Advice on firing parent's investment advisor

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Advice on firing parent's investment advisor

Postby InfamousAngel » Sat May 18, 2013 4:12 pm

My parents are in their early 80's and have about 2 mil in assets. They need about 60k from their portfolio to meet expenses.
They have a so-so advisor, IMO. He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds. This has not been particularly successful, but not a disaster, either. He charges about 15k a year for this.

Every time he sells a fund at a gain, he sells something at a loss to offset the gain. Most of the funds he has sold this way have regained their value. I don't really understand this logic.

Between his fee, the expense fees for the funds and the buying and selling they are losing ground.

I would like to some advice on their current portfolio; is there a link to a page that explains how to format it so I can post for review?

I would like to create a plan using Vanguard that would use 3-5 funds that would meet their needs and get rid of the advisor.

Thanks!

IA
InfamousAngel
 
Posts: 22
Joined: Sun Apr 10, 2011 8:14 am

Re: Advice on firing parent's investment advisor

Postby Scooter57 » Sat May 18, 2013 4:19 pm

I went through something similar with my parents' assets, however, I did not feel it appropriate to change the way it was managed until I inherited it. I wasn't the only heir, and though I had the ability to change their investments as I was their POA and later their executor, I figured that if I'd fired the advisor and the invested money had decreased significantly between the time that I'd made the changes and the time that the rest of the heirs inherited, they might have blamed me for the losses since I'm not a professional and that could have led to very bad feelings that were not worth whatever gains the investment switch might have made.

As it was, all this took place in the period leading up to the 2008 meltdown. Their advisor kept their investments in the market and bought new ones, which I'm not sure I would have had the courage to do given how much was involved, so though they didn't make more money under the advisor's watch that what it took to pay the advisor's (inflated) fees, they didn't lose anything either.
Scooter57
 
Posts: 715
Joined: Thu Jan 24, 2013 10:20 am

Re: Advice on firing parent's investment advisor

Postby tibbitts » Sat May 18, 2013 4:27 pm

It doesn't matter what you would like to do; it only matters what they would like to do. Stay out of this unless they specifically ask for your help/advice, or unless some criminal behavior is going on. Charging for mediocre investment advice is sometimes treated as criminal around here, but not in the rest of the world.

The markets haven't given anyone a whole lot over the last dozen years. You've had to be lucky to take $60k from $2M and not be treading water - especially after even reasonable advisor fees. It sounds like the advisor is at least making an attempt to TLH or offset gains with losses. Probably the advisor wouldn't be worth it to you or me, but you have to tread very carefully here. How will you/they feel if they invest according to your wishes, and lose 30% in the first few weeks, for example?

Paul
tibbitts
 
Posts: 4824
Joined: Tue Feb 27, 2007 7:50 pm

Re: Advice on firing parent's investment advisor

Postby gerrym51 » Sat May 18, 2013 4:29 pm

InfamousAngel wrote:My parents are in their early 80's and have about 2 mil in assets. They need about 60k from their portfolio to meet expenses.
They have a so-so advisor, IMO. He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds. This has not been particularly successful, but not a disaster, either. He charges about 15k a year for this.

Every time he sells a fund at a gain, he sells something at a loss to offset the gain. Most of the funds he has sold this way have regained their value. I don't really understand this logic.

Between his fee, the expense fees for the funds and the buying and selling they are losing ground.

I would like to some advice on their current portfolio; is there a link to a page that explains how to format it so I can post for review?

I would like to create a plan using Vanguard that would use 3-5 funds that would meet their needs and get rid of the advisor.

Thanks!

IA


what do they say? if they agree fire the bum(er-advisor)
gerrym51
 
Posts: 1559
Joined: Sat Apr 27, 2013 2:44 pm

Re: Advice on firing parent's investment advisor

Postby Qtman » Sat May 18, 2013 4:36 pm

I use an advisor for my in-laws. They can't do it and there are several children involved. The advisor is an independent third party, which is good. He is very conservative and does little changing of funds over the years. Who in equities hasn't done ok the last few years? That is not the issue.

There are index, fee based advisors out there.
Don’t wear yourself out trying to get rich; be wise enough to control yourself. | Wealth can vanish in the wink of an eye. It can seem to grow wings and fly away | like an eagle. - King Solomon
User avatar
Qtman
 
Posts: 337
Joined: Sun Jun 29, 2008 9:00 pm
Location: Rocky Mountains

Re: Advice on firing parent's investment advisor

Postby Toons » Sat May 18, 2013 4:40 pm

"He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds"

Buying and Selling front loaded mutual funds.Ouch in a big way. :shock:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
User avatar
Toons
 
Posts: 4085
Joined: Fri Nov 21, 2008 11:20 am
Location: Hills of Tennessee

Re: Advice on firing parent's investment advisor

Postby OverTheHill » Sat May 18, 2013 4:43 pm

InfamousAngel wrote:My parents are in their early 80's and have about 2 mil in assets. They need about 60k from their portfolio to meet expenses.
They have a so-so advisor, IMO. He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds. This has not been particularly successful, but not a disaster, either. IA

Assuming your parents live for 15 more years, then they would spend a total amount with a present value of $900K, which is far less than they have invested at the current $2M mark. While I hope they live long and healthy lives, the fact is that they probably won't live 15 more years, so they'll likely need less. Of course, if they both were to go into skilled nursing, then the yearly costs could be much higher. Regardless, it would appear that they have enough money. It also would appear that the financial advisor isn't perfoming so badly as to compromise their financial security. The advisor might be wrecking the inheritance end of things, but not what your parents need. Given there are other adult kids in the loop, you are correct is assuming that no good deed goes unpunished, so I would let the advisor take the heat, rather than risking a family falling out. If the advisor was perfoming far below any reasonable standard, you might need to take action, but that doesn't appear to be the case here. Anyway, good luck.
Edit: I see that you didn't mention other adult kids in your OP. I don't know where I got that idea. Anyway, you get the point, anyway.
Last edited by OverTheHill on Sat May 18, 2013 5:05 pm, edited 1 time in total.
OverTheHill
 
Posts: 308
Joined: Wed Mar 27, 2013 5:58 pm
Location: North Carolina

Re: Advice on firing parent's investment advisor

Postby lawman3966 » Sat May 18, 2013 4:45 pm

The believe that the below link is the one with information describing the format needed to properly ask questions about a portfolio.

viewtopic.php?t=6212

As to the advisor, one thing to determine is whether your parents are investing purely for themselves, or whether they want to leave a significant legacy.

If investing for someone else's benefit, they may be more receptive to advice from a family about an advisor, since the family members are the ultimate beneficiaries of the nest egg.

If investing for their own income, in my experience, it can be hard to dislodge the view in older people that advisors are the equivalent of neurologists whose advice should not overridden by mere amateurs. One need only listen to the parade of weekend financial radio talk shows [names withheld to protect the guilty] to see evidence that advisors who are neither good nor reasonably priced have more followers than the Boglehead philosophy does.

While I can't be sure of what the issues will be in your particular situation, I am guessing that convincing your parents to enable you to overrule their advisor will be the single biggest hurdle. Good luck.
lawman3966
 
Posts: 909
Joined: Sun Aug 10, 2008 1:09 pm

Re: Advice on firing parent's investment advisor

Postby tibbitts » Sat May 18, 2013 4:49 pm

Toons wrote:"He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds"

Buying and Selling front loaded mutual funds.Ouch in a big way. :shock:

It wasn't clear from the OP that front loaded funds are involved. The fees could be mostly AUM or wrap fees - plus any mutual fund management fees, obviously.

Paul
tibbitts
 
Posts: 4824
Joined: Tue Feb 27, 2007 7:50 pm

Re: Advice on firing parent's investment advisor

Postby livesoft » Sat May 18, 2013 4:53 pm

Nevertheless the fees are $15K when the owners withdraw only $60K. That's like a 20% tax on benefits of this portfolio. Ouch!

Our it could be half a year of college education for one of the grandkids.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 33082
Joined: Thu Mar 01, 2007 9:00 pm

Re: Advice on firing parent's investment advisor

Postby retiredjg » Sat May 18, 2013 4:56 pm

If these are funds with a load, this type of "churning" would make the "advisor" more money.

But that's not really all you need to consider. You have not indicated that your parents want your help. They may not. The issue about there possibly being several heirs has been raised - if there are several heirs, it would not be right to invest in the style you like best (even though we know it actually is best). And on an on.

What do your parents have to say? Is it possible to stay with the "advisor" (they might want that) but limit the trading?

Please do post their portfolio - people here can help with that. But only if your parents actually want your input.
retiredjg
 
Posts: 17346
Joined: Thu Jan 10, 2008 1:56 pm

Re: Advice on firing parent's investment advisor

Postby retiredjg » Sat May 18, 2013 4:56 pm

livesoft wrote:Nevertheless the fees are $15K when the owners withdraw only $60K. That's like a 20% tax on benefits of this portfolio. Ouch!

It also brings the withdrawal rate up to just under 4%. If they are paying taxes on top of the $60k they need, that puts them OVER 4% - something that would need to be looked at.
Last edited by retiredjg on Sat May 18, 2013 4:58 pm, edited 1 time in total.
retiredjg
 
Posts: 17346
Joined: Thu Jan 10, 2008 1:56 pm

Re: Advice on firing parent's investment advisor

Postby Toons » Sat May 18, 2013 4:57 pm

tibbitts wrote:
Toons wrote:"He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds"

Buying and Selling front loaded mutual funds.Ouch in a big way. :shock:

It wasn't clear from the OP that front loaded funds are involved. The fees could be mostly AUM or wrap fees - plus any mutual fund management fees, obviously.

Paul


You could be correct on the fees.
Not sure why anyone would buy and sell mutual funds ,short term.They are meant to be held for years if not decades.Seems pointless to me. :shock:

"Between his fee, the expense fees for the funds and the buying and selling they are losing ground"
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
User avatar
Toons
 
Posts: 4085
Joined: Fri Nov 21, 2008 11:20 am
Location: Hills of Tennessee

Re: Advice on firing parent's investment advisor

Postby JW Nearly Retired » Sat May 18, 2013 5:14 pm

InfamousAngel wrote:My parents are in their early 80's and have about 2 mil in assets. They need about 60k from their portfolio to meet expenses.
They have a so-so advisor, IMO. He does a fair about of buying and selling, that is, selling actively managed funds to buy "better" actively managed funds. This has not been particularly successful, but not a disaster, either. He charges about 15k a year for this.

Every time he sells a fund at a gain, he sells something at a loss to offset the gain. Most of the funds he has sold this way have regained their value. I don't really understand this logic.

Between his fee, the expense fees for the funds and the buying and selling they are losing ground.

I would like to some advice on their current portfolio; is there a link to a page that explains how to format it so I can post for review?

I would like to create a plan using Vanguard that would use 3-5 funds that would meet their needs and get rid of the advisor.

Thanks!

IA

IA, please go ahead and post the current portfolio.

There are a lot of discouraging words popping up here based on not all that much information in the opening post. It's just a guess that parents are not on board with changes, and OP has said nothing about any other family involvement. Let's hold off a little until there is more info.
JW
Retired Summer 2013
JW Nearly Retired
 
Posts: 3896
Joined: Sun Dec 16, 2007 1:25 pm

Re: Advice on firing parent's investment advisor

Postby Ged » Sat May 18, 2013 9:32 pm

If your parents agree, yes do it. If they are losing ground in this market their adviser is a failure. Dr. Bernstein published results for the 'lost decade' which showed that even for that period of time well allocated periodically rebalanced low cost portfolio should have had substantial gains.
Lack of planning on your part does not constitute an emergency on my part.
User avatar
Ged
 
Posts: 1806
Joined: Mon May 13, 2013 2:48 pm
Location: Roke

Re: Advice on firing parent's investment advisor

Postby MN Finance » Sat May 18, 2013 11:43 pm

Theres a lot of advisor bashing (expected) but it's clearly premature and beside the point, since it appears the question is how, not if. Some practical advice would be more helpful.

The first question is if they want you involved and if they want to leave. If not, then it's not normally worth pursing. The big question is when the market falls 50% will they/you have the discipline to stick with whatever strategy you agree to. If there is any doubt about this answer, then you may find the advisor is worth the 75bps they're paying. This board aside, not a lot of people have the necessary discipline to do the right things (at least instinctively), though it's not hard to present enough educational opportunities for them to learn what's needed and save a lot of money. Think 10 years from now, possibly prior to another family member having POA, and their cognitive reasoning starts to slip... what would the portfolio management look like on your own vs. the advisor.

Practically speaking, the first step, assuming they leave is to contact VG brokerage services and arrange to transfer the portfolio in-kind. VG will need to help you determine if there are investments that can't be moved and require liquidation. Both at that point (if it happens) and then once assets are at VG, you'll then need to liquidate the current portfolio paying attention to tax consequences. In this market, there is a high likelihood of gains. Some of those you may need to sell right away because the tax is better then keeping the funds, some might be liquidated over a couple years, and some might just be held indefinitely. You can take time to make these decisions with their CPA and this board while the investments sit at VG.

As the portfolio is mapped to a new set of investments, the best move will be to keep the overall risk level constant, at least short term. Then take time to evaluate if it's appropriate and what it *should* look like. You can start with a simple 3 fund portfolio (search that) of Total US, Total International, and Bond Market. If after, enough digesting, you decide a couple more funds are worth the added complication they can be added any time.

Hope that helps.
MN Finance
 
Posts: 1203
Joined: Sat Dec 22, 2012 11:46 am


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: Bing [Bot], Google [Bot], gvsucavie03, HLmcy, jemjtell, jgb and 19 guests