Investment Advisors in Virginia

The benchmark every Virginia federal worker already has

If you work for the federal government, you have access to a well-designed retirement plan, and it is a useful yardstick for any investment advisor you consider. The Thrift Savings Plan offers a handful of broad index funds with expense ratios measured in hundredths of a percent. The G Fund holds special Treasury securities that pay interest with no risk of loss of principal. The F Fund tracks the broad bond market. The C Fund tracks large U.S. companies, the S Fund tracks smaller and mid-sized companies and the I Fund tracks international stocks. Lifecycle funds blend these automatically as a target date approaches. With costs that low, a federal employee asking an advisor for help should understand exactly what the advisor adds beyond what the TSP already provides: help with tax planning, help with the pension, help with accounts outside the plan, and help staying disciplined.

That question applies to everyone. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, per capita income in Virginia is about $50,666, about 42.2 percent of adults hold a bachelor’s degree or higher and roughly 16.7 percent of residents are 65 or older. Many investors have the means and the education to run a simple portfolio themselves. Advisors earn their fee in the cases where life is more complicated than a few index funds.

What an investment advisor does

The advisor’s work has three layers. The first is design: setting a mix of stocks, bonds and cash that matches your goals and temperament, and choosing the funds that fill each slice. The second is placement: deciding which account holds what, so that you pay as little tax as legally possible. The third is behavior: keeping you on plan when markets are noisy. Studies of investor returns repeatedly find that the gap between a fund’s return and what its average investor earned comes mostly from poorly timed trades. An advisor who prevents even one panic sale can repay years of fees. Our investing basics guide explains diversification and risk.

Reading the alphabet soup

Providers carry labels that matter. A registered investment adviser, or RIA, owes you a fiduciary duty, meaning it must put your interest first, and is usually paid a percentage of assets or a flat fee. A broker-dealer representative is licensed to sell securities, reports to FINRA and must recommend what is in your best interest, but often earns commissions or sales charges. A dual registrant is both and can switch roles by account. A CFP is a planner who completed education, an exam and experience requirements. A robo-advisor is an online service, normally an RIA, that builds portfolios by algorithm for a low fee. Because one person can fill several roles, ask which applies to each recommendation and how that person is paid on it.

Virginia taxes on investments

Virginia taxes interest, dividends and capital gains as part of ordinary income at graduated rates. Because the top rate applies above a very low income, most investors face roughly that top rate on additional investment income, and there is no discount for holding longer at the state level. Federal tax applies on top. Several habits follow.

• Account placement. Bonds and funds with heavy distributions belong in retirement accounts. Broad index funds that trade rarely belong in taxable accounts.
• Loss harvesting. Sell an investment at a loss to offset gains, and avoid repurchasing it within thirty days.
• Gifting shares. Donating appreciated stock to charity avoids the gain and can yield a deduction.
• Virginia municipal bonds. Interest on bonds issued by Virginia governments is generally exempt from state tax for residents. Compare the after-tax yield with a taxable bond.
• Invest529. Virginia taxpayers may deduct contributions to Invest529 accounts up to a yearly limit per account, and owners of a certain age may deduct more.

Our tax planning guide covers brackets and account types.

The cost of advice, in numbers

Imagine a $600,000 portfolio. At a 1 percent advisory fee plus 0.10 percent in fund costs, you pay $6,600 a year. If the portfolio earns 6 percent before costs over twenty years, the ending value is roughly $1.7 million with those costs, compared with about $1.9 million if costs were only the fund expenses, a difference near $200,000. That does not mean advice is a bad deal. If an advisor helps you avoid a major mistake, reduce taxes or stay invested through a crash, the value can exceed the fee. It does mean cost deserves scrutiny. Flat annual fees avoid the growing percentage, hourly fees suit people who manage their own investments and commissions deserve extra questions. Request one combined annual percentage and compare firms on it.

Four Virginians

Mei, a systems engineer at a defense contractor. Her restricted shares vest every quarter, and her 401(k) holds company stock. Her advisor sets a ceiling, sells part of each vest and invests the rest in broad funds that include few defense holdings. She funds a Roth IRA and an Invest529 account for her son.

Gary, a retired Navy chief. His retired pay covers his basic costs, which means his investments can lean toward stocks. His advisor builds a cash bucket for the first three years, keeps his Tricare for Life in the budget and plans partial Roth conversions in years when he works as a contractor.

Shanice, a federal analyst, age 56. She is deciding when to retire. Her advisor models the FERS annuity, the supplement, Thrift Savings Plan withdrawals and health coverage, and checks how Social Security fits at 62 and at 67.

Tom, who sold his small contracting firm. His first job is safety: Treasury bills and insured accounts while a plan is built. His advisor splits the proceeds into a tax reserve, a spending bucket and a long-term portfolio, phases in stocks over several months and coordinates with his attorney on trusts for his children.

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Checking out an advisor in Virginia

The regulator depends on size. Virginia’s State Corporation Commission supervises small advisers, the SEC supervises large ones and FINRA supervises brokers. Before you commit, collect the following:

1. The firm’s SEC adviser database listing and any history of discipline.
2. The individual’s BrokerCheck report, if they also sell securities.
3. The firm’s Form ADV Part 2 and its short Form CRS summary.
4. Confirmation that an independent custodian holds your assets.
5. A plain description of how investments are selected and how often the portfolio is traded.
6. A written statement of your total annual cost.

Promised returns, pressure to transfer money fast and fuzzy answers about pay are reasons to walk away.

Putting the portfolio together

Safety comes first. An emergency fund sized to your job, with extra for contractors whose income depends on awards, and the payoff of costly debt come before investing. Next, the workplace plan up to any match, whether a 401(k) or the TSP, followed by IRAs and health savings accounts. Then comes the mix, set by dates. Money needed for a down payment in three years should be conservative, while money for retirement decades away can hold more stocks. Fill each slice with low-cost funds and schedule rebalancing once or twice a year. Write down in advance what you will do in a market crash, because a rule on paper is harder to break than a promise to yourself.

Moving a workplace account

A job change or retirement raises the question of what to do with an old plan. A 401(k) can stay put, move to an IRA or move to a new employer’s plan. A TSP account can stay in the plan, which many retirees prefer because of its low costs, or be rolled to an IRA. A cash-out triggers tax and, before 59 and a half, a penalty. If the account holds employer stock, ask about special tax rules. Compare fees, fund lists and withdrawal flexibility, and resist deadlines designed to rush you.

Do you need ongoing management?

Many people do not. A few diversified funds, automatic contributions and an occasional paid review can serve a simple situation well. Ongoing management earns its fee when you have complexity: a concentrated stock position, a business sale, a pension with survivor choices or a retirement date within a few years. Our retirement planning guide explains how withdrawals are sequenced, and our estate planning guide explains how investment accounts pass to heirs.

Frequently asked questions