Taking Over Management of $7M Portfolio - Need Review/Help Allocating

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LFKB
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Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Tue Sep 18, 2018 3:50 pm

Hi all, I have been asked to take over control of a $7M net worth portfolio for my 95 year old grandma. She has 4 children (ages 57-64) who will split the amounts equally when she passes away. At this point, she has more than enough money for herself so the management of this money is essentially for the children at this point, which she is fine with.

Her current living expenses are about $17k per month

Her current portfolio consists of the following, all of which is held in taxable:
Cash - $167k
Stocks - $4.2M
REITs - $265k
Bonds - $712k
Loans to Individuals - $618k
Condo (paid off) - $1M

I am excluding the cash, loans to individuals and condo from her asset allocation. Based on this she is currently at:
Stock - 81%
Bonds - 14%
REIT - 5%

Stocks
$3M in 37 dividend paying stocks (Verizon, Altria, Phillip Morris, some REITs, etc). I will spare you from me listing every holding, but they range from a $28k gain to a $43k loss. These were all purchased for her through an adviser at JPMorgan. I recently changed over custodian of these stocks to Vanguard to lessen the fee impact.

$1.24M in Vanguard Total Stock Market. This currently is managed by an adviser at Wedbush

Bonds
$279k in short term bond funds (1.7-2% yield) held at Wedbush
$433k 15 California muni bonds for different cities which mature over the next 1-3 years held at Wedbush

REITs
$265k in 4 individual REIT stocks - CCI, VTR, O and WELL

I am thinking about making the following changes to her portfolio and would appreciate your review of this and any suggestions you may have

1. I have already moved her JPMorgan stocks to Vanguard. I would plan to do the same for her Wedbush funds (~$2M total value) to save on the 0.8% fee

2. Sell the vast majority of her 37 dividend stocks. I have looked at the gain / loss on each. My plan is to sell about $2.3M worth of those stocks that would net out to a capital loss of roughly $5k that would help her shield some taxes. She would hold onto 9 of these stocks (about $700k of value) which have the largest capital gains (about $100k gain in aggregate) in order for her children to get the stepped up basis on these when she passes away.

3. Sell all of her other securities and re-allocate her so her overall portfolio looks as follows

Stocks - $3.4M or 65% of portfolio
$1.9M total stock market (70% of the non-dividend stock portion)
$400k Vanguard Small Cap Index (15% of of the non-dividend stock portion)
$400k Vanguard International Index (15% of of the non-dividend stock portion)
$700k remaining 9 dividend stocks being held to save on cap gains

Bonds - $1.6M or 30% of portfolio
Reallocate all into Vanguard Intermediate Corporate Bond Index with ~4% Yield. Alternatively, I could hold the munis until they expire and then reallocate that ~$400k into this fund.

REITs - maintain at ~$265k or 5% of portfolio
Reallocate from the individual stocks currently held into Vanguard REIT index

Please let me know your thoughts and if you think I am making any major mistakes in my thinking. Thanks!

ausmatt
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by ausmatt » Tue Sep 18, 2018 5:53 pm

I would imagine holding the munis to maturity and then rolling to a bond fund would be advantageous tax-wise and bond return wise in 1-2 years (should be better for short/intermediate) after interest rate increases.

What is the yield on the minis? Btw I only see a 3.29% yield on vanguard intermediate currently (SEC yield).

Thesaints
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Thesaints » Tue Sep 18, 2018 6:07 pm

Who asked you to take over ? That could be your major mistake.
Do you know that the other heirs can take you to court if they are not satisfied with their share ?
For instance they could claim that you took advantage of an elder woman. You can certainly advise your grandmother, but she should be the one doing all the transactions. Otherwise, I wouldn't get involved in a similar situation, especially when doing it for free.

How is the Wedbush person administering 1.24M in VTSAX other than looking at it and how much is he paid to do so ?

If she has capital losses on her stock portfolio after 10 years of the best bull market in history, doesn't that suggest she has got a bad portfolio ?

How much is the reallocation you are planning going to cost ?
Last edited by Thesaints on Tue Sep 18, 2018 6:21 pm, edited 1 time in total.

livesoft
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by livesoft » Tue Sep 18, 2018 6:10 pm

I did not study what you intend to do, but quickly looked it over. It seems you are making justifiable changes with virtually no tax consequences.

But I wanted to point out something that you didn't ask: Namely how the beneficiaries feel about you managing this money. You just stated that you've been asked to manage it, but didn't state that everybody was in agreement with this or if grandma simply asked you or something else.

I have a friend who was made trustee of a large investment account and that led to great amounts of friction with future beneficiaries for all kinds of various mostly petty reasons. Have you set up a force field around yourself to ward off future possible attacks on your fiduciary duties?
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aristotelian
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by aristotelian » Tue Sep 18, 2018 6:11 pm

Why do you prefer Corporate Bonds to Munis? Seems to me the risk/reward are very similar but muni's are have tax advantage.

Your plan sounds good but if Grandma likes her dividend stocks I would be tempted to sell some losers and let the rest ride.

Agree with others, you are putting yourself in position to take the blame if the market drops, especially with an aggressive portfolio.
Last edited by aristotelian on Tue Sep 18, 2018 8:11 pm, edited 1 time in total.

Nate79
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Nate79 » Tue Sep 18, 2018 6:44 pm

I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by sergeant » Tue Sep 18, 2018 6:53 pm

Nate79 wrote:
Tue Sep 18, 2018 6:44 pm
I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.
I agree 100%!
Lincoln 3 EOW!

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Raymond
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Raymond » Tue Sep 18, 2018 7:10 pm

LFKB,

Your plan is sound, but as already mentioned, I personally would not want to be a lightning rod for possible vindictive, greedy or bat-guano insane relatives.

Another vote for Vanguard Personal Advisory Services.

Perhaps your grandmother might convey your suggestions to Vanguard, and see what they make of them (of course, they may not implement any of them).
"Ritter, Tod und Teufel"

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by cdu7 » Wed Sep 19, 2018 9:17 am

Why are you taking this on? Unless I was the sole heir to this estate and was assigned as the executor etc. I can't imagine feeling very comfortable in your shoes.

Veritas Simplex
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Veritas Simplex » Wed Sep 19, 2018 9:42 am

Nate79 wrote:
Tue Sep 18, 2018 6:44 pm
I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.
PAS will have trouble jamming this portfolio into the PAS box, due to the numerous individual stocks and REITS with capital gains, plus the individual muni bonds.

Agree with the other comments, you should be cautious in assuming liability for the investment decisions.

Based on what you've shared, at this point she could harvest some losses, net with some gains and let rest of the equities/REITS ride, allowing for a step up in basis if the bear stays beyond the horizon. Move the VTSAX form the Advisor and save the fee. Might as well let the munis mature.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Nate79 » Wed Sep 19, 2018 9:45 am

Veritas Simplex wrote:
Wed Sep 19, 2018 9:42 am
Nate79 wrote:
Tue Sep 18, 2018 6:44 pm
I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.
PAS will have trouble jamming this portfolio into the PAS box, due to the numerous individual stocks and REITS with capital gains, plus the individual muni bonds.

Agree with the other comments, you should be cautious in assuming liability for the investment decisions.

Based on what you've shared, at this point she could harvest some losses, net with some gains and let rest of the equities/REITS ride, allowing for a step up in basis if the bear stays beyond the horizon. Move the VTSAX form the Advisor and save the fee. Might as well let the munis mature.
That would be surprising because its not that difficult. It's not like they haven't seen this type of situation before over the thousands of customers. If they can't figure out how to manage it then PAS is incompetent. I doubt that but I would at least ask for a consultation with them to see what they would do.

chicagobear
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by chicagobear » Wed Sep 19, 2018 10:16 am

I would make sure that the loans to individuals are properly documented so they don't try to claim they were gifts when she passes.

Veritas Simplex
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Veritas Simplex » Wed Sep 19, 2018 12:21 pm

Nate79 wrote:
Wed Sep 19, 2018 9:45 am
Veritas Simplex wrote:
Wed Sep 19, 2018 9:42 am
Nate79 wrote:
Tue Sep 18, 2018 6:44 pm
I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.
PAS will have trouble jamming this portfolio into the PAS box, due to the numerous individual stocks and REITS with capital gains, plus the individual muni bonds.

Agree with the other comments, you should be cautious in assuming liability for the investment decisions.

Based on what you've shared, at this point she could harvest some losses, net with some gains and let rest of the equities/REITS ride, allowing for a step up in basis if the bear stays beyond the horizon. Move the VTSAX form the Advisor and save the fee. Might as well let the munis mature.
That would be surprising because its not that difficult. It's not like they haven't seen this type of situation before over the thousands of customers. If they can't figure out how to manage it then PAS is incompetent. I doubt that but I would at least ask for a consultation with them to see what they would do.
PAS doesn't work well with legacy portfolios with appreciated individual securities. To reach their targets, most individual securities will be likely be recommended for sale, generating potentially large capital gains for a 95 year old taxpayer. PAS works well when the investor has more tax-deferred accounts and few individual securities.

LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 12:44 pm

My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.

livesoft
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by livesoft » Wed Sep 19, 2018 12:53 pm

^Don't forget that the aunts/uncles can pre-decease grandmother. Then then cousins will be involved. Time has a way of changing things, too.

You will probably be alright, but I would still prepare ahead of time for conflict and get inoculated against that by some more formal agreement along with a written IPS, etc. It is probably not so much liability as it is future ill-will.
Last edited by livesoft on Wed Sep 19, 2018 12:54 pm, edited 1 time in total.
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LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 12:53 pm

First, I'm very confused by your post because I outlined all the steps I am taking to remedy the errors that I saw in her portfolio when I reviewed it...and you felt it necessary to then point out those errors which I already addressed, but see below for my response
Thesaints wrote:
Tue Sep 18, 2018 6:07 pm
How is the Wedbush person administering 1.24M in VTSAX other than looking at it and how much is he paid to do so ?
This is why I'm changing her out of Wedbush
Thesaints wrote:
Tue Sep 18, 2018 6:07 pm
If she has capital losses on her stock portfolio after 10 years of the best bull market in history, doesn't that suggest she has got a bad portfolio ?
She doesn't have the right portfolio for her which is why I am changing it, but the capital losses are on dividend stocks so she has made money on them it has just been paid out through dividends.
Thesaints wrote:
Tue Sep 18, 2018 6:07 pm
How much is the reallocation you are planning going to cost ?
The reallocation shouldn't really cost her anything...she is going to save a lot on fees and expenses and there aren't any taxable gains being liquidated.

LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 12:56 pm

ausmatt wrote:
Tue Sep 18, 2018 5:53 pm
I would imagine holding the munis to maturity and then rolling to a bond fund would be advantageous tax-wise and bond return wise in 1-2 years (should be better for short/intermediate) after interest rate increases.

What is the yield on the minis? Btw I only see a 3.29% yield on vanguard intermediate currently (SEC yield).
I will likely hold the munis to maturity. I think that is a good point and the right decision.

I was referring to Vanguard Intermediate-Term Corporate Bond ETF (VCIT) which has a 4.03% yield

EHEngineer
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by EHEngineer » Wed Sep 19, 2018 12:56 pm

LFKB wrote:
Wed Sep 19, 2018 12:44 pm
My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.
I'm concerned about the relationship/control aspect of your situation, but won't comment on them because you seem like you're satisfied.

From an asset management perspective, the most valuable thing you can do it write out a set of goals for the portfolio. Then each investment decision/action can be considered in regard to the goal it is trying to achieve. For example. You've excluded the cash from the asset allocation. why? They cash must have some goal, or some purpose that does not fit with investing. Explicitly write down the goal/purpose for the cash. Then your decision is justified.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by CRTR » Wed Sep 19, 2018 1:02 pm

EHEngineer wrote:
Wed Sep 19, 2018 12:56 pm
LFKB wrote:
Wed Sep 19, 2018 12:44 pm
My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.
I'm concerned about the relationship/control aspect of your situation, but won't comment on them because you seem like you're satisfied.

From an asset management perspective, the most valuable thing you can do it write out a set of goals for the portfolio. Then each investment decision/action can be considered in regard to the goal it is trying to achieve. For example. You've excluded the cash from the asset allocation. why? They cash must have some goal, or some purpose that does not fit with investing. Explicitly write down the goal/purpose for the cash. Then your decision is justified.

Could not agree more with this statement!!!

Veritas Simplex
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Veritas Simplex » Wed Sep 19, 2018 1:05 pm

OP, more important for your grandma and her heirs is estate planning. What steps, if any, has she taken? Has she created a trust? With a $7M portfolio, her estate is greater than the individual exemption, exposing her estate to taxes potentially at the highest bracket.

Leesbro63
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Leesbro63 » Wed Sep 19, 2018 1:17 pm

Veritas Simplex wrote:
Wed Sep 19, 2018 1:05 pm
OP, more important for your grandma and her heirs is estate planning. What steps, if any, has she taken? Has she created a trust? With a $7M portfolio, her estate is greater than the individual exemption, exposing her estate to taxes potentially at the highest bracket.
This is not correct, although if she lives to be 102, I will be under current law.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Veritas Simplex » Wed Sep 19, 2018 1:31 pm

Leesbro63 wrote:
Wed Sep 19, 2018 1:17 pm
Veritas Simplex wrote:
Wed Sep 19, 2018 1:05 pm
OP, more important for your grandma and her heirs is estate planning. What steps, if any, has she taken? Has she created a trust? With a $7M portfolio, her estate is greater than the individual exemption, exposing her estate to taxes potentially at the highest bracket.
This is not correct, although if she lives to be 102, I will be under current law.
Estate Planning is important in this situation.

LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 1:37 pm

EHEngineer wrote:
Wed Sep 19, 2018 12:56 pm
LFKB wrote:
Wed Sep 19, 2018 12:44 pm
My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.
I'm concerned about the relationship/control aspect of your situation, but won't comment on them because you seem like you're satisfied.

From an asset management perspective, the most valuable thing you can do it write out a set of goals for the portfolio. Then each investment decision/action can be considered in regard to the goal it is trying to achieve. For example. You've excluded the cash from the asset allocation. why? They cash must have some goal, or some purpose that does not fit with investing. Explicitly write down the goal/purpose for the cash. Then your decision is justified.
I just didn't into these details because I thought they were too minor and the post was already long. I'm leaving several months living expenses in cash. I am going to hold most of it in Vanguard Money Market for the yield at ~2% and then about $30k in her checking which has very low yield just to cover monthly expenses. Then will transfer cash from her checking as needed on a monthly basis.

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randomizer
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by randomizer » Wed Sep 19, 2018 1:48 pm

Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by EHEngineer » Wed Sep 19, 2018 1:54 pm

LFKB wrote:
Wed Sep 19, 2018 1:37 pm
EHEngineer wrote:
Wed Sep 19, 2018 12:56 pm
LFKB wrote:
Wed Sep 19, 2018 12:44 pm
My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.
I'm concerned about the relationship/control aspect of your situation, but won't comment on them because you seem like you're satisfied.

From an asset management perspective, the most valuable thing you can do it write out a set of goals for the portfolio. Then each investment decision/action can be considered in regard to the goal it is trying to achieve. For example. You've excluded the cash from the asset allocation. why? They cash must have some goal, or some purpose that does not fit with investing. Explicitly write down the goal/purpose for the cash. Then your decision is justified.
I just didn't into these details because I thought they were too minor and the post was already long. I'm leaving several months living expenses in cash. I am going to hold most of it in Vanguard Money Market for the yield at ~2% and then about $30k in her checking which has very low yield just to cover monthly expenses. Then will transfer cash from her checking as needed on a monthly basis.
I get it. I assumed you had a good reason. My point is you should write down the goals for the portfolio. Write them down and agree on them with Grandmother (assuming she is the principal, and mentally sound). It's important to be explicit and not depend too much on memories of verbal conversations. When markets go down people may start questioning past actions/decisions.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by prudent » Wed Sep 19, 2018 2:14 pm

When I was asked to admin a 7 figure trust for relatives (although I'm not a beneficiary), I went to a planner on a pay-per-hour basis. I didn't feel I needed to, since the only questions were about proper asset allocation for the beneficiaries using index funds, but there was no chance I was going to risk being open to second-guessing by financially-ignorant beneficiaries in the event the market took a dive and "prudent should have known..." And even if the beneficiaries don't question it, what if one of their friends put the idea in their head "You should have been doing better with your trust... My advisor made a lot more than that last year... prudent isn't a financial advisor, no wonder you didn't do better... I know a lawyer..." What if one of their friends IS an advisor, and starts planting seeds of doubt? Some advisors would use scare tactics to score an account like that.

I use CFP as an advisor, the trust pays for it. I wouldn't manage someone else's money any other way. I implement his recommendations, so I'm just the guy handling the paperwork.

If the trust does well, nobody will praise you. If it doesn't, it will be all your fault.

LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 2:20 pm

randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?

I have a business degree with a focus in corporate finance from a top university, worked in investment banking for two years and have worked in private equity for nearly 9 years. I've invested roughly a billion dollars in deals that have generated between 3-6x invested capital over 2-6 year hold periods. I also manage my own net worth which is north of $4 million at age 32 (without a dollar of inheritance). All that said, I'm not above receiving some feedback and opinions from this board.

None of the four children have a clue about investing and they all would prefer that I manage it.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by livesoft » Wed Sep 19, 2018 2:26 pm

I heard of a gentleman with an MBA from the Booth School of Business. His deceased mom made sure that his inheritance was administered in trust with his two other brothers (who had no particular financial education qualifications) as trustees. I guess his mom didn't like the University of Chicago.
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LFKB
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 2:38 pm

livesoft wrote:
Wed Sep 19, 2018 2:26 pm
I heard of a gentleman with an MBA from the Booth School of Business. His deceased mom made sure that his inheritance was administered in trust with his two other brothers (who had no particular financial education qualifications) as trustees. I guess his mom didn't like the University of Chicago.
Thank you for that random story that has no relevance to this thread

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by sambb » Wed Sep 19, 2018 2:41 pm

put all in tax managed balanced and be done with it

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by NancyABQ » Wed Sep 19, 2018 2:45 pm

I think your plan seems pretty reasonable at first glance.

Even though the 4 beneficiaries are on board, I can see the value of covering yourself with some kind of 1-time fee financial consultation. Document what you are doing, and keep the beneficiaries up to date with statements, etc. Maybe get them all to sign an agreement about you managing your grandmother's assets? Consult a lawyer?

My thought is to make sure not to incur any unnecessary capital gains, given the eventual step-up and your grandmother's age.

If she has ~$200K annual expenses, then simple back of the envelope calculation (2% of 7mill) says she gets about $140K in dividends/interest from the portfolio. So that leaves a ~$60K gap? Some of that is covered by social security? I would keep ~3 years or more in cash (money market/CD) so that there won't be any need to sell holdings for cash later, so maybe $200K?

I am surprised that the individual stock holdings have so many losses to offset the gains. It makes me wonder what the advisor was up to... Water under the bridge now, though!

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 2:58 pm

NancyABQ wrote:
Wed Sep 19, 2018 2:45 pm
I think your plan seems pretty reasonable at first glance.

Even though the 4 beneficiaries are on board, I can see the value of covering yourself with some kind of 1-time fee financial consultation. Document what you are doing, and keep the beneficiaries up to date with statements, etc. Maybe get them all to sign an agreement about you managing your grandmother's assets? Consult a lawyer?

My thought is to make sure not to incur any unnecessary capital gains, given the eventual step-up and your grandmother's age.

If she has ~$200K annual expenses, then simple back of the envelope calculation (2% of 7mill) says she gets about $140K in dividends/interest from the portfolio. So that leaves a ~$60K gap? Some of that is covered by social security? I would keep ~3 years or more in cash (money market/CD) so that there won't be any need to sell holdings for cash later, so maybe $200K?

I am surprised that the individual stock holdings have so many losses to offset the gains. It makes me wonder what the advisor was up to... Water under the bridge now, though!
This is good advice and I plan on taking a small fee and ensuring they all agree to it. I mentioned it earlier, but that adviser at JPMorgan Chase had her in all dividend stocks, so even on the stocks that had capital losses she had made money, it just already been distributed to her through dividends.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by HEDGEFUNDIE » Wed Sep 19, 2018 3:12 pm

How did you decide upon the 70/30 AA?

Since family is involved and the timeframe for distribution could be very soon, I would think you would want to prioritize capital preservation over growth.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 3:16 pm

HEDGEFUNDIE wrote:
Wed Sep 19, 2018 3:12 pm
How did you decide upon the 70/30 AA?

Since family is involved and the timeframe for distribution could be very soon, I would think you would want to prioritize capital preservation over growth.
I'm actually taking the stock portion down from 86% (81% stock and 5% REIT) to 70% (65% stock, 5% REIT), so less aggressive overall than where she is today, however I am mostly shifting away from the dividend paying stocks into a more total market approach on the stock side. The 70/30 is what I think is the right portfolio for the children who age in range from 57-64. I am going to run it by them before making the change.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by HEDGEFUNDIE » Wed Sep 19, 2018 3:31 pm

LFKB wrote:
Wed Sep 19, 2018 3:16 pm
HEDGEFUNDIE wrote:
Wed Sep 19, 2018 3:12 pm
How did you decide upon the 70/30 AA?

Since family is involved and the timeframe for distribution could be very soon, I would think you would want to prioritize capital preservation over growth.
I'm actually taking the stock portion down from 86% (81% stock and 5% REIT) to 70% (65% stock, 5% REIT), so less aggressive overall than where she is today, however I am mostly shifting away from the dividend paying stocks into a more total market approach on the stock side. The 70/30 is what I think is the right portfolio for the children who age in range from 57-64. I am going to run it by them before making the change.
I see. So I think there are two ways you can see your role.

1. You could manage this money as if it already belonged to the heirs, in which case you should pick an AA that is appropriate for their individual timeframes. In this case 70/30 might make sense, although if you look at 2025 target date funds they are generally at 60/40.

2. You could just be a caretaker of the principal until it is distributed, in the same way that a trustee of a bankruptcy is charged with protecting (not growing) assets until the court decides on a plan. With four heirs and differing financial situations of each, I suggest this is the more justifiable approach.
Last edited by HEDGEFUNDIE on Wed Sep 19, 2018 3:36 pm, edited 1 time in total.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by mervinj7 » Wed Sep 19, 2018 3:33 pm

LFKB wrote:
Wed Sep 19, 2018 3:16 pm
HEDGEFUNDIE wrote:
Wed Sep 19, 2018 3:12 pm
How did you decide upon the 70/30 AA?

Since family is involved and the timeframe for distribution could be very soon, I would think you would want to prioritize capital preservation over growth.
I'm actually taking the stock portion down from 86% (81% stock and 5% REIT) to 70% (65% stock, 5% REIT), so less aggressive overall than where she is today, however I am mostly shifting away from the dividend paying stocks into a more total market approach on the stock side. The 70/30 is what I think is the right portfolio for the children who age in range from 57-64. I am going to run it by them before making the change.
Even if the intended recipients are ages 57-64, the distribution time could be relatively soon. Thus, the argument could be made to use a more conservative allocation for now. A 70/30 fund could lose 30% in the worst case (based on past performance). Would the rest of the family tolerate that? I definitely wouldn't. And you definitely don't want the blame if it does. Once the funds have been distributed, then each beneficiary can choose their own AA; in which case, 70/30 is quite reasonable for this age group.

Thus, I STRONGLY agree with HEDGEFUNDIE's suggestion to follow a strategy for capital preservation and income. You can use the Vanguard LifeStrategy Income Fund (VASIX) as a guide for AA (20/80). However, I would replace some of the bond funds with tax-exempt funds and probably skip international bonds altogether.

https://investor.vanguard.com/mutual-fu ... view/VASIX
https://personal.vanguard.com/us/insigh ... ns?lang=en

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Thesaints » Wed Sep 19, 2018 3:42 pm

LFKB wrote:
Wed Sep 19, 2018 2:20 pm
None of the four children have a clue about investing and they all would prefer that I manage it.
They prefer this now.
A possible scenario could very well be that your portfolio incurs 1M in losses by the time it needs to be distributed. At that point, especially in the case of people who don't have a clue, one consideration could be "My nephew lost me a quarter of a million and he even wanted to be paid for it! This should better come out of his father/mother's share of the inheritance, or I'm going to court. He really took advantage of that poor old woman". And in court: "A 95-yo woman with 85% of her portfolio in stocks ???!!! How could someone administering her assets while exercising standard duties of loyalty and prudence ever come up with something like that ? Your Honor, the Defendant is clearly guilty of mismanaging those assets".

I'm not saying it will happen, just that it may and at best you'll find yourself with a few disgruntled close relatives.
Has a trust in favor of the heirs been set up and you designated as the trustee at least ? Otherwise, you are really fishing for legal troubles.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by livesoft » Wed Sep 19, 2018 3:46 pm

LFKB wrote:
Wed Sep 19, 2018 2:38 pm
Thank you for that random story that has no relevance to this thread
It's nice when it seems that an elderly relative makes a rational selection for someone to manage their portfolio. It doesn't always happen.

At work, I'm sure that people around you can pick up the slack if you become prematurely incapacitated. What happens with the family situation? Who will be your backup in case something unfortunate happens?

I can also imagine that this management will extend to the heirs when they receive the money, don't you think? Wouldn't the beneficiaries think, "LFKB has done fine before we inherited these assets, so let's just let him/her take care of things for us, too"? That could be fine with you, but maybe you want an exit plan already in place? And as you get older, a transition/succession plan should become more important.
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by randomizer » Wed Sep 19, 2018 4:02 pm

LFKB wrote:
Wed Sep 19, 2018 2:20 pm
randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?
Aren't we all still learning? I know I am. I've seen a few threads of the "I am $small-number-of-years-old and I need advice on how to invest $large-number-of-millions" that haven't passed the smell test, so I thought I'd ask. No insult intended.
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 4:33 pm

randomizer wrote:
Wed Sep 19, 2018 4:02 pm
LFKB wrote:
Wed Sep 19, 2018 2:20 pm
randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?
Aren't we all still learning? I know I am. I've seen a few threads of the "I am $small-number-of-years-old and I need advice on how to invest $large-number-of-millions" that haven't passed the smell test, so I thought I'd ask. No insult intended.
Saying "It seems decidedly odd to go straight to a grandchild — who is still apparently learning " didn't sound at all like a "we're all still learning" type of comment

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by randomizer » Wed Sep 19, 2018 4:46 pm

LFKB wrote:
Wed Sep 19, 2018 4:33 pm
randomizer wrote:
Wed Sep 19, 2018 4:02 pm
LFKB wrote:
Wed Sep 19, 2018 2:20 pm
randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?
Aren't we all still learning? I know I am. I've seen a few threads of the "I am $small-number-of-years-old and I need advice on how to invest $large-number-of-millions" that haven't passed the smell test, so I thought I'd ask. No insult intended.
Saying "It seems decidedly odd to go straight to a grandchild — who is still apparently learning " didn't sound at all like a "we're all still learning" type of comment
One: it struck me as odd that they would skip a generation. Two: I sure would hope you're still learning if you come to a forum with a question like "help me invest 7 million bucks". On the other hand, you claim to have a net worth in excess of 4 million, and have in fact invested close to a billion dollars already at the fresh young age of 32. With such a track record, kind of amazing that you'd feel the need to ask for advice. I'm not in the same league so I doubt I could shed any light here for you.
87.5:12.5, EM tilt — HODL the course!

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Grt2bOutdoors » Wed Sep 19, 2018 4:48 pm

livesoft wrote:
Wed Sep 19, 2018 2:26 pm
I heard of a gentleman with an MBA from the Booth School of Business. His deceased mom made sure that his inheritance was administered in trust with his two other brothers (who had no particular financial education qualifications) as trustees. I guess his mom didn't like the University of Chicago.
She doesn’t believe in hawks. She may prefer doves instead.
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by LFKB » Wed Sep 19, 2018 4:51 pm

randomizer wrote:
Wed Sep 19, 2018 4:46 pm
LFKB wrote:
Wed Sep 19, 2018 4:33 pm
randomizer wrote:
Wed Sep 19, 2018 4:02 pm
LFKB wrote:
Wed Sep 19, 2018 2:20 pm
randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?
Aren't we all still learning? I know I am. I've seen a few threads of the "I am $small-number-of-years-old and I need advice on how to invest $large-number-of-millions" that haven't passed the smell test, so I thought I'd ask. No insult intended.
Saying "It seems decidedly odd to go straight to a grandchild — who is still apparently learning " didn't sound at all like a "we're all still learning" type of comment
One: it struck me as odd that they would skip a generation. Two: I sure would hope you're still learning if you come to a forum with a question like "help me invest 7 million bucks". On the other hand, you claim to have a net worth in excess of 4 million, and have in fact invested close to a billion dollars already at the fresh young age of 32. With such a track record, kind of amazing that you'd feel the need to ask for advice. I'm not in the same league so I doubt I could shed any light here for you.
It never hurts to get a few more eyes on something. It's not like Warren Buffett makes investment decisions on his own. He has partners and colleagues that chime in and review.

Like I said earlier, I'm not above receiving feedback. I just may or may not take it.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Thesaints » Wed Sep 19, 2018 4:53 pm

So, are you the trustee ? Has your grandmother given you power of attorney ? Has she given you the passwords ?

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by daveydoo » Wed Sep 19, 2018 4:55 pm

sergeant wrote:
Tue Sep 18, 2018 6:53 pm
Nate79 wrote:
Tue Sep 18, 2018 6:44 pm
I would have her transfer everything to Vanguard PAS advisory service and stay out of making recommendations.
I agree 100%!
+1 again. I did a similar thing for multiple relatives, albeit on a much smaller scale. As livesoft said, do not underestimate the ability of relatives to find fault with your role, plan, or implementation. It was worth the advisor fee for a few years, imo, to have that "cover." I was able to influence this individual at will and minimize CG implications, etc., but he was the advisor of record. We had a good relationship. I think we learned from each other. :D
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Grt2bOutdoors » Wed Sep 19, 2018 4:55 pm

randomizer wrote:
Wed Sep 19, 2018 4:46 pm
LFKB wrote:
Wed Sep 19, 2018 4:33 pm
randomizer wrote:
Wed Sep 19, 2018 4:02 pm
LFKB wrote:
Wed Sep 19, 2018 2:20 pm
randomizer wrote:
Wed Sep 19, 2018 1:48 pm
Any reason why one of the children isn't being asked to help? It seems decidedly odd to go straight to a grandchild — who is still apparently learning about investment — to suddenly managed a portfolio of $7M, which must be a well-into-the-99th-percentile portfolio.
What about my post made you think I am still learning about investment? Care to point out any errors or missteps in my thinking?
Aren't we all still learning? I know I am. I've seen a few threads of the "I am $small-number-of-years-old and I need advice on how to invest $large-number-of-millions" that haven't passed the smell test, so I thought I'd ask. No insult intended.
Saying "It seems decidedly odd to go straight to a grandchild — who is still apparently learning " didn't sound at all like a "we're all still learning" type of comment
One: it struck me as odd that they would skip a generation. Two: I sure would hope you're still learning if you come to a forum with a question like "help me invest 7 million bucks". On the other hand, you claim to have a net worth in excess of 4 million, and have in fact invested close to a billion dollars already at the fresh young age of 32. With such a track record, kind of amazing that you'd feel the need to ask for advice. I'm not in the same league so I doubt I could shed any light here for you.
It’s one thing to invest other people’s money, especially when using leverage. Institutional investors are conditioned to lose money, they expect it, they also expect high returns in return for taking high risks. Private equity can lose money too, they also can be locked into an investment for a far longer period of time than the relatives. It’s quite another when you are investing “family” money for individuals whose risk appetites may differ from your own and for whom the pain of loss (no matter if temporary) is quite real.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Dottie57 » Wed Sep 19, 2018 5:22 pm

EHEngineer wrote:
Wed Sep 19, 2018 12:56 pm
LFKB wrote:
Wed Sep 19, 2018 12:44 pm
My grandma has asked me to do this and all of the heirs are supportive of the decision. She is completely with it mentally and none of her children would claim otherwise. She would assign me power of attorney on all the accounts. I know my aunts and uncles well and don't expect any issues from them. I am also planning on laying out the changes I am making with them and confirming they are in agreement before I execute them, so I don't feel like I am opening up myself up to liability.
I'm concerned about the relationship/control aspect of your situation, but won't comment on them because you seem like you're satisfied.

From an asset management perspective, the most valuable thing you can do it write out a set of goals for the portfolio. Then each investment decision/action can be considered in regard to the goal it is trying to achieve. For example. You've excluded the cash from the asset allocation. why? They cash must have some goal, or some purpose that does not fit with investing. Explicitly write down the goal/purpose for the cash. Then your decision is justified.
Great idea.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by Dottie57 » Wed Sep 19, 2018 5:39 pm

I would preserve capital with a bit of growth. And get agreement with grandma and beneficiaries.

Families are quirky. Money can make people ornery, jealous etc. best to be conservative. For me 70/30is too risky when working with money for older folks.

JBTX
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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by JBTX » Wed Sep 19, 2018 6:32 pm

I agree 70/30 is too aggressive for a future estate portfolio with beneficiaries that average around 60. Their perception of risk is not as educated as yours given your background, age, etc. If it goes down a lot they will be unhappy. If it goes up, we'll it goes up. I would be at 60% stocks, max.

I'd make it as passive as possible. I would have said target date but perhaps that isn't best for taxable. Anything that divorces you from the day to day investing as much as possible.

While you are perfectly capable, and probably more so than most CFPS I agree with prudent that getting a good CFP involved is probably a good idea, just from a liability / cya / Fiduciary standpoint.

It is too bad there isn't a way to separately utilize the capital losses and keep the capital gains for eventual step up. As far as I know you can only offset $3000 of ordinary income per year.

I hope there is a good estate plan in place that considers the tax law, the fact that it may revert in 2026, etc and efficiently gifting as much as possible along the way.

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Re: Taking Over Management of $7M Portfolio - Need Review/Help Allocating

Post by TN_Boy » Wed Sep 19, 2018 10:07 pm

Dottie57 wrote:
Wed Sep 19, 2018 5:39 pm
I would preserve capital with a bit of growth. And get agreement with grandma and beneficiaries.

Families are quirky. Money can make people ornery, jealous etc. best to be conservative. For me 70/30is too risky when working with money for older folks.
It sounds like you obviously understand all the "number stuff," but I share the angst that you will become less popular with the family when the next market crash hits. We've had a nice run since 2008/2009. People forget. With a 70/30 allocation if we have a 40% stock crash, that portfolio is probably going to drop in the ballpark of $2,000,000. Everybody gets less understanding when that happens.

I do like the idea mentioned upthread of having written goals for the portfolio. I am basically doing for a parent what you are thinking about doing (albeit with much less than $7m) and I haven't got written goals. But, I do have the explicit goal of capital preservation for the family member, to ensure that all housing and medical needs (up to extended stay in skilled nursing) could be handled. This goal has been discussed with all heirs (myself and siblings).

And for that goal my target asset allocation was 30% stock/70% bonds and savings account -- preserve capital with some growth. It's actually drifted a bit higher on the stock side than 30%, but it's all taxable accounts and I've not taken the modest tax hit to rebalance back down to 30%. The parent is somewhat younger than your grandmother, and thus has a longer potential time needing care.

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