Late in 2007 we switched to a new financial advisor to get our financial house in order. One of the things she suggested was diversifying a big chunk of money that we had in just one mutual fund that we had held for a long time. She suggested 3 different funds within the same fund family. We agreed this would be a good idea and I knew there wouldn't be any fees around it since it was within the same fund family.
But then we went to our accountant this year to do our taxes and he said we incurred long-term capital gains on these movements. He said that even though we moved them inside the fund family, it was considered a sale to the IRS and the distribution was taxed. Our financial planner never said one thing about this to us when she was suggesting we do this. When I called her on it, she said he had just learned this rule too. (Yikes.) She's been doing financial planning for 15 years and has a huge client base with some very large clients. (She's with a big name firm.) Is it even possible to not have known about this? Knowing about it now, it seems like that would be something every financial planner would have learned early on in their career.
The difference on our tax return amounts to about $2500 more that we would have gotten back had it not been for these sales. On the other hand, we still most likely needed to diversify the funds in that one mutual fund anyway.
Our financial planner has acknowledged that she made a mistake and is willing to compensate us for some or all of the loss. But I'm trying to figure out what is fair. Any ideas?
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