Poorly Managed

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boggledmind
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Poorly Managed

Post by boggledmind » Wed Jul 10, 2019 6:30 pm

So I've been trying to explain to my parents that the money held for me in a trust fund is not well invested, as the fund is charging an insane expense ratio nearing almost 2%. I'm trying to get it moved into an ETF based portfolio with VOO and VXUS cause of their MUCH lower expense ratio (almost 60x lower....) but they won't budge saying that those are scams or that they are too risky and the fund manager told them they are preventing risk with this mutual fund... I even showed backtest comparisons which showed almost an $80,000 difference even though the holdings are both S&P 500 tracking funds, but it was all to no avail. Any advice on how to better explain that they (and me) are getting ripped off by the manager?

stuper1
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Re: Poorly Managed

Post by stuper1 » Wed Jul 10, 2019 7:24 pm

Try showing them one or more of the glowing articles recently written about Jack Bogle when he passed on, and tell them about the great company (Vanguard) that he founded, and that many respected economists, etc. say that Jack was the best thing that ever happened to retail investors.

HEDGEFUNDIE
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Re: Poorly Managed

Post by HEDGEFUNDIE » Wed Jul 10, 2019 7:26 pm

It’s either your money, or it’s not.

Doesn’t sound like it is.

Tdubs
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Re: Poorly Managed

Post by Tdubs » Wed Jul 10, 2019 7:43 pm

I wish I could tell you. I had the same experience with a relative who happily hands over 1.5% to an advisor for mediocre expensive funds. I presented the simple obvious math, and it had no impact at all.

The possible flaw I see in your approach is that your parents are terrified of risk and failure of the portfolio? And you seem to be presenting them with an argument that some ETF alternative would have produced superior returns? That doesn't address their concern about risk to the principal from a market collapse or poor decisions by you down the road. They believe the fund manager will protect the fund. Your investments seem risky.

Have you presented a very safe portfolio to them? One that has soothing words like "treasuries" or "FDIC" in it? I know that doesn't provide the returns you want, but perhaps it will pry the fund out of the clutches of the manager?

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CAsage
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Re: Poorly Managed

Post by CAsage » Wed Jul 10, 2019 7:47 pm

Maybe an apples-to-apples comparison? Can you plug the (bad funds) into some kind of fund analyzer (Morningstar?) which will clearly and objectively show what the breakdown of stock/type/bond mix it's in, and a statement showing the return over 1/3/5/10 years, vs an identical asset mix of Vanguard funds or ETF over the same time? Is there anyone else in your family who they do trust? Otherwise.... well, it's a gift horse.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

MotoTrojan
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Re: Poorly Managed

Post by MotoTrojan » Wed Jul 10, 2019 7:49 pm

CAsage wrote:
Wed Jul 10, 2019 7:47 pm
Maybe an apples-to-apples comparison? Can you plug the (bad funds) into some kind of fund analyzer (Morningstar?) which will clearly and objectively show what the breakdown of stock/type/bond mix it's in, and a statement showing the return over 1/3/5/10 years, vs an identical asset mix of Vanguard funds or ETF over the same time? Is there anyone else in your family who they do trust? Otherwise.... well, it's a gift horse.
This would be the best option but with your luck they'll probably begrudgingly move the assets just before a huge market crash, and then blame you.

Maybe you can find a more reasonable adviser they'd be comfortable with.

ExitStageLeft
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Re: Poorly Managed

Post by ExitStageLeft » Wed Jul 10, 2019 7:51 pm

Perhaps hearing it from Warren Buffett will change their minds?

viewtopic.php?t=255075

P.S. Welcome to the forum!

bkweathe
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Re: Poorly Managed

Post by bkweathe » Wed Jul 10, 2019 7:58 pm

Boggledmind,

How long, if ever, until you get control of the fund? If it's only a few years, it might not be worth fighting this battle.

I'm assuming that your parents are the trustees? Are there others?

Have you watched the Bogleheads Philosophy videos? If not, please look for them on the Getting Started page. Maybe you can get your parents (trustees) to watch them, too. The videos are informative, short, entertaining, and free.

Brad

Topic Author
boggledmind
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Re: Poorly Managed

Post by boggledmind » Wed Jul 10, 2019 8:06 pm

Thanks for the welcome! The money is legally mine, I just cannot touch it for some years due to the way the account is set up. And for more information, the fund is not risk free in any way, the holdings are 65% US stock and 35% international; it is underperforming the market by a decent amount, is heavily weighted in tech and consumer good stocks in comparison to the majority of other funds, and the expense ratio is, in my opinion, ridiculous considering VOO and VXUS are pennies in comparison while also having a significantly greater return and diversification.

Iridium
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Re: Poorly Managed

Post by Iridium » Wed Jul 10, 2019 8:06 pm

No concrete experience, but I believe that one of the most powerful tools that overpriced financial advisors have is charging as a percentage of AUM with the funds getting taken straight from the account. People who would grill their advisor before cutting a $2,000 check happily let their advisor take 1% from a $1 million portfolio with nary a comment. So, as an initial step, I would make sure to translate any percentages into dollars when talking about fees (I would not bring it up out of the blue, but if you are having ongoing conversations, never use percentages to get your parents into a similar habit when thinking about fees).

Ultimately though, I think you are stuck. For some reason, they trust this advisor's claims and likely have the rest of their money invested similarly. In a battle between a professional with all the fancy post-nominals and someone whose diapers your parents changed, the playing field is not level.

It is probably best to just be happy that the advisor is less likely than your parents to sell at the bottom of a crash and that you will be getting a nice gift from your parents, even if your parents decided to pay an extraordinarily high price for a false sense of security.

Topic Author
boggledmind
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Re: Poorly Managed

Post by boggledmind » Wed Jul 10, 2019 8:10 pm

MotoTrojan wrote:
Wed Jul 10, 2019 7:49 pm
CAsage wrote:
Wed Jul 10, 2019 7:47 pm
Maybe an apples-to-apples comparison? Can you plug the (bad funds) into some kind of fund analyzer (Morningstar?) which will clearly and objectively show what the breakdown of stock/type/bond mix it's in, and a statement showing the return over 1/3/5/10 years, vs an identical asset mix of Vanguard funds or ETF over the same time? Is there anyone else in your family who they do trust? Otherwise.... well, it's a gift horse.
This would be the best option but with your luck they'll probably begrudgingly move the assets just before a huge market crash, and then blame you.

Maybe you can find a more reasonable adviser they'd be comfortable with.
Yeah, I've plugged it into backtests with Vanguard ETFs showing a high difference in favor the ETFs, but they think it will all disappear if a market crashes even though the fund its currently in is 100% stocks with a high weight in tech and consumer goods. They have it stuck in their mind from the adviser that the fund is less risk and makes money.

aristotelian
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Re: Poorly Managed

Post by aristotelian » Wed Jul 10, 2019 8:15 pm

boggledmind wrote:
Wed Jul 10, 2019 8:06 pm
Thanks for the welcome! The money is legally mine, I just cannot touch it for some years due to the way the account is set up. And for more information, the fund is not risk free in any way, the holdings are 65% US stock and 35% international; it is underperforming the market by a decent amount, is heavily weighted in tech and consumer good stocks in comparison to the majority of other funds, and the expense ratio is, in my opinion, ridiculous considering VOO and VXUS are pennies in comparison while also having a significantly greater return and diversification.
Is it underperforming the S&P500 or is it underperforming a 65/35 split?

Obviously, they set it up to keep control of it, so apparently they do not trust you to invest it. They may be wrong I wouldn't expect them to listen to you given that they intentionally set it up to keep it under their control and not yours.

Topic Author
boggledmind
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Re: Poorly Managed

Post by boggledmind » Wed Jul 10, 2019 8:15 pm

Iridium wrote:
Wed Jul 10, 2019 8:06 pm
No concrete experience, but I believe that one of the most powerful tools that overpriced financial advisors have is charging as a percentage of AUM with the funds getting taken straight from the account. People who would grill their advisor before cutting a $2,000 check happily let their advisor take 1% from a $1 million portfolio with nary a comment. So, as an initial step, I would make sure to translate any percentages into dollars when talking about fees (I would not bring it up out of the blue, but if you are having ongoing conversations, never use percentages to get your parents into a similar habit when thinking about fees).

Ultimately though, I think you are stuck. For some reason, they trust this advisor's claims and likely have the rest of their money invested similarly. In a battle between a professional with all the fancy post-nominals and someone whose diapers your parents changed, the playing field is not level.

It is probably best to just be happy that the advisor is less likely than your parents to sell at the bottom of a crash and that you will be getting a nice gift from your parents, even if your parents decided to pay an extraordinarily high price for a false sense of security.
I'm glad to have a nice safety net, and it will be very helpful for me down the road. I just hate to see so much unrealized potential disappear each year because of a manager who thinks he can outperform the market and consistently fails each year.

Tdubs
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Re: Poorly Managed

Post by Tdubs » Wed Jul 10, 2019 8:17 pm

boggledmind wrote:
Wed Jul 10, 2019 8:06 pm
Thanks for the welcome! The money is legally mine, I just cannot touch it for some years due to the way the account is set up. And for more information, the fund is not risk free in any way, the holdings are 65% US stock and 35% international; it is underperforming the market by a decent amount, is heavily weighted in tech and consumer good stocks in comparison to the majority of other funds, and the expense ratio is, in my opinion, ridiculous considering VOO and VXUS are pennies in comparison while also having a significantly greater return and diversification.
The portfolio may not be risk free, but they seem convinced it is. At least that is the only reason you have cited for their resistance. And I don't see anything in your logic that addresses their fears. It doesn't sound like they care at all about backtesting, ERs, and the superior qualities of VOO and VXUS. This is a psychology problem. You aren't going to make them Bogleheads.

Topic Author
boggledmind
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Re: Poorly Managed

Post by boggledmind » Wed Jul 10, 2019 8:23 pm

aristotelian wrote:
Wed Jul 10, 2019 8:15 pm
boggledmind wrote:
Wed Jul 10, 2019 8:06 pm
Thanks for the welcome! The money is legally mine, I just cannot touch it for some years due to the way the account is set up. And for more information, the fund is not risk free in any way, the holdings are 65% US stock and 35% international; it is underperforming the market by a decent amount, is heavily weighted in tech and consumer good stocks in comparison to the majority of other funds, and the expense ratio is, in my opinion, ridiculous considering VOO and VXUS are pennies in comparison while also having a significantly greater return and diversification.
Is it underperforming the S&P500 or is it underperforming a 65/35 split?

Obviously, they set it up to keep control of it, so apparently they do not trust you to invest it. They may be wrong I wouldn't expect them to listen to you given that they intentionally set it up to keep it under their control and not yours.
It is underperforming the split. I also forgot to mention another half of the money has just been sitting in a savings account maybe making a couple fractions of a percent after inflation adjustments. I just don't know how I could explain that investing in a simple ETF portfolio would be more beneficial and still risk-averse; they just think that the market will crash and my money would disappear if invested any other way.

Tdubs
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Re: Poorly Managed

Post by Tdubs » Wed Jul 10, 2019 8:34 pm

boggledmind wrote:
Wed Jul 10, 2019 8:23 pm
aristotelian wrote:
Wed Jul 10, 2019 8:15 pm
boggledmind wrote:
Wed Jul 10, 2019 8:06 pm
Thanks for the welcome! The money is legally mine, I just cannot touch it for some years due to the way the account is set up. And for more information, the fund is not risk free in any way, the holdings are 65% US stock and 35% international; it is underperforming the market by a decent amount, is heavily weighted in tech and consumer good stocks in comparison to the majority of other funds, and the expense ratio is, in my opinion, ridiculous considering VOO and VXUS are pennies in comparison while also having a significantly greater return and diversification.
Is it underperforming the S&P500 or is it underperforming a 65/35 split?

Obviously, they set it up to keep control of it, so apparently they do not trust you to invest it. They may be wrong I wouldn't expect them to listen to you given that they intentionally set it up to keep it under their control and not yours.
It is underperforming the split. I also forgot to mention another half of the money has just been sitting in a savings account maybe making a couple fractions of a percent after inflation adjustments. I just don't know how I could explain that investing in a simple ETF portfolio would be more beneficial and still risk-averse; they just think that the market will crash and my money would disappear if invested any other way.
OK, they are risk averse. Have you tried working within what they believe to be safe? Can you get them to move into some other FDIC bank? Ally? Redneck Bank? Marcus? Citizen Online? Or choose an online bank that they recognize the name brand and would feel safe with. My FIL would not buy my proposal to move his savings from BOA to Ally till I told him it had a lineage to GMAC. Then he was all in.

HomeStretch
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Re: Poorly Managed

Post by HomeStretch » Wed Jul 10, 2019 8:49 pm

Are your parents familiar with Vanguard? Would they be willing to have a call with Vanguard’s Trust Services to discuss the current investments/cost versus Vanguard’s proposed funds/cost? I believe all of the trust personnel are CFPs or hold some sort of trust certifications.

tibbitts
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Re: Poorly Managed

Post by tibbitts » Wed Jul 10, 2019 8:52 pm

I thought the funds belonged to the trust - and if so, are there some charges for administering the trust? How long before you have control over the funds?

Probably almost everyone here has been in a situation very similar to the one you're in. And most of us fail to change anything and eventually learn to back off. The issue has nothing to do with expense ratios or backtesting or what Warren Buffett says.You'll get over it - it's not exactly a huge problem.

BarbBrooklyn
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Re: Poorly Managed

Post by BarbBrooklyn » Wed Jul 10, 2019 9:10 pm

Is it the fact that you want the funds to be in ETFs part of the problem, as opposed to "mutual funds"?

Do you have any money of your own invested? Sharing your actual quarter by quarter outcome might be more concrete than backtesting.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Vanguard Fan 1367
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Re: Poorly Managed

Post by Vanguard Fan 1367 » Wed Jul 10, 2019 9:11 pm

A close friend is into the same situation that you are talking about. Instead of the .03 or .04 percent of Vanguard's Total Stock Market Funds he has brand X taking care of his money for that 2 percent. He says that he hates to talk about investments so I don't want to wreck the friendship. Unfortunately many people don't look at that 2 percent as very significant. Bogle and I would disagree. But it is like pulling teeth or beating your head against the wall to talk some people out of spending that 2 percent.

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burt
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Re: Poorly Managed

Post by burt » Thu Jul 11, 2019 6:37 am

Tdubs wrote:
Wed Jul 10, 2019 7:43 pm
I wish I could tell you. I had the same experience with a relative who happily hands over 1.5% to an advisor for mediocre expensive funds. I presented the simple obvious math, and it had no impact at all.
Same experience with my relative.
He would rather continue to get ripped off, than admit he wasted 10's of thousands of dollars over the years.
For him, saving face is more important than saving money.

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prudent
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Re: Poorly Managed

Post by prudent » Thu Jul 11, 2019 6:48 am

boggledmind wrote:
Wed Jul 10, 2019 8:23 pm
I also forgot to mention another half of the money has just been sitting in a savings account maybe making a couple fractions of a percent after inflation adjustments.
This might be an area of improvement. Is this money subject to AUM fees? I was able to get a relative to leave her advisor by showing her advisor had half her money in a cash account (0.02% interest) but charging 1.2% a year to manage the whole account. I didn't press her to dump the advisor, just showed her that half her money is losing over 1% a year, every year, after fees... she earns 0.02%, she pays 1.2% on half her money... and urged her to at least withdraw the cash portion and buy CDs. She ended up coming back and asking what could be done with the rest of it, I steered her to Vanguard PAS. Even if they are convinced the advisor is great, there's no real defense for a large cash position earning nothing, especially if paying AUM fees on it.

trustquestioner
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Re: Poorly Managed

Post by trustquestioner » Thu Jul 11, 2019 6:56 am

Advice you don’t want to hear:

Back off. These sound like truly awful investments, but it is not your money, it is the trustee’s money. Try to have gratitude that you’ll probably eventually receive money you didn’t earn.

Believe me, I sympathize. But I’ve learned from painful experience the approach I’ve suggested will, if adopted, considerably improve your mental health.

racy
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Re: Poorly Managed

Post by racy » Thu Jul 11, 2019 7:01 am

I don't know if this is even possible. But can you meet with their advisor yourself? He/she knows the money will soon be yours. Express to him directly that you know fees are too high and there are better alternatives. Maybe you could get a fee reduction now if he/she fears losing the account.

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Tamarind
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Re: Poorly Managed

Post by Tamarind » Thu Jul 11, 2019 7:07 am

The trust is what makes this complicated. A trustee is not required to always make the most optimized choice.

OP, if this money is owned by the trust and you are the beneficiary, you do not own the money. It is for you but it's not yours yet. You haven't gone into details as to how and by whom this trust was created (your parents, a grandparent, etc), but whoever it was didn't trust you to manage the money yet. Over time, if you are less pushy, they might start to listen to your very good suggestions.

I would suggest you focus on fulfilling whatever terms you need to to take control of the trust. Hopefully that is just time, but if not I'd focus on doing what you can to meet any conditions. We often get threads from adult children whose parents are mis-investing money that will likely become an inheritance, and we typically urge them to remember that it isn't their money. Your situation is sightly different but I think the healthy choice is the same. Brooding on things you can't control, IMO, doesn't do anything good for a person's mental health.

You should have a copy of the trust document. Give it a good read. Then let it go for now.

I think we should link this thread in for people who post wanting to create excessively controlling trusts in the absence of a clear reason like special needs. In protecting against the possibility of a spendthrift beneficiary, you will also keep your Boglehead beneficiaries from doing the right thing.

bsteiner
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Re: Poorly Managed

Post by bsteiner » Thu Jul 11, 2019 8:00 am

Tamarind wrote:
Thu Jul 11, 2019 7:07 am
The trust is what makes this complicated. A trustee is not required to always make the most optimized choice.
...
It's difficult to bring a claim against a trustee. But often a trustee can be persuaded to resign, perhaps in exchange for a release.
Tamarind wrote:
Thu Jul 11, 2019 7:07 am
...
I think we should link this thread in for people who post wanting to create excessively controlling trusts in the absence of a clear reason like special needs. In protecting against the possibility of a spendthrift beneficiary, you will also keep your Boglehead beneficiaries from doing the right thing.
A common middle ground is to provide that upon reaching a specified age the beneficiary gets to control the trust. In other words, among other things, the beneficiary gets to become a trustee, and gets the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee).

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