What might you ask In-laws' FA?

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Edge_90
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What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 10:33 am

I've been asked by my in-laws to go along for a meeting with their FA, a local outfit. They are mid-70s and have been with this guy for decades. They are financially ignorant when it comes to investing. They are unable to articulate how the FA is compensated and to what degree. I think this is my basic reason for attending - to ask some "hard" questions, which make my in-laws uncomfortable. They have not shared their statements w/me at this point although I'm guessing it wouldn't be an issue (I haven't asked for them). We have a great relationship and I have earned their complete trust (very happily married to daughter for 21 years). This family is unfortunately very old-school and employs the "don't talk about money" financial strategy. :shock: :oops: My in-laws are solid middle class (music teacher and secretary) folks, and do like to spend on niceties and travel.

Notably, the FA recently took them out to lunch at the local country club which just really rubs me the wrong way. My father-in law just says "that's what financial advisors do - they're rich" :oops:

I recognize that I know next to nothing about the details of their financial situation at this point. Here's what little I've gathered so far:
Father in law
- retired teacher w/non-COLA pension & SS and likely modest IRA (maybe $250k?)
- IRA invested completely in American Funds
- he still works as a substitute teacher, partly out of needing something to do and partly out of financial necessity I believe
- Mother-in law states that the FA "takes 1% of whatever we withdraw" from the IRA. This sounded odd to me.

Mother in law
- retired secretary w/pension and SS
- no idea what else, except she talked about having "dividends" sent to her automatically
- if she has investments I'm guessing they are American Funds also

My basic mission will be to understand exactly how the FA is compensated. I'm not sure if he is particularly skilled at evading the question, but I'm just trying to anticipate anything including a bunch of smoke and mirrors. My goal is to simply help my in laws understand what their expenses are and their wish is to simply not leave this world in debt when that time comes. I have not projected nor do I expect any type of inheritance from them. This is strictly about them. Any tips or advice appreciated regarding any of the above.

goingup
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Re: What might you ask In-laws' FA?

Post by goingup » Mon Nov 13, 2017 11:19 am

I would ask your in-laws what they hope to achieve by you attending the meeting.

My dad wanted me to meet "his guy" at Merrill Lynch just to have the connection for when he passed. He didn't want me to ask questions. If I knew then what I know now I would have wanted to understand what stocks he owned and whether his AA was appropriate for an 80 year old. And whether the account was being churned.

American Funds are well managed so I wouldn't worry too much about that. The loads probably have been paid already. The expense ratios are mid-pack, though not low like Vanguard. The dividends and capital gains probably represent a reliable cash stream which your in-laws may depend upon.

You may be their back-up plan if/when they no longer feel competent to handle their financial affairs. They may want an additional set of eyes/ears to assure them that there aren't any shenanigans going on with their finances.

I love Vanguard and self-manage, but recognize that many people are very satisfied using a financial advisor. Personally, I wouldn't go into the meeting looking to convert them to a different arrangement.

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Re: What might you ask In-laws' FA?

Post by BolderBoy » Mon Nov 13, 2017 11:28 am

Edge_90 wrote:
Mon Nov 13, 2017 10:33 am
My basic mission will be to understand exactly how the FA is compensated. I'm not sure if he is particularly skilled at evading the question, but I'm just trying to anticipate anything including a bunch of smoke and mirrors.
My bet would be that he is more skilled at evasion than you are at interviewing financial advisors. The company spends a great deal of time training their FAs. If you turn up the heat enough, he'll simply call for reinforcements or perhaps ask that the meeting be rescheduled.

The only suggestion I would have is to get printed documentation of everything he claims. Documents that you can take with you and read outside of duress.
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Re: What might you ask In-laws' FA?

Post by DaftInvestor » Mon Nov 13, 2017 11:31 am

Edge_90 wrote:
Mon Nov 13, 2017 10:33 am
They have not shared their statements w/me at this point...
...............
This family is unfortunately very old-school and employs the "don't talk about money" financial strategy.
I'd proceed with caution as these statements are red-flags to me.

Your relationship is great now but will it be once you dig into their finances and start trying to change their behavior?
Their FA is probably taking 1% plus loads.

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Re: What might you ask In-laws' FA?

Post by soccerrules » Mon Nov 13, 2017 11:35 am

I agree with Going Up. -- I would ask more questions of your inlaws about WHY they invited you to the meeting. How can you help them ?

Their response will guide you.

If they are looking for YOUR help and specifically ask for it-- then I would start with getting the last 12-18 months of statements for your to review. Then I would sit down with the inlaws and explain to them their situation - AUM Fees, ER, AA etc.

Then ask them again what do you want to do next ? How can I help YOU ?

This has to be their decision and one that they don't feel was forced on to them by their son-in-law. Even if they may be wasting money with the advisor and high ER etc, they may not want to make a change. -- IT IS THEIR MONEY. Thread lightly.
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Re: What might you ask In-laws' FA?

Post by Tyler Aspect » Mon Nov 13, 2017 11:44 am

The advisor's compensation might be 1% of asset under management. There's also the load when a fund purchase is made.

The best way to get the advisor's financial compensation is probably in writing. I doubt if there is any dark secret arrangement.
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arcticpineapplecorp.
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Re: What might you ask In-laws' FA?

Post by arcticpineapplecorp. » Mon Nov 13, 2017 11:47 am

You didn't mention their asset allocation, so that's an area of concern. Are they taking too much risk, too little? Who knows? Do your in laws? They should.

The other thing that struck me (as it seems it did for you) was your mother in law saying the FA takes 1% out of what she withdraws from the IRA. If this is incorrect and instead he's taking out 1% of the AUM each year, this should be clarified so your in law understands EXACTLY what she's paying the FA. And I would do it in the following way:

1. Say they have $250,000 in the IRA.
2. Say they take out 4% per year (that's $10,000).
3. If the FA takes 1% of what they withdraw ($10,000) then they pay the FA $100 (.01 X $10,000 = $100). Probably not.
4. If on the other hand the FA takes 1% per year AUM (which is what we suspect), then they are paying him $2500 (.01 X $250,000 = $2500). Highly likely.

So the question is, are they paying the FA $100 this year or $2500? Big difference, right? Is it a big difference to your in laws? Hopefully it is.

Once they realize they're paying more then they thought, they should start saying, "Wait a minute. What else don't we know about?"

Well, how about the statement, ""that's what financial advisors do - they're rich". Isn't the question then, "How do they get rich?" If your in-laws say, "The company pays them" they've bought the line (hook and sinker) the advisor has sold them. The correct answer is, "They get rich by charging you 1% per year for the rest of your lives". The more detailed answer is, "The advisor didn't buy you lunch. YOU bought the advisor lunch".

Another very important issue is of fiduciary. Is this FA a fiduciary all the time? Under the fiduciary rule he might have to be regarding the IRA (retirement accounts only) but not for taxable accounts. So they should understand if he is not a fiduciary then he does not have to act in their best intrest. Yes he still has to provide products that are suitable, but there's a wide range there and something can be suitable for your in laws and profitable for him.

Check the advisors form adv part 2 to see how he gets paid, and if he has any complaints filed against him, etc. Got to do your homework:

https://www.sec.gov/fast-answers/answersformadvhtm.html

The funny thing is, when you use Vanguard you don't have to worry about any of this nonsense because they:
1. don't charge any loads on any funds
2. have the lowest cost (or most of the lowest) funds in the industry
3. their company's interests are aligned with yours
4. you don't have to ask if they're a fiduciary

Rolling over an IRA from an advisor to vanguard is easy.

good luck, let us know how it goes.
Last edited by arcticpineapplecorp. on Mon Nov 13, 2017 2:18 pm, edited 1 time in total.
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Re: What might you ask In-laws' FA?

Post by J295 » Mon Nov 13, 2017 12:02 pm

Be a good listener, to your in laws and their FA.

My dad and I have a fantastic relationship and think alike on many things. He does many things DIY, and is quite wise and smart. For decades he has had a FA, and has been fine with him. I've met FA and he and his team are solid people. My dad knows exactly what FA charges, and the FA knows that my dad knows.

I have never tried to change dad's mind on this .... he's smart, he's my dad, I respect him and want to reflect respect in my actions. If he wants to change or wants my opinion, he'll ask me. He knows what I do investment wise. And while we are both fine financially (and each know what the other has in place), we both value family, faith, and friends more than $$$.

Edge_90
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Re: What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 12:20 pm

Just great feedback all around, thank you so much everyone. It helps for perspective and potential pitfalls. I'll re-read all of the responses throughout the week as I prepare for the meeting, keeping all points in mind. My intention is to support my in-laws, and simply make things (costs) clear to them. I will not attempt to change folks' minds...just the facts, ma'am (or sir). A big part of me thinks my in laws are the types who really do benefit from a FA, provided he/she is legit.

Thanks again for helping me stay focused and clear about what to do. :sharebeer

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Re: What might you ask In-laws' FA?

Post by randomguy » Mon Nov 13, 2017 12:28 pm

Edge_90 wrote:
Mon Nov 13, 2017 10:33 am
I think this is my basic reason for attending - to ask some "hard" questions, which make my in-laws uncomfortable.
Why? What do you hope to gain by asking hard questions other than making everything awkward for your in-laws? If you want to bring this up, why are you doing it when the FA is there versus just having a meeting with the in-laws? I can already assure you that the FA is being compensated at some level that seems absurd to a boglehead.


As someone else mentioned, the obvious first step is to ask them why you are invited? You might think it is because they want you opinions on fees, asset allocation, and so on. They on the other hand might just want you to meet the guy so when they are dead, you have some type of relationship.

Now if they want your advice on specific financial situations, you have to figure out if it makes sense for you to give it. If the markets drop 50%, do you want to be the one that put them in those funds? Or if the markets go up 50% do you want to be the one that prevented them from making all that money by buying all those bonds?

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Re: What might you ask In-laws' FA?

Post by flamesabers » Mon Nov 13, 2017 12:36 pm

OP,

Why can't your in-laws get the fees and compensation schedule in writing and show it to you in private at a later time?

I don't think potentially confronting their FA without knowing the details is a good idea especially considering they have been with this FA for decades and they're uncomfortable about asking difficult questions. Let's say you meet with this FA and you find he's ripping them off left and right. What are you going to do?

A) Challenge the FA outright for scamming your in-laws
B) Bite your tongue for the time being and spill the beans to your in-laws after the meeting is over
C) Do nothing. This FA works for your in-laws and not you. How they choose to have their money managed is not your business.
D) Get the fees and compensation schedule from the FA. Explain it to your in-laws in factual terms without expressing any personal criticism.

With your initial post, I'm not quite sure what exactly your in-laws want you to do. Do they just want you to explain the FA's fees/compensation in layman terms? Or are they worried they might be overpaying their FA?

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Re: What might you ask In-laws' FA?

Post by delamer » Mon Nov 13, 2017 12:40 pm

Edge_90 wrote:
Mon Nov 13, 2017 12:20 pm
Just great feedback all around, thank you so much everyone. It helps for perspective and potential pitfalls. I'll re-read all of the responses throughout the week as I prepare for the meeting, keeping all points in mind. My intention is to support my in-laws, and simply make things (costs) clear to them. I will not attempt to change folks' minds...just the facts, ma'am (or sir). A big part of me thinks my in laws are the types who really do benefit from a FA, provided he/she is legit.

Thanks again for helping me stay focused and clear about what to do. :sharebeer
Good luck with the meeting. Sometimes what people think they want is different from what they actually are willing to do when push comes to shove.

My FIL is not thrilled with his FA and asked for my suggestions on improving the situation. He agreed with my ideas but has not taken any steps to implement them. It is a combination of inertia and fear of the unknown. And it is my in-laws' money and business so after my initial suggestions, I bowed out.

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Re: What might you ask In-laws' FA?

Post by 1210sda » Mon Nov 13, 2017 12:45 pm

arcticpineapplecorp. wrote:
Mon Nov 13, 2017 11:47 am
4. If on the other hand the FA takes 1% per year AUM (which is what we suspect), then they are paying him $2500 (.01 X $250,000 = $2500). Highly likely.
OP,

Using Arctic's example:

Make sure they understand that If they are withdrawing 4% from the portfolio and paying him (or her) 1%, that's fully 25%, one-quarter of their withdrawal. (That would be $2,500 out of $10,000 withdrawn).

Also, compare the $2,500 to how much they pay in federal income taxes. That could be an eye opener.

1210

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Re: What might you ask In-laws' FA?

Post by Nate79 » Mon Nov 13, 2017 1:25 pm

Is the FA a fiduciary?

randomguy
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Re: What might you ask In-laws' FA?

Post by randomguy » Mon Nov 13, 2017 1:27 pm

1210sda wrote:
Mon Nov 13, 2017 12:45 pm
arcticpineapplecorp. wrote:
Mon Nov 13, 2017 11:47 am
4. If on the other hand the FA takes 1% per year AUM (which is what we suspect), then they are paying him $2500 (.01 X $250,000 = $2500). Highly likely.
OP,

Using Arctic's example:

Make sure they understand that If they are withdrawing 4% from the portfolio and paying him (or her) 1%, that's fully 25%, one-quarter of their withdrawal. (That would be $2,500 out of $10,000 withdrawn).

Also, compare the $2,500 to how much they pay in federal income taxes. That could be an eye opener.

1210

Pretty much all of bogleheads will agree with you but having this discussions with the FA present isn't going to accomplish anything. Have a private chat with the inlaws and show them alternatives (i.e. DIY might not be the best option but Vanguards, betterment, ..... that charge .25-50% might be a good compromise. Heck even just moving say a CD ladder or bonds out of AUM could save you a bunch of money). But again this all depends on what they want from you. Criticizing someones financial plan can go wrong in a hurry (i.e. they think you think they are idiots for spending 50k on this advisor+fee).

Edge_90
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Re: What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 2:02 pm

Nate79 wrote:
Mon Nov 13, 2017 1:25 pm
Is the FA a fiduciary?
I believe the answer is "No"

Again I appreciate the "be cautious" responses. Any potential changes will be 100% their decision. Of note, my wife and her sister are attending the meeting as well. Sis in law is newly married to a banker and I believe she'll have a list of questions :D

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Re: What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 2:04 pm

1210sda wrote:
Mon Nov 13, 2017 12:45 pm
arcticpineapplecorp. wrote:
Mon Nov 13, 2017 11:47 am
4. If on the other hand the FA takes 1% per year AUM (which is what we suspect), then they are paying him $2500 (.01 X $250,000 = $2500). Highly likely.
OP,

Using Arctic's example:

Make sure they understand that If they are withdrawing 4% from the portfolio and paying him (or her) 1%, that's fully 25%, one-quarter of their withdrawal. (That would be $2,500 out of $10,000 withdrawn).

Also, compare the $2,500 to how much they pay in federal income taxes. That could be an eye opener.

1210
That's precisely the kind of thing I intend to illustrate - their real costs.

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Re: What might you ask In-laws' FA?

Post by flamesabers » Mon Nov 13, 2017 2:16 pm

Edge_90 wrote:
Mon Nov 13, 2017 2:02 pm
Of note, my wife and her sister are attending the meeting as well. Sis in law is newly married to a banker and I believe she'll have a list of questions
As Randomguy mentioned, the in-laws' intent of this meeting might not be for you to grill the FA on fees and compensation but rather to introduce the family to their FA. With your wife and sister-in-law getting involved, I'm starting to think the latter is much more likely.

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Re: What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 2:36 pm

flamesabers wrote:
Mon Nov 13, 2017 2:16 pm
Edge_90 wrote:
Mon Nov 13, 2017 2:02 pm
Of note, my wife and her sister are attending the meeting as well. Sis in law is newly married to a banker and I believe she'll have a list of questions
As Randomguy mentioned, the in-laws' intent of this meeting might not be for you to grill the FA on fees and compensation but rather to introduce the family to their FA. With your wife and sister-in-law getting involved, I'm starting to think the latter is much more likely.
Without getting into details, I can assure you this is to help them understand what they are paying in expenses.

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Re: What might you ask In-laws' FA?

Post by Doom&Gloom » Mon Nov 13, 2017 3:05 pm

Edge_90 wrote:
Mon Nov 13, 2017 2:36 pm
flamesabers wrote:
Mon Nov 13, 2017 2:16 pm
Edge_90 wrote:
Mon Nov 13, 2017 2:02 pm
Of note, my wife and her sister are attending the meeting as well. Sis in law is newly married to a banker and I believe she'll have a list of questions
As Randomguy mentioned, the in-laws' intent of this meeting might not be for you to grill the FA on fees and compensation but rather to introduce the family to their FA. With your wife and sister-in-law getting involved, I'm starting to think the latter is much more likely.
Without getting into details, I can assure you this is to help them understand what they are paying in expenses.
This makes me wonder if your "invitation" came as a result of your advocacy of low-fee investing. If so, given your in-laws' "old school ways" I would avoid this meeting like the plague. I would politely decline and offer to assist them with finding resources they could read (such as this forum) so that they could become more informed and "ask the hard questions" themselves if they wish.

I speak from experience from having an old-school MIL with a FA she has been with for years. At times she asked for "help" but really didn't want any. It took me a while to figure that out and extricate myself from her financial mess that she truly was happy with all along.

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Re: What might you ask In-laws' FA?

Post by psteinx » Mon Nov 13, 2017 4:05 pm

1) It's HIGHLY unlikely that they're only paying a fee on withdrawals. Figuring out what the actual fee to the FA is, starting as a percentage, then converting that to an actual annual dollar figure, may be clarifying. Compare that annual fee, in dollars, to what they spend on their house, utilities, vacations, groceries, etc...

2) The American Funds, and other funds they may be invested in, will have their own fees. Ask about those fees, as well, to get a full picture. If the money is in tax-deferred accounts such as IRAs, then it could probably be switched to lower cost funds with no immediate tax consequences for the switch.

2a) That said, American Funds are, to my understanding, decent choices - pricier in general than Vanguard, but not too bad.

2b) The FA may respond to questions about the funds' fees, and the FA's own fees, by referencing great returns for the portfolio or whatever. "Sure you're paying 1/1.5/2.0% per year in fees, but in the last 5 years, the portfolio has grown by 9%!" Keep in mind that in general, investment returns have been great since the market turned around in 2009. Ideally, you would want to compare the returns of the funds/portfolio your in-laws are invested in to comparable index funds at Vanguard or elsewhere. But doing this king of comparison is hard - you'd need an accurate handle on timing, inflows, outflows, etc. And you've said that you're not even getting an accurate snapshot of present amounts (i.e. current portfolio size), much less a detailed history.

3) Many on these forums pooh-pooh advisers. They have their downsides (cost! and some other issues). But they're not without benefits. Especially for folks without much interest or inclination in tending to their own investments. I think it would be good for the in-laws to understand their situation, and the relevant costs. But if the alternative is that the in-laws stick it all in a 1% bank account the first time the market drops 5% or they see a scary economic story on TV, then perhaps the use of an adviser will look good by comparison. (Or not, if the market really does crash.)

3a) A risk, in your situation, of pushing a viewpoint to hard is that if the in-laws do follow that viewpoint, and bad things happen afterwards (i.e. the market crashes or whatever), that it may strain personal relationships. Think about how much you want to get involved and how hard you want to push any viewpoints you may have. A safer approach, perhaps, is to encourage the in-laws to self-educate, so they'll feel comfortable making their own choices (or supervising the choices of an adviser).

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Re: What might you ask In-laws' FA?

Post by Edge_90 » Mon Nov 13, 2017 4:37 pm

psteinx wrote:
Mon Nov 13, 2017 4:05 pm
3a) A risk, in your situation, of pushing a viewpoint to hard is that if the in-laws do follow that viewpoint, and bad things happen afterwards (i.e. the market crashes or whatever), that it may strain personal relationships. Think about how much you want to get involved and how hard you want to push any viewpoints you may have. A safer approach, perhaps, is to encourage the in-laws to self-educate, so they'll feel comfortable making their own choices (or supervising the choices of an adviser).
Where is that dang thumbs up button? :D I hear you (your whole post, not just the above). Your point is well-taken and really one of my main concerns. We are a very close family, and have been through thick and thin together. Whatever is done should be done with eyes wide open, and with no arm-twisting. I really believe what they are seeking, albeit quite late, is education.

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Re: What might you ask In-laws' FA?

Post by psteinx » Mon Nov 13, 2017 4:58 pm

psteinx wrote:
Mon Nov 13, 2017 4:05 pm
A safer approach, perhaps, is to encourage the in-laws to self-educate, so they'll feel comfortable making their own choices (or supervising the choices of an adviser).
And to follow up my own post, a risk of self-education is that that self-education may lead to confidence, or even overconfidence, to change things up, in a way that turns out badly. (Perhaps the changes themselves were poorly thought out, or perhaps they suffered bad luck or whatever).

There's a lot of ways this stuff can go wrong. :(

But then that describes a lot of choices we make in life, including non-financial stuff...

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Re: What might you ask In-laws' FA?

Post by Sandtrap » Mon Nov 13, 2017 5:43 pm

An older aunt invited me in with her FA once. She was 80 and worth about 40 mil.
Her FA at Merrill Lynch was an old fellow that she spoke highly of. They had been together for a long long time.
I met the fellow. Smiled. Acted courteous. That was it. Her relationship with her FA was stronger than her relationship with me. No sense saying anything.
Felt like taking a long shower when I got home to wash the grease off after shaking hands with this FA. :shock:

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Re: What might you ask In-laws' FA?

Post by NotWhoYouThink » Mon Nov 13, 2017 5:50 pm

At a first meeting, I'd just express some curiosity about asset allocation and trading frequency. And remember that even if the asset allocation is not what you recommend, it may be what your in-laws indicated they want. (My mom has about 90% in 2 blue chip stocks, and it drives me batty. But she likes it that way, and the advisor does not churn.)

Costs are important over the long run, but as long as there is no churning they're not an urgent problem in the first month you see the portfolio. And probably what your in-laws really want is for you to congratulate them on doing such a great job building a portfolio and picking a great manager. Learn at this meeting, and decide in the next few weeks if there is anything so alarming you need to express an opinion about it. But definitely don't press any issue enough to make them or their advisor uncomfortable at the first meeting, especially with other family members present.

Good luck.

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Re: What might you ask In-laws' FA?

Post by dbr » Mon Nov 13, 2017 6:09 pm

You can examine their statements to see what share classes of American Funds they are invested in. That will tell you the expense structure of the funds including a 12b-1 fee and any loads. You should also be able to find an explicit withdrawal for any AUM fee. You MIL is undoubtedly confused about taking 1% of what they withdraw. It is 1% annually of what they invest.

If you have to you or they can simply ask for an explanation of costs. Make sure you ask about all "costs" and not just "fees." I would be pretty sure they will be in Class F funds that do not have loads or 12b-1 fees and that they are paying an AUM of perhaps 1%.

You can examine their statements to see what investments they hold and reduce that down to an asset allocation.

Other than the AUM and the fact that American Funds expense ratios will probably be a half percent or so higher than need be there is not likely going to be anything outrageous going on here. You can look up the turnover on M* to estimate internal brokerage costs. There should be few sales no sales commissions listed on sales confirmations. Check and see from their statements and confirmations how much trading is going on.

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Re: What might you ask In-laws' FA?

Post by celia » Mon Nov 13, 2017 6:13 pm

Edge_90 wrote:
Mon Nov 13, 2017 10:33 am
I've been asked by my in-laws to go along for a meeting with their FA, a local outfit.
Whose idea is it that you come along? For all you know, the advisor suggested that they bring their SIL next time since it sounds like he needs a financial advisor!
My basic mission will be to understand exactly how the FA is compensated. I'm not sure if he is particularly skilled at evading the question, but I'm just trying to anticipate anything including a bunch of smoke and mirrors. My goal is to simply help my in laws understand what their expenses are and their wish is to simply not leave this world in debt when that time comes.
Instead of focusing on what the FA earns from their account, your focus should be on understanding the fees they are paying (ie, don't make it personal). After you get them back home, change those percentages into dollar amounts. Eg., He charges "only 1% in management fees" a year could mean he is "subtracting $3,000 from their account each year" as his compensation. Then remind them (several times) that payment is being subtracted every single year. I'd then leave it to the in-laws to decide what they want to do after that, if anything. Time to leave!

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Re: What might you ask In-laws' FA?

Post by pkcrafter » Mon Nov 13, 2017 6:21 pm

There is no reason to go, and I wonder who suggested you attend. It smacks of an attempt to get you in there and sign you up! Is your wife using this guy? What ever the motivation, you are going to get the pitch with your in-laws on the advisors side.


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Last edited by pkcrafter on Tue Nov 14, 2017 2:36 pm, edited 1 time in total.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

NotWhoYouThink
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Re: What might you ask In-laws' FA?

Post by NotWhoYouThink » Mon Nov 13, 2017 6:59 pm

Other things you might find out at this meeting is whether your in-laws' portfolio is 6 figures or 7 (or 5 or 8), and what the first digit is, and whether it is growing or they are spending it down, so you can determine whether your wife and her sister will be getting requests for support in a few years.

Really, I recommend that you use this meeting to get a sense of their financial health and not an analysis of their FA's behavior and compensation. They have an FA, s/he will be compensated at a level bogleheads would abhor but the rest of the investing public happily agrees to as a way to avoid having to deal with all of those messy decisions and calculations. That's ok for now. Go back up to the big picture of whether you in-laws are living well beyond their means, or whether they can continue to coast at the current level for now.

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Re: What might you ask In-laws' FA?

Post by Nearly A Moose » Mon Nov 13, 2017 9:36 pm

goingup wrote:
Mon Nov 13, 2017 11:19 am
I would ask your in-laws what they hope to achieve by you attending the meeting.

My dad wanted me to meet "his guy" at Merrill Lynch just to have the connection for when he passed. He didn't want me to ask questions. If I knew then what I know now I would have wanted to understand what stocks he owned and whether his AA was appropriate for an 80 year old. And whether the account was being churned.

American Funds are well managed so I wouldn't worry too much about that. The loads probably have been paid already. The expense ratios are mid-pack, though not low like Vanguard. The dividends and capital gains probably represent a reliable cash stream which your in-laws may depend upon.

You may be their back-up plan if/when they no longer feel competent to handle their financial affairs. They may want an additional set of eyes/ears to assure them that there aren't any shenanigans going on with their finances.

I love Vanguard and self-manage, but recognize that many people are very satisfied using a financial advisor. Personally, I wouldn't go into the meeting looking to convert them to a different arrangement.
Plus one. You're being a bit cagey on why you know they want you to ask about costs. But I'd be very careful about messing with your in laws' relationship with their FA. And, as someone else said, he will certainly have more experience responding to fee questions (and, his fee will more than be made up for by his ability to beat the market based on some back testing he will have handy...) than you do in probing on them, and once he answers all your questions in a way that your parents won't understand anyway (bc they're not literate in this stuff), the FA will sound squeaky clean and you will look like you don't know what you're doing. I took on and then fired my parents' FA. I still remain cordial with him because my parents trust him and I'm not going to get in the way of that.

If you go, I would suggest asking thoughtful open ended questions and debrief with your parents afterward when he's not there to put a spin on it. You could even present him your situation and ask how he'd manage it (including fees, also "oh, is that the fee you're charging my parents? Oh, makes sense..."). Would give you a chance to do a compare/contrast afterward. And, if you want ask intelligent questions and have any ability to follow up, you're going to need to see a bunch of statements. But those will answer your fee questions, so you don't really need a fancy meeting to get at that info.

If you really want to make the meeting useful, consider asking about his long term strategy, his draw down plans, how your parents/he plan to fund significant medical / end of life care, what the estate plan looks like, etc. If you have to ask about fees, fine, do that, but focus on these types of issues instead. Because those are the things that are actually going to affect you and your SIL - either you need to be prepared to chip in or you'll need to deal with the FA in your capacity as power of attorney/executor/trustee.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

InMyDreams
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Re: What might you ask In-laws' FA?

Post by InMyDreams » Mon Nov 13, 2017 9:58 pm

goingup wrote:
Mon Nov 13, 2017 11:19 am
I would ask your in-laws what they hope to achieve by you attending the meeting.
And your wife, too. If she's financially aware, perhaps she could be the source of advice, if any is given.

I think it's a no-win situation. Speaking speculatively, if they were to jump on board an indexed fund, and the market took a downturn - will they think their losses due to your advice? Would it be a nagging feeling, even if they rationally knew that market downturns happen.

On the other hand - if there is an attempt to recruit you, that might be an opportunity to speak up, and talk about your investing style (indexed funds, avoiding advisor fees, etc). You're not telling them what to do, just explaining what you do.

BTW - my father's Vanguard advisor, who works in a different city, sent my father a bonsai tree on the loss of my mother. The personal touch with clients is good for business :)

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Re: What might you ask In-laws' FA?

Post by sergeant » Mon Nov 13, 2017 10:57 pm

Sandtrap wrote:
Mon Nov 13, 2017 5:43 pm
An older aunt invited me in with her FA once. She was 80 and worth about 40 mil.
Her FA at Merrill Lynch was an old fellow that she spoke highly of. They had been together for a long long time.
I met the fellow. Smiled. Acted courteous. That was it. Her relationship with her FA was stronger than her relationship with me. No sense saying anything.
Felt like taking a long shower when I got home to wash the grease off after shaking hands with this FA. :shock:
Hopefully you ordered the most expensive item on the menu, drinks, and dessert. The FA must have done real well with your aunt.
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Re: What might you ask In-laws' FA?

Post by sschullo » Mon Nov 13, 2017 11:11 pm

This is very interesting.

You need to find out their motive for asking you. This is a touchy situation as you have already read from the other posters.

After all of these years, I would ask them has anything changed that they now want you to go with them?
Have they read something or another friend or relative told them that they should pay more attention to their money and their FA?
Is it something that the FA said or recommended that was different from before?
Is it because they found out you know something about investing?

Something happened that has prompted them to ask you TO GO WITH THEM! THAT'S HUGE coming from "old school" folks. And the trusting of an in-law speaks volumes that something is worrying them.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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Re: What might you ask In-laws' FA?

Post by sschullo » Mon Nov 13, 2017 11:18 pm

sergeant wrote:
Mon Nov 13, 2017 10:57 pm
Sandtrap wrote:
Mon Nov 13, 2017 5:43 pm
An older aunt invited me in with her FA once. She was 80 and worth about 40 mil.
Her FA at Merrill Lynch was an old fellow that she spoke highly of. They had been together for a long long time.
I met the fellow. Smiled. Acted courteous. That was it. Her relationship with her FA was stronger than her relationship with me. No sense saying anything.
Felt like taking a long shower when I got home to wash the grease off after shaking hands with this FA. :shock:
Hopefully you ordered the most expensive item on the menu, drinks, and dessert. The FA must have done real well with your aunt.
Yeah, "Real Well" is an understatement. 3.0% fee are not uncommon in those highly elite brokerage firms. Let's run a little math: 3.0% plus expenses is a cool $1,200,000 per year for that FA from ONE client. Sure he has to share with the firm, but that's why he has many clients.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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Re: What might you ask In-laws' FA?

Post by carolinaman » Tue Nov 14, 2017 7:24 am

sschullo wrote:
Mon Nov 13, 2017 11:11 pm
This is very interesting.

You need to find out their motive for asking you. This is a touchy situation as you have already read from the other posters.

After all of these years, I would ask them has anything changed that they now want you to go with them?
Have they read something or another friend or relative told them that they should pay more attention to their money and their FA?
Is it something that the FA said or recommended that was different from before?
Is it because they found out you know something about investing?

Something happened that has prompted them to ask you TO GO WITH THEM! THAT'S HUGE coming from "old school" folks. And the trusting of an in-law speaks volumes that something is worrying them.
In order to be helpful, I think you need to know their AA and investment holdings prior to the meeting, dependent upon what their motivation is for asking you to be there. I have seen relatives and friends holdings managed by FAs before and they always had a confusing array of investments, some which you will likely not be familiar with. This will give you a chance to research everything before the meeting and be better prepared to ask questions. I do think you need to be prepared to ask more questions than how the FA is compensated (although that is important).

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Re: What might you ask In-laws' FA?

Post by NotWhoYouThink » Tue Nov 14, 2017 7:53 am

Most importantly, you need to come back here after the meeting and let us know how it goes.

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Re: What might you ask In-laws' FA?

Post by JPH » Tue Nov 14, 2017 8:09 am

Edge_90 wrote:
Mon Nov 13, 2017 10:33 am
I recognize that I know next to nothing about the details of their financial situation at this point.
Stay out of it.
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Re: What might you ask In-laws' FA?

Post by NotWhoYouThink » Fri Nov 17, 2017 2:58 pm

Any updates?

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