Need advice on managing my mother's investments

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Charlie Foxtrot
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Need advice on managing my mother's investments

Post by Charlie Foxtrot » Sun Oct 21, 2018 6:59 pm

My 80-year old mother has asked me to take over her investment portfolio, which is currently being managed by a Wells Fargo adviser. Her current Wells Fargo IRA portfolio is spread out over about 20 mutual funds, with an average expense ratio of about 1.1%, and with another 1% of assets going to her adviser every year. Even though I explained why having a family member take over her investments is usually not a good idea, she still wants to push ahead - she just about went ballistic when I showed her the $2,000 annual adviser fee from a recent statement. She promises she is not going to blame me if the market tanks, there are no siblings to deal with, and since I’m retired, I have plenty of time to manage this.

She knows nothing about investing, so I want to make it as simple as possible for her. I intend to use the Boglehead approved three-fund portfolio for her IRA: Vanguard Total Stock Market Index Fund, Vanguard International Stock Index Fund, and Vanguard Total Bond Market Index Fund.

She is in good health, and we should probably plan for a life expectancy of 90-95. She owns her condo, and has been paying on a long-term care insurance policy for several years. She’s very frugal, and doesn’t really care to travel anymore, so her expenses are extremely low.

Social Security Income: $16,000 per year
Annuity Income: $2,000 per year through 2021 (I won’t do anything with this annuity - it is not connected to Wells Fargo)
IRA balance: $200,000 - her RMD will give her around $10,600 this year
Taxable account balance: $50,000 - she has been withdrawing about $6,000 per year

Annual Income: $34,000
Annual Expenses: $22,000

Questions:

1. I think I should get a power of attorney for managing her finances, but I think we can take care of that after the transfer. What else do I need to do?

2. What pitfalls should I expect based on your similar experiences?

3. What do you recommend for her asset allocation? Her current Wells Fargo IRA is at a 68/32 stock/bond split, although I think she needs to be at 60/40, and I could be persuaded to go 50/50.

4. How much of the 60% stock allocation should go to U.S. and how much to International? I’m leaning to 50% U.S. and 10% International.

5. What should I do with the taxable account? It is invested in about 20 mutual funds, but they aren’t the same as her IRA. I think I can do a “transfer in kind" to Vanguard without any tax consequences, but should I do the three-fund portfolio or something else?
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Grt2bOutdoors
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Re: Need advice on managing my mother's investments

Post by Grt2bOutdoors » Sun Oct 21, 2018 7:34 pm

At an advanced age, why take risk if it's not needed? 60/40 or 50/50 is less aggressive and should beat inflation over the long haul. It's simply disgusting, did the WF advisor put your mother in 20 funds? And I though EJ was bad. :oops: See if Vanguard will take an in-kind transfer, do you know what are the gains/losses in each of the funds, perhaps you can offset them and reduce any potential tax liability should you decide to consolidate.
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Money Market
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Re: Need advice on managing my mother's investments

Post by Money Market » Sun Oct 21, 2018 8:15 pm

Vanguard will accept in-kind transfers without problems. I was in the exact situation except with Citibank. My mother had the same reaction when I showed her the fees she was paying. I explained to her everything about Vanguard and had her take a risk tolerance survey so she was comfortable with putting everything into the Vanguard Balanced Index Fund, which is a domestic 60/40 fund.

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indexfundfan
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Re: Need advice on managing my mother's investments

Post by indexfundfan » Sun Oct 21, 2018 8:22 pm

Since this is an IRA, there wouldn't be any capital gains tax issue.

You might want to provide Vanguard with the list of funds and check with them if there are fees to sell them at Vanguard. With 20 funds, the commission could add up quickly. In such a case, it may be possible to consolidate without fees at Wells into 3 funds before transferring in-kind.
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123
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Re: Need advice on managing my mother's investments

Post by 123 » Sun Oct 21, 2018 9:04 pm

You may want to consider a fund-of-funds, like one of the Vanguard LifeStrategy funds, for the IRA if you can one that is a suitable asset-allocation. The expense ratio of a LifeStrategy is somewhat higher than if you use the component funds but its completely automatic rebalancing. There is less anxiety about daily price movements when you only have the consolidated result. If you go with Vanguard you can take advantage of their excellent automatic RMD service, my spouse has an inherited IRA composed of a single fund and the automatic RMD is completely automatic.

You can make managing investments for someone else as simple or complicated as you want. It won't make any difference to the person you are assisting. The best approach is one that is simple to explain to them and is readily understood.
The closest helping hand is at the end of your own arm.

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Charlie Foxtrot
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Re: Need advice on managing my mother's investments

Post by Charlie Foxtrot » Mon Oct 22, 2018 4:09 pm

Thanks for the responses. I think I might go with the Vanguard Balanced Index Fund (VBIAX) for both her IRA and her taxable account instead of the three-fund portfolio since it would be very easy for her to understand, it has the 60/40 split that I'm looking for, and it only has a .07% expense ratio. All we would ever need to do is take the RMDs and never worry about rebalancing. I did look at the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), which is also 60/40, but it has more International than I am comfortable with, especially the International Bonds.

She only has $50K in her taxable account, and I don't think the long-term capital gains tax will be too much. I figure it's better to pay the taxes and fees now to get her out of Wells Fargo as soon as possible, because it will be less than what she is paying in their outrageous fees.

My only concern now is initiating the transfer... I'm afraid that when her adviser finds out we are transferring to Vanguard, he may do something to make things difficult for us. Ugh! Transfer-in-kind, here we come.
"Man plans... God laughs"

Polaris
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Re: Need advice on managing my mother's investments

Post by Polaris » Tue Oct 23, 2018 3:06 pm

123 wrote:
Sun Oct 21, 2018 9:04 pm
You may want to consider a fund-of-funds, like one of the Vanguard LifeStrategy funds, for the IRA if you can one that is a suitable asset-allocation. The expense ratio of a LifeStrategy is somewhat higher than if you use the component funds but its completely automatic rebalancing. There is less anxiety about daily price movements when you only have the consolidated result. If you go with Vanguard you can take advantage of their excellent automatic RMD service, my spouse has an inherited IRA composed of a single fund and the automatic RMD is completely automatic.

You can make managing investments for someone else as simple or complicated as you want. It won't make any difference to the person you are assisting. The best approach is one that is simple to explain to them and is readily understood.
My brother and I pretty much suggested this route for my Mom after my Dad passed away earlier this year. They use Fidelity, so we tried to replicate the asset allocation my Dad had in place with FKIFX combined with Fidelity's RMD service (simple, low cost, and enough risk for her to tolerate). She doesn't need the money from the RMDs for living expenses, so we've also moved the bulk of her idle cash to SPRXX and are gradually putting some of it to work in a short term CD ladder.

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PalmQueen
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Re: Need advice on managing my mother's investments

Post by PalmQueen » Tue Oct 23, 2018 4:30 pm

Charlie Foxtrot wrote:
Mon Oct 22, 2018 4:09 pm
Thanks for the responses. I think I might go with the Vanguard Balanced Index Fund (VBIAX) for both her IRA and her taxable account instead of the three-fund portfolio since it would be very easy for her to understand, it has the 60/40 split that I'm looking for, and it only has a .07% expense ratio. All we would ever need to do is take the RMDs and never worry about rebalancing. I did look at the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), which is also 60/40, but it has more International than I am comfortable with, especially the International Bonds.

She only has $50K in her taxable account, and I don't think the long-term capital gains tax will be too much. I figure it's better to pay the taxes and fees now to get her out of Wells Fargo as soon as possible, because it will be less than what she is paying in their outrageous fees.

My only concern now is initiating the transfer... I'm afraid that when her adviser finds out we are transferring to Vanguard, he may do something to make things difficult for us. Ugh! Transfer-in-kind, here we come.
Good for you for helping your mom!
You can do this with minimal contact with her WF advisor. My preference would be to do a transfer-in-kind to Vanguard initiated by Vanguard. Vanguard can do all the paperwork to "pull" the assets in from WF. That way her WF adviser won't be able to make things difficult. I suspect WF may charge higher transaction fees on any liquidation of assets than Vanguard would.

I'd discuss the plan with Vanguard to see if they would waive any sales commissions as part of getting the new business. (Not sure if Vanguard does this, but some institutions do.)

By bringing everything over in-kind, WF can't drag out the process in the name of needing time to sell things, WF won't make even more money through the sales process and once it's been transferred you can analyze what you have and sell strategically.

The one thing I would check out before moving forward is whether WF charges an "account closing fee". If they do and it's higher than the minimum needed to keep the account open, you could just leave that small amount behind and let the account linger.

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PalmQueen
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Re: Need advice on managing my mother's investments

Post by PalmQueen » Tue Oct 23, 2018 4:43 pm

Answering Question #1 from OP:
1. I think I should get a power of attorney for managing her finances, but I think we can take care of that after the transfer. What else do I need to do?

Go ahead and take care of the transfer now. When you open the new accounts, there's a way your mom can give you access to take actions on her accounts without power of attorney. (The Fidelity website has something like 4 levels of access you can grant. I expect Vanguard and Schwab have something similar.)

As a next step you can work with her on a Power of Attorney and Health Care Directive. These are not difficult to setup and there are others on this forum who have far more expertise than me in this area. My quick opinion is that the POA is really to be activated if the day comes when your mom no longer has the capacity to be involved in management of her finances. (Important to have sooner rather than later as none of us at any age know when that day may arrive.)

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Ged
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Re: Need advice on managing my mother's investments

Post by Ged » Tue Oct 23, 2018 4:51 pm

Your plan to move to Vanguard is great. Personally I'd opt for 50% total market and 50% short to medium term bonds. Or maybe 40/60 given her age.

Aside from that I'd ask about the rest of the important documents. Will naming executor(s), health care directive, powers of attorney. You might want to consider a situation where you might not be around too - who would your backup be?

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Charlie Foxtrot
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Re: Need advice on managing my mother's investments

Post by Charlie Foxtrot » Tue Oct 23, 2018 5:02 pm

After talking it over with a Vanguard rep this morning, he said it would probably be cheaper and much faster to have Wells Fargo liquidate each account to cash rather than do a transfer in kind. Wells Fargo had her invested in 22 different mutual funds for her IRA, and 20 different mutual funds for her taxable account, with fees costing her over $4,000 per year on only $250,000 of investments. What a RIPOFF! The good news is that her Wells Fargo adviser took the news well. I sent him an email to tell him what we wanted to do - he just needed my mother to call in to confirm. I think he realized that I had already showed my mother how much they had been charging her and was probably a little embarrassed that I had "exposed" his crappy financial advice. He said it would only take a few days to convert everything to cash, so then it will be very easy to complete the transfers. Yes, there are probably a bunch of fees it will trigger to liquidate and close all the accounts, but my mother just wants to to sever all ties with them immediately. I figured that the money she will save in the first year by switching to a single index fund (VBIAX) with a .07% expense ratio will more than offset the capital gains taxes and the outrageous fees she has been paying. In the process of doing all this, I remembered that we had already done a power of attorney for finances and healthcare a few years ago - I'll make sure that gets put on file with Vanguard.
"Man plans... God laughs"

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BL
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Re: Need advice on managing my mother's investments

Post by BL » Tue Oct 23, 2018 5:46 pm

V has it's own paperwork some of which can be done online AFAIK.

Banks also often want their own paperwork.

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