Financial advisor

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Cardio
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Financial advisor

Post by Cardio »

Edited as the client of the advisor in question provided me with inaccurate information. Apologies to all.
Last edited by Cardio on Sat Sep 26, 2020 10:15 am, edited 1 time in total.
000
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Re: Would you fire your financial advisor for this error?

Post by 000 »

No.

Sounds like a very minor error that had no ill effect. Or did she lose earnest money?
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9-5 Suited
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Re: Would you fire your financial advisor for this error?

Post by 9-5 Suited »

Seems like a pretty thoughtful advisor from the description. Quickly owned up and righted an error. Everyone makes mistakes, doesn’t mean they should be fired. We’d all be jobless.
terran
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Re: Would you fire your financial advisor for this error?

Post by terran »

It seems like it was an honest mistake and he contacted her right away when he realized the mistake, so other than the kneejerk "AUM fees are money down the drain" response I wouldn't say this mistake in and of itself should prompt a reexamination of the relationship. Whether or not she should have an advisor at all might be a worthwhile thing to think about, but if it gives her peace of mind and/or preserves family relationships it might be best to keep the advisor.
student
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Re: Would you fire your financial advisor for this error?

Post by student »

I agree with other posters that everyone makes mistake and the advisor made an effort to correct it. So I think it is fine.
aristotelian
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Re: Would you fire your financial advisor for this error?

Post by aristotelian »

I wouldn't have hired them in the first place but if I did I wouldn't fire them over an oversight that was corrected with no harm done.
tibbitts
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Re: Would you fire your financial advisor for this error?

Post by tibbitts »

Did the time to find the error result in a loss, or not? How long was "shortly" in this case?
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unclescrooge
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Re: Would you fire your financial advisor for this error?

Post by unclescrooge »

Sounds like you will inherit a lot of this money. So he saved you a ton of money that would have been eaten my capital gains taxes.

Technically, your mother could have paid cash. Did she ask if there would be tax consequences? Probably not.

If you had been managing the money would you have thought to consider the tax consequences?

I didn't think the adviser made any mistake.
finite_difference
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Re: Would you fire your financial advisor for this error?

Post by finite_difference »

9-5 Suited wrote: Fri Sep 11, 2020 10:23 pm Seems like a pretty thoughtful advisor from the description. Quickly owned up and righted an error. Everyone makes mistakes, doesn’t mean they should be fired. We’d all be jobless.
+1.
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CurlyDave
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Re: Would you fire your financial advisor for this error?

Post by CurlyDave »

1. I think the advisor did a great job--corrected his "error" with no lasting harm.

2. I suspect the advisor is worth his 50 bp for the reason you mention. Keeping you from the criticism of your financially naive sibling when there is a down market. Given the family dynamics this implies, I would let this situation ride. Even a robo-advisor will cost about 30 bp.
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anon_investor
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Re: Would you fire your financial advisor for this error?

Post by anon_investor »

finite_difference wrote: Fri Sep 11, 2020 11:27 pm
9-5 Suited wrote: Fri Sep 11, 2020 10:23 pm Seems like a pretty thoughtful advisor from the description. Quickly owned up and righted an error. Everyone makes mistakes, doesn’t mean they should be fired. We’d all be jobless.
+1.
+1.
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Stinky
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Re: Would you fire your financial advisor for this error?

Post by Stinky »

Cardio wrote: Fri Sep 11, 2020 10:08 pm
As my mother has been looking to downsize, she asked her financial advisor if she could make a cash offer on a condo she was interested in. The advisor said yes. Shortly thereafter, the advisor called back in a panic, because he had not looked at the tax lots in her account before replying yes.
This sounds like an entirely honorable advisor.

Let me play it out the way it probably happened:
---- Your mother called, and asked a simple question: "Do I have the funds to make a cash offer?"

---- The advisor took a quick look at your mother's account, and saw that the market value of her funds was greater than the requested amount.

---- The advisor made a return call to your mother, and said "You have the money".

---- Just after the advisor hung up the phone, he probably thought something like: "Mrs. Smith's account - didn't she buy everything a long time ago?" He looked back at her accounts, noted the cost basis information, and did a quick calculation of the potential taxes.

---- Now is the point of honor for the advisor. He could have chosen to ignore the tax information; after all, he had answered your mother's direct question. But he went the extra step. "Shortly thereafter" (your words) he called up your mother and answered a question that your mother probably hadn't directly asked, about taxes. This was the quality and classy thing for the advisor to do.

If I had a financial advisor to help run my assets, I'd want this guy. Don't fire him over this.
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JoeRetire
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Re: Would you fire your financial advisor for this error?

Post by JoeRetire »

Cardio wrote: Fri Sep 11, 2020 10:08 pmShe rescinded her cash offer and is now applying for a mortgage.

Is it worth paying 0.5% AUM with a mistake of that type, or would you leave the advisor?
What does your mom think?

Seems to me the advisor caught the error and notified your mom before any harm was done. I'd rather have an advisor that notices a mistake quickly, admits their error, and lets me know how to avoid an unneeded expense, rather than sit there and say nothing or deny that an error was made.
And although her financial life is relatively straightforward, and I could manage her assets myself, I didn't want blame from my financially naive sibling if/when a bear market shows up and her portfolio loses money.
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NotWhoYouThink
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Re: Would you fire your financial advisor for this error?

Post by NotWhoYouThink »

As mentioned above, there was no error. The advisor gave the right answer the first time. He is almost certainly an investment manager, not a financial advisor anyway, unless he also does her taxes.

The follow-up call about the taxes is an extra service for which he is not responsible. In fact, many investment managers specifically refuse to offer tax advice. He went out on a limb for a long time client. Why would you even think about firing him?
ScubaHogg
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Re: Would you fire your financial advisor for this error?

Post by ScubaHogg »

I typically default to get rid of a financial advisor, but in this case it appears he is adding some value and is diligent in his work. He made a minor mistake which he quickly rectified.
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gd
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Re: Would you fire your financial advisor for this error?

Post by gd »

Sounds like a consensus, so I'm curious to throw out an extension to this apparently simple situation-- how much are financial advisors involved in taxes? How can they be unless they do your taxes? How much are tax preparers involved in investment strategies? How can they be unless they're deeply familiar with your financial circumstances? In this case it seems straightforward-- six figure CG gives >20% reduction on stock sale proceeds. But who is expected to be responsible for that? Seems like in the end it's the client who needs to solve the equations, and they're hampered by having abdicated the details of investments and/or taxes. Honest question, I've never understood how this works.
UpperNwGuy
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Re: Would you fire your financial advisor for this error?

Post by UpperNwGuy »

Keep the advisor.
livesoft
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Re: Would you fire your financial advisor for this error?

Post by livesoft »

Negotiate a lower AUM rate since they appear to be sleeping through this anyways.
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Admiral
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Re: Would you fire your financial advisor for this error?

Post by Admiral »

livesoft wrote: Sat Sep 12, 2020 7:06 am Negotiate a lower AUM rate since they appear to be sleeping through this anyways.
+1. If it's all index funds anyway, the value provided (even for the 50bs) is definitely in the slim to none range. (The true value may be saving you the time, which of course does have value.) If her expenses are all covered outside of the portfolio anyway, than all you need is a decent low-tax investing strategy for RMDs.

I might ask about a fee-for-service based advising agreement.
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Re: Would you fire your financial advisor for this error?

Post by Call_Me_Op »

Sounds like an honest mistake that was corrected before any real damage was done. You are being too critical.
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Admiral
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Re: Would you fire your financial advisor for this error?

Post by Admiral »

gd wrote: Sat Sep 12, 2020 6:50 am Sounds like a consensus, so I'm curious to throw out an extension to this apparently simple situation-- how much are financial advisors involved in taxes? How can they be unless they do your taxes? How much are tax preparers involved in investment strategies? How can they be unless they're deeply familiar with your financial circumstances? In this case it seems straightforward-- six figure CG gives >20% reduction on stock sale proceeds. But who is expected to be responsible for that? Seems like in the end it's the client who needs to solve the equations, and they're hampered by having abdicated the details of investments and/or taxes. Honest question, I've never understood how this works.
Large accounting firms have accountants who can also advise on taxes related to financial transactions. Your random mom and pop accountant is not going to (nor should they be expected to) give investment advice. I've always had an accountant. I formerly (years ago) used Morgan Stanley financial advisors, but found them to be mostly looking out for MS and giving me poor advice when it came to the tax ramifications of particular investments.
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Re: Would you fire your financial advisor for this error?

Post by basspond »

So you realize that not only is the advisor getting 50 basis points he is also getting the custodial fees of the index funds.
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Re: Would you fire your financial advisor for this error?

Post by basspond »

gd wrote: Sat Sep 12, 2020 6:50 am Sounds like a consensus, so I'm curious to throw out an extension to this apparently simple situation-- how much are financial advisors involved in taxes? How can they be unless they do your taxes? How much are tax preparers involved in investment strategies? How can they be unless they're deeply familiar with your financial circumstances? In this case it seems straightforward-- six figure CG gives >20% reduction on stock sale proceeds. But who is expected to be responsible for that? Seems like in the end it's the client who needs to solve the equations, and they're hampered by having abdicated the details of investments and/or taxes. Honest question, I've never understood how this works.
Isn’t she having reviews with her advisor? She should have let him know for a long time she was thinking about downsizing and purchasing another property with cash. That is what I would be most concerned about that he should have been talking to her about the taxes way before this happened.
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Re: Would you fire your financial advisor for this error?

Post by tibbitts »

gd wrote: Sat Sep 12, 2020 6:50 am Sounds like a consensus, so I'm curious to throw out an extension to this apparently simple situation-- how much are financial advisors involved in taxes? How can they be unless they do your taxes? How much are tax preparers involved in investment strategies? How can they be unless they're deeply familiar with your financial circumstances? In this case it seems straightforward-- six figure CG gives >20% reduction on stock sale proceeds. But who is expected to be responsible for that? Seems like in the end it's the client who needs to solve the equations, and they're hampered by having abdicated the details of investments and/or taxes. Honest question, I've never understood how this works.
In my experience yes some advisors don't get involved with tax consequences, but in practice they aren't helpful if they don't. But clients also have to reveal all the details of their financial lives for them to be able to do that. There is no point in having an adviser and not having that person be "deeply familiar with your financial circumstances." They don't have to do your taxes, but they should certainly have all your tax returns handy for reference.

As for tax preparers, while there may be some minimal overlap, they'll generally not have access to all your information. For example, they'll see when you have a sale and capital gain, but may have no idea of the balance of the account that generated that. Or even know if you have other accounts that don't generate taxable income and don't require reporting in any way.
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celia
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Re: Would you fire your financial advisor for this error?

Post by celia »

Although the advisor sounds honest and fortright, I don't think we have enough information to know if the advisor gave the right decision. You are asking about possibly firing them, whereas I think a better question would be to ask what advice we would give your mother, after you give us more information.

If you would rather ask us, even now, what we would recommend, we would need to know:
* her age at the end of this year,
* marginal tax bracket from last year,
* what percent (or the value) of your mom's portfolio that is in taxable, tax-deferred, and Roth,
* if she is doing Roth conversions (and why/ why not),
* the cost basis of assets in taxable,
* the cost of the property to be purchased,
* amount of her SS and pension (incurring more income could make more SS be taxed),
* her living expenses not covered by SS and annuities/pension (which appears to be $0) including current rent/mortgage payments,
* if she has/will have a capital gain from other real estate she is selling,
* if she has lived in it for at least 3 of the final 5 years.

If paying off the new mortgage will cause her to have to sell some of the long-held index funds you refer to, it may make no/little difference if she sells it all this year or spreads the sales over the term of the mortgage (while incurring even bigger gains). If she is also subject to RMDs or will be soon, that is also relevant. In addition, if the advisor is not involved with her tax return, there may be no good way for them to determine if she will have a tax liability or not.
Last edited by celia on Sat Sep 12, 2020 8:35 am, edited 1 time in total.
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8foot7
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Re: Would you fire your financial advisor for this error?

Post by 8foot7 »

Of course he shouldn’t be fired. He fixed his mistake and there was no loss. I suspect your mother didn’t ask specifically about tax lots which means he was aware enough to think about it and then double check. ThTs precisely the kind of thing people not like our members need to pay 50 basis points for.
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celia
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Re: Would you fire your financial advisor for this error?

Post by celia »

8foot7 wrote: Sat Sep 12, 2020 8:29 am Of course he shouldn’t be fired. He fixed his mistake and there was no loss. I suspect your mother didn’t ask specifically about tax lots which means he was aware enough to think about it and then double check. ThTs precisely the kind of thing people not like our members need to pay 50 basis points for.
We have no idea how much advice the advisor is giving as it appears there are no recent purchases of anything. OP said the primary reason the mother is using an advisor was so that a sibling wouldn't blame the OP (who could also advise) if the investments lost value. This way, the sibling can blame the advisor instead. It appears that the advisor's fees are "no-blame" insurance for the OP.
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Re: Would you fire your financial advisor for this error?

Post by DarkHelmetII »

Cardio wrote: Fri Sep 11, 2020 10:08 pm My mother, a widowed retiree, has her investments managed by a relatively low cost advisor who uses index funds/passively managed ETFs. Although the advisor is mentioned only infrequently on this forum, I have not read anything bad about this advisor, who charges her about 50 basis points per year and has provided solid financial advice for over 10 years until recently.

As my mother has been looking to downsize, she asked her financial advisor if she could make a cash offer on a condo she was interested in. The advisor said yes. Shortly thereafter, the advisor called back in a panic, because he had not looked at the tax lots in her account before replying yes. Most of the tax lots in her account were from 1999 and 2009, index funds bought at the bottom of bear markets. Selling those would make it impossible to offer cash after paying capital gains taxes. She rescinded her cash offer and is now applying for a mortgage.

Even though I'm not a fan of the AUM model, her assets are in the $1 milllion range, 100% stocks because living expenses are covered by SS + annuities, so 50 bp per year is not outrageous. And although her financial life is relatively straightforward, and I could manage her assets myself, I didn't want blame from my financially naive sibling if/when a bear market shows up and her portfolio loses money. We get along well, but of course that's always true until it's not. Is it worth paying 0.5% AUM with a mistake of that type, or would you leave the advisor?

PS I'm not looking for dogmatic responses like "advisors are all incompetent," etc. Would prefer hearing from people who may or may not use an advisor themselves, but understand that in some situations, advisors may provide value.
OP - where did you find an advisor like this for 50 basis points? Agreed with others, sounds like a stand up guy / gal, and at 50 basis points I might even be interested in an AUM arrangement.
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Re: Would you fire your financial advisor for this error?

Post by TN_Boy »

Cardio wrote: Fri Sep 11, 2020 10:08 pm My mother, a widowed retiree, has her investments managed by a relatively low cost advisor who uses index funds/passively managed ETFs. Although the advisor is mentioned only infrequently on this forum, I have not read anything bad about this advisor, who charges her about 50 basis points per year and has provided solid financial advice for over 10 years until recently.

As my mother has been looking to downsize, she asked her financial advisor if she could make a cash offer on a condo she was interested in. The advisor said yes. Shortly thereafter, the advisor called back in a panic, because he had not looked at the tax lots in her account before replying yes. Most of the tax lots in her account were from 1999 and 2009, index funds bought at the bottom of bear markets. Selling those would make it impossible to offer cash after paying capital gains taxes. She rescinded her cash offer and is now applying for a mortgage.

Even though I'm not a fan of the AUM model, her assets are in the $1 milllion range, 100% stocks because living expenses are covered by SS + annuities, so 50 bp per year is not outrageous. And although her financial life is relatively straightforward, and I could manage her assets myself, I didn't want blame from my financially naive sibling if/when a bear market shows up and her portfolio loses money. We get along well, but of course that's always true until it's not. Is it worth paying 0.5% AUM with a mistake of that type, or would you leave the advisor?

PS I'm not looking for dogmatic responses like "advisors are all incompetent," etc. Would prefer hearing from people who may or may not use an advisor themselves, but understand that in some situations, advisors may provide value.
I would not fire the advisor, since he quickly recognized his mistake and corrected it.

That said, based on the way the text is worded: "the advisor called back in a panic" I believe the *advisor* thought this was a big deal and was quite concerned.

I can't tell from this thread how much tax advice/consulting the advisor is doing. But an investment advisor managing taxable accounts cannot do their job without a very clear understanding of the tax situation. And further, since the OPs mom asked the question, she doesn't understand the tax situation so, well, that is apparently the advisor's job.

Thus I think the error was medium to large, albeit quickly corrected.
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Re: Would you fire your financial advisor for this error?

Post by arf30 »

I think this is my general problem with advisors, not that they charge fees, but that they're handling a hundred other accounts and only take a quick glance at yours when you call. It only becomes truly personal when you hit the private banking level.
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Re: Would you fire your financial advisor for this error?

Post by bondsr4me »

gd wrote: Sat Sep 12, 2020 6:50 am Sounds like a consensus, so I'm curious to throw out an extension to this apparently simple situation-- how much are financial advisors involved in taxes? How can they be unless they do your taxes? Back when I was in business, I did both investments and taxes, so I was always aware of potential tax issues.
How much are tax preparers involved in investment strategies? There are professionals who do both.
How can they be unless they're deeply familiar with your financial circumstances? That's the advantage of using a professional who knows borh ends of the business; tax and investments..they go hand in hand.
In this case it seems straightforward-- six figure CG gives >20% reduction on stock sale proceeds. But who is expected to be responsible for that? Seems like in the end it's the client who needs to solve the equations, and they're hampered by having abdicated the details of investments and/or taxes. Honest question, I've never understood how this works.
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Re: Would you fire your financial advisor for this error?

Post by bogivan »

Cardio wrote: Fri Sep 11, 2020 10:08 pm Although the advisor is mentioned only infrequently on this forum, I have not read anything bad about this advisor, who charges her about 50 basis points per year and has provided solid financial advice for over 10 years until recently.
Have you searched for the firm and, probably more importantly, the specific individual involved on Finra's Broker Check? It might give you additional reassurance if they haven't been subject to complaints that reached regulatory level ...or it might give you confirmation that this error might be part of a pattern.
illumination
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Re: Would you fire your financial advisor for this error?

Post by illumination »

I don't think someone should be fired over a simple mistake like this, but I have to question what this person really gets paid to do. They just answered that there was a balance in the account higher than what the condo cost. And then remembered later taxes were also owed on the gains when you sell. What does she pay annually for this service? This all seems VERY basic stuff that someone who is paid to do this for a living should be able to talk through.

It sounds like money is just sitting in passive index funds anyway, you might want to see if your mom is comfortable no longer using the service and just bouncing questions off of you (since she is anyway).
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nedsaid
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Re: Would you fire your financial advisor for this error?

Post by nedsaid »

Getting a financial advisor for 50 basis points a year is a pretty good deal for an Assets Under Management Agreement. Edward Jones wants 1.35% or 135 basis points for Assets Under Management. Plus I like that the Advisor uses low cost investments. Sounds to me that the Advisor did a good job here, calling the client back and warning of the tax consequences of liquidating investments.
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patrick013
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Re: Would you fire your financial advisor for this error?

Post by patrick013 »

I think she should continue to rent the real estate market being
what it is in most areas of the country. Unless she could buy
at a real estate auction where the price would be at an auction
price. More realistic of the market value of the real estate if
she planned to sell in the short or even the long term.

Most sellers hate that idea but they can't sell either at retail price.
Many properties have been on the market for 10 years or more and
auction prices are their only hope of liquidating. FMV being the
price you could sell at rather than replacement cost (new) which
the market isn't paying due to overly excessive supply of houses,
especially condos, for sale.
age in bonds, buy-and-hold, 10 year business cycle
Luckywon
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Re: Would you fire your financial advisor for this error?

Post by Luckywon »

NotWhoYouThink wrote: Sat Sep 12, 2020 5:55 am As mentioned above, there was no error. The advisor gave the right answer the first time. He is almost certainly an investment manager, not a financial advisor anyway, unless he also does her taxes.

The follow-up call about the taxes is an extra service for which he is not responsible. In fact, many investment managers specifically refuse to offer tax advice. He went out on a limb for a long time client. Why would you even think about firing him?
Generally agree though it seems to me there is a grey area and investment managers need to consider capital gain taxes in many of their recommendations. For example, in rebalancing, one would expect them to advise a client to avoid selling positions that would incur capital gains taxes. I'm actually a bit surprised the advisor did not immediately consider potential capital gains taxes in this case but I certainly agree he acted very conscientiously overall and would not fire him because of this.

Ultimately, of course the responsibility for navigating these personal finance issues rests with your mother and she should understand when and who to ask for guidance.
Last edited by Luckywon on Sat Sep 12, 2020 11:09 am, edited 1 time in total.
Northern Flicker
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Re: Would you fire your financial advisor for this error?

Post by Northern Flicker »

We all are human. The mark of a good service is provider is owning up to mistakes and making things right. The advisor did this, so unless these types of errors are annoyingly frequent, this by itself is not grounds for firing the advisor.

But if the portfolio is 100% stock in index funds in a taxable account with embedded gains that preclude rebalancing, and the assets are not needed for living expenses, then what is there to manage? The value the advisor can offer is with financial planning around large purchases and tax planning, and that does not seem to be the standard activity of this advisor given it wasn't the first thing considered.

An advisor who is a CPA with CFS designation (equivalent to certified financial planner) and can do tax planning, investment management (what little there is to do), and annual tax returns on a fee-for-service basis might be a good fit if you can find one.
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Re: Would you fire your financial advisor for this error?

Post by Fallible »

Cardio wrote: Fri Sep 11, 2020 10:08 pm ...Is it worth paying 0.5% AUM with a mistake of that type, or would you leave the advisor? ...
Focusing on the mistake alone, it apparently was caught early and your mother notified in time. On that basis, there probably would be no reason to quit the advisor. But this assumes that the advisor has made no other significant mistakes and that you and your mother would be able to catch them if the advisor did not disclose them.
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Eagle33
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Re: Would you fire your financial advisor for this error?

Post by Eagle33 »

I would not fire him, but in the future when getting advise be sure to ask "final answer?".
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Re: Would you fire your financial advisor for this error?

Post by finite_difference »

livesoft wrote: Sat Sep 12, 2020 7:06 am Negotiate a lower AUM rate since they appear to be sleeping through this anyways.
I agree with livesoft that negotiating is worth a shot. If you could get it down to 0.3%, which is what Vanguard charges for PAS, that would save $2k/year on a $1m portfolio compared to 0.5%. You can mention that you keep your funds at Vanguard, they charge 0.3%, but you’d be comfortable keeping the funds with him/her since they have the same investing philosophy as Vanguard.
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Re: Would you fire your financial advisor for this error?

Post by BolderBoy »

Stinky wrote: Sat Sep 12, 2020 5:26 am
Cardio wrote: Fri Sep 11, 2020 10:08 pm
As my mother has been looking to downsize, she asked her financial advisor if she could make a cash offer on a condo she was interested in. The advisor said yes. Shortly thereafter, the advisor called back in a panic, because he had not looked at the tax lots in her account before replying yes.
This sounds like an entirely honorable advisor.

Let me play it out the way it probably happened:
---- Your mother called, and asked a simple question: "Do I have the funds to make a cash offer?"

---- The advisor took a quick look at your mother's account, and saw that the market value of her funds was greater than the requested amount.

---- The advisor made a return call to your mother, and said "You have the money".

---- Just after the advisor hung up the phone, he probably thought something like: "Mrs. Smith's account - didn't she buy everything a long time ago?" He looked back at her accounts, noted the cost basis information, and did a quick calculation of the potential taxes.

---- Now is the point of honor for the advisor. He could have chosen to ignore the tax information; after all, he had answered your mother's direct question. But he went the extra step. "Shortly thereafter" (your words) he called up your mother and answered a question that your mother probably hadn't directly asked, about taxes. This was the quality and classy thing for the advisor to do.

If I had a financial advisor to help run my assets, I'd want this guy. Don't fire him over this.
+1. I agree that it likely played out like this with OP's mother giving a sense of urgency so as not to miss the buying opportunity.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Nate79
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Re: Would you fire your financial advisor for this error?

Post by Nate79 »

No I would not fire them. But perhaps her advisor should provide their clients some basic financial education.
michaeljc70
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Re: Would you fire your financial advisor for this error?

Post by michaeljc70 »

I wouldn't fire them for this. When he quickly corrected himself was it after he calculated how much the taxes and down payment was times .5% :shock:?

Not a lot of information given on the transaction though (surprised no one asked). Does she own a home now (I saw reference to downsizing)? Is all the stock in taxable accounts? What is her income? LT capital gains aren't taxable (Federally) on income under ~$40k if single. It seems there should be some reinvested dividends on stocks 10-20 years old that should have less gains. Just throwing all that out there.
lazynovice
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Re: Would you fire your financial advisor for this error?

Post by lazynovice »

If your mother had to ask if she had enough money for something, she needs an advisor. Most people are NOT like the people on this forum. They are not going to spend their free time managing their money. We can all debate whether it is wise. Many of my relatives can’t believe I pay someone to repair my car, but believe me, it is the best decision for me and my car.

Like you, my mother has an advisor and I hold my breath and my tongue in those conversations. When the market crashes, she blames him and not me. She is a grown up and earned that money herself. I won’t let her die on the streets if she blows through it. That is the best I can do until she asks for my help.
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celia
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Re: Would you fire your financial advisor for this error?

Post by celia »

It's still not clear if mother currently owns a home and is downsizing to a smaller one that costs less. If that is the case, the mother may not need to sell stocks nor need to get a new mortgage!
JBTX
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Re: Would you fire your financial advisor for this error?

Post by JBTX »

Cardio wrote: Fri Sep 11, 2020 10:08 pm My mother, a widowed retiree, has her investments managed by a relatively low cost advisor who uses index funds/passively managed ETFs. Although the advisor is mentioned only infrequently on this forum, I have not read anything bad about this advisor, who charges her about 50 basis points per year and has provided solid financial advice for over 10 years until recently.

As my mother has been looking to downsize, she asked her financial advisor if she could make a cash offer on a condo she was interested in. The advisor said yes. Shortly thereafter, the advisor called back in a panic, because he had not looked at the tax lots in her account before replying yes. Most of the tax lots in her account were from 1999 and 2009, index funds bought at the bottom of bear markets. Selling those would make it impossible to offer cash after paying capital gains taxes. She rescinded her cash offer and is now applying for a mortgage.

Even though I'm not a fan of the AUM model, her assets are in the $1 milllion range, 100% stocks because living expenses are covered by SS + annuities, so 50 bp per year is not outrageous. And although her financial life is relatively straightforward, and I could manage her assets myself, I didn't want blame from my financially naive sibling if/when a bear market shows up and her portfolio loses money. We get along well, but of course that's always true until it's not. Is it worth paying 0.5% AUM with a mistake of that type, or would you leave the advisor?

PS I'm not looking for dogmatic responses like "advisors are all incompetent," etc. Would prefer hearing from people who may or may not use an advisor themselves, but understand that in some situations, advisors may provide value.
I don't really fault the advisor at all, and credit him with following up on the error. Ideally, if she is using advisor to advise on matters such as this, there would be better advance communication. Seems like the idea to buy the condo was kind of sprung on him last minute. Ideally this would have been discussed prior to hours/days before the transaction. It doesn't seem the investments tax basis status would be something he'd have at the top of his head.
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