In discretionary accounts, an investment manager decides what to invest in and trades without informing you beforehand. For such authority, the manager takes on fiduciary responsibility - to act as would a prudent investor, strictly in your interest.
What would you call a management firm that sold a fund for a loss in one account only to repurchase it days later in your IRA - thus not only washing out the loss, but permanently destroying it? That's a well-known quirk in the tax laws. Would you call the firm uninformed? Careless?
Suppose also that the firm sold the fund specifically to harvest the loss. That is, in the first account it sold the fund for a loss, purchased a similar index fund, and just past the 30 day (wash sale) window moved the money back into the original fund. So by making the IRA trade it wiped out a loss that it didn't just happen to create, but intended to create. What would you call the firm now? Reckless? Negligent?
Now suppose you ask the firm what it does to protect against this generally, and it responds by saying that it manages each account independently. Independently. So it didn't just inadvertently ignore the loss that it had harvested, it deliberately ignored it when making the trade in the IRA. Even though this permanently cost you money by destroying the tax loss.
Would a prudent investor trade this way? Would a prudent investor be so cavalier as to intentionally ignore the tax impact of a trade? How about if the affected account had been marked as preferring tax management? I would call this a breach of fiduciary duty. What would you call it?
Comments
Is there any recourse here?
These were a relative's accounts, and they've already been moved elsewhere. There are also unmanaged 403(b) accounts that will probably be moved over time as Roth conversions are executed.
Fortunately, the amount of tax loss that was destroyed wasn't huge. My concern is that others are, or could be, affected by this sort of trading. For example, the taxable account was selling shares FIFO, which is generally the worst possible order for tax purposes. I happened to notice this, but it took multiple requests to get the firm to change the taxable account so that it sold shares in a better order.
I've given thought to filing a complaint with FINRA. But that would likely get the front end planner in trouble, even though he's got nothing to do with trading. That's handled by a separate part of the firm, which is where the problems seem to lie.
More recently, I've starting thinking about reporting this (and other issues) to the CFSB. They might look at the bigger picture, especially as it could affect other investors.
Spreading information about these problems is another way to help protect others. To that end, I'll be reposting my first post above at M* (despite my personal rule of generally picking one place for a given post). Other recommendations appreciated.
Finally, as to the firm involved. After all of this, I'd call it a four letter name, but it's already done that itself. TIAA. Specifically, TIAA Porfolio Advisory Services.