VeriPlan can even estimate the lost lifetime value of investment sales loads that you have already paid in the past

Your personal investment portfolio losses related to past investment sales load payments can and should be measured, when you evaluate the cost-efficiency of your investment strategy. However, you cannot recapture any of the lost returns (past or future) that are associated with any excessive investment sales load payments that you have paid in the past. These lost assets were removed from your investment portfolio, when you made the purchase and you paid the sales load. However, if you can measure the cumulative lifetime value of these past investment sales load payments, you can make a more informed decision about whether to keep paying sales loads on investment purchases in the future. 

Sales load payments consume part of your original investment principal. With a front-end sales load, the asset is simply gone at the outset. With a back-end load, the asset is gone, when you sell the asset and buy a replacement investment. These lost sales load assets can never provide a future return. Sales load payments become 'phantom' assets to you and real assets in someone else’s pocket. Sales loads charges, which you paid in the past, effectively were 100% charges on the assets that were taken out of your original investment principal. The key question is whether you got your money’s worth, when you paid sales loads for “advice” in the past. There are strong reasons to doubt whether you did get your money’s worth. 

The investment sales loads you have paid in the past have already diminished your investment portfolio. In addition, your portfolio was diminished further by the returns that you have lost on these phantom assets up to the present. Furthermore, because you cannot earn a return on them in the future, your portfolio will continue to be diminished for the rest of your life by these lost assets, which long ago slipped off your radar screen. All you can do is to stop paying future loads, if you can quantify and understand the lifetime costs to you of sales loads, and if you conclude that these costs were too high for the value of the advice received. 

With VeriPlan, you can make a reasonable estimate of the lifetime value of your assets you have lost, due to your past investment sales load payments. VeriPlan automatically evaluates your lost sales load assets using the tax basis information that you supply, when you enter information about your current investment portfolio.

Knowing the tax basis of your current investment portfolio, VeriPlan can automatically develop a lower bound estimate of the lifetime costs related to your past sales load payments. VeriPlan automatically projects the future annual returns that you might have earned on these lost assets, if you had used a more cost-efficient strategy. [Note:  To understand how VeriPlan projects the lifetime value of additional investment sales loads that you intend to pay in the future, when you purchase new investments.  This article that you are reading now focuses only on how VeriPlan values past investment sales load payments.]

For each of your family assets that you enter into VeriPlan's cash, bond / fixed income, and stock / equity worksheets, you are asked to supply your current estimate of the total tax basis for that asset. The tax basis of your assets includes your original capital contribution plus any loads that you paid to acquire each asset that you currently hold. Furthermore, your total tax basis for each asset also might have increased over time to reflect any new investments and any reinvested taxable distributions. If you paid loads on these new investments and reinvested distributions, then your current tax basis should also include those subsequent sales load payments.

"Gee," you might say, "I have not been tracking my sales loads and other investment expenses as part of my investment asset tax basis." Well, frankly, you should be tracking these expenses. Particularly, if you pay loads regularly, if you trade frequently, and/or if you have substantial assets, then these investment expenses can mount up quickly. Many of your investment expenses, such as sales loads on purchases, are not currently deductible. Instead, they must be added to your asset tax basis, or you will lose their “tax shield” value in the future. These investment expenses could reduce your future tax bill substantially. If you do not maintain accurate investment tax basis records, then you are more likely to overlook these expenses with the passage of time and the disposal of your records.

Nevertheless, even if you have not kept good records of your ongoing investment expenses, VeriPlan can still develop an estimate of the lifetime costs of your past sales load payments. If you simply enter the dollar amount that you invested at the outset as your investment tax basis in VeriPlan and you enter the front-end load percentage that you paid, then VeriPlan still can automatically develop a lifetime lost value estimate. This lifetime lost value estimate would be lower than cumulative cost of the sales loads you may have actually paid in the past. 

To develop its cost-efficiency projections related to your past sales load payments:

1)  VeriPlan separates assets each of your cash, bond / fixed income, and stock / equity financial asset classes into two groups: 1) assets held in taxable accounts plus in Roth 'never-taxed' accounts and 2) assets held in traditional 'tax-deferred' accounts. This separation is necessary, because the information contained in the tax basis differs between these two groups. (See below.)
2)  VeriPlan then calculates your total tax basis within the two groups above for each asset class.
3)  Within each of these two tax groups in each financial asset class, VeriPlan then multiplies your the tax basis for that group by the weighted average sales load percentage for that group.
4)  Finally, VeriPlan automatically combines these group estimates and automatically projects the annual lost returns over your lifetime that you might have earned with a lower cost investment strategy.

When VeriPlan develops these projections, it also automatically compares the weighted average load charges that you have actually have paid in the past versus your entries regarding what you think are reasonable load charges to pay for investment advice. If you set reasonable sales load percentages for any asset class, which are equal to or greater than the weighted average of sales loads that you actually paid in the past, then VeriPlan will project a zero cost-inefficiency.

Repeated sales load charges due to the turnover of your financial asset portfolio

VeriPlan's method of estimating your past sales load charges, described above, assumes implicitly that you paid a sales load only one time – when you first bought an asset. Thereafter, VeriPlan assumes that you simply held that asset in your portfolio. If instead, you have bought and sold assets multiple times and you have paid repeated sales load charges, then your historical sales load cost-inefficiencies would be much higher. To estimate your multiple load related investment portfolio cost-inefficiencies, VeriPlan simply asks you to estimate the number of times that you have paid sales loads within taxable groups and asset class. Then, VeriPlan incorporates this frequency information into its automated calculations.

Differentiating between taxable accounts, Roth 'never-taxed' accounts, and traditional tax-deferred accounts

Using your reported tax basis to develop estimates of your past excessive load payments creates a mild, but manageable modeling complication. Nevertheless, VeriPlan automatically manages this complication behind the scenes, and you do not need to do anything. The following paragraphs just explain how VeriPlan manages these differences.

The information contained in the tax basis for your taxable accounts and Roth 'never-taxed' accounts differs from the information contained in the tax basis for your traditional tax-deferred accounts. Therefore, VeriPlan estimates the past sales loads you have paid on your taxable accounts and Roth 'never-taxed' accounts separately from and differently than for your traditional tax-deferred accounts.

For both your taxable accounts and Roth 'never-taxed' accounts, extracting your tax basis is straightforward and follows the standard methods described above in this article. However, for assets in your traditional tax-deferred accounts, an additional automated adjustment is required. The total tax basis in your tax-deferred accounts would tend to be substantially lower due to the tax shield provided in these accounts. This means that actual sales load payments you made would have been a much larger portion of your reported tax basis in these traditional tax-deferred accounts.

Therefore, for each of the financial asset classes, VeriPlan estimates an adjusted tax basis for your traditional tax-deferred accounts without the tax shield provided by 'tax-deferral'. For your tax-deferred accounts, VeriPlan assumes that the ratio of the adjusted tax basis to the total asset value would be the same as the ratio of the unadjusted tax basis to total asset value in your taxable accounts. Then, VeriPlan multiplies this adjusted tax basis by the weighted average sales load percentage that you report for your tax-deferred accounts in that asset class.

Obviously, this adjustment method could increase inaccuracy. Nevertheless, it has the virtue of being fully automated, and again, its purpose is solely illustrative. These calculations affect no other part of VeriPlan. In addition, there is nothing that you can do to change the fact that your past excessive sales load payments are gone forever. All you can do is to use this information to decide whether to continue paying additional sales load charges on future investment purchases.The key question is whether you got your money’s worth, when you paid sales loads for “advice” in the past. There are strong reasons to doubt whether you did get your money’s worth.