Concerns about financial planner for my parents

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Concerns about financial planner for my parents

Postby sjelen » Fri Dec 28, 2012 3:49 pm

Hi All!

I've enjoyed reading so much of the wonderful info on this board for several years. I'm pleased to sign up and start posting some questions. This first post, however, happens to be a concern triggered by a conversation with my parents advisor. I generally stay away from this discussion with them, but I'm wondering if anyone has advice. (Maybe the advice is to stay away!)

I happened to have lunch this week with one of my good friends from childhood who, as it happens, has also worked as my parents financial advisor for about 10 years. In our discussion he mentioned that his company (TIAA CREFT) has changed to a commission payment for the advisors (he was just commenting that he'll be making more money). I know that commission is generally the way most advisors are paid, but for some time I had been comfortable with him and my parents because he wasn't commissioned in the past. Since that has changed, I'm wondering if I should help them look for advice another place? They are not interested in doing it themselves no matter how easy it may seem to you and me, so they will want to continue to meet with a "professional". Would a fee-only planner be better? I definitely trust him to do what's right, but this seems to present a conflict for him.

Thanks for the help!

BJ
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Re: Concerns about financial planner for my parents

Postby SkierMom » Fri Dec 28, 2012 3:58 pm

Run Away! Run Away!

This Salesman, er "Financial Advisor" may be a great guy, but ultimately he has no fuditiary responsibilty towards your parents. At a minimum, find a for-fee planner that can advise on an hourly basis berhaps once or twice a year. Use the Garrent Financial Planning Network to find nmaes and interview at least three.

Your parents may also go for a fee-based planner that takes a percentage on an annual basis, determined by the AUM - Assets Under Management.

Question: Why don't you step up and do it? If you're a Boglehead and know the basics of low-cost funds, you can't possibly do any worse than the Salesman in Scenario 1 above.
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Re: Concerns about financial planner for my parents

Postby umfundi » Fri Dec 28, 2012 4:50 pm

BJ,

I'd take a passive approach.

Explain your concerns to your parents. Get a snapshot of their portfolio, including fees and expense ratios.

Then, simply ask them to consult with you on any changes their advisor suggests. At that time, you can judge whether the changes are to bolster his fees or not.

You should also make sure that you understand the ability of the advisor to trade the account without prior approval.

TIAA-CREF is a good company.

Keith
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Re: Concerns about financial planner for my parents

Postby livesoft » Fri Dec 28, 2012 4:51 pm

I'm going to have to check this commission-based TIAA-CREF thing out since that would be huge change in the way they do business. OTOH, I have never talked with anyone at TIAA-CREF even though I have been a customer for more than 25 years.

I wonder if this person has moved from TIAA-CREF to another firm and will try to drag along clients with him?

But if your parents are all set in their retirement plans, why should there be any commissions to pay? They should not have to buy life insurance anymore nor would they need to anything with their investments. However, if they were asked to buy a new investment, that would generate a commission. I have bought any new investments at TIAA-CREF in decades. The old ones are just fine for me.
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.
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Re: Concerns about financial planner for my parents

Postby sjelen » Sat Dec 29, 2012 10:53 am

Thanks!

I don't know the details since it was just a personal chat with an old friend where we both talked about how business is going. He seemed to like the change. From what I can tell my parents investments are just "fine" the way they are, low ERs, etc. But what I do know is that he now has a direct financial incentive to move them into a different product. I don't think he'll do the wrong thing, but it makes be rethink the relationship. I think because he's a good friend and they really require a face to meet with, it's not terrible. I'll just keep an eye out on things. He also suggested (not aggressively) that they consolidate their other investments there. Frankly, as the eventual executor of the estate and POA, I wouldn't mind that at all. But I know that he's not suggesting it in a completely unbiased capacity now that he gets a commission for moving the money over there.

BJ
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Re: Concerns about financial planner for my parents

Postby jwblue » Sat Dec 29, 2012 2:34 pm

I know of a good financial planner that has managed my mother's account for the past 20 years and has done an excellent job.

She works for a fee only wealth management company.

If interested, private message me.
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Re: Concerns about financial planner for my parents

Postby 555 » Sat Dec 29, 2012 2:51 pm

sjelen wrote:"...In our discussion he mentioned that his company (TIAA CREFT) has changed to a commission payment for the advisors ..."

I just don't believe this. Unless you can find independent confirmation of this claim, this advisor is lying and you must get away immediately.
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Re: Concerns about financial planner for my parents

Postby nedsaid » Sat Dec 29, 2012 3:21 pm

I mostly have been a do it yourself investor but I also have worked with four different stock brokers. Fortunately, I had good people who were already established and were not interested in churning my account. They were good guys and taught me a lot about investing.

I bought a few loaded mutual funds from them but stayed away from the house funds and chose funds with lower expense ratios. I of course paid commissions on whatever stock trades I had executed. I just figured I was paying for their time and advice. Most of my mutual funds are no-load funds that I bought through my workplace savings plan or other IRAs.

If your friend wanted to start switching investments and churning the account, I would have your parents move the funds elsewhere. From what you have said, I don't think that will happen. I think things will be okay.

Paying a commission every once in a while is not the end of the world.
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Re: Concerns about financial planner for my parents

Postby Grt2bOutdoors » Sat Dec 29, 2012 3:31 pm

nedsaid wrote:If your friend wanted to start switching investments and churning the account, I would have your parents move the funds elsewhere. From what you have said, I don't think that will happen. I think things will be okay.

Paying a commission every once in a while is not the end of the world.


+1 - This is much ado about nothing until the advisor starts making lots of new suggestions in order to "churn the butter" and start reaping commission payouts for his wallet. Until then, relax and enjoy the rest of 2012 - right now it's snowing here.
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Re: Concerns about financial planner for my parents

Postby umfundi » Sat Dec 29, 2012 4:58 pm

The advisor needs to be compensated in some way.

I Googled : TIAA-CREF Compensation
and found a quite reasonable document. Is your friend a TIAA-CREF employee?

It is possible you misunderstood what he was saying. TIAA-CREF employees do have a variable element in their pay, but it is based on company performance, not commissions.

Sit back, keep an eye on things. If he suggests something that is not in your parents' interests, then you have evidence to support making a change.

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Re: Concerns about financial planner for my parents

Postby MoneyMythsSolved » Sat Dec 29, 2012 9:14 pm

If the advisor is a TIAA-CREF employee, then they do not work on commission. Similar to what Umfundi has already stated, their pay consists of: Salary, a very good company contribution to 401k/403b accounts, and a bonus once a year based upon performance of the company. There are some things that help increase that bonus, such as how good/bad their client surveys are.

Now if they're just an advisor that sells TIAA-CREF funds, but works for another firm, then that's a whole other story. There's not many outside advisors selling TIAA-CREF funds though - there's no loads for them to get a slice of the pie from.
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Re: Concerns about financial planner for my parents

Postby JW Nearly Retired » Sat Dec 29, 2012 9:36 pm

sjelen wrote: I happened to have lunch this week with one of my good friends from childhood who, as it happens, has also worked as my parents financial advisor for about 10 years. In our discussion he mentioned that his company (TIAA CREFT) has changed to a commission payment for the advisors (he was just commenting that he'll be making more money).

Most here don't seem to believe that TIAA CREF is going to commissions. Perhaps your friend is using the term loosely. One thing is certain, if he and other advisors will be making more money from whatever this change is, the only place it can come from is client investments.

I hope you can get to the bottom of this for us.
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Re: Concerns about financial planner for my parents

Postby sjelen » Sun Dec 30, 2012 1:47 am

I really don't know anything about TIAA CREF other than my close friend, so I don't know if they're good/bad, but on the surface it looks a lot like Vanguard. I called him tonight based on the comments above to ask for clarification (I caught him headed to sleep - he's 3 hrs later on the east coast with 1 yr old twins - so our conversation was not very complete). He told me that the company doesn't call the bonus payments commissions but he's paid a precise percentage of each sale he closes - for ex (he said) if mom and dad moved $100K from another place to him, or $100k from one product to another, he could tell you to the penny what his cut would be. He said they are told it's not commission (but if you're paid a direct percentage of the sale, then whatever it's called, it's clearly commission - right??). He also said that he's paid a "trail" for past sales which I don't totally understand but it made it clear that if he does sell something he's paid for, then he has an incentive to keep the business (which I like and appreciate for my folks).

I have nothing against commission and I trust my friend. Hopefully that's clear. I moved to the bay area a year ago and sold my house in the south east and the realtor was paid a commission. Great, I knew that in advance. No problem. It was just this change to the structure that made me question the relationship. He told me (as a personal friend, not as his client's son) that he'd be making 50% more now than in past years. I'm personally happy for that - he's a very good man, but I want to keep an eye out for my parents.

I also addressed this concern with him directly (which is maybe what I should have done from the start). He completely understood and assured me that mom and dad would be well cared for, so I feel glad that I brought up the topic. Thanks to all for helping me think through this!!

BJ
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Re: Concerns about financial planner for my parents

Postby sjelen » Sun Dec 30, 2012 1:57 am

MoneyMythsSolved wrote:If the advisor is a TIAA-CREF employee, then they do not work on commission. Similar to what Umfundi has already stated, their pay consists of: Salary, a very good company contribution to 401k/403b accounts, and a bonus once a year based upon performance of the company. There are some things that help increase that bonus, such as how good/bad their client surveys are.

Now if they're just an advisor that sells TIAA-CREF funds, but works for another firm, then that's a whole other story. There's not many outside advisors selling TIAA-CREF funds though - there's no loads for them to get a slice of the pie from.


I know that he makes about $300K a year as an employee which seems a bit high to be paid just straight salary for an advisor. I do know that he's a very successful salesmen for them, so maybe other people aren't paid that well, but he seems to be doing well.

I have no problem with this - just to mention again - he does a great job as far as I can tell, I just want to make sure my parents are in good hands when I'm not able to be around.

BJ
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Re: Concerns about financial planner for my parents

Postby JW Nearly Retired » Sun Dec 30, 2012 12:17 pm

sjelen wrote:
MoneyMythsSolved wrote:If the advisor is a TIAA-CREF employee, then they do not work on commission. Similar to what Umfundi has already stated, their pay consists of: Salary, a very good company contribution to 401k/403b accounts, and a bonus once a year based upon performance of the company. There are some things that help increase that bonus, such as how good/bad their client surveys are.

Now if they're just an advisor that sells TIAA-CREF funds, but works for another firm, then that's a whole other story. There's not many outside advisors selling TIAA-CREF funds though - there's no loads for them to get a slice of the pie from.

He told me that the company doesn't call the bonus payments commissions but he's paid a precise percentage of each sale he closes - for ex (he said) if mom and dad moved $100K from another place to him, or $100k from one product to another, he could tell you to the penny what his cut would be. He said they are told it's not commission (but if you're paid a direct percentage of the sale, then whatever it's called, it's clearly commission - right??). He also said that he's paid a "trail" for past sales which I don't totally understand but it made it clear that if he does sell something he's paid for, then he has an incentive to keep the business (which I like and appreciate for my folks).
............
I know that he makes about $300K a year as an employee which seems a bit high to be paid just straight salary for an advisor. I do know that he's a very successful salesmen for them, so maybe other people aren't paid that well, but he seems to be doing well.

I have no problem with this - just to mention again - he does a great job as far as I can tell, I just want to make sure my parents are in good hands when I'm not able to be around.

BJ

Hmmm.....to summarize: TIAA-CREF just made a change in their salary structure so their "very successful salesmen" will get a 50% salary boost. Appears that OP's friend will now be getting a salary of $450k/yr? If I had any investments at TIAA-CREF that would trouble me. Looks like one of the good guy non-profit fund companies may be slipping toward the dark side.

Is there more to this story TIAA-CREF client Bogleheads?
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Re: Concerns about financial planner for my parents

Postby livesoft » Sun Dec 30, 2012 12:25 pm

It's simply unbelievable. I have read of folks who switched from working at one financial institution to go to work for another financial instituiton. They bring their black book with them and act towards their customers as if nothing has happened.

There was even a bottled water delivery guy who lost his job. Nevertheless, he took his truck and still delivered bottled water to his previous customers and collected their money. The only problem was that he refilled empty bottles with water from a roadside ditch.

It will be interesting to see how this turns out.
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.
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Re: Concerns about financial planner for my parents

Postby sscritic » Sun Dec 30, 2012 12:33 pm

Variable compensation is designed to place a significant portion of Total Compensation at risk – that is, linked directly to performance. Each employee’s aggregate variable compensation award is derived from the Total Compensation amount that is determined annually for each employee based on individual, business area and Company performance and with reference to the competitive market. Variable compensation is equal to the difference between the Total Compensation amount and the employee’s base salary rate. The variable compensation award is then split between an Annual Cash Award and a Long Term Performance Plan Award based on a progressive rate scale. The proportion of variable compensation that is awarded as long-term units increases as Total Compensation increases. Our annual variable compensation process is designed to ensure that it does not create any risks that are reasonably likely to have a material adverse effect on the Company. As part of this process, variable compensation awards are determined on a discretionary basis and no employee has any entitlement to a variable compensation award in any given year(s).
...
The Company’s approach to determining appropriate annual variable compensation funding is intended to better drive the Company’s business strategy, accurately reflect Company performance, and balance the interests of our participants with those of our employees. It ensures that variable compensation continues to remain affordable, while providing payouts clearly aligned with actual performance and consistent with an acceptable risk profile.
https://www.tiaa-cref.org/public/pdf/ab ... policy.pdf

P.S. I like google; it takes me places I would never get to on my own.
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Re: Concerns about financial planner for my parents

Postby 555 » Sun Dec 30, 2012 12:40 pm

sscritic wrote:
Variable compensation is designed to place a significant portion of Total Compensation at risk – that is, linked directly to performance. Each employee’s aggregate variable compensation award is derived from the Total Compensation amount that is determined annually for each employee based on individual, business area and Company performance and with reference to the competitive market. Variable compensation is equal to the difference between the Total Compensation amount and the employee’s base salary rate. The variable compensation award is then split between an Annual Cash Award and a Long Term Performance Plan Award based on a progressive rate scale. The proportion of variable compensation that is awarded as long-term units increases as Total Compensation increases. Our annual variable compensation process is designed to ensure that it does not create any risks that are reasonably likely to have a material adverse effect on the Company. As part of this process, variable compensation awards are determined on a discretionary basis and no employee has any entitlement to a variable compensation award in any given year(s).
...
The Company’s approach to determining appropriate annual variable compensation funding is intended to better drive the Company’s business strategy, accurately reflect Company performance, and balance the interests of our participants with those of our employees. It ensures that variable compensation continues to remain affordable, while providing payouts clearly aligned with actual performance and consistent with an acceptable risk profile.
https://www.tiaa-cref.org/public/pdf/ab ... policy.pdf

P.S. I like google; it takes me places I would never get to on my own.


Yes. But do TIAA-CREF advisors get a commission?

And who is the OP's parents' advisor's employer (if any)?
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Re: Concerns about financial planner for my parents

Postby livesoft » Sun Dec 30, 2012 12:44 pm

Let me translate the corporate-speak that sscritic found:
Blah blah blah blah blah .... blah ... blah. Blah.
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.
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Re: Concerns about financial planner for my parents

Postby umfundi » Sun Dec 30, 2012 12:54 pm

I suggest you get a few statements and examine them carefully. Find out what the Expense Ratios are, look for 12b-1 charges and front or back end loads. Is there a fee based on the amount of the total portfolio? Get the total return information for the ticker at Yahoo finance and compare it with the statements.

If you want a reference point, our tax-advantaged portfolio is managed by a professional. The fee is 0.25%. The expense ratio of the portfolio is 0.18%. Trades are done through Schwab and are $8 each.

I learned my lesson in the 1990s, when I put part of my portfolio in the hands of some full-service jerk. He bought funds that had a back-end load and very high ERs. Every few months a low-performing fund would be merged with another, and the ticker symbol (and its history) just disappeared. It was impossible for me to easily track the portfolio. The value essentially went nowhere while the market was booming. After a few years I fired him, paid the back-end loads plus all sorts of liquidation fees and moved the funds to T. Rowe Price where I managed them myself until I retired.

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Re: Concerns about financial planner for my parents

Postby umfundi » Sun Dec 30, 2012 1:03 pm

livesoft wrote:Let me translate the corporate-speak that sscritic found:
Blah blah blah blah blah .... blah ... blah. Blah.


I read that document and referred indirectly to it upthread. It is not different from the policy you will find at any large company. I did not see any red flags in the TIAA-CREF document.

Of course, these performance-based variable pay schemes are ineffective and counterproductive, but that is a discussion for the W. Edwards Deming forum.

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Re: Concerns about financial planner for my parents

Postby sscritic » Sun Dec 30, 2012 1:04 pm

555 wrote:
sscritic wrote:stuff

And who is the OP's parents' advisor's employer (if any)?

You talkin' to me? You talkin' to me? You talkin' to me?

I have no clue, and I have no clue why you would ask me, but I guess that just makes me clueless.

P.S. I think the OP answered that question twice, and I am sure he would be happy to answer it a third time. Or he might change his answer.
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