Mother-in-laws portfolio. Need advice.

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Topic Author
Klundy
Posts: 2
Joined: Sat Mar 14, 2015 1:21 pm

Mother-in-laws portfolio. Need advice.

Post by Klundy »

My mother-in-law currently has all of her assets with an investment manager, $275,000

She is 86 and in good health
No debt
Rent is covered by social security
She has adequate cash reserves to weather six months
Husband passed away in 2001
She is looking for some growth but mainly avoiding paying for an active manager and keep her money secure working for her.
The irony of the above comment is her asking me why the bond funds are not paying as much as some of her other funds. I explain that she needs to have some money in safety. The returning stock market of the past two years has been good to her and she expects same return from everything.
His fee is .8%
She is pulling out $500/month for extra spending money.

Currently holds the following.
Growth Fund of America-A
Washington Mutual Investors Fund-A
Templeton Global Bond Fund Class-C
Mutual Global Discovery Fund Class-C
Franklin Income Fund Class-C
Brokerage Money Market .03% of assets
AMG Yacktman Focused Fund Service Class
First Eagle Global Fund Class-A
Hennessey Equity and Income Investor Class
James BAL Gold Rain

She had a 6.4% return for 2014.
Return for 3/1/14 to 2/28/15 is 7.82%

We are meeting with the advisor 4/17 and would like to have an alternative plan for her to review if she decides to pull her money from him.
Thanks for any input, greatly appreciated.
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in_reality
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Re: Mother-in-laws portfolio. Need advice.

Post by in_reality »

Specific plan aside, my concerns would be:

1) Emotional attachment to the advisor. Your mother-in-law may find a value in just the human interaction an advisor provides. I got the "he's been the advisor for XX years" routine and "old family friend" etc etc when I brought it up. Grandma had lost enough friends by 90 and losing one more was too many (so never made the switch).

2) Market returns fluctuate. Even if you make the right move from a cost perspective, if there are lower returns in the future, the mother-in-law may attribute that to the fund selection and not using the advisor when in fact the advisor's funds would have suffered too. You keep tracking the old portfolio secretly just in case the issue arises.

If the complaint is about bonds returning less, then point out the impact of fees in that context (which I am sure you are going to be doing anyway).

Good luck. .8% on low returning bonds is simply too much to pay.
Topic Author
Klundy
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Joined: Sat Mar 14, 2015 1:21 pm

Re: Mother-in-laws portfolio. Need advice.

Post by Klundy »

Thanks for the reply, greatly appreciated. The advisor is mine and my wife's for the past 20 years. We suggested she use him after selling her homes in Arizona and Minneapolis. As far as social engagement, her calendar is full. Never misses a chance to have lunch or go to friends for other events.

Previously my father-in-law invested only in company stock and CD's.

Stock has been sold and invested in the funds. CD's remain in the bank and are being cashed in at maturity. She either reinvests the proceeds or puts in her checking. She has donated quite a bit of money to all the grand children over the past five years.

Good point to track the old portfolio if she makes the change.
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BL
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Re: Mother-in-laws portfolio. Need advice.

Post by BL »

Suggest you look up the ER and other fees of each fund at Morningstar. I see some class C funds which are deferred loads (might have to pay to get out of) which usually have high 12B-1 kickbacks to the broker. Also CDs at a bank might be a better choice than paying high Expense Ratios and management fees on low-return non-guaranteed bonds.

Vanguard now has management available for 0.3% AUM, and they wouldn't sell expensive funds to her. She would need to be comfortable with telephone and/or on-line information but could set up automatic withdrawals, etc.

If this is your own broker, perhaps you need to look at your own costs as well as you have a longer time-frame to consider.
Dandy
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Re: Mother-in-laws portfolio. Need advice.

Post by Dandy »

Will you be her new advisor? I'm guessing her advisor recommended funds and answered any questions. If so, she will want someone not only she trusts but someone who knows something about investing, asset allocation etc. Are you the man? That would be relatively easy for some and not so good for others. If it is not you then who?? If it is you and you don't feel especially up for the task then by all means keep it simple and easy for MIL to understand. A balanced fund or some type, CDs etc.
Postmon
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Re: Mother-in-laws portfolio. Need advice.

Post by Postmon »

Are these funds in taxable or tax-deferred accounts? How much in each? What is the cost basis for each of the funds in taxable?
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retiredjg
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Re: Mother-in-laws portfolio. Need advice.

Post by retiredjg »

Klundy wrote:We are meeting with the advisor 4/17 and would like to have an alternative plan for her to review if she decides to pull her money from him.
Thanks for any input, greatly appreciated.
This is not the kind of portfolio anyone here would suggest. These funds, or at least some of them, have "loads" either on the front end or at withdrawal. They also have higher expense ratios (annual fees) than the funds we usually suggest, in addition to paying almost 1% to the "advisor".

All that said, selling all these things and buying something different could be expensive. The fix might not be worth it. Besides, it is not clear that she is even interested in moving her money and if she is, where she would like to move it. And it is not clear that she is even asking for input.

if she is thinking of moving to Vanguard, the portfolio will be better, but we can't say if the cost of the fix is worth getting something better. We don't know enough to have an opinion on that. If she is thinking of moving to another place similar to where she is, it's probably better to just leave it.
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BL
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Re: Mother-in-laws portfolio. Need advice.

Post by BL »

I suggest you and she get on the phone to Vanguard and see if she can transfer everything "in kind" to Vanguard. She could get advice on selling funds there and perhaps just getting a suitable Life Strategy Income or Target Retirement Income fund. If she decides to move, she may not need to speak to the current "adviser" at all as V may handle it all.This would mean no adviser fees and low-cost simple balanced single fund made up of recommended index funds. She could have $500 automatic monthly distributions set up.
sawhorse
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Re: Mother-in-laws portfolio. Need advice.

Post by sawhorse »

Does she have her estate planning and wills sorted out? Unfortunately, at that age things can go downhill quickly. That should be her top priority if she hasn't already done that.
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nedsaid
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Re: Mother-in-laws portfolio. Need advice.

Post by nedsaid »

Your mom isn't doing badly but we need more information.

What is your mom's asset allocation? What percentage in US Stocks? What percentage in International Stocks? What percentage in US Bonds? What percentage in International Bonds?

You can run the portfolio through the Morningstar X-Ray for free. I like the style box that divides stocks by Large/Mid/Small and by Value/Blend/Growth. Tell us what the stylebox says. It will also analyze the bonds which are divided in categories by credit quality and average maturity. You could post that stylebox as well.

The advisor charges a 0.8% management fee. Does this mean that the loads are waived? It should.
If there are no load charges involved, insist on getting the Templeton Global Bond, Mutual Global Discovery, and Franklin Income fund switched from Class C to Class A. No reason to be paying the additional annual fees for the class C funds. If he is charging you 0.8% a year, you should be in the share class that has the lowest expense ratios available to the advisor. Again, you should not be paying loads. It is one or the other, pay the loads or pay the 0.8% management fee to the advisor.

Your mom is 86 and I would be inclined not to change course. I am concerned that the advisor has your mom invested too aggressively. We don't know the percentages of the portfolio invested in each fund so I can't tell. Your mom also shouldn't be in those Class C funds, in effect she is paying your advisor twice for those funds. Again, get them switched to the Class A if there are no load charges.

Her returns have been pretty good but that is hard to evaluate without knowing the asset class mix. Please X-Ray the portfolio at Morningstar and report back.

If she were twenty years younger, I would probably get her switched to a lower cost provider like Vanguard who would provide her with the same advisory services for 0.3% and not 0.8%. I would also get her into some cheaper funds. But the selection of funds is not bad! She could have done much worse. There gets to be a point when people get old enough that you just let things ride. I don't think the advisor is outright fleecing her and the performance is acceptable. How much risk is she taking to get those results? My suspicion is that her portfolio is probably too stock heavy for someone her age. But I don't know for sure.
A fool and his money are good for business.
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