Should my 21-year old nephew fire his financial advisor?

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herrick55
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Should my 21-year old nephew fire his financial advisor?

Post by herrick55 »

My nephew inherited a large sum of money before he was 18, and my sister hired a financial advisor to manage it. The current amount of money is $294,000 and the asset allocation on the January 2024 financial statement is 6.23%. cash, 30.19% equities, 22.87% fixed income, 8.77% other, and 31.94% undefined.

The holdings are as follows:
ABALX American Balanced CL.A $43,500. Cost Basis: $38,250
BUFD First Trust Vest Fund Deep Buffer ETF $25,200. Cost Basis: $24,274
URA Global X Uranium ETF $16,700. Cost Basis: $14,850
AMECX Income fund of America CL A $59,200. Cost Basis: $52,790
ASBAX Short term bond of America CL A $41,400. Cost Basis: $41,150
GDX Vaneck Gold Miners ETF $6,300. Cost Basis: $5360
Insured Cash account $7,700

Unit Investment Trusts:
First Trust Shrt Dur F/Inc SEL.59 MO CA $43,200. Cost Basis: $43,560
First trust Precious Metals.SEL MO CA $17,000. Cost Basis: $16,700
First Trust CBOE VEST LGCP DEEP 49 AN CA $33,700. Cost Basis: $35,000

My sister asked for my advice this morning on whether or not she should fire the financial advisor and put her son's money in Vanguard (he already has $500 in a Vanguard brokerage account VOO).
She recently called the advisor to inquire why a 21-year old would have such a conservative asset allocation and he replied that a recession is coming.

Personally, I am all for firing the advisor, selling the funds, rollover to Vanguard and investing in total market index funds. However, I could use some advice from Bogleheads on how to fire my nephews advisor, rollover the funds to Vanguard, and what asset allocation is appropriate for a 21-year old?
Thank you
Last edited by herrick55 on Mon Feb 12, 2024 2:17 pm, edited 3 times in total.
livesoft
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Re: Should my 21-year old nephew fire his financial advisor?

Post by livesoft »

Definitely, yes. The salesrep should be fired and the money moved to Vanguard. What kind of account is this? Inherited IRA? Taxable? Something else?
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nedsaid
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Re: Should my 21-year old nephew fire his financial advisor?

Post by nedsaid »

Your sister's suspicions are correct, a 21 year old should be invested aggressively as presumably he has a long time horizon. So yes, fire the advisor
and move the funds to Vanguard. Why does a 21 year old need a buffered ETF? I do believe strongly in good old fashioned money in the bank but anything other than what is set aside as an emergency fund or for shorter term financial goals should be invested in stocks. 30% in stocks isn't near enough for a very young investor.
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herrick55
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Re: Should my 21-year old nephew fire his financial advisor?

Post by herrick55 »

Individual account with LPL Financial. It is not an IRA.
delamer
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Re: Should my 21-year old nephew fire his financial advisor?

Post by delamer »

He certainly needs to get his money out from the advisor.

But he should proceed carefully with selling anything until he knows the tax implications.

As far as his asset allocation is concerned, the best decision will depends on how he wants to use the money. A new car next year is different than graduate school in 3 years is different than a house downpayment in 10 years is different than retirement in 40 years.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by bendix »

herrick55 wrote: Sat Feb 10, 2024 5:46 pm My nephew inherited a large sum of money before he was 18, and my sister hired a financial advisor to manage it. The current amount of money is $294,000 and the asset allocation on the January 2024 financial statement is 6.23%. cash, 30.19% equities, 22.87% fixed income, 8.77% other, and 31.94% undefined.

The holdings are as follows:
ABALX American Balanced CL.A $43,500
BUFD First Trust Vest Fund Deep Buffer ETF $25,200
URA Global X Uranium ETF $16,700
AMECX Income fund of America CL A $59,200
ASBAX Short term bond of America CL A $41,400
GDX Vaneck Gold Miners ETF $6,300
Insured Cash account $7,700

Unit Investment Trusts:
First Trust Shrt Dur F/Inc SEL.59 MO CA $43,200
First trust Precious Metals.SEL MO CA $17,000
First Trust CBOE VEST LGCP DEEP 49 AN CA $33,700

My sister asked for my advice this morning on whether or not she should fire the financial advisor and put her son's money in Vanguard (he already has $500 in a Vanguard brokerage account VOO).
She recently called the advisor to inquire why a 21-year old would have such a conservative asset allocation and he replied that a recession is coming.

Personally, I am all for firing the advisor, selling the funds, rollover to Vanguard and investing in total market index funds. However, I could use some advice from Bogleheads on how to fire my nephews advisor, rollover the funds to Vanguard, and what asset allocation is appropriate for a 21-year old?
Thank you
I think anyone on this forum could do a better asset allocation, even after 2 bottles of wine and while on the phone regarding something else. Moving to Vanguard sounds like the way to go, and maybe, given markets are at record highs, DCA into the new allocation.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by tomd37 »

In my opinion the first thing the owner should do is personally and officially direct the "advisor" to stop making any future changes to the account without the owners written approval. Then the owner should determine what asset allocation he wants to have and determine what is the best way to achieve that allocation taking into account the effects of gains and losses in the sale of the current account. Index fund(s) would be the best bet long term, IMO, for the young man.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by spacemanspif »

she recently called the advisor to inquire why a 21-year old would have such a conservative asset allocation and he replied that a recession is coming.
This would be the easiest decision of my day, yes, yes, yes, fire this person and move the funds to Vanguard or such.

A fun question, if this “expert” can so clearly read the future why is he still putting a tie on and going to work as a retail financial salesmen and not enjoying the good life with all of his riches? Why not working on the top floor of Wall Street instead of, what I envision, as a strip mall suite flanked by a dry cleaner and Chinese take out joint?

Once you have moved the funds, please ask the very kind and helpful people on this forum for advice on how to best invest it. Please include the goals of your nephew, how mature he is, what his current and future occupation will be and so on. I would bet a great deal of money you will be given sage like advice as I have always been.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Big Dog »

spacemanspif wrote: Sat Feb 10, 2024 6:29 pm
she recently called the advisor to inquire why a 21-year old would have such a conservative asset allocation and he replied that a recession is coming.
This would be the easiest decision of my day, yes, yes, yes, fire this person and move the funds to Vanguard or such.

A fun question, if this “expert” can so clearly read the future why is he still putting a tie on and going to work as a retail financial salesmen and not enjoying the good life with all of his riches? Why not working on the top floor of Wall Street instead of, what I envision, as a strip mall suite flanked by a dry cleaner and Chinese take out joint?

Once you have moved the funds, please ask the very kind and helpful people on this forum for advice on how to best invest it. Please include the goals of your nephew, how mature he is, what his current and future occupation will be and so on. I would bet a great deal of money you will be given sage like advice as I have always been.
Indeed, He should be living on a yacht in the Cayman's and investing his own 8 figure portfolio.

(Another vote to fire this guy.)
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Re: Should my 21-year old nephew fire his financial advisor?

Post by bonesly »

herrick55 wrote: Sat Feb 10, 2024 5:46 pm She recently called the advisor to inquire why a 21-year old would have such a conservative asset allocation and he replied that a recession is coming.
Advisors that invest based on their crystal ball, rather than their clients' objective, time-horizon, and risk-tolerance, should absolutely be fired.
herrick55 wrote: Sat Feb 10, 2024 5:46 pm Personally, I am all for firing the advisor, selling the funds, rollover to Vanguard and investing in total market index funds. However, I could use some advice from Bogleheads on how to fire my nephews advisor, rollover the funds to Vanguard...
As much as possible you don't want to "sell the funds" as that willcould generate a significant tax-bill. You want to transfer the assets to Vanguard "in-kind" for those securities that Vanguard can accept; some securities might be proprietary to LPL Financial and those will have to be sold and the settlement cash moved to Vanguard.
Edit to change will to could as pointed out by livesoft... this could be a tax-advantaged individual account or there could be little-to-no gains in the positions from age 18 to age 21.

Once the account is at Vanguard along with the cost basis information, your nephew can elect to NOT turn on automatic re-investment of dividends, select his cost basis method as Specific Identification (SpecID), look at the cost basis of individual lots and try to sell losers to offset winners and thereby minimize taxes owed while unwinding these unwanted positions. If that's too much work he can choose MinTax as the cost basis method and it will try its best to automate minimizing the tax bill while unwinding these positions (most here prefer the control with SpecID over the lack of control with MinTax).

Some firms drag their feet about providing cost basis info to a new fiduciary, so maybe get a printout of that before making any moves (or even hinting to the advisor of your intentions to move). If you nephew has a Vanguard account it's worth him calling them to ask if they can help (I've heard Fidelity would certainly do this but they're more customer-service oriented than DIY Vanguard).
herrick55 wrote: Sat Feb 10, 2024 5:46 pm ...what asset allocation is appropriate for a 21-year old?
Asset Allocation (AA) is based on objective, time-frame, and risk-tolerance. That last part is very personal so generic guides can be provided but you should encourage the nephew to read the topics here on Prioritizing Investments, Asset Allocation, and Assessing Risk Tolerance.

Also have him take the Vanguard Investor Questionnaire to see what AA it recommends as that's likely a better starting point than the generic guidance (provided below anyways).
Image
Last edited by bonesly on Sat Feb 10, 2024 7:43 pm, edited 2 times in total.
billfromct
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Re: Should my 21-year old nephew fire his financial advisor?

Post by billfromct »

You don’t mention if he has earned income or any retirement accounts, but if he did have earned income, in 2023, he can open a 2023 Roth IRA & fund it up until 15 April 2024. The 2023 IRA maximum is $6,500, or his earned income up to that amount.

This would be a good financial account to start & Vanguard would be a good place to open a Roth IRA.

bill
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Re: Should my 21-year old nephew fire his financial advisor?

Post by livesoft »

bonesly wrote: Sat Feb 10, 2024 7:19 pmAs much as possible you don't want to "sell the funds" as that will generate a significant tax-bill.
We don't know if that will generate a significant tax bill or not.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by bonesly »

livesoft wrote: Sat Feb 10, 2024 7:36 pm We don't know if that will generate a significant tax bill or not.
Valid point; original edited.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by tibbitts »

For someone so young, I agree that a lifetime of lower fees will help. However you haven't provided the cost information about the current funds unless I missed it.

It's curious that between the time you began the post and finished it, you went from asking if your nephew should fire his advisor, to asking how to go about doing that.

I don't believe the adviser has any insight into future market movements. But how will you feel if this allocation moves to 100% equity - at your suggestion - and the next day the market drops 50%?

Are you sure you know what the funds are likely to be used for? It's pretty unusual for someone that age to not have big expenses coming up, but Bogleheads always default to thinking that any surpluses should immediately be allocated for retirement (even if in taxable and not a retirement account.)
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Money_Badger »

tomd37 wrote: Sat Feb 10, 2024 6:28 pm In my opinion the first thing the owner should do is personally and officially direct the "advisor" to stop making any future changes to the account without the owners written approval. Then the owner should determine what asset allocation he wants to have and determine what is the best way to achieve that allocation taking into account the effects of gains and losses in the sale of the current account. Index fund(s) would be the best bet long term, IMO, for the young man.
It would be easier to just move the money immediately.
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Taylor Larimore
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Taylor Larimore »

Herrick55:

I checked with Morningstar to learn the cost of your nephew's largest fund (AMECX). It has the highest front load of ALL American bond funds -- 5.75%. Vanguard funds have no front load.

AMECX also has an expense ratio of .58% compared with Vanguard Total Bond Market Index Fund of .050% (more than 10 times higher).

It is clear to me that your nephew's "advisor" wants to enrich himself more than he wants to help your nephew.

Best wishes.
Taylor
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Gradient Descent »

While I agree the advisor seems to be your typical high fee Edward Jones type, there are a few questions to ask of your nephew before sending him on the Boglehead journey:
1) How comfortable will he be with a self-managed portfolio?
2) Does he have the discipline to mostly leave it alone?
3) Will he panic sell if it drops 50%
4) Does he chase the latest get rich quick scheme? (Meme stocks, crypto, etc)

His answers may inform whether he should remain with an advisor or robo advisor, albeit in a place with lower fee funds (Vanguard, Fidelity, etc).
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Grt2bOutdoors »

Fire the advisor. Pure incompetence and self-serving financial advisor looking to earn income for himself.
While I don't know the needs of the 21-year old nephew, a 2-Fund or 3-Fund portfolio allocated appropriately could provide growth, income and stability for a fraction of the cost with most of the returns accruing to the nephew.

Those Unit Trusts - they come with sales loads, why they placed your nephew in an options strategy fund that caps returns is beyond me. Time in the market, not market timing, yet the advisor is playing market timer. No reason to be in gold/mining stocks, options strategy capped fund, and a short duration income fund. The gold fund is down more than 10% ytd while the broad market is up 4%.

Recommend two books for nephew: The Little Book of Common Sense Investing by John C. Bogle, 2nd Edition and The Millionaire Next Door - Stanley and Danko.
Last edited by Grt2bOutdoors on Sat Feb 10, 2024 8:59 pm, edited 2 times in total.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by TheEleven »

As others have mentioned here, the nephew should uncerimoniuosly fire this "advisor" who is clearly soaking him.

Be very sure about tax consequences of moving this money around.

And last but not least, that is a lot of money for a 21 year old. I hope you can encourage him to get educated on the basics of investing - which he must not be right now, otherwise he would never be in a portfolio like this. Maybe go over some Bogglehead basics with him yourself, or buy him a good book or two on the subject, point him to videos, etc.
A kid that young could really get an incredible leg up on life with that kind of windfall. He could also blow it all by the time he's 30. I really hope he ends up as a regular on this forum! What a great opportunity he has if he can learn some basics.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Chuckles960 »

Taylor Larimore wrote: Sat Feb 10, 2024 8:17 pm Herrick55:

I checked with Morningstar to learn the cost of your nephew's largest fund (AMECX). It has the highest front load of ALL American bond funds -- 5.75%.
This is legalized robbery.

At the same time, not everyone has the BH long term perspective. I recall when I first started investing and s twenty dollar loss in my bond fund would make me nervous. A substantial drop in the market is possible at any time. Now they can blame the advisor . But we should not be giving the rote BH 3 fund advice without allowing for a 21 year old's perspective, time-line, world view etc. 300K isn't necessarily "lock it up and throw away the key" money. He could have a need for it in the short or medium term.
Last edited by Chuckles960 on Sat Feb 10, 2024 9:41 pm, edited 2 times in total.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by arcticpineapplecorp. »

if the advisor is so sure a recession is coming, then why didn't he advise your nephew to short the market and make a killing?

how did your sister find this advisor salesman and how did she come to determine that this salesman was no good after recommending him to your nephew?

i guess the only good thing is this salesman didn't sell your nephew whole life insurance or indexed annuities (yet).

as was said, understand the tax implications before selling anything.

and whether or not we have a recession, markets do have intrayear declines EVERY YEAR, on average 14%:

Image

source: https://am.jpmorgan.com/us/en/asset-man ... e-markets/

so the nephew should understand how declines in the market multiplied by the allocation to stocks will result in specific losses in his portfolio. I.E., if he has 30% in stocks and stocks fall 20% he's looking at around 6% losses in his portfolio overall (.30 x .20 = .06). If he instead is 80% in stocks and stocks fall 20%, he's looking at around 16% in losses (.80 x .20 = .16).

then do the math. On a $300k portfolio losing 6% means losing $18,000. Losing 16% means losing $48,000. Be prepared.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Stinky »

herrick55 wrote: Sat Feb 10, 2024 5:46 pm My nephew inherited a large sum of money before he was 18, and my sister hired a financial advisor to manage it.
Just curious - in addition to the awful funds this advisor has our nephew in, is the advisor charging a fee? If so, do you k ow how much it is?

As others have said, fire the advisor.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by renter »

OP said the current balance is $294,000. It would be interesting to know the starting date and amount of this inheritance (before this thief got involved).
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Re: Should my 21-year old nephew fire his financial advisor?

Post by mhadden1 »

nedsaid wrote: Sat Feb 10, 2024 5:57 pm a 21 year old should be invested aggressively as presumably he has a long time horizon. So yes, fire the advisor
and move the funds to Vanguard. Why does a 21 year old need a buffered ETF? I do believe strongly in good old fashioned money in the bank but anything other than what is set aside as an emergency fund or for shorter term financial goals should be invested in stocks. 30% in stocks isn't near enough for a very young investor.
In a sort of half-throated defense of the advisor, keeping things conservative until a young person reaches majority is arguably the right thing to do. I have definitely heard about kids whose funds got p*ssed away by some "responsible party" before they grew up.

That said, yes the portfolio is horrible and cries out for improvement.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Katietsu »

Fire the advisor. I don’t think it looks like an EJ portfolio though. Doesn’t EJ control the portfolios from above to avoid ones that look like this one?

I also though would not just put the responsibility of $300,000 under the control of a 21 year old. Every situation is different, but I would probably want a third party involved in some capacity. This could just be using VPAS or a few hours with a CFP from the XY Planning Network.

I invested more conservatively in my twenties than later on. What other resources does this young man have to get started in life? Just as receiving gifts in your twenties can be more powerful than an inheritance in your sixties, a portion of these funds could really help this young man now. Just as we want safe money entering into retirement, I would want safe money as I bought my first car, rented my first apartment or even dealt with daycare costs for my first newborn. So I don’t think there is enough information to say whether a 30/70 or a 70/30 allocation would be more appropriate.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by yogesh »

Fire the advisor and use life strategy or target retirement fund that can be set on auto pilot
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Makefile »

mhadden1 wrote: Sat Feb 10, 2024 10:16 pm
nedsaid wrote: Sat Feb 10, 2024 5:57 pm a 21 year old should be invested aggressively as presumably he has a long time horizon. So yes, fire the advisor
and move the funds to Vanguard. Why does a 21 year old need a buffered ETF? I do believe strongly in good old fashioned money in the bank but anything other than what is set aside as an emergency fund or for shorter term financial goals should be invested in stocks. 30% in stocks isn't near enough for a very young investor.
In a sort of half-throated defense of the advisor, keeping things conservative until a young person reaches majority is arguably the right thing to do. I have definitely heard about kids whose funds got p*ssed away by some "responsible party" before they grew up.

That said, yes the portfolio is horrible and cries out for improvement.
Why is it considered conservative though? Uranium stocks?
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Re: Should my 21-year old nephew fire his financial advisor?

Post by mhadden1 »

Makefile wrote: Sat Feb 10, 2024 10:50 pm
mhadden1 wrote: Sat Feb 10, 2024 10:16 pm
nedsaid wrote: Sat Feb 10, 2024 5:57 pm a 21 year old should be invested aggressively as presumably he has a long time horizon. So yes, fire the advisor
and move the funds to Vanguard. Why does a 21 year old need a buffered ETF? I do believe strongly in good old fashioned money in the bank but anything other than what is set aside as an emergency fund or for shorter term financial goals should be invested in stocks. 30% in stocks isn't near enough for a very young investor.
In a sort of half-throated defense of the advisor, keeping things conservative until a young person reaches majority is arguably the right thing to do. I have definitely heard about kids whose funds got p*ssed away by some "responsible party" before they grew up.

That said, yes the portfolio is horrible and cries out for improvement.
Why is it considered conservative though? Uranium stocks?
I was thinking it was 30% stocks - the advisor was keeping it low while waiting for a recession. But yes, uranium? Sheesh.
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nedsaid
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Re: Should my 21-year old nephew fire his financial advisor?

Post by nedsaid »

mhadden1 wrote: Sat Feb 10, 2024 10:16 pm
nedsaid wrote: Sat Feb 10, 2024 5:57 pm a 21 year old should be invested aggressively as presumably he has a long time horizon. So yes, fire the advisor
and move the funds to Vanguard. Why does a 21 year old need a buffered ETF? I do believe strongly in good old fashioned money in the bank but anything other than what is set aside as an emergency fund or for shorter term financial goals should be invested in stocks. 30% in stocks isn't near enough for a very young investor.
In a sort of half-throated defense of the advisor, keeping things conservative until a young person reaches majority is arguably the right thing to do. I have definitely heard about kids whose funds got p*ssed away by some "responsible party" before they grew up.

That said, yes the portfolio is horrible and cries out for improvement.
I was pretty conservative as a young investor myself. When I started, interest rates were high even by today's standards. I could get 6% in FDIC Insured Certificates of Deposit. In 1989, I was able to lock in 8% on 10 year Treasury Zeroes when I was at age 29 or 30.

My reaction here is that the Advisor's job is to educate his or her clients regarding asset allocation. What did it for me was the comment that the portfolio was conservative because a recession was coming. This to me implies market timing the portfolio which is a prescription for lower returns. I am not against a bit of tactical asset allocation but 30% in stocks for a young investor is too little, even if you expect a recession. It would be interesting to know how big the tactical moves are. Buffered ETFs for such a young investor? Uranium stocks?
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Tundrama »

…the last 30 seconds of the TV show, ‘The Apprentice.”

You’re welcome.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by grabiner »

bonesly wrote: Sat Feb 10, 2024 7:19 pm
herrick55 wrote: Sat Feb 10, 2024 5:46 pm Personally, I am all for firing the advisor, selling the funds, rollover to Vanguard and investing in total market index funds. However, I could use some advice from Bogleheads on how to fire my nephews advisor, rollover the funds to Vanguard...
As much as possible you don't want to "sell the funds" as that willcould generate a significant tax-bill. You want to transfer the assets to Vanguard "in-kind" for those securities that Vanguard can accept; some securities might be proprietary to LPL Financial and those will have to be sold and the settlement cash moved to Vanguard.
Edit to change will to could as pointed out by livesoft... this could be a tax-advantaged individual account or there could be little-to-no gains in the positions from age 18 to age 21.
You will likely want to sell the funds anyway. If you lose 5% of the value of a fund to capital-gains tax, but you replace it with a fund that has 1% lower expenses and tax costs, you will make it up in five years. See Paying a tax cost to switch funds on the wiki.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Mr. Rumples »

The consensus is that the young man is being taken for a ride. What is his financial literacy?

Remember that the advisor at LPL Financial is a trained professional sales person. A customer has to have the wherewithal to withstand that when moving assets; be prepared.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by tibbitts »

Makefile wrote: Sat Feb 10, 2024 10:50 pm Why is it considered conservative though? Uranium stocks?
I haven't noticed uranium stocks mentioned on Bogleheads since the Munchkin Man's threads on the subject.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by BradleyB »

I only had to read as far as "Uranium," unless it is a euphemism for "great," or "super duper," or something like that.

It really gets my goat when "advisors" like that take advantage of people.

First thing is to set goals. College loans? House down payment? Then switch to any of the very low cost brokerage, buy index funds and let 'er ride. That is his sleep at nigh money while he progresses in his career and life.

You see way too many pro athletes and lottery winners who go bankrupt in a short time.
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herrick55
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Re: Should my 21-year old nephew fire his financial advisor?

Post by herrick55 »

Thanks for your comments. After reviewing the comments, I spoke with my sister and she told me that her son inherited $200,000 from a wealthy aunt 19 years ago and the money was put into a guardianship (until age 18). The attorney selected the financial advisor.

My sister contacted me after she received her son's January 2024 financial statement which showed a $290 loss. My nephew is currently taking college courses and he lives at home. He has no earned income, no expenses, drives a used car, and he is very frugal (a family trait). He has read several books on investing, and he never looks at the account.
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Stinky
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Stinky »

herrick55 wrote: Sun Feb 11, 2024 9:39 am Thanks for your comments. After reviewing the comments, I spoke with my sister and she told me that her son inherited $200,000 from a wealthy aunt 19 years ago and the money was put into a guardianship (until age 18). The attorney selected the financial advisor.

My sister contacted me after she received her son's January 2024 financial statement which showed a $290 loss. My nephew is currently taking college courses and he lives at home. He has no earned income, no expenses, drives a used car, and he is very frugal (a family trait). He has read several books on investing, and he never looks at the account.
In growing the account from $200k to $294k over a 19 year period, the advisor averaged 2.04% per year.

Simply awful!

Get away from this advisor thief!
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
DesertGator
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Re: Should my 21-year old nephew fire his financial advisor?

Post by DesertGator »

livesoft wrote: Sat Feb 10, 2024 5:48 pm Definitely, yes. The salesrep should be fired and the money moved to Vanguard. What kind of account is this? Inherited IRA? Taxable? Something else?
I would agree except for the Vanguard part. 21 year old? Send them to Fidelity, they'll appreciate the order-of-magnitude better website experience. And Vanguard sucks.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Jeepguy »

Agreed, had this advisor simply put the money into a target fund, say vanguard 2050, the account balance would be something like $456,000. The salesman didn’t because there are no sales fees for him at vanguard or fidelity unlike the funds he chose.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by tigermilk »

At least 3 of those have front load fees - nothing like the advisor padding pockets by charging AUM fees and 2 to 6% front loads. Dump the advisor, and toss it all in total market or at most a life cycle fund for 2065 or thereabouts. Or does he need any $$$ near term for an important spend as a young adult (e.g., education).
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celia
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Re: Should my 21-year old nephew fire his financial advisor?

Post by celia »

herrick55 wrote: Sun Feb 11, 2024 9:39 am Thanks for your comments. After reviewing the comments, I spoke with my sister and she told me that her son inherited $200,000 from a wealthy aunt 19 years ago and the money was put into a guardianship (until age 18). The attorney selected the financial advisor.

My sister contacted me after she received her son's January 2024 financial statement which showed a $290 loss. My nephew is currently taking college courses and he lives at home. He has no earned income, no expenses, drives a used car, and he is very frugal (a family trait). He has read several books on investing, and he never looks at the account.
This is what I was going to ask. It appears the advisor did very well (for himself). He/she went from $200k to $294k in 19 years??? Was anything withdrawn for the nephew during this time, like college expenses?

Before firing the advisor, he needs to know the cost basis of each asset and if he is included on his parent's tax return. This appears to have many more tax implications than just selling off the assets. I would start by finding out how much long term gain or loss there is on each holding. Some assets could have been held from before custodians had to report the cost basis at time of sale.


It appears your sister has a lot to learn, especially if this has been impacting her tax returns for 19 years. Hopefully, she should have been saving the yearly statements for the minor, since HE is entitled to see what was happening with HIS money.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Grt2bOutdoors »

herrick55 wrote: Sun Feb 11, 2024 9:39 am Thanks for your comments. After reviewing the comments, I spoke with my sister and she told me that her son inherited $200,000 from a wealthy aunt 19 years ago and the money was put into a guardianship (until age 18). The attorney selected the financial advisor.

My sister contacted me after she received her son's January 2024 financial statement which showed a $290 loss. My nephew is currently taking college courses and he lives at home. He has no earned income, no expenses, drives a used car, and he is very frugal (a family trait). He has read several books on investing, and he never looks at the account.
While there is a fiduciary duty to protect the minor, the attorney failed to fully grasp the meaning of fiduciary but understandably was likely not an investment professional nor do we know what his relationship to the broker was. We can not go back in time, but suffice to say that $200,000 could have been worth several multiples if not much more had it been heavily invested in the S&P 500 even with the various downdrafts that did occur in the last 19 years. For example, a simple 60/40 balanced fund allocated 60% S&P 500 and 40% Total Bond Market Index (VBAIX) would have been worth $794,000 today. Essentially, that broker thief has mismanaged that account to the tune of $500K.

Well, one can only look forward now - first order of business ought to be to move the account in its entirety out of the hands of LPL - sell it all! Move the account to a firm like Fidelity or Vanguard or Schwab. Second order of business - do nothing until an Investment Policy Statement has been drafted indicating what is the purpose of the money, when is it needed, how much risk are you willing to assume. Generally speaking, the closer in time the funds are needed the less risky investments should be used. The longer the time horizon, the more volatile the investments can be. Simple funds can do all of the heavy lifting required, with low annual expenses and none of the drag of Mr. Market Timer.

Come back with any questions to this thread and we'll be happy to help.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by yogesh »

Yeah; target retirement index fund can do wonders for people who don’t know/like the investment management.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040
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herrick55
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Re: Should my 21-year old nephew fire his financial advisor?

Post by herrick55 »

Unfortunately, my sister and nephew trusted that the advisor was working on their behalf and they did not question what the advisor was doing with my nephew’s money. They have no big expenses planned. He wants the funds to grow. I will help him to develop a IPS and move the funds to Vanguard.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by Stinky »

herrick55 wrote: Sun Feb 11, 2024 12:41 pm Unfortunately, my sister and nephew trusted that the advisor was working on their behalf and they did not question what the advisor was doing with my nephew’s money. They have no big expenses planned. He wants the funds to grow. I will help him to develop a IPS and move the funds to Vanguard.
Kudos to you for getting involved and helping sister and nephew see how they were being mistreated by the advisor.

Please post back if you have any questions as you move through the redeployment process.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Should my 21-year old nephew fire his financial advisor?

Post by MrBobcat »

Grt2bOutdoors wrote: Sun Feb 11, 2024 11:50 am While there is a fiduciary duty to protect the minor, the attorney failed to fully grasp the meaning of fiduciary but understandably was likely not an investment professional nor do we know what his relationship to the broker was. We can not go back in time, but suffice to say that $200,000 could have been worth several multiples if not much more had it been heavily invested in the S&P 500 even with the various downdrafts that did occur in the last 19 years. For example, a simple 60/40 balanced fund allocated 60% S&P 500 and 40% Total Bond Market Index (VBAIX) would have been worth $794,000 today. Essentially, that broker thief has mismanaged that account to the tune of $500K.
That's downright depressing.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by LilyFleur »

herrick55 wrote: Sun Feb 11, 2024 12:41 pm Unfortunately, my sister and nephew trusted that the advisor was working on their behalf and they did not question what the advisor was doing with my nephew’s money. They have no big expenses planned. He wants the funds to grow. I will help him to develop a IPS and move the funds to Vanguard.
It sounds like the nephew is quite responsible.

It seems he will be busy with college and then with working full-time.

Vanguard's customer service hours are limited.

I would advise also taking a look at Fidelity or Schwab. A good initial advisor (even the complementary service) at either will be able to provide assistance in bringing the money over. As a relatively new self-managed investor, he may need to call for help at odd hours during the switching-over process as well as in the future, and both of those institutions offer 24/7 customer service via both on-line chat (and you can save the transcript for future reference) and by phone.

If he learns now about managing his own money, at age 21, he's off to a good start.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by beyou »

grabiner wrote: Sun Feb 11, 2024 9:11 am
bonesly wrote: Sat Feb 10, 2024 7:19 pm
herrick55 wrote: Sat Feb 10, 2024 5:46 pm Personally, I am all for firing the advisor, selling the funds, rollover to Vanguard and investing in total market index funds. However, I could use some advice from Bogleheads on how to fire my nephews advisor, rollover the funds to Vanguard...
As much as possible you don't want to "sell the funds" as that willcould generate a significant tax-bill. You want to transfer the assets to Vanguard "in-kind" for those securities that Vanguard can accept; some securities might be proprietary to LPL Financial and those will have to be sold and the settlement cash moved to Vanguard.
Edit to change will to could as pointed out by livesoft... this could be a tax-advantaged individual account or there could be little-to-no gains in the positions from age 18 to age 21.
You will likely want to sell the funds anyway. If you lose 5% of the value of a fund to capital-gains tax, but you replace it with a fund that has 1% lower expenses and tax costs, you will make it up in five years. See Paying a tax cost to switch funds on the wiki.
If the 21 year old is in a low tax bracket, as is often the case for someone that age, it is possible to sell at zero capital gains tax.
You may need to gradually sell over a period of time to spread out the gains and sell them all at 0 tax. No need to sell all at once.
A favorite tool of mine helps understand how to proceed for taxable accounts :

https://engaging-data.com/tax-brackets/

Just input salary and sum of non-qualified dividends in one box, and expected gains and qualified dividends in the other box, and
this tool will show you how much tax you pay on each. You can tweak it, to reduce the gains this year, to try and get down close to zero tax, and then do same the following year to sell more at close to zero gain. This works until he gets a high salary, if that is coming soon.

Regardless I agree that selling is a must, but maybe you can sell winners now, while income is low, and losers later to have future losses to deduct or offset future gains.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by DoTheMath »

The bad news is that $200,000 invested 19 years ago in the S&P 500 would now be worth $1,171,099.71*. The good news is that 21 is ridiculously young in the grand scheme of things. 19 years from now, a well-invested $294,000 should be a substantial sum.


* See https://ofdollarsanddata.com/sp500-calculator/
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Re: Should my 21-year old nephew fire his financial advisor?

Post by donall »

Yikes, three Unit Investment Trusts! The only redeeming part is these appear to be short term UITs. The UTIs appear to have been purchased recently. Other purchases may be recent so there may not be large capital gains.
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Re: Should my 21-year old nephew fire his financial advisor?

Post by donall »

Duplicate post removed
Last edited by donall on Sun Feb 11, 2024 6:46 pm, edited 1 time in total.
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