Are my parents in good hands with this adviser?

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Utetooth
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Are my parents in good hands with this adviser?

Post by Utetooth » Thu Dec 22, 2016 5:49 pm

Happy Holidays Bogleheads,

I am a budding financial mind and have been very grateful for the knowledge I have received from this forum and the books/blogs you recommend. I am happy to report that you have helped get my financial life in order as a young doctor with regards to retirement savings, fees, housing, transportation, and general financial literacy. Just last week I made my last student loan payment less than 5 years after graduating!

My parents have noticed my increased literacy and are asking me more and more questions about their situation. Today they had a meeting with their financial adviser and I gave them some basic questions to ask around asset allocation, adviser compensation, active/passive management, etc..

I was surprised to get this email directly from their adviser today after the meeting. There is a lot of terminology here, much of which is not clear to me. That makes me uneasy because I was hoping to see the words "index funds", "Vanguard", "passive and patient"....not "active about changes", "structured notes", "look to cash" but I just don't know enough to fully understand the email and therefore what to say to my dad about it.

Will you read this email and tell me in you think they are in good hands?
What is your reaction to the content of the email?


My parents in in their mid 60s. My dad works a little on the side and collects SS. My mom works full time as a teacher but hopes to retire soon. Their adviser has these letters/credentials after his name; AWMA, ADPA, CRPS

The email:
Your dad asked us to send over our core strategy for him. This is the portfolio we use for about 60% of his holdings. It’s a hedged strategy designed to capture 75-85% of the upside but 40% or less of the downside. It’s a balanced 60/40 mix using ETF and open ended funds. ETFs where they outperform net of expenses and open ended funds where they have better net performance. We also use structured notes to reduce risks but enhance performance. This is about 30% of his structure. In this we have S & P and Euro Stoxx 50 notes that have 1.5 years left to mature. They are liquid but if held to maturity give 2:1 upside of the index (to a cap) and 10% downside protection.

We have added a positive Alpha to each index and based on balanced mix (usually about 60% equity and 40% fixed or non-correlated) have returned in line with the S & P. He has averaged 6.8% net of a total expense of 64 basis points. In the 13 year time frame he has doubled the account making back the loss the previous advisor had inflicted based on a 100% tech allocation during the 2001-2003 tech wreck.

We review the portfolio monthly and are active about changes based on macro-economic issues. We don’t try and trade things but do believe that if the macro-economic cycle is suggesting a recession, then we should look at cash, ETFs for safety and hedge assets. The current outlook is a mid / late 2018 recession. This could change if corporate tax rates change, cash gets repatriated and if regulation is reduced. All themes you are hearing but only time will tell if these things come to pass.

We are also in the process of a retirement income flow planning based on your parents needs/ goals and various income sources.

With the DOLs new standards many advisors are scrambling to either get exemptions or become compliant. We are already fiduciaries as portfolio managers and have always been diligent in our roles as such. Quarterly meetings face to face with complete performance, allocation and risk analysis is the standard.

I’m leaving on vacation today but will get you a more detailed review when I get back. Our team is a group of 4 advisors with a combined 63 years of experience. We have specialists in portfolio management , risk mitigation, retirement planning, benefits and insurance as well almost every other area of a client’s financial health. Happy Holidays and our best wishes.
Last edited by Utetooth on Thu Dec 22, 2016 6:12 pm, edited 1 time in total.
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McGilicutty
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Re: Are my parents in good hands with this adviser?

Post by McGilicutty » Thu Dec 22, 2016 5:55 pm

Any idea what the fee(s) are?

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Utetooth
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Re: Are my parents in good hands with this adviser?

Post by Utetooth » Thu Dec 22, 2016 5:59 pm

McGilicutty wrote:Any idea what the fee(s) are?


When I asked my dad he said, "I was told his (the adviser's) fees are just under 1%"
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Jack FFR1846
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Re: Are my parents in good hands with this adviser?

Post by Jack FFR1846 » Thu Dec 22, 2016 6:02 pm

My translation into plain English:

His costs are 0.63%. (ask him how he gets paid. I expect this 0.63% is only the expense ratio component)

Your dad's returns are in line with the S&P 500. (You could simply buy SCHB at Schwab at 0.03% or IVV at TDAmeritrade at 0.06% and get the same returns).

The advisor believes that he can predict the future. I guess he's got a crystal ball or a Delorean with a charged flux capacitor so he's already gone to 2018 and seen that there's a recession.

He loves throwing big words around and this is a HUGE flag for me. He talks about ETFs. They are simply an investment like a mutual fund but with different ways to buy/sell and small differences that honestly....you don't care about. You can do the exact same thing with mutual funds.

He does manage to diss the previous advisor and throws him under the bus for putting your dad in too much tech when the bubble burst. I would bet that this guy did no better.

He talks about the new Department of Labor (DOL) fiduciary requirements and says his firm is already compliant. That's good.

I'm very concerned about all the big words for no reason. He's also completely vague about what the actual investments are. Lots of hand waving that sounds like he's saying something, but he's saying nothing.

I would pass.
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livesoft
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Re: Are my parents in good hands with this adviser?

Post by livesoft » Thu Dec 22, 2016 6:04 pm

My reaction is that it sounds interesting and more details are needed.

FYI, in 13 years, the Vanguard LifeStrategy Moderate Growth fund has a return net of expenses of about 6% average annual return.

The portfolio SHOULD NOT be compared to a 100% stock portfolio or fund like the S&P500. Sorry Jack. :)

I don't know about tax efficiencies of the portfolio of your parents.

I would say your parents are not in bad hands with this advisor as long as the tax situation is great.
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clip651
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Re: Are my parents in good hands with this adviser?

Post by clip651 » Thu Dec 22, 2016 6:16 pm

You haven't posted much about your parent's situation, so it's hard for anyone to give detailed advice. You did tell us this:

Utetooth wrote:My parents in in their mid 60s. My dad works a little on the side and collects SS. My mom works full time as a teacher but hopes to retire soon.


Having said that, do your parents know what these things (in the email you received) mean, and are they happy with the costs, and risk/benefit tradeoffs of having these vs. a simple indexed based portfolio with an appropriate asset allocation?

From the email:
Utetooth wrote:It’s a hedged strategy designed to capture 75-85% of the upside but 40% or less of the downside.

open ended funds

structured notes
This is about 30% of his structure. In this we have S & P and Euro Stoxx 50 notes that have 1.5 years left to mature. They are liquid but if held to maturity give 2:1 upside of the index (to a cap) and 10% downside protection.

We review the portfolio monthly and are active about changes based on macro-economic issues. We don’t try and trade things but do believe that if the macro-economic cycle is suggesting a recession, then we should look at cash, ETFs for safety and hedge assets.

Our team is a group of 4 advisors with a combined 63 years of experience. We have specialists in portfolio management , risk mitigation, retirement planning, benefits and insurance



I don't pretend to understand the details, but to me this sounds like a combination of expensive and complicated investment and/or insurance vehicles, mixed with some attempts at market timing.

The mention of insurance is a huge red flag for me, this makes me think your parents will be pushed towards annuities of some sort if they haven't already been put into them.

Aiming for simplicity, being properly diversified, avoiding unnecessary expenses, and avoiding investing in things you don't understand are IMHO a few of the keys to successful investing. I'm guessing this stuff doesn't meet many if any of those criteria. What do you and your parents know about these sorts of investments?? What are their goals for their investments?

I wouldn't want my parents paying just under 1% to the advisor, plus the investment expenses for this sort of thing. But I don't know your parents or their situation.

Glad to see your parents are asking questions about how their money is being managed. Good for you for trying to help them understand what is happening. You might want to point them towards one of the Bogleheads books, and/or towards the Getting Started part of the Wiki here, so they can start to learn for themselves.

best wishes,
cj

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Re: Are my parents in good hands with this adviser?

Post by Grt2bOutdoors » Thu Dec 22, 2016 6:21 pm

Utetooth wrote:Happy Holidays Bogleheads,

I am a budding financial mind and have been very grateful for the knowledge I have received from this forum and the books/blogs you recommend. I am happy to report that you have helped get my financial life in order as a young doctor with regards to retirement savings, fees, housing, transportation, and general financial literacy. Just last week I made my last student loan payment less than 5 years after graduating!

My parents have noticed my increased literacy and are asking me more and more questions about their situation. Today they had a meeting with their financial adviser and I gave them some basic questions to ask around asset allocation, adviser compensation, active/passive management, etc..

I was surprised to get this email directly from their adviser today after the meeting. There is a lot of terminology here, much of which is not clear to me. That makes me uneasy because I was hoping to see the words "index funds", "Vanguard", "passive and patient"....not "active about changes", "structured notes", "look to cash" but I just don't know enough to know to fully understand the email and therefore what to say to my dad about it.

Will you read this email and tell me in you think they are in good hands?
What is your reaction to the content of the email?


My parents in in their mid 60s. My dad works a little on the side and collects SS. My mom works full time as a teacher but hopes to retire soon. Their adviser has these letters/credentials after his name; AWMA, ADPA, CRPS

The email:
Your dad asked us to send over our core strategy for him. This is the portfolio we use for about 60% of his holdings. It’s a hedged strategy designed to capture 75-85% of the upside but 40% or less of the downside. It’s a balanced 60/40 mix using ETF and open ended funds. ETFs where they outperform net of expenses and open ended funds where they have better net performance. We also use structured notes to reduce risks but enhance performance. This is about 30% of his structure. In this we have S & P and Euro Stoxx 50 notes that have 1.5 years left to mature. They are liquid but if held to maturity give 2:1 upside of the index (to a cap) and 10% downside protection.
Noted author and fellow forum poster Larry Swedroe has a chapter in his book called The Good, The Bad and The Ugly. Structured notes fall under the Ugly and for good reason. These products are designed for the sellers to make money in good, bad and sideways markets while the purchaser who's money is at risk captures limited upside (give 2:1 upside of index (to a cap) - so if your cap is 40% of the index return you aren't receiving the full 2:1 return or a double, instead you are receiving less than half of it. The expense ratios for these structured products are high, much higher than the "just under 1% quoted, but because your only allocated 30% to this product it looks like you are paying less. You are paying more and you are receiving less.
We have added a positive Alpha to each index and based on balanced mix (usually about 60% equity and 40% fixed or non-correlated) have returned in line with the S & P. He has averaged 6.8% net of a total expense of 64 basis points. In the 13 year time frame he has doubled the account making back the loss the previous advisor had inflicted based on a 100% tech allocation during the 2001-2003 tech wreck.
The rule of 72 says you can double your money in 12 years if your annual return is 6%, instead it took this "ALPHA" thirteen years to double, that means the average annual return is less than the 6.8% net quoted, instead the return is 5.54% and has underperformed a traditional balanced index of 60/40 and the Vanguard Balanced Index has returned approximately 7.54% compounded annually for the thirteen years ended December 31, 2015 (2002-2015). The annual expense ratio of the Balanced Index fund is 0.22% for Investor Class shares, Admiral shares would have higher performance due to lower expense ratio charged.
We review the portfolio monthly and are active about changes based on macro-economic issues. We don’t try and trade things but do believe that if the macro-economic cycle is suggesting a recession, then we should look at cash, ETFs for safety and hedge assets. The current outlook is a mid / late 2018 recession. This could change if corporate tax rates change, cash gets repatriated and if regulation is reduced. All themes you are hearing but only time will tell if these things come to pass.
Timing the market is a loser's game. The advisor is telling you his crystal ball is clearer than the of the collective whole. A fiduciary would not be telling you this, this is the talk of a salesman. Run!!
We are also in the process of a retirement income flow planning based on your parents needs/ goals and various income sources.

With the DOLs new standards many advisors are scrambling to either get exemptions or become compliant. We are already fiduciaries as portfolio managers and have always been diligent in our roles as such. Quarterly meetings face to face with complete performance, allocation and risk analysis is the standard.

I’m leaving on vacation today but will get you a more detailed review when I get back. Our team is a group of 4 advisors with a combined 63 years of experience. We have specialists in portfolio management , risk mitigation, retirement planning, benefits and insurance as well almost every other area of a client’s financial health. Happy Holidays and our best wishes.
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ruralavalon
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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Thu Dec 22, 2016 7:24 pm

Utetooth wrote:
My parents in in their mid 60s. My dad works a little on the side and collects SS. My mom works full time as a teacher but hopes to retire soon. Their adviser has these letters/credentials after his name; AWMA, ADPA, CRPS

The email:
. . . . . a hedged strategy . . . . . We also use structured notes to reduce risks but enhance performance. . . . . .

. . . . .. In the 13 year time frame he has doubled the account . . . . .

. . . . . are active about changes based on macro-economic issues. We don’t try and trade things but do believe that if the macro-economic cycle is suggesting a recession, then we should look at cash, ETFs for safety and hedge assets . . . . .

. . . . .

. . . . . We are already fiduciaries as portfolio managers . . . .


It is good that they are fiduciaries. everything else I left in the quote is a big red flag.

The credentials do not impress me, you can search those acronyms at http://www.finra.org . For credentials I would look for CFP or CFA designations.

I don't know what specific questions he was asked to answer, but this seems to be mostly jargon and obfuscation. A 70/30 equity/fixed asset allocation seems aggressive but close to reasonable in my opinion, but he does not list the investments used or the expenses. The quoted performance over 2003-2016 is not impressive. Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X in the last 13 years, using a less aggressive asset allocation of 65/35.

Here are some good tips on selecting an advisor: An Investing Primer, "Chapter 10 – On Your Own or Hire an Advisor".

Because he pled vacation as a reason for not fully answering, I would give him the chance to fully reply on his return.
Last edited by ruralavalon on Thu Dec 22, 2016 7:46 pm, edited 1 time in total.
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livesoft
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Re: Are my parents in good hands with this adviser?

Post by livesoft » Thu Dec 22, 2016 7:27 pm

ruralavalon wrote:The quoted performance over 2003-2016 is not impressive.

But it is better than a professionally-managed Vanguard "3-fund" portfolio of index funds with similar asset allocation over the same time period.

That's going on only the information presented and no knowledge of contributions, withdrawals, and taxes.
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Re: Are my parents in good hands with this adviser?

Post by Fallible » Thu Dec 22, 2016 7:36 pm

Regardless of the advisor's red-flags email, if your parents don't understand what is being done with their hard-earned money and you are finding it difficult, that's reason enough to make a change. Would they be okay with leaving the advisor?
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ruralavalon
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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Thu Dec 22, 2016 7:49 pm

livesoft wrote:
ruralavalon wrote:The quoted performance over 2003-2016 is not impressive.

But it is better than a professionally-managed Vanguard "3-fund" portfolio of index funds with similar asset allocation over the same time period.

That's going on only the information presented and no knowledge of contributions, withdrawals, and taxes.

That's true about no information on contributions, withdrawals and taxes.

While you were posting I was looking up and adding Wellington as my example, among other things. Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X in the last 13 years, using a slightly less aggressive asset allocation of 65/35.
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livesoft
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Re: Are my parents in good hands with this adviser?

Post by livesoft » Thu Dec 22, 2016 8:11 pm

ruralavalon wrote:While you were posting I was looking up and adding Wellington as my example, among other things. Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X in the last 13 years, using a slightly less aggressive asset allocation of 65/35.

More power to Wellington. :) I use it as one of the benchmarks that I compare my portfolio to. Wellington is moderately tax inefficient and loses about 1% to 2% a year to taxes for investors who hold it in a taxable account.

Now that you have thrown down the Wellington glove, you will have to use it whenever a recommendation to just use a 3-fund index portfolio comes up. Somehow, I don't think that is going to happen.

OTOH, the performance stated by the advisor needs to be fact checked. I would not believe any numbers given to me by anyone without checking them out for myself.
Last edited by livesoft on Thu Dec 22, 2016 8:15 pm, edited 1 time in total.
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investorguy1
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Re: Are my parents in good hands with this adviser?

Post by investorguy1 » Thu Dec 22, 2016 8:13 pm

Here is a recent article from Larry Swedroe on Structured notes
http://www.etf.com/sections/index-investor-corner/swedroe-fairy-tale-behind-structured-products

The bottom line is they sounds like you get high returns with no risk but the truth is the "advisor" or more accurately the salesman gets a nice big fat commission for selling it.

His email is a great example of the sales strategy I like to call "confuse and conquer". The idea is to say a bunch of stuff that sounds really fancy and complicated but doesn't really mean much in order to confuse the ignorant layman into submission. So he uses words like "open end funds" instead of mutual fund. An honest person would use the word mutual fund because people know what that is a dishonest person will use a word like open end fund because he wants to make sure you don't understand and therefore feel like you need him. He is almost certainly making a conscious effort to confuse you that is not someone you want to work with.

I'll take one more sentence as an example keep in mind I could do this with every line of the email.
"ETFs where they outperform net of expenses and open ended funds where they have better net performance"
In other words when he could find mutual funds with 5 star ratings he will use them where he can't he will use an index fund. Of course he will use the word ETF to confuse you instead of index fund. Again using a term most don't understand in place of one people do understand. Now such a strategy shows his ignorance for several reasons.
1. Choosing the past's winning funds doesn't work. Just ask morningstar where he is probably getting the data from.
2. He is assuming that some asset classes are better for indexing and others are not. This is inaccurate as well. S&P does a comparison of different asset classes and indexing is the winner for many different asset classes.
3. The truth is I bet you that he uses active and index funds in the same asset classes and he is just giving the same propaganda speech as is propagated by the mutual fund industry.
4. He could find funds in all asset classes with higher performance or at least should be able to.


Any "advisor" selling stuff is a saleman not an advisor. If you have been reading this forum and books recommended you will almost certainly get higher returns than this guy will get for you. Get your parents into a 3 fund portfolio or similar strategy and they will be much better off. If they need planning help they should get it from an hourly advisor.
Last edited by investorguy1 on Thu Dec 22, 2016 8:23 pm, edited 1 time in total.

Miriam2
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Re: Are my parents in good hands with this adviser?

Post by Miriam2 » Thu Dec 22, 2016 8:15 pm

Utetooth wrote:The email:
Your dad asked us to send over our core strategy for him. This is the portfolio we use for about 60% of his holdings.

What is the advisor's strategy for the other 40% of his holdings?

John Laurens
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Re: Are my parents in good hands with this adviser?

Post by John Laurens » Thu Dec 22, 2016 8:38 pm

You are a physician with extensive knowledge of pathophysiology. Yet I'm sure you can explain a disease in the simplest of terms so a patient can understand. That this advisor uses jargon to try and impress you sends off alarm bells with me. I would be exteremely skeptical. Good luck.

John

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Re: Are my parents in good hands with this adviser?

Post by freebeer » Thu Dec 22, 2016 9:00 pm

Jack FFR1846 wrote:My translation into plain English:

His costs are 0.63%. (ask him how he gets paid. I expect this 0.63% is only the expense ratio component)...


+1 to that. Your parents should get a list of specific investments and amounts (they can ask for something as per viewtopic.php?t=6212 ) but my guess is that it will be discovered that there are some extra sales fees involved in what amounts to an overly complicated and market-timing-oriented porfolio that could be greatly simplified with significant reduction in fees.

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Re: Are my parents in good hands with this adviser?

Post by delamer » Thu Dec 22, 2016 9:13 pm

Fallible wrote:Regardless of the advisor's red-flags email, if your parents don't understand what is being done with their hard-earned money and you are finding it difficult, that's reason enough to make a change. Would they be okay with leaving the advisor?


I completely agree regarding being able to be understand their investments. Have your parents read the Boglehead wiki and/or one of the recommended books in the wiki regarding asset allocation and lazy portfolios. If those make sense, the Vanguard service or managing themselves are worth considering.

You didn't mention whether your parents' assets are in taxable or tax-deferred accounts (or a combination), but that should be taken into account when setting up the allocation. It wasn't addressed in the e-mail.

Also, "ETF's for safety" makes no sense; you can hold shares in an ETF that invests in Polish companies (I just checked). The advisor is using terms either to confuse or disguise his lack of a plan.

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Re: Are my parents in good hands with this adviser?

Post by Nate79 » Thu Dec 22, 2016 9:13 pm

It's quite simple. Market timing, high fees and expense ratios, hedging and insurance products, and overly complex portfolio to make it sound like they are doing something great. And for this you are losing at least 1.5% in fees and ER.

Run.

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Re: Are my parents in good hands with this adviser?

Post by BlackStrat » Fri Dec 23, 2016 8:11 am

I can't remember the exact quote, but while I was reading the advisors' letter I couldn't help but think to 'keep your investing strategy simple enough that a 12-year old can understand it'

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Re: Are my parents in good hands with this adviser?

Post by cjcerny » Fri Dec 23, 2016 8:35 am

Why are we even bothering to analyze anything that this adviser stated in his email? For the most part, we all agree that a super low cost portfolio of broad index funds is going to beat the pants off of anything an adviser could ever put together. Apparently, it's my job to remind the OP of this. :D

OP, if you can get your parents out of the clutches of that adviser and into total stock index, total bond index, etc. at Vanguard without incurring a lot of tax, do it. Then they can sit down with a fee only fiduciary and see if their situation merits any special action at all. If they want to stick with the adviser for any reason at all, then I would steer clear of this situation and just let it play itself out--there isn't going to be much you can say or do to sway them if they are convinced an adviser is needed.

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Raymond
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Re: Are my parents in good hands with this adviser?

Post by Raymond » Fri Dec 23, 2016 9:08 am

Sounds like the adviser used this tool to generate most of his e-mail:

(NSFW)

"Financial BS Generator"
"Ritter, Tod und Teufel"

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Higman
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Re: Are my parents in good hands with this adviser?

Post by Higman » Fri Dec 23, 2016 9:49 am

While the advisor claims to act as a fiduciary and comply with the new DOL rules (which is good) I would point out that the new fiduciary rules only apply to retirement accounts such as 401Ks and IRAs. They do not apply to non-retirement accounts. If most of your parent’s savings are in a taxable account then they could be sold anything that meets the less stringent suitability rule.

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Re: Are my parents in good hands with this adviser?

Post by kenner » Fri Dec 23, 2016 10:11 am

It would be great if you could post the additional information the advisor promised to send you after he returns from his vacation.

In the meantime, I recommend that you and your parents check out Vanguard Personal Advisor Service (comprehensive advice provided exclusively by Certified Financial Planners, the top of the heap) as a superior low-cost investment management solution for your parents. I'm confident they can expertly manage your parents' investment portfolio at a substantially lower total cost than they are paying under their current, rather convoluted, management scheme.

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Re: Are my parents in good hands with this adviser?

Post by MDfive21 » Fri Dec 23, 2016 10:43 am

Raymond wrote:Sounds like the adviser used this tool to generate most of his e-mail:

(NSFW)

"Financial BS Generator"


that's awesome, thank you!

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TinkerPDX
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Re: Are my parents in good hands with this adviser?

Post by TinkerPDX » Fri Dec 23, 2016 10:54 am

If you can convince your parents to leave him, do. He sounds like the epitome of an adviser who charges a lot and adds little (maybe even worse than nothing).

If they don't feel comfortable managing their portfolio, or delegating you to, then put them in a low-ER life strategy fund/etc. that matches their needs and be done with it.

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nedsaid
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Re: Are my parents in good hands with this adviser?

Post by nedsaid » Fri Dec 23, 2016 11:39 am

Utetooth wrote:
The email:
Your dad asked us to send over our core strategy for him. This is the portfolio we use for about 60% of his holdings. It’s a hedged strategy designed to capture 75-85% of the upside but 40% or less of the downside. It’s a balanced 60/40 mix using ETF and open ended funds. ETFs where they outperform net of expenses and open ended funds where they have better net performance. We also use structured notes to reduce risks but enhance performance. This is about 30% of his structure. In this we have S & P and Euro Stoxx 50 notes that have 1.5 years left to mature. They are liquid but if held to maturity give 2:1 upside of the index (to a cap) and 10% downside protection.

We have added a positive Alpha to each index and based on balanced mix (usually about 60% equity and 40% fixed or non-correlated) have returned in line with the S & P. He has averaged 6.8% net of a total expense of 64 basis points. In the 13 year time frame he has doubled the account making back the loss the previous advisor had inflicted based on a 100% tech allocation during the 2001-2003 tech wreck.

We review the portfolio monthly and are active about changes based on macro-economic issues. We don’t try and trade things but do believe that if the macro-economic cycle is suggesting a recession, then we should look at cash, ETFs for safety and hedge assets. The current outlook is a mid / late 2018 recession. This could change if corporate tax rates change, cash gets repatriated and if regulation is reduced. All themes you are hearing but only time will tell if these things come to pass.

We are also in the process of a retirement income flow planning based on your parents needs/ goals and various income sources.

With the DOLs new standards many advisors are scrambling to either get exemptions or become compliant. We are already fiduciaries as portfolio managers and have always been diligent in our roles as such. Quarterly meetings face to face with complete performance, allocation and risk analysis is the standard.

I’m leaving on vacation today but will get you a more detailed review when I get back. Our team is a group of 4 advisors with a combined 63 years of experience. We have specialists in portfolio management , risk mitigation, retirement planning, benefits and insurance as well almost every other area of a client’s financial health. Happy Holidays and our best wishes.


The e-mail reminded me of this video:

https://biggeekdad.com/2010/11/turbo-encabulator
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Re: Are my parents in good hands with this adviser?

Post by HurdyGurdy » Fri Dec 23, 2016 11:44 am

Utetooth wrote: We also use structured notes to reduce risks but enhance performance. This is about 30% of his structure. In this we have S & P and Euro Stoxx 50 notes that have 1.5 years left to mature. They are liquid but if held to maturity give 2:1 upside of the index (to a cap) and 10% downside protection.


https://www.bogleheads.org/wiki/Structured_products#Structured_notes

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Re: Are my parents in good hands with this adviser?

Post by goingup » Fri Dec 23, 2016 12:00 pm

Utetooth wrote:He has averaged 6.8% net of a total expense of 64 basis points. In the 13 year time frame he has doubled the account making back the loss the previous advisor had inflicted based on a 100% tech allocation during the 2001-2003 tech wreck.

I would almost guarantee that the 6.8% return is before his advisor fees. What are his fees? Could be 1%.

Your parents have been with him 13 years and meet quarterly for a face-to-face portfolio reviews. That is a level of service that costs money. Most of us here are DIY'ers who have no desire for this kind of service.

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Re: Are my parents in good hands with this adviser?

Post by nedsaid » Fri Dec 23, 2016 12:07 pm

My snarky comments aside, what I would do is get the actual performance numbers of your parent's portfolio. With a bit of work, you could roughly calculate the returns yourself if you had the account statements. It sounds like they are using a 60% stocks/40% bonds basic strategy and using some more complex strategies to enhance performance a bit.

I would benchmark the performance of your parent's portfolio against Vanguard LifeStrategy Growth. You could also look at various 60/40 balanced funds like Vanguard Wellington. This way you can see if the advisor is really delivering performance.

Translating advisor speak, they are picking the actively managed funds and ETFs that the advisors somehow know will outperform in the future. The structured notes will somehow reduce risks and enhance performance (how?). They will make adjustments in the portfolio according to economic forecasts.

The thing is, success at doing this is dependent upon a clear view of the future. Who knows what active funds and ETFs will outperform in the future? Who knows what the economy will do in the future? All I know is that the track record of economic and market forecasters is spotty at best, and this is being generous. I would want a clear explanation of the structured notes, how they work, and the rationale for including them in the portfolio.

I would be interested to know if any of the investments in the portfolio are using leverage and/or shorting techniques. In other words, when you look under the hood are your parents taking on more risk than they think they are?

Again, I would benchmark the actual performance of the portfolio versus various 60/40 balanced funds and again Vanguard LifeStrategy Moderate Growth and Vanguard Wellington would be a good place to start. If the advisors are outperforming, their expenses reasonable, and if they are not taking outlandish risks, I would think about staying.

If I had to guess, they are probably performing in line with a plain vanilla balanced fund, if that. The problem is that the fees detract from performance. If the advisors guess wrong about which investments will work in the future or guess wrong about the economy, that will also detract from performance. Check it out.
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Re: Are my parents in good hands with this adviser?

Post by David Jay » Fri Dec 23, 2016 12:23 pm

Utetooth wrote:We are also in the process of a retirement income flow planning based on your parents needs/ goals and various income sources.


This is a red flag for me. I would want to keep my eye on the FA recommendations, especially as it concerns annuities. I have seen too many threads over the last few years along the lines of "my Dad's planner put his entire $800,000 Roth into an index annuity".
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Re: Are my parents in good hands with this adviser?

Post by livesoft » Fri Dec 23, 2016 12:25 pm

nedsaid wrote:The e-mail reminded me of this video:

https://biggeekdad.com/2010/11/turbo-encabulator

Awesome. Thanks for sharing. This would not be a bad link to send back to the advisor in reply to the e-mail.
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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Fri Dec 23, 2016 12:36 pm

livesoft wrote:
ruralavalon wrote:While you were posting I was looking up and adding Wellington as my example, among other things. Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X in the last 13 years, using a slightly less aggressive asset allocation of 65/35.

More power to Wellington. :) I use it as one of the benchmarks that I compare my portfolio to. Wellington is moderately tax inefficient and loses about 1% to 2% a year to taxes for investors who hold it in a taxable account.

Now that you have thrown down the Wellington glove, you will have to use it whenever a recommendation to just use a 3-fund index portfolio comes up. Somehow, I don't think that is going to happen.

OTOH, the performance stated by the advisor needs to be fact checked. I would not believe any numbers given to me by anyone without checking them out for myself.

For another plain vanilla, single balanced fund comparison, over the last 13 years Vanguard Balanced Index Fund Admiral Shares (VBIAX) returned 2.4X with a 60/40 asset allocation.
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Re: Are my parents in good hands with this adviser?

Post by dbr » Fri Dec 23, 2016 12:40 pm

livesoft wrote:
nedsaid wrote:The e-mail reminded me of this video:

https://biggeekdad.com/2010/11/turbo-encabulator

Awesome. Thanks for sharing. This would not be a bad link to send back to the advisor in reply to the e-mail.


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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Fri Dec 23, 2016 12:43 pm

nedsaid wrote:The e-mail reminded me of this video:

https://biggeekdad.com/2010/11/turbo-encabulator

That's hilarious :D :D :D .
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Re: Are my parents in good hands with this adviser?

Post by nedsaid » Fri Dec 23, 2016 12:45 pm

What I mean by benchmarking is simply comparing the performance of your parent's portfolio to something else. That something else, would be Vanguard LifeStrategy Moderate Growth, which is a 60% stock/40% bond mutual fund that uses four index funds. This would be a good comparison of an actively managed portfolio that your parents have against a fund of passive, unmanaged index funds. A like for like comparison, would be your parent's portfolio against Vanguard Wellington, since both are actively managed. Vanguard also has a balanced index fund as well.

In other words, is the advisor doing better than Vanguard? Doing better compared to passive index products? Doing better against a comparable actively managed fund?

The benchmark would be what you are using to compare your parent's portfolio against. In my example, you could use Vanguard LifeStrategy Moderate Growth, Vanguard Wellington, or even Vanguard Balanced Index. The LifeStrategy fund has both US and International investments whereas Balanced Index and Wellington are US only. I looked and Wellington is about 65/35 and not 60/40.
There are gobs of balanced funds out there that you could use for comparison. Fidelity Puritan comes to mind.
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Re: Are my parents in good hands with this adviser?

Post by Miriam2 » Fri Dec 23, 2016 12:56 pm

nedsaid wrote:The e-mail reminded me of this video:
https://biggeekdad.com/2010/11/turbo-encabulator

Nedsaid - that was spot-on! The old sell-'em-with confuscation.

OP - to me it's appalling a financial adviser would use such confuscation to justify managing the portfolio of your parents, a retired dad on social security who works part time and a mother who is a teacher about to retire.

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Re: Are my parents in good hands with this adviser?

Post by artgerst » Fri Dec 23, 2016 1:07 pm

I was in a similar situation with my parents. My parents advisor was an insurance guy who had them in a whole life plan. I never really talked about the details of my fathers finances with him until a few years ago. Once I did I asked about fees and such. He asked me to get involved and when I started asking about fees, his whole life performance, etc I got the response "well what do you think the market will do next year?". I knew then to get my parents out from this guy. Since then I have my parents in a 3 fund portfolio at Vanguard. The benefits are that we talk a lot about it and he feels more comfortable with me in charge of his money. Also, if anything happens to them I know where things are at that time.

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Re: Are my parents in good hands with this adviser?

Post by nedsaid » Fri Dec 23, 2016 1:22 pm

Miriam2 wrote:
nedsaid wrote:The e-mail reminded me of this video:
https://biggeekdad.com/2010/11/turbo-encabulator

Nedsaid - that was spot-on! The old sell-'em-with confuscation.

OP - to me it's appalling a financial adviser would use such confuscation to justify managing the portfolio of your parents, a retired dad on social security who works part time and a mother who is a teacher about to retire.


The old B.S. 'em if you can't impress them.
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Re: Are my parents in good hands with this adviser?

Post by livesoft » Fri Dec 23, 2016 1:27 pm

Miriam2 wrote:OP - to me it's appalling a financial adviser would use such confuscation to justify managing the portfolio of your parents, a retired dad on social security who works part time and a mother who is a teacher about to retire.

I seriously doubt the adviser ever said those exact words to the parents at all. He probably said, "We've got you invested in equities and bonds. Everything looks good and you are beating your risk-adjusted benchmarks."
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Re: Are my parents in good hands with this adviser?

Post by NotWhoYouThink » Fri Dec 23, 2016 1:38 pm

What would your parents have been doing without this advisor? You didn't have the time or education to help them all these years, and they didn't bother to educate themselves. So without the advisor, what would they have done? That is the only rational thing to compare their performance against.

Maybe they would have found a worse advisor. Maybe they would have discovered the Wellington fund. Maybe they would have been afraid to own anything but CDs and savings bonds. You really don't know, nor do they.

So forget about comparing his past performance to anything. Talk to your parents about passive investing in index funds, and see what they think. Look at exactly what they are invested in, what's tax advantaged and what isn't and try to help them come up with a plan.

But be careful. If you become "their guy", or if you insist they go with "your guy" at Vanguard or anywhere else, then all future portfolio results, no matter how unusual the market conditions, will become your responsibility.

What result to you want here? What will you do if they don't want to become educated?

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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Fri Dec 23, 2016 2:03 pm

NotWhoYouThink wrote:But be careful. If you become "their guy", or if you insist they go with "your guy" at Vanguard or anywhere else, then all future portfolio results, no matter how unusual the market conditions, will become your responsibility.

What result to you want here? What will you do if they don't want to become educated?

Those are good points.

Because the advisor pled vacation as a reason for not fully answering, I would that OP's parents give him the chance to more fully reply on his return.

I suggest that OP's parents read one or two books on general investing. Wiki article, "Books: recommendations and reviews".

As mentioned before, here are some tips that OP's parents could use to evaluate their advisor: An Investing Primer, "Chapter 10 – On Your Own or Hire an Advisor".
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Re: Are my parents in good hands with this adviser?

Post by nedsaid » Fri Dec 23, 2016 2:04 pm

NotWhoYouThink wrote:What would your parents have been doing without this advisor? You didn't have the time or education to help them all these years, and they didn't bother to educate themselves. So without the advisor, what would they have done? That is the only rational thing to compare their performance against.

Nedsaid: This is why I don't automatically just tell people to dump their advisor. A great point is that an advisor might have done a lot better than the parents going out on their own.

I disagree with your comments regarding comparing the advisor's performance versus simpler Vanguard investments. It is 100% rational to know if the advisor has done a good job or not. Doing a comparison is really the only way to know. There is no way to benchmark against what the parents would have done on their own, as what they might have chosen on their own could be just about anything. You have to benchmark against what you have and not against something that is completely unknowable.

If the parents were 100% ignorant about investments, didn't want to learn, and the advisors were doing a decent job; I would be inclined to have them stick with their advisor. If they underperformed similar Vanguard products by a fraction of a percent per year, I would say close enough. I would sacrifice a bit of performance to have them with someone who knew what they were doing.

My concern is that these advisors are taking excessive risks. But I don't know without looking under the hood. I just have my suspicions.


Maybe they would have found a worse advisor. Maybe they would have discovered the Wellington fund. Maybe they would have been afraid to own anything but CDs and savings bonds. You really don't know, nor do they.

So forget about comparing his past performance to anything. Talk to your parents about passive investing in index funds, and see what they think. Look at exactly what they are invested in, what's tax advantaged and what isn't and try to help them come up with a plan.

Nedsaid: You are assuming that the original poster wants to take responsibility for their parent's investments. I know that I do not. Better to send them to Vanguard Advisory Services so that there is an arms' length between child and parents.

Again, a comparison of past performance is helpful. If nothing else, if the advisor underperformed, it would be a compelling argument to the parents that they made a mistake and that they can do the same thing simpler and cheaper at Vanguard. How can you make a case without knowledge?


But be careful. If you become "their guy", or if you insist they go with "your guy" at Vanguard or anywhere else, then all future portfolio results, no matter how unusual the market conditions, will become your responsibility.

Nedsaid: That is what I have been trying to say. This is why the need to comparisons and the need to see if the advisor is doing a decent job or not. The first decision is whether or not to keep the current advisor. Once the decision to make a change has been made, the search for alternatives can begin.

One more word on comparisons, what would happen if by chance the advisor had outperformed the simpler solutions we had suggested? It would be a very hard case to make that investing with the advisor was a mistake. About all you could say is that he is taking more risk, but stuff like sharpe ratios are hard to explain to complete novices and in any case would probably be unpersuasive. Unfortunately, most people focus only on performance and not on the amount of risk taken to achieve that performance.


What result to you want here? What will you do if they don't want to become educated?
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Re: Are my parents in good hands with this adviser?

Post by ruralavalon » Fri Dec 23, 2016 2:37 pm

NotWhoYouThink wrote:What would your parents have been doing without this advisor? You didn't have the time or education to help them all these years, and they didn't bother to educate themselves. So without the advisor, what would they have done? That is the only rational thing to compare their performance against.

Maybe they would have found a worse advisor. Maybe they would have discovered the Wellington fund. Maybe they would have been afraid to own anything but CDs and savings bonds. You really don't know, nor do they.

So forget about comparing his past performance to anything.


their advisor wrote:In the 13 year time frame he has doubled the account . . .

It is fair to say that the advisor might have done better than the OP's parents might have done by themselves, and may thus have provided value to them. We just don't know. We also just don't know how the advisor calculated the 2X return, or exactly what he meant by "doubled the account". Did that include or exclude contributions, withdrawals, taxes, fees & expenses, reinvestment of dividends & gains, etc.?

In my opinion it is also fair to compare the performance under the advisor to benchmarks such as plain vanilla, low expense, balanced funds. These are total return figures including reinvestment of dividends and gains, net of expenses, per Morningstar the "Growth of $10 graph" for each benchmark fund. Over the last 13 Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X , using an asset allocation of 65/35. Over the last 13 years Vanguard Balanced Index Fund Admiral Shares (VBIAX) has returned 2.4X with a 60/40 asset allocation. Over the last 13 years Vanguard LifeStrtategy Moderate Growth (VSMGX) has returned 2.1X with a 60/40 asset allocation.

As mentioned before, because the advisor pled vacation as a reason for not fully answering I suggest that OP's parents give him the chance to more fully reply on his return.
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Re: Are my parents in good hands with this adviser?

Post by Fallible » Fri Dec 23, 2016 3:31 pm

ruralavalon wrote:
NotWhoYouThink wrote:What would your parents have been doing without this advisor? You didn't have the time or education to help them all these years, and they didn't bother to educate themselves. So without the advisor, what would they have done? That is the only rational thing to compare their performance against.

Maybe they would have found a worse advisor. Maybe they would have discovered the Wellington fund. Maybe they would have been afraid to own anything but CDs and savings bonds. You really don't know, nor do they.

So forget about comparing his past performance to anything.


their advisor wrote:In the 13 year time frame he has doubled the account . . .

It is fair to say that the advisor might have done better than the OP's parents might have done by themselves, and may thus have provided value to them. We just don't know. We also just don't know how the advisor calculated the 2X return, or exactly what he meant by "doubled the account". Did that include or exclude contributions, withdrawals, taxes, fees & expenses, reinvestment of dividends & gains, etc.?

In my opinion it is also fair to compare the performance under the advisor to benchmarks such as plain vanilla, low expense, balanced funds. These are total return figures including reinvestment of dividends and gains, net of expenses, per Morningstar the "Growth of $10 graph" for each benchmark fund. Over the last 13 Vanguard Wellington Admiral Shares (VWENX) has returned 2.7X , using an asset allocation of 65/35. Over the last 13 years Vanguard Balanced Index Fund Admiral Shares (VBIAX) has returned 2.4X with a 60/40 asset allocation. Over the last 13 years Vanguard LifeStrtategy Moderate Growth (VSMGX) has returned 2.1X with a 60/40 asset allocation.

As mentioned before, because the advisor pled vacation as a reason for not fully answering I suggest that OP's parents give him the chance to more fully reply on his return.


I think this sums it up nicely for the OP, who should now make sure the advisor completes his reply, then return to this thread with that reply and more feedback. OP, It would also help to know your parents' reaction to the completed reply, i.e., how well they understand it, in particular the costs.
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Re: Are my parents in good hands with this adviser?

Post by investorguy1 » Fri Dec 23, 2016 3:50 pm

Higman wrote:While the advisor claims to act as a fiduciary and comply with the new DOL rules (which is good) I would point out that the new fiduciary rules only apply to retirement accounts such as 401Ks and IRAs. They do not apply to non-retirement accounts. If most of your parent’s savings are in a taxable account then they could be sold anything that meets the less stringent suitability rule.


I have news for you about the "DOL rule". All you have to do is say you are going to provide more services like annual reviews and "financial planning" things that you won't get with your old 401k or IRA and then you can go ahead and charge outrageous fees. So the laws don't really mean much if someone is dishonest they could get away with whatever they want.

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Re: Are my parents in good hands with this adviser?

Post by Swansea » Fri Dec 23, 2016 3:55 pm

One of my investing rules is, if I do not understand the investment opportunity, I walk away. Reading what the advisor told the parents, I would have put on my track shoes.

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Re: Are my parents in good hands with this adviser?

Post by rob » Fri Dec 23, 2016 4:01 pm

Sadly... I think the answer is no one is safe in the hands of a financial "advisor". By the time you know enough to know you got a decent one, you know enough to do most of the stuff you need - and a good idea of where you need specialized information. I wish the answer was better... maybe a certified CFP is the best answer you can get but that's not a guarantee.
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Re: Are my parents in good hands with this adviser?

Post by dbr » Fri Dec 23, 2016 4:09 pm

Without a doubt they are not in good hands with this adviser. It is not enough to imagine they would have done worse without him. It is also not enough to imagine that they will do worse in the future without him.

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Re: Are my parents in good hands with this adviser?

Post by Miriam2 » Fri Dec 23, 2016 4:15 pm

Utetooth wrote:The email:
Your dad asked us to send over our core strategy for him. This is the portfolio we use for about 60% of his holdings.

Also, Utetooth, you should find out what the adviser's strategy is for the other 40% of their holdings.

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Re: Are my parents in good hands with this adviser?

Post by pkcrafter » Fri Dec 23, 2016 4:27 pm

nedsaid wrote:

The e-mail reminded me of this video:

https://biggeekdad.com/2010/11/turbo-encabulator


Ned, you made my day!

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