[Advice needed for mother's inheritance/finances.]

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wolf359
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Re: Too much inheritance to handle. Advice needed

Post by wolf359 » Tue Apr 18, 2017 11:38 am

ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
I see the following red flags:

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:
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.
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.

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.

Sources:
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
Last edited by wolf359 on Tue Apr 18, 2017 1:37 pm, edited 1 time in total.

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celia
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Location: SoCal

Re: Too much inheritance to handle. Advice needed

Post by celia » Tue Apr 18, 2017 12:19 pm

ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
Ndara, Oh, you ask such good questions! I wish all newcomers were as alert as you are.

First, I hope that you didn't go to the advisor with the attitude of "Too much inheritance to handle". That sounds like someone who is an easy mark and can be taken advantage of. Luckily, your posts sound the opposite.

Besides the high fees, it sounds like this advisor is/was starting to make investments for you without reviewing each purchase with you first. Maybe you and your mom signed a blanket statement allowing this, but it was not necessary. And it is better to come up with an overall plan before investing chunks of the assets here and there.

Let me ask you some questions to think about. You don't have to answer here. During your initial interview, did the advisor try to get an overall view of your existing assets and goals? Did he ask about your tax brackets? if you had life insurance? if either of you had dependents or heirs in mind? your living expenses? your other sources of income (wages, Social Security, annuities)?

Although these questions would feel like he's looking for more ways to make money off you (and possibly he wants to) and they sound invasive, they also indicate he needs to know your overall picture. For example, if your mom has a holding of XXX stock somewhere else, it makes no sense to buy more XXX stock for her. If you have no life insurance but you have minor children, it sounds risky should you die early and you should get life insurance, although not through him.

If he DIDN'T ask questions like this, that is a red flag to me. It is/was your choice to answer the questions or not, but not asking them is a sign of unprofessionalism. However, some of the questions may have jogged something in your head that you had been considering and should go research elsewhere (such as life insurance or finding out what your tax bracket is--which you can figure out from your last tax return).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

goodoboy
Posts: 406
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Re: Too much inheritance to handle. Advice needed

Post by goodoboy » Tue Apr 18, 2017 12:34 pm

ndara2017 wrote:Hello everyone,

My father passed away a few month ago and my mom and I were left over 1m+ in assets.

Right now we have three accounts with a financial advisor who is a close friend of my fathers. He has set up 3 accounts for my mom:

Inherited IRA: 400k
Brokerage account: 400k
Mom's IRA: 200k

Both my mom and I had 0 knowledge on finance and investing after my father passed away. My father had an IRA account with this financial advisor and was in the process of moving his 401k to him so we believed this guy would use our money with his best intentions. Now, that doesn't mean his intentions are the best decisions. That's why I am here. I have been doing my research and trying to soak in as much knowledge as I can and I am starting to doubt the investments that our financial advisor has made with our brokerage account.

He has already invested 150k in American funds growth portfolio class C -
He plans to invest 200k in AXA structured capital strategies on a 5 year contract
He plans to invest 50k in Griffin real estate fund




What does everyone think about his choice of investments? I feel horrible going behind his back for second opinions, but recently as I am learning more, I am starting to question if our financial advisor is doing this with our best interest in mind. If this helps, he charges a 1.25 % advisor fee.

I would appreciate any advice or recommendations on what to do from here.
Hello,

Sorry for the lost.

I am not expert on investing.

But I can say this. Keep it simple til you are ready. You can put all the money in cash and sit on it. Or simply put money in an Annuity like my mom and get 2-3% return per year.

You do not have to invest.

Thanks

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DaftInvestor
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Re: Too much inheritance to handle. Advice needed

Post by DaftInvestor » Tue Apr 18, 2017 12:39 pm

ndara2017,
Sorry for your loss. Hopefully now that you have read all the responses you no longer feel "horrible" for going behind this guy's back. He thought he had someone who wasn't going to be smart enough to do a little research and question his choices so he chose the funds that would benefit him the most (by paying him high commissions in addition to the 1.25% he wants to charge you). Based upon the investments he chose for you his interests are only his own. The fund he put you in has been underperforming the market so why did he choose it for you? The answer is simple - it maximizes how much he gets paid. Run away. If you want some professional guidance Vanguard has an advisory service which I think only charges 0.3%. Or, as others have suggested, you can learn to manage this inheritance yourself.
(PS: it breaks my heart when you described him as a "close friend of your father's" and yet we learn he takes advantage of a "close friend's" wife. People's lack of fiduciary responsibility even when working with people who thought of them of friend's really sickens me).

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Too much inheritance to handle. Advice needed

Post by aristotelian » Tue Apr 18, 2017 12:45 pm

It is possible that he sincerely has the best of intentions. That does not mean you should trust his recommendations or absolve you of doing your own due diligence on the investments he recommends. I think many of these guys think they are helping and honestly believe that they and the instruments they recommend are worth the cost. They honestly think they can beat the market and help their clients. Most of the research indicates that you are better off in index funds if you can take the time to learn to manage your own money.

The red flag I see are that he has you in expensive instruments and has obviously not taken the time to fully educate his client, yet he is willing to go ahead and make these investments on your behalf.

Also, in my opinion, he should start with a simple option, say an S&P 500 fund and a bond index fund. Then build up from there and explain clearly the costs as well as the benefits of the options he is suggesting. It sounds like he started with the most complex option that also happens to make him the most money.

la~fa
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Location: Flyover state

Re: Too much inheritance to handle. Advice needed

Post by la~fa » Tue Apr 18, 2017 12:58 pm

ndara2017:

Condolences on the passing of your father.

The best advice I can give someone in your situation to park the money in something safe like CDs and /or high yield accounts while you and your mother educate yourselves and handle all the paperwork that is to follow after a death. No big decisions for at least the first year after a death! This forum is an excellent source of information as well as the books that are recommended on here.

If you do not need the money to live on, take all the time you need to feel comfortable. I agree with many on the forum that 1.25% is WAY too much to pay someone else to take care of your money...NO ONE - I REPEAT - NO ONE cares more about your money than you do!

It doesn't matter how nice your father's advisor is or that he emails, calls you every day to see how you're doing, or sends flowers .....there is a reason he is so interested in you and it's unfortunately not because he wants to be your new best friend!! :x After my husband passed, our insurance agent became quite the nuisance with her constant calls. Of course she was trying to convince me to buy annuities that she was selling! :twisted:

Deep breath....educate yourself....don't allow others to pressure you.....
"The best way to teach your kids about taxes is to eat 30% of their ice cream." Bill Murray

ndara2017
Posts: 31
Joined: Mon Apr 17, 2017 6:06 pm

Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Tue Apr 18, 2017 1:22 pm

celia wrote:
ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
Ndara, Oh, you ask such good questions! I wish all newcomers were as alert as you are.

First, I hope that you didn't go to the advisor with the attitude of "Too much inheritance to handle". That sounds like someone who is an easy mark and can be taken advantage of. Luckily, your posts sound the opposite.

Besides the high fees, it sounds like this advisor is/was starting to make investments for you without reviewing each purchase with you first. Maybe you and your mom signed a blanket statement allowing this, but it was not necessary. And it is better to come up with an overall plan before investing chunks of the assets here and there.

Let me ask you some questions to think about. You don't have to answer here. During your initial interview, did the advisor try to get an overall view of your existing assets and goals? Did he ask about your tax brackets? if you had life insurance? if either of you had dependents or heirs in mind? your living expenses? your other sources of income (wages, Social Security, annuities)?

Although these questions would feel like he's looking for more ways to make money off you (and possibly he wants to) and they sound invasive, they also indicate he needs to know your overall picture. For example, if your mom has a holding of XXX stock somewhere else, it makes no sense to buy more XXX stock for her. If you have no life insurance but you have minor children, it sounds risky should you die early and you should get life insurance, although not through him.

If he DIDN'T ask questions like this, that is a red flag to me. It is/was your choice to answer the questions or not, but not asking them is a sign of unprofessionalism. However, some of the questions may have jogged something in your head that you had been considering and should go research elsewhere (such as life insurance or finding out what your tax bracket is--which you can figure out from your last tax return).

He did ask all the questions you mentioned. After a couple of meetings, when I think he became too comfortable with us, he began asking my mom if she was interested in purchasing life insurance and that she should recommend his name to owner of her workplace for some things I can't remember. So yes, I know he is trying to find anyway to make money off of us. He has already contacted us this morning saying that we should meet up and go over things again. I told my mom to say that you are busy with work and wrote up a message to email him in response that basically said that to halt all future investments in a polite way. This guy still has our money and we want to make future transactions go as smoothly as possible without banging heads. We will meet with him sometime this week though.

ndara2017
Posts: 31
Joined: Mon Apr 17, 2017 6:06 pm

Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Tue Apr 18, 2017 1:24 pm

goodoboy wrote:
ndara2017 wrote:Hello everyone,

My father passed away a few month ago and my mom and I were left over 1m+ in assets.

Right now we have three accounts with a financial advisor who is a close friend of my fathers. He has set up 3 accounts for my mom:

Inherited IRA: 400k
Brokerage account: 400k
Mom's IRA: 200k

Both my mom and I had 0 knowledge on finance and investing after my father passed away. My father had an IRA account with this financial advisor and was in the process of moving his 401k to him so we believed this guy would use our money with his best intentions. Now, that doesn't mean his intentions are the best decisions. That's why I am here. I have been doing my research and trying to soak in as much knowledge as I can and I am starting to doubt the investments that our financial advisor has made with our brokerage account.

He has already invested 150k in American funds growth portfolio class C -
He plans to invest 200k in AXA structured capital strategies on a 5 year contract
He plans to invest 50k in Griffin real estate fund




What does everyone think about his choice of investments? I feel horrible going behind his back for second opinions, but recently as I am learning more, I am starting to question if our financial advisor is doing this with our best interest in mind. If this helps, he charges a 1.25 % advisor fee.

I would appreciate any advice or recommendations on what to do from here.
Hello,

Sorry for the lost.

I am not expert on investing.

But I can say this. Keep it simple til you are ready. You can put all the money in cash and sit on it. Or simply put money in an Annuity like my mom and get 2-3% return per year.

You do not have to invest.

Thanks

Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?

ndara2017
Posts: 31
Joined: Mon Apr 17, 2017 6:06 pm

Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Tue Apr 18, 2017 1:32 pm

wolf359 wrote:
ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
I see the following red flags:

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:
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 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.

Don't worry about his feelings. Take care of your Mom first.

Sources:
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


Thank you for such a thorough reply. I didn't even know he was making commission off the other investments...

I have a question. Is there a limit to how many times you can transfer inherited IRA and personal IRA in a year? The reason I ask is because I was planning on leaving those with him since my mom said she wanted that, but as I learn more about this guy's intentions, I want nothing that we own in his possession.

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celia
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Location: SoCal

Re: Too much inheritance to handle. Advice needed

Post by celia » Tue Apr 18, 2017 1:49 pm

ndara2017 wrote:
goodoboy wrote: But I can say this. Keep it simple til you are ready. You can put all the money in cash and sit on it. Or simply put money in an Annuity like my mom and get 2-3% return per year.
Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?
Forget about annuities for now. There are various types and not only are some of them are more expensive than what you are already being put into, put you get "locked" into them unless you pay huge surrender charges (say 7%). In reality, most salesmen don't understand exactly how they work (just ask them probing details and the answers become very generalized), but they have been trained to sell them.
Last edited by celia on Tue Apr 18, 2017 1:51 pm, edited 1 time in total.

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Too much inheritance to handle. Advice needed

Post by aristotelian » Tue Apr 18, 2017 1:50 pm

ndara2017 wrote:


Thank you for such a thorough reply. I didn't even know he was making commission off the other investments...

I have a question. Is there a limit to how many times you can transfer inherited IRA and personal IRA in a year? The reason I ask is because I was planning on leaving those with him since my mom said she wanted that, but as I learn more about this guy's intentions, I want nothing that we own in his possession.
It will depend on the fine print. There may be "surrender fees" for the annuity. There are also account transfer fees, but those are usually $50 or so. If you transfer your funds to Schwab or Fidelity, they usually offer good transfer bonuses that will more than compensate. Unfortunately, Vanguard does not.

NotWhoYouThink
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Re: Too much inheritance to handle. Advice needed

Post by NotWhoYouThink » Tue Apr 18, 2017 1:54 pm

OP, you refer to this as "our money" - was some left to you and some to your mother, or was it all left to her and you are helping her?

Also, keep in mind, you came to this "financial advisor" and asked for his help. He made the recommendations he is trained and incentivized to make. No need to demonize him, just understand that you made a mistake in asking for his help, and that what he sells is not what you need.

aristotelian
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Re: Too much inheritance to handle. Advice needed

Post by aristotelian » Tue Apr 18, 2017 1:59 pm

ndara2017 wrote:
Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?
EE bonds are guaranteed to double (3.5%) in 20 years.

10 year CD's are currently returning 2.8%.

Vanguard Total Bond Fund is not guaranteed, but has an annual total average total return of 6% with a worst year of -2.66% and an expense ratio of 0.06% (Admiral class).

wolf359
Posts: 1007
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Re: Too much inheritance to handle. Advice needed

Post by wolf359 » Tue Apr 18, 2017 1:59 pm

aristotelian wrote:
ndara2017 wrote:


Thank you for such a thorough reply. I didn't even know he was making commission off the other investments...

I have a question. Is there a limit to how many times you can transfer inherited IRA and personal IRA in a year? The reason I ask is because I was planning on leaving those with him since my mom said she wanted that, but as I learn more about this guy's intentions, I want nothing that we own in his possession.
It will depend on the fine print. There may be "surrender fees" for the annuity. There are also account transfer fees, but those are usually $50 or so. If you transfer your funds to Schwab or Fidelity, they usually offer good transfer bonuses that will more than compensate. Unfortunately, Vanguard does not.
Hopefully she avoided the annuity. The mutual fund money was already invested; the annuity and the real estate fund were proposed. If the annuity was purchased, she might have about 10 days to cancel without surrender charges. https://www.sec.gov/fast-answers/answer ... okhtm.html

Make sure that you do a trustee-to-trustee transfer, such that you don't touch the money directly. If you do it that way, there are no limits to the IRA transfers per year.

If he cuts you a check and then you deposit it at the new company, that's called a IRA Roll-over, and you're only allowed one of those a year. (Not per account. One every 365 days, period.) See the IRS rules here. https://www.irs.gov/retirement-plans/ir ... -year-rule

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Tue Apr 18, 2017 2:11 pm

NotWhoYouThink wrote:OP, you refer to this as "our money" - was some left to you and some to your mother, or was it all left to her and you are helping her?

Also, keep in mind, you came to this "financial advisor" and asked for his help. He made the recommendations he is trained and incentivized to make. No need to demonize him, just understand that you made a mistake in asking for his help, and that what he sells is not what you need.

All of this is in my mom's name. I'm just helping her out with everything.

And to fix one thing, he came to us. My dad was in the process of moving his 401k to him when everything happened. After my father had passed, he emailed us a portfolio of everything he knew about us(IRAs, 401ks, life insurance, brokerage accounts, cars, property, etc.) through my father and asked us to let him manage everything. At the time, there were 0 negative thoughts about his intentions and I 100% trusted him to have our best intentions in mind. As a matter of fact, I was very thankful for him stepping up to help us because we both were extremely overwhelmed on what to do. We never asked him for his help. If you look at my original post, I was suspicious about his intentions and came here to see if I was right or wrong. I never demonized him. Now that I know that he put the incentives before his friendship of over 20 years with my father and took advantage of us, I can't but help to think that he demonized himself through his own actions. I just had help exposing him.

However, I do understand that I made a mistake, and I'm glad there are so many people on this forum willing to help me out.

Dottie57
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Re: Too much inheritance to handle. Advice needed

Post by Dottie57 » Tue Apr 18, 2017 3:49 pm

ndara2017 wrote:
NotWhoYouThink wrote:OP, you refer to this as "our money" - was some left to you and some to your mother, or was it all left to her and you are helping her?

Also, keep in mind, you came to this "financial advisor" and asked for his help. He made the recommendations he is trained and incentivized to make. No need to demonize him, just understand that you made a mistake in asking for his help, and that what he sells is not what you need.

All of this is in my mom's name. I'm just helping her out with everything.

And to fix one thing, he came to us. My dad was in the process of moving his 401k to him when everything happened. After my father had passed, he emailed us a portfolio of everything he knew about us(IRAs, 401ks, life insurance, brokerage accounts, cars, property, etc.) through my father and asked us to let him manage everything. At the time, there were 0 negative thoughts about his intentions and I 100% trusted him to have our best intentions in mind. As a matter of fact, I was very thankful for him stepping up to help us because we both were extremely overwhelmed on what to do. We never asked him for his help. If you look at my original post, I was suspicious about his intentions and came here to see if I was right or wrong. I never demonized him. Now that I know that he put the incentives before his friendship of over 20 years with my father and took advantage of us, I can't but help to think that he demonized himself through his own actions. I just had help exposing him.

However, I do understand that I made a mistake, and I'm glad there are so many people on this forum willing to help me out.

One note. i suspect you may be making another mistake. It is your mom's money and she should not be told what to do, but should try to learn with you. What will happen to her if something happens to you. Don't take control, but try to have a partner in your mom.

goodoboy
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Re: Too much inheritance to handle. Advice needed

Post by goodoboy » Wed Apr 19, 2017 8:36 am

aristotelian wrote:
ndara2017 wrote:
Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?
EE bonds are guaranteed to double (3.5%) in 20 years.

10 year CD's are currently returning 2.8%.

Vanguard Total Bond Fund is not guaranteed, but has an annual total average total return of 6% with a worst year of -2.66% and an expense ratio of 0.06% (Admiral class).

Thanks for pointing this out.

https://personal.vanguard.com/us/FundsS ... =INT#tab=1 I hope the OP see this. 6% average annual return since 1986.

MotoTrojan
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Re: Too much inheritance to handle. Advice needed

Post by MotoTrojan » Wed Apr 19, 2017 10:17 am

goodoboy wrote:
aristotelian wrote:
ndara2017 wrote:
Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?
EE bonds are guaranteed to double (3.5%) in 20 years.

10 year CD's are currently returning 2.8%.

Vanguard Total Bond Fund is not guaranteed, but has an annual total average total return of 6% with a worst year of -2.66% and an expense ratio of 0.06% (Admiral class).

Thanks for pointing this out.

https://personal.vanguard.com/us/FundsS ... =INT#tab=1 I hope the OP see this. 6% average annual return since 1986.
And that 6% scales with inflation. I believe the annuity is a fixed 2-3% from the current value, so it'll lose real value over time.

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BL
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Re: Too much inheritance to handle. Advice needed

Post by BL » Wed Apr 19, 2017 2:50 pm

MotoTrojan wrote:
goodoboy wrote:
aristotelian wrote:
ndara2017 wrote:
Thanks for the suggestion. I don't mean to be invasive, but are these annuities you mentioned guaranteed to return 2-3 % a year?
EE bonds are guaranteed to double (3.5%) in 20 years.

10 year CD's are currently returning 2.8%.

Vanguard Total Bond Fund is not guaranteed, but has an annual total average total return of 6% with a worst year of -2.66% and an expense ratio of 0.06% (Admiral class).

Thanks for pointing this out.

https://personal.vanguard.com/us/FundsS ... =INT#tab=1 I hope the OP see this. 6% average annual return since 1986.
And that 6% scales with inflation. I believe the annuity is a fixed 2-3% from the current value, so it'll lose real value over time.
Just for one anecdote, I put 13k into Total bond (now Admiral) in 3-4k chunks randomly over the last 1.5 years. For a long time until about the last couple weeks, it's value was lower than the amount invested, and it is still lower than that plus the dividends re-invested. I expect it will come back, but it is a little disconcerting to have bonds stay down, even a few hundred $, for this long, when the numbers make you expect otherwise. I haven't and don't care to analyze this, but just wanted to say that it can sometimes lose a % or 2 along the way.

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Re: Too much inheritance to handle. Advice needed

Post by onthecusp » Wed Apr 19, 2017 3:31 pm

Just to emphasize on the annuity question.

Certain simple annuities can be a good idea for people in certain circumstances. Keep reading and learning here and you will probably understand that in 6 months or a year. You seem to be learning fast. They are not a good place to park money in the short term while you figure out what to do. Many of them are complicated and carry the same kind of high fees and difficult surrender rules, or in some cases your money is committed for life. It is a whole nother discussion thread and not where you are at the moment.

In my opinion you are here:

1. Decide when to move the money to low fee better financial instruments.
My advice is not until you are ready but don't take more than a month or two to get started. You could do it one account at a time if it helps to break it down that way. Figure out the tax implications and fund withdrawal penalties and that might affect your timing on a PART of this. I doubt you should keep anything with this guy long term just to avoid some withdrawal fee. That will be dwarfed in the long run by better returns and lower costs.

2. Decide what to put the money in. Keep it simple to start. Lots of good advice above from CDs for now to single lifestrategy funds. If you are a speed learner you could go straight to the 3 fund portfolio. That is what I recommend to my wife if I predecease her. Personally I find CDs a pain to keep track of but they are very safe, very low yield, and don't cost you 12,000/year while you figure things out. The easiest, and good for long term, is to transfer it all to appropriate accounts in Vanguard and buy a lifestrategy fund in each account. In edit I'd like to add that these options maintain flexibility in the future. You can put the money in and take it out again if you want to diversify from there. CDs have an interest penalty if you take the money before the term is up but you can buy 3 month or 1 year CDs until you are sure you want to commit money there for a longer time. The fund options are very flexible, probably have to leave the money alone for at least a month but then anytime it could be moved.

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Re: Too much inheritance to handle. Advice needed

Post by tibbitts » Wed Apr 19, 2017 7:01 pm

I think this thread is deteriorating a bit and may give the OP the impression that this really is too complicated a problem. After a year or so it will probably seem less complicated, so the objective should be to do nothing for a while, and undo whatever may have been done already. Money market or savings accounts (from a fund company or banks) are suitable places for the money until the OP can learn more about investing.

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Re: Too much inheritance to handle. Advice needed

Post by Dottie57 » Wed Apr 19, 2017 7:09 pm

tibbitts wrote:I think this thread is deteriorating a bit and may give the OP the impression that this really is too complicated a problem. After a year or so it will probably seem less complicated, so the objective should be to do nothing for a while, and undo whatever may have been done already. Money market or savings accounts (from a fund company or banks) are suitable places for the money until the OP can learn more about investing.

+1

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Thu Apr 20, 2017 4:08 pm

What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW

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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Thu Apr 20, 2017 4:10 pm

tibbitts wrote:I think this thread is deteriorating a bit and may give the OP the impression that this really is too complicated a problem. After a year or so it will probably seem less complicated, so the objective should be to do nothing for a while, and undo whatever may have been done already. Money market or savings accounts (from a fund company or banks) are suitable places for the money until the OP can learn more about investing.

This is my plan. We're in the process of transferring the money from the brokerage back into our checkings and I'm currently doing research on the retirement accounts. I posted the investments he chose for the inherited IRA at the bottom of this post to get some opinions on it. Currently doing my best to look at each one and try to understand why he chose them.

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Thu Apr 20, 2017 4:36 pm

ndara2017 wrote:What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW

I just added up all the fees and it came out to be 3.07 % + 1.25 (advisor fee) = 4.32 %. Assuming we stay at 400k throughout the year, that will come out to be 17280 we are paying to fees on a retirement account. I'm just getting into this stuff, but that just seems WAY TOO MUCH for a retirement account. What is the range to stay in for total fee amount in retirement accounts? I read an article that stated between 0.3%- 1.88%. I still think 1.88% is too much.

barnaclebob
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Re: Too much inheritance to handle. Advice needed

Post by barnaclebob » Thu Apr 20, 2017 4:38 pm

.3-.4% is the max you should be paying. DIY is just the ER's of the mutual funds at .05-.15% and if you want you can use vanguards management services which is like another .3% on top of that.

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Re: Too much inheritance to handle. Advice needed

Post by TSR » Thu Apr 20, 2017 4:41 pm

ndara2017 wrote:What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW
This is needlessly complex. I haven't looked at all the expense ratios, but the funds I did look at were not too wildly expensive. It's just that there is no reason to have more than three or four funds, including a total US market, total international, and some bonds. They should be from Vanguard, Fidelity, or one of the other low-cost providers. The reason this level of complexity is bad is that it usually (1) obscures what you actually have, when it's really important to understand what various asset classes you own; and (2) it leads people to believe that investing is difficult and that they really NEED the help of an advisor. I can almost guarantee you that this portfolio would not be better than mine at Fidelity, which is:

FSTVX (total US market)
FSITX (total US bond)
FSGDX (total international)

(You can easily find the Vanguard equivalent of those funds.) The other problem here is just what in the heck difference the guy thinks that $8,000 in some Barclays commodity fund is going to make against a $400,000 portfolio. I'm strongly of the view that the "keep it simple" motto really means that owning something worth less than, say, 10% of your total portfolio is pretty pointless.

I'd say this is just more evidence that you've got a problem on your hands.

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Re: Too much inheritance to handle. Advice needed

Post by TSR » Thu Apr 20, 2017 4:44 pm

ndara2017 wrote:
ndara2017 wrote:What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW

I just added up all the fees and it came out to be 3.07 % + 1.25 (advisor fee) = 4.32 %. Assuming we stay at 400k throughout the year, that will come out to be 17280 we are paying to fees on a retirement account. I'm just getting into this stuff, but that just seems WAY TOO MUCH for a retirement account. What is the range to stay in for total fee amount in retirement accounts? I read an article that stated between 0.3%- 1.88%. I still think 1.88% is too much.
I think you may be startling yourself with the "adding" component. You're really looking for the average fee across the portfolio. For example, those iShares funds that make up the bulk of it are at like 0.15%, which is not objectively bad. You don't add them up to get a total -- that's just the expense ratio for that fund. Again, I think this whole thing is objectively bad, but for somewhat different reasons (complexity and the needless "diversity" of the small-dollar funds).

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Thu Apr 20, 2017 4:56 pm

TSR wrote:
ndara2017 wrote:
ndara2017 wrote:What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW

I just added up all the fees and it came out to be 3.07 % + 1.25 (advisor fee) = 4.32 %. Assuming we stay at 400k throughout the year, that will come out to be 17280 we are paying to fees on a retirement account. I'm just getting into this stuff, but that just seems WAY TOO MUCH for a retirement account. What is the range to stay in for total fee amount in retirement accounts? I read an article that stated between 0.3%- 1.88%. I still think 1.88% is too much.
I think you may be startling yourself with the "adding" component. You're really looking for the average fee across the portfolio. For example, those iShares funds that make up the bulk of it are at like 0.15%, which is not objectively bad. You don't add them up to get a total -- that's just the expense ratio for that fund. Again, I think this whole thing is objectively bad, but for somewhat different reasons (complexity and the needless "diversity" of the small-dollar funds).
So when I look at a portfolio and I want to see the fees involved, what should I be looking at?

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Re: Too much inheritance to handle. Advice needed

Post by MotoTrojan » Thu Apr 20, 2017 5:07 pm

ndara2017 wrote:
TSR wrote:
ndara2017 wrote:
ndara2017 wrote:What does everyone think about this guy's choices for the inherited IRA worth 404k?

http://imgur.com/a/cRPeW

I just added up all the fees and it came out to be 3.07 % + 1.25 (advisor fee) = 4.32 %. Assuming we stay at 400k throughout the year, that will come out to be 17280 we are paying to fees on a retirement account. I'm just getting into this stuff, but that just seems WAY TOO MUCH for a retirement account. What is the range to stay in for total fee amount in retirement accounts? I read an article that stated between 0.3%- 1.88%. I still think 1.88% is too much.
I think you may be startling yourself with the "adding" component. You're really looking for the average fee across the portfolio. For example, those iShares funds that make up the bulk of it are at like 0.15%, which is not objectively bad. You don't add them up to get a total -- that's just the expense ratio for that fund. Again, I think this whole thing is objectively bad, but for somewhat different reasons (complexity and the needless "diversity" of the small-dollar funds).
So when I look at a portfolio and I want to see the fees involved, what should I be looking at?
Multiply the percentage of that asset by its ER and then add them all up to get average. You pay that ER only on the portion of $ in that asset. So if you had 50% in a fund with 0.2% and 50% with 0.1%, your overall ER would be 0.15% (plus the advisor fee, which is a huge waste).

Also there is no reason to carry a growth and value fund for the same index. Unnecessary complexity, simplify to 3-fund for now and late on consider adding a tilt (uneccessary).

https://portfoliosolutions.com/latest-l ... rse-return

tibbitts
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Re: Too much inheritance to handle. Advice needed

Post by tibbitts » Thu Apr 20, 2017 8:26 pm

ndara2017 wrote:
tibbitts wrote:I think this thread is deteriorating a bit and may give the OP the impression that this really is too complicated a problem. After a year or so it will probably seem less complicated, so the objective should be to do nothing for a while, and undo whatever may have been done already. Money market or savings accounts (from a fund company or banks) are suitable places for the money until the OP can learn more about investing.

This is my plan. We're in the process of transferring the money from the brokerage back into our checkings and I'm currently doing research on the retirement accounts. I posted the investments he chose for the inherited IRA at the bottom of this post to get some opinions on it. Currently doing my best to look at each one and try to understand why he chose them.
It will be good to understand details at some point, but you have a lot on your plate so don't feel there is any need to rush. You just need to keep the money safe from significant mistakes/losses at this point. I realize that a simple money market fund or savings account will lose a little to inflation (currently - that wasn't always the case) but those losses will pale in comparison to mistakes you might make.

The portfolio you listed has some interesting asset classes, and overall the expenses weren't as bad as many portfolios outside of the Boglehead universe, but, beside the obvious criticism of undue complexity, the 1.25% is difficult to overcome. Honestly a lot of the adviser fees and fund expense ratios weren't that noticeable in eras when market returns were almost consistently double-digit. Projections are impossible, but some Bogleheads believe we're in for a long period of very low returns. You can make up your own mind regarding that, but just understand that it's possible that going forward, even a "fair" expense ratio, plus that 1.25%, plus taxes, may be far more damaging than they were in the past.

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Re: Too much inheritance to handle. Advice needed

Post by Nearly A Moose » Thu Apr 20, 2017 9:42 pm

In skimming this thread, I don't think I've seen anyone mention Vanguard's Personal Advisory Service. For 0.3%, Vanguard will recommend a relatively simply portfolio for your mother that is appropriate for her age and risk tolerance. It's close to but not exactly like the robo advisor services. They will invest the money in low cost Vanguard funds, and you can always turn off the feature if you comfortable taking it over yourself.

I second all the suggestions to halt things and keep this in cash while you get your arms around what you want this money to do for you, but if you feel you're a novice and potentiallly in over your head, the Vanguard PAS is recommended by many on this board as a very reasonable option.

Also, to put this in context, a million dollars is a lot of money but isn't really that much in the grand scheme of invested assets. There's no reason you need to do anything fancy with it.

My condolences for your loss.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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Re: Too much inheritance to handle. Advice needed

Post by JonnyDVM » Thu Apr 20, 2017 9:54 pm

Your fathers friend may actually think he is doing good for you. As other posters have pointed out this certainly does not seem to be the case. These investments are costing you a great deal off the top such that it would take outsized gains to match what a fund with lower fees would have cost you.

I'm sorry for your loss. I agree that I would park the money in a bank account for awhile and spend some then on the Wiki and reading some books. Do not rush anything. When you are ready you can invest as you see fit, or if you choose, hire a different advisor.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: Too much inheritance to handle. Advice needed

Post by Dyloot » Thu Apr 20, 2017 9:55 pm

ndara2017 wrote:
celia wrote:
ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
Ndara, Oh, you ask such good questions! I wish all newcomers were as alert as you are.

First, I hope that you didn't go to the advisor with the attitude of "Too much inheritance to handle". That sounds like someone who is an easy mark and can be taken advantage of. Luckily, your posts sound the opposite.

Besides the high fees, it sounds like this advisor is/was starting to make investments for you without reviewing each purchase with you first. Maybe you and your mom signed a blanket statement allowing this, but it was not necessary. And it is better to come up with an overall plan before investing chunks of the assets here and there.

Let me ask you some questions to think about. You don't have to answer here. During your initial interview, did the advisor try to get an overall view of your existing assets and goals? Did he ask about your tax brackets? if you had life insurance? if either of you had dependents or heirs in mind? your living expenses? your other sources of income (wages, Social Security, annuities)?

Although these questions would feel like he's looking for more ways to make money off you (and possibly he wants to) and they sound invasive, they also indicate he needs to know your overall picture. For example, if your mom has a holding of XXX stock somewhere else, it makes no sense to buy more XXX stock for her. If you have no life insurance but you have minor children, it sounds risky should you die early and you should get life insurance, although not through him.

If he DIDN'T ask questions like this, that is a red flag to me. It is/was your choice to answer the questions or not, but not asking them is a sign of unprofessionalism. However, some of the questions may have jogged something in your head that you had been considering and should go research elsewhere (such as life insurance or finding out what your tax bracket is--which you can figure out from your last tax return).

He did ask all the questions you mentioned. After a couple of meetings, when I think he became too comfortable with us, he began asking my mom if she was interested in purchasing life insurance and that she should recommend his name to owner of her workplace for some things I can't remember. So yes, I know he is trying to find anyway to make money off of us. He has already contacted us this morning saying that we should meet up and go over things again. I told my mom to say that you are busy with work and wrote up a message to email him in response that basically said that to halt all future investments in a polite way. This guy still has our money and we want to make future transactions go as smoothly as possible without banging heads. We will meet with him sometime this week though.

This is what this guy does for a living--he sells financial services. He'd love to sell more of them, if you know people who might want to buy.

I mean, it's like meeting a car salesman. He wants to sell you a car. His financial guy wants to sell you a warranty. They want you to refer your friends so they can sell them new cars and new warranties.

Don't feel bad. Don't report him to the police. Don't egg his house. :D

Congratulations on doing your homework and finding other ways to handle your money. :sharebeer

And I'm sorry to hear about your dad. I'm in the midst of handling my grandfather's estate. Lots of lawyers and wasted money on legal services. It sucks. I hate it. It's a huge motivator to simplify my own estate as much as possible before I die. It's insane to me how many legal and financial services you need to settle an estate with a home sale.

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BL
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Re: Too much inheritance to handle. Advice needed

Post by BL » Fri Apr 21, 2017 12:35 am

Please go slowly on this. Do what needs to be done and let other decisions wait. Be sure that any inherited IRAs are handled correctly and titled correctly. You don't want them to hand it over directly to your mom, but rather be transferred directly to another brokerage (or bank for FDIC accounts such as CDs or savings accounts). You would ask the brokerage to pull it from the current advisor/brokerage. I believe a spouse can have it changed to her name and treat it as her own.

It seems to me that your mom would like some help in managing this money and finding a trustworthy person/brokerage might be very helpful and worth 0.3%. That is why I am convinced that using Vanguard PAS is a pretty safe and low-cost way of doing this with a handful of low-ER funds. They would do all the heavy lifting to move it there and put it in 5-7 funds when you are ready to invest.

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Fri Apr 21, 2017 7:34 pm

BL wrote:Please go slowly on this. Do what needs to be done and let other decisions wait. Be sure that any inherited IRAs are handled correctly and titled correctly. You don't want them to hand it over directly to your mom, but rather be transferred directly to another brokerage (or bank for FDIC accounts such as CDs or savings accounts). You would ask the brokerage to pull it from the current advisor/brokerage. I believe a spouse can have it changed to her name and treat it as her own.

It seems to me that your mom would like some help in managing this money and finding a trustworthy person/brokerage might be very helpful and worth 0.3%. That is why I am convinced that using Vanguard PAS is a pretty safe and low-cost way of doing this with a handful of low-ER funds. They would do all the heavy lifting to move it there and put it in 5-7 funds when you are ready to invest.

So, I am taking baby steps on handling this situation and I actually came to an agreement with my mom that we should move her personal IRA to vanguard worth about 218k atm. We also transferred the 250k out of the 400k in the brokerage account back into her savings account. I'm looking at options on what to do with this cash, but I still want to soak up as much as I can in these next few months before I make a decision. There is 150k left in the brokerage account ivnested in the american funds growth portfolio class C, but we said to leave it in there until it goes above 152k so we don't lose anything on the 1% sales charge.

As for the inherited IRA which will be worth around 600k, we still haven't made any decisions on and as of right now will leave with this guy. My focus is on the personal IRA right now.

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Re: Too much inheritance to handle. Advice needed

Post by aristotelian » Fri Apr 21, 2017 7:43 pm

ndara2017 wrote:

So, I am taking baby steps on handling this situation and I actually came to an agreement with my mom that we should move her personal IRA to vanguard worth about 218k atm. We also transferred the 250k out of the 400k in the brokerage account back into her savings account. I'm looking at options on what to do with this cash, but I still want to soak up as much as I can in these next few months before I make a decision. There is 150k left in the brokerage account ivnested in the american funds growth portfolio class C, but we said to leave it in there until it goes above 152k so we don't lose anything on the 1% sales charge.

As for the inherited IRA which will be worth around 600k, we still haven't made any decisions on and as of right now will leave with this guy. My focus is on the personal IRA right now.
Sometimes the best decision is no decision. Sounds like you have a good handle and at the very least you are sending a signal to the FA that he works for you but you make the decisions. As you learn more, I would predict that the money will not last long with the FA or with American Funds.

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Re: Too much inheritance to handle. Advice needed

Post by blaugranamd » Fri Apr 21, 2017 10:22 pm

wolf359 wrote:
ndara2017 wrote:
randomizer wrote:I get saddened reading such scumbaggery.
What makes you think that this is without a doubt, 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?
I see the following red flags:

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:
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.
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.

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.

Sources:
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
woof. Assuming all this data is correct this is painful. I'll add my $0.02 that the best thing you can do now is keep anything that isn't invested already in a savings account til you figure out what YOU want to do. Best of luck!
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

tibbitts
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Re: Too much inheritance to handle. Advice needed

Post by tibbitts » Fri Apr 21, 2017 10:36 pm

There is 150k left in the brokerage account ivnested in the american funds growth portfolio class C, but we said to leave it in there until it goes above 152k so we don't lose anything on the 1% sales charge.
I'm not understanding... what is the relationship between the account value and sales charge?

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White Coat Investor
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Re: Too much inheritance to handle. Advice needed

Post by White Coat Investor » Sat Apr 22, 2017 12:50 am

ndara2017 wrote:Hello everyone,

My father passed away a few month ago and my mom and I were left over 1m+ in assets.

Right now we have three accounts with a financial advisor who is a close friend of my fathers. He has set up 3 accounts for my mom:

Inherited IRA: 400k
Brokerage account: 400k
Mom's IRA: 200k

Both my mom and I had 0 knowledge on finance and investing after my father passed away. My father had an IRA account with this financial advisor and was in the process of moving his 401k to him so we believed this guy would use our money with his best intentions. Now, that doesn't mean his intentions are the best decisions. That's why I am here. I have been doing my research and trying to soak in as much knowledge as I can and I am starting to doubt the investments that our financial advisor has made with our brokerage account.

He has already invested 150k in American funds growth portfolio class C -
He plans to invest 200k in AXA structured capital strategies on a 5 year contract
He plans to invest 50k in Griffin real estate fund




What does everyone think about his choice of investments? I feel horrible going behind his back for second opinions, but recently as I am learning more, I am starting to question if our financial advisor is doing this with our best interest in mind. If this helps, he charges a 1.25 % advisor fee.

I would appreciate any advice or recommendations on what to do from here.
You need a new advisor. A real one. Not a commissioned salesman masquerading as an advisor. Leave the money in cash until you figure this stuff out. It won't take long if you've already found your way here.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

MotoTrojan
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Re: Too much inheritance to handle. Advice needed

Post by MotoTrojan » Mon Apr 24, 2017 2:28 am

tibbitts wrote:
There is 150k left in the brokerage account ivnested in the american funds growth portfolio class C, but we said to leave it in there until it goes above 152k so we don't lose anything on the 1% sales charge.
I'm not understanding... what is the relationship between the account value and sales charge?
Agreed. Take the sunk cost and pull the money out; you account will fluctuate 1% frequently. If you want to capture the gains of the market, just put the money right into Total Stock Market, similar enough.

wolf359
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Re: Too much inheritance to handle. Advice needed

Post by wolf359 » Mon Apr 24, 2017 6:42 am

ndara2017 wrote: There is 150k left in the brokerage account ivnested in the american funds growth portfolio class C, but we said to leave it in there until it goes above 152k so we don't lose anything on the 1% sales charge.

As for the inherited IRA which will be worth around 600k, we still haven't made any decisions on and as of right now will leave with this guy. My focus is on the personal IRA right now.
I didn't see this phrase until someone else pointed it out. I wonder if this was his idea or your idea? If it was your idea, he may have "forgotten" to point out your math error.

He already got you on the sales charge. The way it works is that the higher expenses you pay for holding the fund will pay for his sales commission. You have to hold it for at least a year for him to make his promised commission -- that's why they charge you 1% to exit early. But if you stay in for that year, they'll charge you 1.56% per year, and he'll charge you an additional 1.25% of the amount invested with him as well. So by keeping it invested, they get to charge an additional 2.81% in expenses and fees, (of which you're already guaranteed to pay 1%). Bottom line, getting out will cost you 1% now. Staying in will cost you 1.81% more if you wait a year.

The money from the sales charge is already lost. You don't get it back if the fund earns it back. That's mental accounting, which means your brain is associating the loss with this specific fund, and a gain that offsets it won't be considered to be "even" unless it came from this specific fund. For example, if your Mom suddenly got a $2,000 bonus from work, would she exit the fund? She would then have the same amount of money that she had before. What if she transferred the money to a different mutual fund, and earned it back there? Is she even? Mental accounting refers to a behavioral bias in the way people think, despite math to the contrary.

Let's say she transfers the money to the Vanguard LifeStrategy Growth Fund (VASGX). (I'm not saying that this is a suitable recommendation for her, but I'm picking it because it is similar in composition to the American Funds Growth Portfolio (GWPCS)).

GWPCS is 54% US stocks, 35.9% International stocks, 0.1% US bonds, and 9.8% cash or cash equivalents, making it a highly aggressive 90% stock/ 10% bond mix. In 2016, it had a total return of 6.63%. As I said before, GWPCS has an expense ratio of 1.56% per year. (Source: https://americanfundsretirement.retire. ... cker=GWPCX)

VASGX is 47% US stocks, 32.3% international stocks, 14.1% US bonds, and 6% international bonds, targeting a less aggressive 80% stock / 20% bond mix. In 2016, VASGX returned 13.08%, which is twice the return for less risk. How could this be? Part of the answer is that VASGX has an expense ratio of 0.15%. No, that's not a typo. (Source: https://personal.vanguard.com/us/funds/ ... 0122#tab=3)

He's collecting 1.25% on any money you hold with him, and may have other hidden fees that are going to be difficult to spot. He has already shown that he has conflicts of interest when selecting investments, and is allowing them to influence his advice. He is making excellent investment choices, but they are excellent for him, not for you. Now, to be fair, it's possible that you're getting charged less in commissions than the fund indicates. Sometimes those are waived because of the assets under management (AUM) fee. That specific information would be in any prospectus that he gives you. While his choice of other investment vehicles implies that he didn't do that, there's really insufficient information to say he is.

Both funds are probably too aggressive for a widow nearing retirement. Her overall stock/bond ratio should probably be much more conservative than either 90/10 or 80/20. If I understand correctly that this a taxable brokerage account, GWPCS is not tax friendly. It generates long-term capital gains in addition to dividends, making this choice better suited for tax-sheltered retirement accounts. Low-fee index funds such as those held in VASGX generate very little in taxes. Those it does generate are primarily due to dividends.

If your Mom needs a financial advisor, make sure you ask (or get it in writing) that they are a fiduciary, meaning that they will be acting in your best interests for the advice they provide. Also have them tell you how they are compensated, and to identify any conflicts of interest in their compensation. This will appear to cost more, but as you have learned, the "free" advice is much more expensive. See the Boglehead Wiki for general info on Financial Planners. https://www.bogleheads.org/wiki/Financial_planner

You could also get free non-professional advice by posting for investment advice in a separate thread.

spencer99
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Re: Too much inheritance to handle. Advice needed

Post by spencer99 » Mon Apr 24, 2017 6:08 pm

Ndara2017,

Welcome to Bogleheads and congratulations on the direction you're taking. It will be hugely beneficial for your mother in the long run.

Two comments, one question ...

Comment - I second WCI's suggestion that you find a competent fee-only advisor to help extricate you from the current situation. Your situation has a lot of moving parts and it will be money well spent.

Second comment - Others' comments that the IRA recommendation is too complex are spot on. But I didn't see mention of why "advisors" do this. Why suggest a needlessly complex portfolio when a simpler portfolio will be as good and probably better? Because complexity sells. This is all about the implication that investing is obscure, complex, and enormously difficult and you cannot do it yourself. Yes you can.

Question - What is the status of the 401(k) move you mentioned earlier? I second others' suggestion that your mother not move this. You can probably leave the 401(k) in place for now. No urgency to make a change until you know how this fits in with all the other changes you will make.

Good luck

ndara2017
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Re: Too much inheritance to handle. Advice needed

Post by ndara2017 » Tue Apr 25, 2017 12:19 am

spencer99 wrote:Ndara2017,

Welcome to Bogleheads and congratulations on the direction you're taking. It will be hugely beneficial for your mother in the long run.

Two comments, one question ...

Comment - I second WCI's suggestion that you find a competent fee-only advisor to help extricate you from the current situation. Your situation has a lot of moving parts and it will be money well spent.

Second comment - Others' comments that the IRA recommendation is too complex are spot on. But I didn't see mention of why "advisors" do this. Why suggest a needlessly complex portfolio when a simpler portfolio will be as good and probably better? Because complexity sells. This is all about the implication that investing is obscure, complex, and enormously difficult and you cannot do it yourself. Yes you can.

Question - What is the status of the 401(k) move you mentioned earlier? I second others' suggestion that your mother not move this. You can probably leave the 401(k) in place for now. No urgency to make a change until you know how this fits in with all the other changes you will make.

Good luck
As of right now, my mom's inherited IRA is now 570k (170k rollover went through recently. The check was sent before I posted this) and there are 3 more accounts that need to be rolled over with a value of around 80k.

Right now, my mom and I have decided to move her personal IRA worth around 218k to another place (leaning towards vanguard) and implementing the lazy portfolio approach as a starting place with the classic:

Vanguard Total Stock Market Index Fund (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Fund (VBMFX)

Now, I am not sure how to allocate the funds to each one. I was thinking 25, 25, 50 respectively. What do you think?

To be honest, the inherited IRA is very intimidating to both my mom and I to invest. Both of us never had to manage this much ever and suddenly we are put in a position to either do it ourselves or let some other guy do it. I was thinking to read and learn more before we make a move on that account while bringing all the rest of the accounts into the inherited IRA so that later on we can take it all out? Would a lazy portfolio work on an account worth more than 500k and near retirement? Is it recommended for this situation?

Sorry for being all over the place...

ndara2017
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Advice needed for mother's inheritance/finances.

Post by ndara2017 » Tue Apr 25, 2017 12:54 am

[Thread merged into here, see below (next page) --admin LadyGeek]

Hello everyone,

First off I would like to thank everyone who replied to my last thread, which helped push both my mom and I to take control of our finances rather than allow someone else do it without our best interest in mind. For the unaware, my mom and I trusted a financial advisor to manage all of our finances since he was a long time friend of my father who recently passed away, but found out through his choice of investments that there is a good chance that he is not investing with OUR best interest in mind, but his own. Maybe he did have our best interest in mind and my mom and I are wrong. In the end, this whole situation has motivated my mom and I to take control of our finances and that's why I created this thread. We want to begin moving money away from the FA with a plan to do so.


Mom is in her early 50s and plans to retire after I finish school, so in 4 years.

Mother's assets with current financial advisor:

inherited IRA: 570k with approx. 80k left to transfer still
personal IRA: 218k
brokerage account" 150k with American Funds growth portfolio class C


She also has approx 500k sitting in her personal bank account.

95k mortgage left- only debt

These are our goals for the coming months:

1. transfer personal IRA out.
2. Transfer inherited IRA out.
3. Do something with the cash sitting around.

(well thought out and thorough plans... I know! )

We have done our research and we both thought a good place to start was to transfer the personal IRA to either Fidelity or Vanguard and do a three-fund portfolio. What do you all think? What do you all recommend? We are all ears at this point.

We have absolutely no idea what to do about the 650k in cash.

Thank you to everyone in advance!

Nate79
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Re: Advice needed for mother's inheritance/finances.

Post by Nate79 » Tue Apr 25, 2017 12:57 am

What is the interest rate on the mortgage? If not super low why not pay it off with all that cash lying around?

Also, is the cash in a high interest savings account? 1% savings account is easy to setup many places.

ndara2017
Posts: 31
Joined: Mon Apr 17, 2017 6:06 pm

Re: Advice needed for mother's inheritance/finances.

Post by ndara2017 » Tue Apr 25, 2017 1:05 am

Nate79 wrote:What is the interest rate on the mortgage? If not super low why not pay it off with all that cash lying around?

Also, is the cash in a high interest savings account? 1% savings account is easy to setup many places.
I think it's 1.6%? It's very low. It goes up though in October 2019. We were planning to not pay it off since the monthly payments were manageable.

The money sitting in a savings account with less than .1 interest. I'll look into what some banks offer. Thanks.

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Tyler Aspect
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Re: Advice needed for mother's inheritance/finances.

Post by Tyler Aspect » Tue Apr 25, 2017 1:29 am

Vanguard Total Stock Market Index Fund (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Fund (VBMFX)

Now, I am not sure how to allocate the funds to each one. I was thinking 25, 25, 50 respectively. What do you think?
To resume where the last thread was left off. This was your proposed allocations for your mother in the 50's. Generally we hold more US stocks compared to international stocks. Mr. Bogle recommended a US stock to international stock ratio of 4 to 1.

That would make the allocation 40% US stocks, 10% international stocks, and 50% bonds. Keep the bond portion in the traditional IRA account if possible.

A set-up like this should work for large portfolios as well. It seemed that your mother's account should be able to reach Flagship level, and qualify to receive some additional perks.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

harikaried
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Re: Advice needed for mother's inheritance/finances.

Post by harikaried » Tue Apr 25, 2017 2:22 am

ndara2017 wrote:Mother's assets with current financial advisor:
She also has approx 500k sitting in her personal bank account.
Just making sure, there aren't any other accounts that weren't managed by the advisor?
ndara2017 wrote:We have done our research and we both thought a good place to start was to transfer the personal IRA to either Fidelity or Vanguard and do a three-fund portfolio. What do you all think? What do you all recommend? We are all ears at this point.
How much effort do you and/or mother want do put towards investing? The three-fund portfolio is relatively simple, but there's some work in figuring out how much to put in each of the three funds as well as maintaining that on a somewhat regular basis.

If the amount of effort is near zero, then a single balanced index fund or target date index fund to use across all accounts would be very simple. It's not the most efficient way to invest given some tax considerations, but even with that, overall it will be far cheaper compared to the advisor. On the other hand, getting things right with something simple but inefficient is probably better than a big mistake when trying to do better. ("Perfect is the enemy of good.")

If some ongoing guidance is desired as situations change, something like Vanguard Personal Advisor Services might be beneficial with its low costs.

kenner
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Re: Advice needed for mother's inheritance/finances.

Post by kenner » Tue Apr 25, 2017 3:08 am

ndara2017 wrote:Hello everyone,

First off I would like to thank everyone who replied to my last thread, which helped push both my mom and I to take control of our finances rather than allow someone else do it without our best interest in mind. For the unaware, my mom and I trusted a financial advisor to manage all of our finances since he was a long time friend of my father who recently passed away, but found out through his choice of investments that there is a good chance that he is not investing with OUR best interest in mind, but his own.

Can you post the details of the investments that were recommended by the financial advisor and how your Mom's assets are currently invested (the details of those investments, the total costs of those investments, etc.)?

Knowledge is power. If you want optimal advice, the details are critically important.

Maybe he did have our best interest in mind and my mom and I are wrong. In the end, this whole situation has motivated my mom and I to take control of our finances and that's why I created this thread. We want to begin moving money away from the FA with a plan to do so.


Mom is in her early 50s and plans to retire after I finish school, so in 4 years.

Mother's assets with current financial advisor:

inherited IRA: 570k with approx. 80k left to transfer still
personal IRA: 218k
brokerage account" 150k with American Funds growth portfolio class C


She also has approx 500k sitting in her personal bank account.

95k mortgage left- only debt

These are our goals for the coming months:

1. transfer personal IRA out.
2. Transfer inherited IRA out.
3. Do something with the cash sitting around.

(well thought out and thorough plans... I know! )

We have done our research and we both thought a good place to start was to transfer the personal IRA to either Fidelity or Vanguard and do a three-fund portfolio. What do you all think? What do you all recommend? We are all ears at this point.

We have absolutely no idea what to do about the 650k in cash.

Thank you to everyone in advance!
Your Mom has substantial investments, but the important question is exactly how efficiently those assets are invested. Over time, different asset classes have varying expected rates of financial return. It is critically important to define long-term financial goals and to design a plan that best meets your Mom's long-term goals.

It seems that you are telling us the types of accounts your Mom has (IRA, brokerage) but not the details of the assets she is invested in.

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