactions
3. Click add automatic transaction

If there's no fund to exchange into you need to create that with the "new" UI then you can do the above.

-- ORIGINAL VERSION OF THIS POST

Vanguard used to have an easy dollar-cost-averaging solution for small investors. You could specify an regular exchange from a cash fund to an index fund. Set and forget. No fees.

Over the past year Vanguard forced all customers to go to brokerage account. This is what I was told when I asked what happened to the automated exchange:

Automatic exchanges are not available in a Vanguard Brokerage Account. I am

sorry for any inconvenience this may cause.

...

If you have additional questions, we can be reached at:

https://support.vanguard.com/

Sincerely,

xxxxxxxxx

Registered Representative

Vanguard Personal Investor

Of course Vanguard did not mention this when we asked about the consequences of switching to a brokerage account. In fact the representative I spoke with thought our prior exchange would continue to work.

The brokerage transition has also necessitated a redo of the Vanguard web site. It's now a mix of incomplete new functionality and old-looking but effective legacy functionality. They are obviously years behind schedule.

In the longer term I suspect Vanguard wants to reduce self-management of investments and earn a percentage on managing customer funds.

We had been planning to consolidate our investments with Vanguard. That's on hold now. The days of John Bogle are long past. 

PS. It's also possible that Vanguard outsourced responses to an AI and the answer I got is actually wrong. It appears if one has cash in a settlement fund it's possible to setup an automated purchase. The web site text for automated purchases uses misleading language.