I see the following red flags:ndara2017 wrote:What makes you think that this is without a doubt, scumbaggery?randomizer wrote:I get saddened reading such scumbaggery.
I don't know nearly as much as most of you do, but everyone is saying get out. What are the red flags that you see and everyone else is seeing?
THe read red flag that I saw was the fees attached to the American FUnds investment and the 5 year contract, which made me think he wants to make sure he can make 1.25% of 200k over 5 years. Is there other red flags?
Could there be a chance that this guy did have good intentions, but isn't a good investor? Or are these 3 investments to obvious to give him the benefit of the doubt?
1) The advisor is charging 1.25% of assets, but is also collecting commissions without telling his customers. This means that his advice could be biased in favor of assets that make him the most money, not assets that are best for his clients.
2) The first asset listed is $150K in American Funds Growth Portfolio Class C. This is a high expense fund for which he collects a commission. Paying high expenses and commissions is not in his clients best interest. GWPCS has a net expense ratio of 1.56%. It has a contingent deferred sales charge of 1% if she sells it within the first year. For this mutual fund recommendation alone, he makes $4,383.60 if she holds it for a year (his asset charge plus the commission). If she sells it early, he still makes 1% or $1,500 because it was already purchased. How good is this mutual fund? It is 54% US stocks, 35.9% International stocks, 0.1% US bonds, and 9.8% cash or cash equivalents. In other words, it's a 90/10 stock/bond mix. In 2016, it had a total return of 6.63%.
3) The second asset listed is AXA structured capital strategies on a 5 year contract. It turns out that this IS a variable annuity. The 5 year contract isn't to lock up the funds for 5 years. It's how long she has to pay off his commissions -- there's a surrender charge for 5 years after purchase. I can't tell how much the advisor gets paid for this, but it's in addition to the $2,500 he's already getting for managing this $200,000.
4) The third asset listed is Griffin Real Estate Fund. This is a fund that invests in private (non-traded) real estate funds and public real estate securities (REITs). It is not publicly traded -- This is a closed-end interval fund that provides liquidity to shareholders through a quarterly repurchase offer. Once locked in, it may be difficult to get out, and there's an additional 2% redemption fee if she does. No worries -- the advisor gets his 5.75% commission up-front. If you stay in, the published expense ratio is 1.5% (the actual expense ratio that they charged was 1.91%, according to SEC filings. I'm not sure how they can do that.) This advisor will collect $3,500 for this advice including the management fee.
The following note is in their prospectus:
Why would you suggest a real estate fund like this that is difficult to sell and costs a lot to hold to a widow? Because of the stellar returns? Nope, this fund is brand new and has no track record. Could it be for income? Maybe, it has a 5.24% dividend yield. But with only $50,000 invested, that's only about $2,620 a year. Could it be the commission? He's putting in only $50,000 and getting almost the same in commissions as that American Funds mutual fund (and he's adding three times as much there!) I don't see any way to justify this real estate fund choice, except to collect the sales commission.There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. Quarterly repurchases by the Fund of its shares typically will be funded from available cash or sales of portfolio securities. The sale of securities to fund repurchases could reduce the market price of those securities, which in turn would reduce the Fund’s net asset value. Currently, no secondary market exists for the Fund’s shares, and the Fund expects that no secondary market will develop.
The deeper I look into this, the angrier I get, and I don't even know you (the OP). The advisor collects $10,383 in the first year plus the lucrative unknown commissions from the variable annuity (that takes 5 years to pay off). I have no doubt he was extremely friendly to your father. He may also get upset if you take that much of "his" money away from him. This isn't someone who is a "poor investor." He's just picking the investments that benefit him, not you or your Mom.
Don't worry about his feelings. Take care of your Mom first.
Griffin fees: https://financialengines.com/mutual-fun ... girex/fees
Griffin prospectus: https://www.griffincapital.com/griffin- ... literature
AXA Structured Capital Strategies: https://us.axa.com/axa-products/retirem ... index.html
American Funds: https://americanfundsretirement.retire. ... cker=GWPCX