be my mother in law's financial advisor...or not?

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cheapindexer
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be my mother in law's financial advisor...or not?

Post by cheapindexer » Tue May 24, 2016 10:49 am

I'm a mid forties, a patented boglehead....... perfectly fine with three fund portfolio and indexing, vanguard principles.

My mother in law is late 60's, not healthy ( diabetic, morbidly obese) and knows next to nothing about investing and , I can say quite confidently, never will.

She came to me 8 years ago, a few years after her husband passed away. She wanted to know which direction to go with her investments.

I talked with my spouse many times about this. We decided to recommend a financial advisor, actually a friend of ours.

He talked the usual ( we ALWAYS beat the index, my fees are cheap, etc. Waddell and Reed). I made it clear 8 years ago I don't believe that he can (beat the indexes), just provide good service and be available to her and keep the fees as low as you possibly can

Over 8 years, you know the story, unimpressive results as I expected. HOWEVER, he helps my mother in law with many questions about withdrawals and other things that she is happy with.

The reason I didn't want to "manage" her years ago with all vanguard funds....is that I KNEW she would never be happy with the results ( ie why didn't we buy all gold? Why did I lose $$ last year?? etc). Essentially, I wanted nothing to do with it to be honest. After all, I'm a physician, not a financial advisor. It's hard enough being a son in law.

Now, I do feel guilt , as she would have saved $$$, My question for you is, should I have her switch to vanguard and go with an advisor with obviously lower fees, and live with the fallout of "giving up" on the first financial advisor we decided on 8 years ago? ( ie " my son in law screwed up") I don't believe vanguard had advisors 7-8 years ago, or if they did I wasn't aware of it.


Facts on my mother in law: lives in paid for house
investment total: roughly 400k ( spread out in roughly 50/50 fashion with very confusing statements from her current place)
she lives off of social security and a monthly pension she receives
( sorry I don't have more specifics with her AA)

DTSC
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Re: be my mother in law's financial advisor...or not?

Post by DTSC » Tue May 24, 2016 10:52 am

Definitely don't do it if your wife has siblings who might think you're trying to "steal" their inheritance. It's a much better scenario if your wife is an only child.

psteinx
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Re: be my mother in law's financial advisor...or not?

Post by psteinx » Tue May 24, 2016 10:58 am

Key point is how much hand-holding your MIL is going to want/need, and if a relationship with a distant advisor (by phone or whatever) would likely work for her.

Most low cost options, including Vanguard, are unlikely to have a local office by you, with a friendly local advisor. The local advisor may also help troubleshoot areas that a discount service might not address as well or at all.

So, it comes down to cost versus services, I guess. Cost involves both direct cost (say, the advisor is charging 1% AUM), and indirect cost (more expensive funds, higher taxes due to turnover). But don't overlook the service provided. And, as the previous poster mentioned, if other siblings are involved, they should perhaps be brought into the discussion.

EDIT - Sorry, I was more addressing the question of whether OP should advise MIL to switch to cheaper advisor, rather than the title question of whether OP should be the informal advisor himself. The latter is, potentially, quite a can of worms...
Last edited by psteinx on Tue May 24, 2016 11:24 am, edited 1 time in total.

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Re: be my mother in law's financial advisor...or not?

Post by alex_686 » Tue May 24, 2016 11:10 am

I would say no, for 2 intersecting reasons.

Good advice is expanse. Bad advice is even more so. The way FAs are compensated are messed up but that is the way the game is played today.

The biggest problem most people have with their investing is emotional and behavioral - not technical.

She is uneducated and unsophisticated when it comes to investing, so needs outside advice. Can she distinguish between a poor AA and a poor market? From your comment " ie why didn't we buy all gold? Why did I lose $$ last year?? etc." I suspect not.

I would recommend not looking at it as a loss ("she would have saved $$$") but as a expense. Did the value of advice warrant the expense? By "value" I am including the time the advisor spend listing to your in-law concerns.

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Re: be my mother in law's financial advisor...or not?

Post by cadreamer2015 » Tue May 24, 2016 11:15 am

I talked with my MIL about investing after she (and my SIL) lost significantly in technology stocks in 2000-01. I knew a financial advisor who had a Boglehead philosophy and was very happy to set my MIL with him. It worked well and I'm glad I didn't take an active role in managing her investments.

In your situation I'd recommend Vanguard's PAS for 30 basis points, unless you think the level of personal support your MIL requires is more than Vanguard's PAS can provide. I would not recommend you managing your MIL's assets.
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Re: be my mother in law's financial advisor...or not?

Post by prudent » Tue May 24, 2016 11:22 am

I would also recommend Vanguard's PAS. I wouldn't do it myself. I wouldn't even do it for my own parents, knowing my siblings would be jealous and wondering what I'm being paid. It just gets too messy.

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Re: be my mother in law's financial advisor...or not?

Post by tractorguy » Tue May 24, 2016 11:23 am

If she's living in a paid for house & is living off SS & a small pension, it sounds like this $400K is an emergency fund for medical expenses or for when she has to move to a retirement home (along with the equity in the house). The question is if the drag on her portfolio from this adviser is going to make a material difference to her life. If so, you'll have to decide if the possible benefit is worth the hassle and risk of taking a more active role or recommend that she move to a lower cost adviser. I've not used Vanguard's adviser service, but it may be a good thing to get her to move to them. You can always frame it as an improvement that wasn't available or that you didn't know about 8 years ago. Doing this now, rather than later is probably better. The longer you let it sit, the more comfortable she'll be with the situation and the harder it will be to change.

I'm in a similar situation with my 91 year old MIL. Her husband passed away 3 years ago and I was unsurprised to find that he left her a similar sized estate that is 80% "invested" in one year CD's making almost no interest. The rest is invested in a 1/2 dozen bond and treasury mutual funds with a little bit in a stock fund and 3 individual stocks. I've got her to agree to get rid of the stocks that were solely in her husband's name as we could identify the cost basis at the time of his death. The rest of the funds and stocks have been owned for decades and determining the cost basis is non-trivial. I've mentioned a couple of times that she could get better interest if she moved some of her CD money to an online bank but she's not interested. She likes going to the town center every few months to turn in a CD book when the CD comes due and buy another 1 year one. In her mind, that was what her husband did so it must be the right thing. I've not pushed it because she's got plenty of money to last her expected life and I don't want to create a change that she's going to worry about.

I've elected to consolidate her investment accounts at Fidelity for two reasons. 1) Her late husband had an account there so they are not new to her. 2) There is a brick and mortar office close to her home that we can visit together if need be. She really, really, wants to do things face to face with a person.

As others have said, there is a concern that siblings may get upset if you take a too active role. I've tried to forestall this by making sure that Mom and my wife's sister both get statements and trade confirmations. I also inform the sister before any trades are made. So far, everyone has been OK with the arrangement. We'll see what happens when she passes on as her two sons have not been involved at all (and have expressed no interest) but that may change when the estate goes to probate.
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Re: be my mother in law's financial advisor...or not?

Post by Fallible » Tue May 24, 2016 12:58 pm

cheapindexer wrote:I'm a mid forties, a patented boglehead....... perfectly fine with three fund portfolio and indexing, vanguard principles.

My mother in law is late 60's, not healthy ( diabetic, morbidly obese) and knows next to nothing about investing and , I can say quite confidently, never will.

She came to me 8 years ago, a few years after her husband passed away. She wanted to know which direction to go with her investments.

I talked with my spouse many times about this. We decided to recommend a financial advisor, actually a friend of ours.

He talked the usual ( we ALWAYS beat the index, my fees are cheap, etc. Waddell and Reed). I made it clear 8 years ago I don't believe that he can (beat the indexes), just provide good service and be available to her and keep the fees as low as you possibly can

Over 8 years, you know the story, unimpressive results as I expected. HOWEVER, he helps my mother in law with many questions about withdrawals and other things that she is happy with.

The reason I didn't want to "manage" her years ago with all vanguard funds....is that I KNEW she would never be happy with the results ( ie why didn't we buy all gold? Why did I lose $$ last year?? etc). Essentially, I wanted nothing to do with it to be honest. After all, I'm a physician, not a financial advisor. It's hard enough being a son in law.

Now, I do feel guilt , as she would have saved $$$, My question for you is, should I have her switch to vanguard and go with an advisor with obviously lower fees, and live with the fallout of "giving up" on the first financial advisor we decided on 8 years ago? ( ie " my son in law screwed up") I don't believe vanguard had advisors 7-8 years ago, or if they did I wasn't aware of it.


Facts on my mother in law: lives in paid for house
investment total: roughly 400k ( spread out in roughly 50/50 fashion with very confusing statements from her current place)
she lives off of social security and a monthly pension she receives
( sorry I don't have more specifics with her AA)
A key question is, given her serious health conditions at this age, whether she will have the money needed increasingly for health care. If this is uncertain, then moving her account now to save money being lost to the advisor becomes more necessary.

The obstacle to moving to a Vanguard advisor appears to be mainly that he or she would not be nearby or perhaps as available to talk with her or help with various matters. But this is obviously not as important as having the money she will need. Does she know she is losing money - and how much - to the current advisor and could save much more by transferring to VG?

If possible, can you get more details on her current expenses and investments? This would help you and your wife know how necessary a move is.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: be my mother in law's financial advisor...or not?

Post by CedarWaxWing » Tue May 24, 2016 1:37 pm

Waddell Reed is not a good place to be... High E/Rs and front loaded funds are their pattern... to my understanding they have always presented their sales folks as "advisors" so to speak.

IF your MIL does not have an active interest in her accounts, I suspect she would never know that you are or are not doing a great job... just as she does not know WR is not doing a great job.

Assuming that you are with VG yourself, your MIL being in VG will may well give her access to a higher level of service there... i.e. Flagship maybe... as a family you may be grouped together for that purpose if you manage your MIL funds.

Flagship does have some advantages, including access to some funds that would otherwise be closed to your MIL.

https://investor.vanguard.com/what-we-o ... t-services

I would say it is clearly in the best interests of your MIL to get out of WR, and there is a good chance she will not question the decision, but it she does, explain it in plain and simple language.

IF she is in 50/50 stocks to bonds..... it is not hard to show her how 50/50 s/b in a two fund VG portfolio would have done better than she did.. but tell her WHY she did not do better: Someone was taking too much money out of her account as fees.

I have an elderly MIL also... but I do not have to take over her affairs, as her two sons, and my wife are very involved and capable to going that.... and although each of them is very capable alone, they are in frequent communication with each other anytime a sig event or change occurs.

My wife pays her bills, and manages her medical issues and day to day bread and butter stuff... because we live close to her.

One son manages her investments , which are now in a family trust (invested with Vanguard) since she has sig memory loss issues at her late age and is not able to manage any of her own affairs. He has POA, and my wife has medical POA.. with contingency plans if one person cannot fulfill that obligation. We all trust each other, and still they do stay in close communication on major issues.

This arrangement works very well, and although in theory not needed... everyone knows what everyone else is doing on her behalf, so it always will pass the "sniff test"... prospectively.

M

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Re: be my mother in law's financial advisor...or not?

Post by Bogle_Feet » Tue May 24, 2016 3:30 pm

She needs to STOP working with the adviser who conveniently claims that he is beating the indexes. Picking and choosing stocks is ANTIQUATED. And is he GIPS compliant ( http://www.gipsstandards.org/Pages/index.aspx )? I doubt he is! Therefore anything he SAYS is worthless! And who does he think he is? A Wall Street fund manager? Even Wall Street fund managers on the whole can't beat the indexes, so why trust some investment adviser guy down the street who spends most of his time dealing with individual clients? Even if you pick a guy who did well last year or over the last 3 or 5 or 10 years, they will return to the mean average moving forward. Cherry picking managers give you NO advantage. So stick to index funds.

Investing is simple. Decide on a bond/stock allocation ratio and calendar rebalance. Why pay 1% per year to ANYBODY to do that? That will cost her 9.56% after 10 years, and maybe more if he's selling he commission-based products.

BTW did he actually say "index", as in singular? "we ALWAYS beat the index". Sounds like he's comparing EVERYTHING to the S&P 500 index. Not apples to apples. You compare to each comparable BENCHMARK! It's easy to beat the S&P when you simply take on more risk during a bull market period. This is what GIPS is for. They cut through the lies and deceptions.
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Re: be my mother in law's financial advisor...or not?

Post by Chris001122 » Tue May 24, 2016 4:24 pm

I would not. Yes, she would do better if she followed your advice. She probably will blame you for anything unpleasant.

If you recommend another advisor, you will be back in the blame seat again. "He recommended a bad guy again!"
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Re: be my mother in law's financial advisor...or not?

Post by Morik » Tue May 24, 2016 4:44 pm

Absolutely not in my book:
- May need lots of hand holding (how much time do you want to spend on this?)
- Even without hand holding, if she doesn't understand how investing works (which it sounds like she doesn't), she will not be able to understand the difference between "the markets are down" and "you invested my money wrong".

My parents recently asked me for advice (well, over a year ago now). They are at UBS, have an advisor charging 1%, and are in expensive funds.
I suggested either a DIY approach at vanguard, or using a vanguard advisor.
My dad knows a little, and decided on a DIY at vanguard, and has been content there. I gave advice on how to come up with an allocation, but didn't tell them "you should be XX/YY". Total time spent on my part: maybe 1 hour of talking & looking at their UBS investments.
(This was after I suggested joining this forum & asking for advice here; my dad isn't very computer savvy and found the idea of a forum too complex/too much hassle.)

If my inlaws asked for advice, I'd suggest (in order):
1) Join bogleheads, read up, ask for advice, read other sites like mr money mustache, white coat investor, etc. I'd recommend a few books too.
2) If they aren't interested in learning to do it themselves, I'd suggest vanguard's personal advisory service.

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Re: be my mother in law's financial advisor...or not?

Post by skjoldur » Tue May 24, 2016 5:03 pm

I think you could take a bit of different approach and try to guide her through a process in which she decides to stay or to move.

It strikes me as a bad idea to act as her actual advisor and directly help her manage her money for the many reasons that other commenters have made.

However, you might be able to present her with a bit of an educational process suggesting the pros/cons of alternative options and gently recommend another option. You can also honestly say that the recommended alternative is how you personally manage your own investments, and that you thought she might want to have the option of investing the same way that you do.

The point is to provide her with options and let her make the choice. You can advocate a bit or put your thumb on the scale by letting her know that the alternative is the way you invest and by highlighting the costs of her current situation (the fees might be eating 25% of her returns or more, does she want to give away 25% of her earnings? etc.). But I think you can do this honestly and in such a way that the final decision is hers and the consequences are also hers.

Then if she decides to move (say to Vanguard PAS, if that is adequate) then you can help her implement the move logistics, etc. and you can always help with the mechanics of withdrawals and other procedural stuff. But you can be hands off regarding the actual investment decisions and account management.

Good luck

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Re: be my mother in law's financial advisor...or not?

Post by bayview » Tue May 24, 2016 6:00 pm

cheapindexer wrote: She came to me 8 years ago, a few years after her husband passed away. She wanted to know which direction to go with her investments...

I talked with my spouse many times about this. We decided to recommend a financial advisor, actually a friend of ours...
Did she come back to you again for further advice? If not, then no.

If your she and your wife start discussing this separately, that might be different. If so, then the Vanguard PAS sounds like a reasonable suggestion.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: be my mother in law's financial advisor...or not?

Post by munemaker » Tue May 24, 2016 7:56 pm

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Re: be my mother in law's financial advisor...or not?

Post by gd » Wed May 25, 2016 6:40 am

I think you've done the right thing. Whether this specific guy was the best pick or not, who knows. But some people just want an authority-- real or perceived-- to get advice from and deal with as a real person they are on name basis with. Within reason, it's just part of the overhead of their life and you have no more business challenging it than any other quirk of their personality. It's her choice to accept you as that authority or not, and sounds like she does not. Vanguard PAS will not provide that one-on-one relationship either, as far as I understand it.

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Re: be my mother in law's financial advisor...or not?

Post by Meg77 » Wed May 25, 2016 12:09 pm

I can't tell from your post whether SHE is unhappy with her advisor and wanting to switch. If not, I'd probably just leave it be. She's already paid the up front sales loads most likely, so unless she's in funds charging well over 1% I wouldn't feel guilty enough to reinsert myself into her financial life and muddy the waters. What are you going to say? "Oops, I just realized the guy I referred you to is terrible and has been overcharging you for the last 8 years. Take my new advice instead!" She may end up confused and angry at you, which isn't worth the relationship risk.

On the other hand, if she's frustrated you could tell her there are advisors who charge less and offer to help find her one. Plenty of financial advisors charge by the hour or charge a flat fee for a comprehensive financial plan without managing your investments directly (or in addition to managing them in a much cheaper than average portfolio of index and other funds).

Or if you think she can be hands off enough, I agree that the Vanguard advisors are all she should really need in this case. She's not living off the portfolio, so it doesn't need to do much other than just sit there until she starts needing to take RMDs or help accessing it sporadically. A Vanguard rep can do that easily.
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Re: be my mother in law's financial advisor...or not?

Post by nedsaid » Wed May 25, 2016 12:18 pm

cheapindexer wrote: The reason I didn't want to "manage" her years ago with all vanguard funds....is that I KNEW she would never be happy with the results ( ie why didn't we buy all gold? Why did I lose $$ last year?? etc). Essentially, I wanted nothing to do with it to be honest. After all, I'm a physician, not a financial advisor. It's hard enough being a son in law.

Now, I do feel guilt , as she would have saved $$$, My question for you is, should I have her switch to vanguard and go with an advisor with obviously lower fees, and live with the fallout of "giving up" on the first financial advisor we decided on 8 years ago? ( ie " my son in law screwed up") I don't believe vanguard had advisors 7-8 years ago, or if they did I wasn't aware of it.

For heaven's sake, what are you feeling guilty about? You made the right decision to not manage your mother-in-law's investments. I guarantee you that she would not have been happy no matter what you did. I think really you need as little involvement in your mother-in-law's investments as possible. As long as she is mentally competent and she is in no danger of running out of money, I would just let it go.

You might float the idea of a Vanguard advisor to her and the idea of saving on fees but that would be about it.

Sometimes to keep peace in the family, you have to do less than optimal things. You did the best you could at the time with what you knew at the time. Why are you feeling guilty? If she is open to going to Vanguard, problem solved. If she wants to stick with the current arrangement, it is less than optimal, but you are heading off problems that stem from being too involved in other people's finances.
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Re: be my mother in law's financial advisor...or not?

Post by celia » Wed May 25, 2016 1:03 pm

It's not clear if she came to you again recently looking for advice or not. If she didn't, just let it be. If she has questions like "Why wasn't I in gold?", those questions should be going to the advisor. Let her know you'd be interested in the answer too (so you can see if she understands the answer).

If she has come to you recently, you should level with her and say you don't have time to manage it like her advisor. But you could set her up in a passive index portfolio using 2 or 3 mutual funds. Tell her a fund is a collection of about 100 stocks/bonds and it is managed by the mutual fund company. The investors don't need to do anything, accept report dividends and gains on their taxes and can optionally spend them. If she needs more income, you could set it up that she has some going to her checking each month. But you would have to be clear that you don't have time to manage it. It will be on autopilot and the value will go up and down as the stock and bond markets go up and down.

Advantages: She will save on fees, the statements will be easier to understand, and the funds will be run by "professional" investment firms.

Disadvantages: Wife's siblings may question why you are doing this (but you could face it head on by telling them what you are planning to do beforehand), it will take time to set up and re-balance once or twice a year, you could be blamed when the markets go down, and she will be contacting you more (although this can be part of the conversations where she would have called you anyway to talk about other things.

Whatever you do, discuss it with your wife, first.
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Re: be my mother in law's financial advisor...or not?

Post by cheapindexer » Wed May 25, 2016 1:27 pm

THANKS for all of the posts. I really appreciate them, especially the one about "guilt" , that I shouldn't feel guilty. This was my first post, and the insightful responses have enlightened me. :happy :happy

My mother in law did NOT re-approach me. She likes the prompt reply her current advisor gives her ( answering emails, calls, etc)

Sorry I don't have a recent statement with her current allocations. I'm sure they were front loaded fees....

I have talked to my spouse about this. I'm more upset, because as per my login (cheapindexer) perhaps I am cheap...or just hate the thought of people that I care about losing $$$.

Many of us on this forum have done extensive reading on indexing, asset allocation, etc. It certainly fascinates me. I am truly amazed how many people never even attempt to understand investment basics, especially with how much easier it is now with everyone having a computer.

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Re: be my mother in law's financial advisor...or not?

Post by obgyn65 » Wed May 25, 2016 8:56 pm

Absolutely not. This is the best way to get in trouble with your mother in law.
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Re: be my mother in law's financial advisor...or not?

Post by fortyofforty » Wed May 25, 2016 9:10 pm

No matter how much "extra" should would have made by following your advice, it would never compensate for losing even a dollar in a bear market while you were "in charge". Good choice to steer clear.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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