Financial Advisor Question for $300k-$600K portfolio
Financial Advisor Question for $300k-$600K portfolio
As I have mentioned in other posts, my mom and her siblings stand to inherit money from their father. It is likely that a taxable gift will be given this year to each of them in the amount of between $300K and $600K. This will be at least half of what they receive when he dies. They have received two $100K gifts of stock in the past, which some have cashed out and some have left (shares of individual companies) at the broker.
For all but my mom (who has a pension), this money that they will receive is crucial retirement savings. They may not have much other money. They have asked my advice about how to handle this money.
1. Do I advise them to see a financial adviser? If so, do I send them to a fee-only one like Alan Roth (whom I read about in the WSJ and have heard good things about on here?) Or would a fee-only guy charge too much for such a small portfolio? In that case, do they look for a guy who gets paid by the funds (with all the conflicts of interest that entails)?
2. Alternatively, do I suggest an asset allocation for them divided strictly between Vanguard Total Stock Market / VG Total Bond Mkt in some sensible percentage? Of course, then more questions like international percentage arise. I don't want any blame if things go wrong. I doubt this is the right solution.
3. Also, should they be considering an annuity? They are all in their 50's/early 60's. Would a good adviser consider this for them?
What are your suggestions for what I should tell them?
For all but my mom (who has a pension), this money that they will receive is crucial retirement savings. They may not have much other money. They have asked my advice about how to handle this money.
1. Do I advise them to see a financial adviser? If so, do I send them to a fee-only one like Alan Roth (whom I read about in the WSJ and have heard good things about on here?) Or would a fee-only guy charge too much for such a small portfolio? In that case, do they look for a guy who gets paid by the funds (with all the conflicts of interest that entails)?
2. Alternatively, do I suggest an asset allocation for them divided strictly between Vanguard Total Stock Market / VG Total Bond Mkt in some sensible percentage? Of course, then more questions like international percentage arise. I don't want any blame if things go wrong. I doubt this is the right solution.
3. Also, should they be considering an annuity? They are all in their 50's/early 60's. Would a good adviser consider this for them?
What are your suggestions for what I should tell them?
For fun and knowledge, I would browse around at this other forum to see how some Registered Reps think:
http://forums.registeredrep.com/forums/ ... it-land-oz
Then decide if that kind of advisor would be suitable for your relatives. If not, then I'm not quite sure how to avoid separate them from other advisors.
http://forums.registeredrep.com/forums/ ... it-land-oz
Then decide if that kind of advisor would be suitable for your relatives. If not, then I'm not quite sure how to avoid separate them from other advisors.
- Adrian Nenu
- Posts: 5228
- Joined: Thu Apr 12, 2007 6:27 pm
If you decide to invest 50-50 in Vanguard Total Stock Market Index and Total Bond Market Index, make sure you can handle a 25% loss (or more if things get really bad). Otherwise reduce the stock exposure to the point to which you can handle a potential stock market ~50% loss.2. Alternatively, do I suggest an asset allocation for them divided strictly between Vanguard Total Stock Market / VG Total Bond Mkt in some sensible percentage? Of course, then more questions like international percentage arise. I don't want any blame if things go wrong. I doubt this is the right solution.
Since you want to invest all the equity allocation in the US, you must know that the US will outperform every other region and country. If you don't know this, diversify globally using the global index as your starting point. Bets on specific regions or countries reduce diversification - think Japan during the 90's through today and the US during the last decade. Zilch returns. Stocks can have long periods of low or negative returns, longer than most rational investors are willing to wait.
Before you and your relatives invest a dime in anything riskier than CDs and T-bills, make sure you know what you are doing and how much risk of loss each portfolio represents. I recommend that you read "Asset Allocation" by Roger Gibson.
If you decide to interview advisors (RIAs not brokers), if they cannot tell you the potential risk of loss of the proposed portfolios, walk away. It means that they don't understand risk. If they don't understand risk, they cannot determine suitability. Secondly, any advisor who charges over .50% and doesn't use low cost Vanguard index funds and/or ETFs should not even be considered. These are the first two litmus tests you should use when interviewing advisors to see if they are competent and ethical which means they are fiduciaries. Do not hand over your money to anyone who is not a fiduciary and ask them up front if they are. You are probably better off managing your own money since by the time you became competent to evaluate if an advisor is a fiduciary, you will be competent to manage your portfolio.
Good luck!
Adrian
anenu@tampabay.rr.com
The "advisors" that get paid by commission almost certainely take more of their money, but in hidden ways. In addition to charging more, they will also have an incentive to put them in bad investments. If an advisor is needed use a "fee only" one with a clear written fee structure. Note: "fee based" is not the same as "fee only", a "fee based" advisor can both charge you fees, and take commissions.1. Do I advise them to see a financial adviser? If so, do I send them to a fee-only one like Alan Roth (whom I read about in the WSJ and have heard good things about on here?) Or would a fee-only guy charge too much for such a small portfolio? In that case, do they look for a guy who gets paid by the funds (with all the conflicts of interest that entails)?
The targeted retirment account like the 2020 or 2030 funds would get them into an appropriate asset allocation and automatically rebalance the allocation. If they will actually retire in 2030 and want to be more or less agressive, then they can still use the 2020 or 2040 to to get a higher or lower percentage of stocks. These would also get you out of the loop.2. Alternatively, do I suggest an asset allocation for them divided strictly between Vanguard Total Stock Market / VG Total Bond Mkt in some sensible percentage? Of course, then more questions like international percentage arise. I don't want any blame if things go wrong. I doubt this is the right solution.
No, no, no, there are lots of things called "annunites" that are very different things. Almost all of them are bad choices that pay the "advisor" (really a salesperson) lots of commission and have high ongoing fees. To make it even worse if the company that sells the annunity goes belly up, then the money may be lost and even the states that have some sort of annunity insurace program may have a very low limit as to what is insured.3. Also, should they be considering an annuity? They are all in their 50's/early 60's. Would a good adviser consider this for them?
There are two exceptions to this. A carefully selected low cost immediate annunity from someplace like Vanguard, can esentially be like buying a pension with several options. You would not want to buy one of these until the money is needed since the amount will be much higher then because the person is older, and the money may have been invested and grown. If an immediat annunity is appropriate, then you do not need to just buy one big one. You can buy several with differnt options and you could buy one when you are 65, then wait and buy another when you are 75.
The other very rare exception of when a special annunity might make sense is when a VERY wealthy person who still has VERY high income needs the tax advantages.
Greg
- Rick Ferri
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I highly recommend Allan Roth for your mother and her siblings. Allan charges by the hour, not by asset size. He won't directly manage the portfolio, though. Meaning he won't make the trades for them; however, he will do everything he can to ensure that your mother her siblings implement his recommendations themselves.
Rick Ferri
Rick Ferri
Re: Financial Advisor Question for $300k-$600K portfolio
It sounds like your father may need advice on gifting strategies, as he may well exceed the annual gift tax exclusion and be subject to gift tax if he is not careful. But even if he does stay under the lifetime $1MM limit, he is using up his unified credit, which may or may not be an issue.Scorpion wrote: As I have mentioned in other posts, my mom and her siblings stand to inherit money from their father. It is likely that a taxable gift will be given this year to each of them in the amount of between $300K and $600K. This will be at least half of what they receive when he dies. They have received two $100K gifts of stock in the past, which some have cashed out and some have left (shares of individual companies) at the broker.
. To clarify, this will be a gift that is outside of a tax deferred retirement plan, such as an IRA, correct? If so, then the gift would be held in a taxable brokerage account, with annual realized gains subject to tax.Scorpion wrote:For all but my mom (who has a pension), this money that they will receive is crucial retirement savings. They may not have much other money. They have asked my advice about how to handle this money.
Whether the advisor is paid outside of the investment or from the investment, the effect on the owner is the same. The question is, what advice is needed, who is qualified to give it and how much, directly and indirectly, will it cost?Scorpion wrote:1. Do I advise them to see a financial adviser? If so, do I send them to a fee-only one like Alan Roth (whom I read about in the WSJ and have heard good things about on here?) Or would a fee-only guy charge too much for such a small portfolio? In that case, do they look for a guy who gets paid by the funds (with all the conflicts of interest that entails)?
2
If investment allocation is the ONLY issue, then what you've suggested as the AA for them would probably be of greater value than having them see an RIA for a detailed allocation along with expenses. But there may well be other issues here than just AA. This could include questions on timing of withdrawals, tax effects, account titling, children's determination of FAFSA need-based loan qualifiecations, current household savings rates to meet retirement income needs, and so forth.Scorpion wrote:. Alternatively, do I suggest an asset allocation for them divided strictly between Vanguard Total Stock Market / VG Total Bond Mkt in some sensible percentage? Of course, then more questions like international percentage arise. I don't want any blame if things go wrong. I doubt this is the right solution.
Probably not, unless they have an 'annuity personality', where they absolutely do not want anything to do with account management/withdrawals, trust no one and for whom an income stream is paramount above all else. Otherwise, the added expense, inflexibility and illiquidity of a life annuity make them a poor choice for most.Scorpion wrote:3. Also, should they be considering an annuity? They are all in their 50's/early 60's. Would a good adviser consider this for them?
One other advisory source you might want to look into is the Garrett financial planning network of hourly fee-only advisory services.
http://www.garrettplanningnetwork.com/
BruceM
Re: Financial Advisor Question for $300k-$600K portfolio
Another kind of 'annuity personality' is someone who would blow all the money in a couple of years like some athletes. Annuities that lock up the money and only dole out some each year can be helpful for them.BruceM wrote:Probably not, unless they have an 'annuity personality', ....
- Adrian Nenu
- Posts: 5228
- Joined: Thu Apr 12, 2007 6:27 pm
If you need comprehensive financial planning, estate planning and insurance analysis, I highly recommend Errold Moody. Moody also does portfolio management if you need it. His credentials and services can be viewed here:
http://efmoody.com/
http://efmoody.com/resume.html
http://efmoody.com/services.html
Adrian
anenu@tampabay.rr.com
http://efmoody.com/
http://efmoody.com/resume.html
http://efmoody.com/services.html
Adrian
anenu@tampabay.rr.com
livesoft you would post this link to blasphemy here? Whats the world coming to? Next I'll read that Billy Graham's foundation is attacking Islam.livesoft wrote:For fun and knowledge, I would browse around at this other forum to see how some Registered Reps think:
http://forums.registeredrep.com/forums/ ... it-land-oz
Then decide if that kind of advisor would be suitable for your relatives. If not, then I'm not quite sure how to avoid separate them from other advisors.
Even educators need education. And some can be hard headed to the point of needing time out.
If they are not used to owning funds, I would think it would be better to suggest putting most in CDs or other FDIC instruments (but keeping under the FDIC limits by spreading it between 2 or 3 banks) and considering placing some, perhaps 10-50% or even 90% into a balanced fund like Vanguard's Target Retirement Income (30% stocks, 70% bonds). This contains some international, some TIPs so it really is an all in one. They could adjust it to more stocks as they become comfortable (or not) with more volatility. Having a few years worth of cash might be very comfortable for them even if it is not earning much. I agree that a SPIA might be a good solution if there are spendthrift tendencies. Preserving principal should be a goal when they need it to live on. Of course, if they all do different things, they will compare results and guess who would be blamed if some do poorly! Any advice could make you the bad guy if it does not work out well so the option of finding a good advisor is not a bad idea.
Thanks for all the responses. A few follow up notes.
1. I manage all my own funds now, so that's not an issue. I see little advantage to me getting directly involved with their finances.
2. Livesoft's link was very illuminating, but I'm not surprised. My company's 401k advisers have a similar attitude. How could they not? To subscribe to our philosophy would put 90% of them out of work.
3. CDs plus Vanguard Target Retirement isn't a bad idea at all. I just don't know how they decide which money to withdraw to live on, whether to sell the stocks they are given and take the CGs vs. stick with them, etc. The point made about other household factors is a valid one. It seems to me they need someone to advise them.
4. The message I will give them on annuities is that they are probably not worth the very high fees charged unless they are concerned they will spend through the money otherwise. (It would probably take a very mature person to recognize that about themselves). Even if they are worth it, better to wait to buy it until you are ready to draw the income.
5. We are aware of all the tax implications re: the gifting, but I apprecaite you pointing that out in case we weren't.
6. So since the CDs + / - Target Retirement Fund may not be all they need, should I give them links to Allan Roth and the Garrett Financial Network (is it reputable?) and send them out to get advice?
Thanks for all your help.
1. I manage all my own funds now, so that's not an issue. I see little advantage to me getting directly involved with their finances.
2. Livesoft's link was very illuminating, but I'm not surprised. My company's 401k advisers have a similar attitude. How could they not? To subscribe to our philosophy would put 90% of them out of work.
3. CDs plus Vanguard Target Retirement isn't a bad idea at all. I just don't know how they decide which money to withdraw to live on, whether to sell the stocks they are given and take the CGs vs. stick with them, etc. The point made about other household factors is a valid one. It seems to me they need someone to advise them.
4. The message I will give them on annuities is that they are probably not worth the very high fees charged unless they are concerned they will spend through the money otherwise. (It would probably take a very mature person to recognize that about themselves). Even if they are worth it, better to wait to buy it until you are ready to draw the income.
5. We are aware of all the tax implications re: the gifting, but I apprecaite you pointing that out in case we weren't.
6. So since the CDs + / - Target Retirement Fund may not be all they need, should I give them links to Allan Roth and the Garrett Financial Network (is it reputable?) and send them out to get advice?
Thanks for all your help.
One more idea, you might want to get all the people involded a copy of either;
The Bogleheads' Guide to Investing
or
The Bogleheads' Guide to Retirement Planning
So you can refer them to the book and get them talking about the books among themself. No pun intended, but this could help the all "get on the same page". Amazon has the books at a pretty good discount.
Greg
The Bogleheads' Guide to Investing
or
The Bogleheads' Guide to Retirement Planning
So you can refer them to the book and get them talking about the books among themself. No pun intended, but this could help the all "get on the same page". Amazon has the books at a pretty good discount.
Greg