Critique draft proposal of fee-only advisor for elderly parents

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jellieroll
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Critique draft proposal of fee-only advisor for elderly parents

Post by jellieroll »

My dad is now 92, mom is 88; both in fairly good health, live itotally ndependently. House, cars paid for. Live frugally on less than they earn from Social Security and dividends.

Joint Ameritrade:$1.24M in 2 single stocks: ED (50%), T (39%)
his: $34K IRA, $32K Roth IRA. $30K annuity,
hers: $17K IRA, $28K annuity, some LTC insurance

Cash on hand now $11K
Social security income: $26K /year
The annuities pay $1600 /year total
Dividends from ED,T: $3000/month (he ends up re-investing some of this, constantly buying more ED & T).

Goal: to accumulate as much as possible; not interested in spending down estate.
My dad & I just met with my fee-only advisor (my idea, I've used her some over that past several years) as I am worried about lack of diversification. Her fee=$2500. Dad has little knowledge of investing & has been burned in past with commision advisor; mom is not involved at all.

Advisor's assessment of current portolio: says now focused on income
Current asset allocation=93.92% US stocks, 0.19% non US stocks, 0.13% bonds.
T,ED: trailing 12 month yield: 4.94% ("fabulous but risky"); trailing 1 year return: -11.51%, trailing 10yr return: 8.52%

Advisor's proposal: go to a "total return" approach, will still give dividends and maintain total nest egg more safely over long term
keeping annuities since interest rates of 5%, 3%
Since he has losses with T, we can sell some T to offset ED gains with 0% tax bracket. (Yay!)
New Dividend yield projected to be 3.03% so he would need to sell bonds each year to make up difference of about 1.9%. She emphasized that dividends are not guaranteed, in current or proposed portfolio.

Recommended funds/& allocation (now will be 72% stock allocation for diversification.)
Consolidated Edison 30.54
iShares Core S&P Total US Stock Mkt ETF 15.06
Vanguard FTSE Developed Markets ETF 11.99
Vanguard Interm-Term Corp Bd ETF 10.01
Vanguard Short-Term Corporate Bond ETF 8.62
Vanguard Global ex-US Real Est ETF 5.00
Vanguard FTSE Emerging Markets ETF 5.00
SPDR® Portfolio S&P 500 Value ETF 4.42
Vanguard Total International Bond ETF 3.98

His only real question during the meeting was "what is an ETF?"
Now I am discussing the advisor's recommendations with him to possibly move forward this month.
He simply filed her proposal documents in a folder (I was hoping he'd review them again) and says he doesn't understand everything she is talking about. He keeps re-iterating how he gets good dividends. He says he thinks his current portfolio is ok. (note: He was literally sick about it in March & kept calling me when the market plummeted ... he did sell off a chunk in panic.)

my question:
1. What do you think of her proposal?
2. How can I sell this to him? I know it will complicate his portfolio but I keep explaining he will still get dividends, just from different funds, should be a little more secure, way less risk overall, way less risk of losing a huge chunk if Ed or T goes bad, that single stocks not recommended for anyone ESPECIALLY at his age. Any easy reading article to drive these points home (I know he won't do a deep dive into researching this)? I've used Enron as an example. He claims T and Ed are diversified.
3. How much should I push him for his own good? I feel so strongly that at his age, he should be more conservative, that he is not making a good decision for the 2 of them. (I am the only surviving child left- [I sure could use my siblings in dealing with this! but I have you all]; my husband & I are good financially so inheritance is not a big issue, unless we had to support my parents)

I'm so frustrated and worried. I appreciate any thoughts!
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Gill »

jellieroll wrote: Sun Oct 11, 2020 3:42 pm He says he thinks his current portfolio is ok.
This says it all in my view. I see no problem in just continuing along as they have. He should discontinue reinvesting in Con Ed and Telephone.
Gill
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gwe67
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by gwe67 »

According to Actuarial Life Tables, he has 3 years left, and she has 5 years. I say do nothing. He should do like her and not even pay attention to the portfolio. Why stress out over this? Enjoy the time they have remaining.
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Ged
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Ged »

Start off re-investing excess dividends into a diversified fund like VTSAX instead of T and ED.

I am a 3 fund person so this advisor's plan seems overly complex to me.

When your parents pass you will likely get a capital gains exemption for their gains over the years making restructuring of the portfolio easier than trying to do something now.
Fallible
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Fallible »

jellieroll wrote: Sun Oct 11, 2020 3:42 pm ...
3. How much should I push him for his own good? I feel so strongly that at his age, he should be more conservative, that he is not making a good decision for the 2 of them. (I am the only surviving child left- [I sure could use my siblings in dealing
with this! but I have you all]; my husband & I are good financially so inheritance is not a big issue, unless we had to support my parents)

I'm so frustrated and worried. I appreciate any thoughts!
This is a tough situation, but I think No. 3 may be your most important question because it's clear he does not understand investments, either current or proposed, and is not interested in change. His lack of interest and understanding may be due to cognitive changes (not dementia) considered common by his age.

Also, these are important issues that any good financial advisor must take into account, i.e., how well a client understands what is proposed. Your father's ETF question says a lot about how much he can follow her recommendations. I wonder, too, whether the advisor, who is your advisor, is acting based on her client's (you) wishes, worry, and frustration. Has she expressed any reservations at all about his age and limited understanding and interest in making changes?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
otinkyad
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by otinkyad »

I think the proposal is insane. It’s moving the needle too far, and has strange tilts, besides. It doesn’t seem like there’s lurking disaster, since he’s not asking much of the portfolio (2% a year at age 90). How much did he sell in March?

If I wanted to stick my nose in, I wouldn’t suggest more than one or two funds (depending on whether he is open to bonds), I would look hard at a balanced or life strategy fund, and I would consider something like VYM (Vanguard High Dividend Yield), which is closer to his comfort zone but more diversified than two stocks. I also wouldn’t sell anything for capital gains that aren’t offset by losses.
makingmistakes
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by makingmistakes »

otinkyad wrote: Sun Oct 11, 2020 5:08 pm I think the proposal is insane. It’s moving the needle too far, and has strange tilts, besides. It doesn’t seem like there’s lurking disaster, since he’s not asking much of the portfolio (2% a year at age 90). How much did he sell in March?
Agree. Don’t want to be unsympathetic, but don’t see what is causing so much worry and frustration. Could you be more specific on what you see as the lurking disaster?
senex
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by senex »

Agree with all comments so far.

Nudging is one thing (maybe stop reinvesting dividends). But switching to a complicated 8-etf system in weird non-round percentages, just seems over-the-top confusing for a 92-year-old. Not to mention the huge tax bill if his ED/T are low basis.
Lookingforanswers
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Lookingforanswers »

This seems overly complicated to me (I say this as someone who managed my parents' portfolios until they died). I sold things that had losses to offset things that had gains, and gradually over time moved them in the direction of a three-fund portfolio. I like simplification for my own portfolio, but found for my parents that ultra-ultra-ultra simple was the best solution. Took me a while to get there because they liked what they had, but over time they came to trust me.

I think your advisor blew it, to be honest. I don't see the rationale for having 5 different equity ETF's (including the real estate ETF), and 3 different bond ETF's.

I would tell your father:

(A) You've done great managing this in the past!

(B) Would be great to see you reduce some risk, time to take some of your winnings off the table. I know you can handle the risk, but as your sole heir I'm the weakling. It makes me nervous. And I know this spring you got nervous - that could happen again.

(C) Sell the stock that you have losses in (T), use those losses to sell as much Con Ed until your gains = your losses. [I'm assuming from what you wrote he would still have some Con ED. Great pick, Dad! Let's hang onto some of that].

(D) Reinvest the remainder in a mix of Vanguard Total Bond (BND) and Vanguard Total World (VT).

(E) Don't buy more ConEd with the dividends, plow it into either BND or VT.

Personally, I'd be angry with the advisor for recommending something so complicated.
Last edited by Lookingforanswers on Sun Oct 11, 2020 5:29 pm, edited 1 time in total.
000
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by 000 »

The proposal is way too complex given their ages.

Reducing exposure or buying puts on ED and T could be wise if they depend on the income from those stocks.
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WWJBDo
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by WWJBDo »

"Recommended funds/& allocation (now will be 72% stock allocation for diversification.)
Consolidated Edison 30.54
iShares Core S&P Total US Stock Mkt ETF 15.06
Vanguard FTSE Developed Markets ETF 11.99
Vanguard Interm-Term Corp Bd ETF 10.01
Vanguard Short-Term Corporate Bond ETF 8.62
Vanguard Global ex-US Real Est ETF 5.00
Vanguard FTSE Emerging Markets ETF 5.00
SPDR® Portfolio S&P 500 Value ETF 4.42
Vanguard Total International Bond ETF 3.98 "

Really?
Since this was your advisor, I have to assume you too have an unnecessarily complicated allocation created by this advisor, since you've brought them in and they are trying to convince you, not your parents, to run your parents finances. Maybe this should be an inducement to re-evaluate your finances.

They are doing the right thing (living below their means) already. No need to do anything.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair
delamer
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by delamer »

Gill wrote: Sun Oct 11, 2020 3:49 pm
jellieroll wrote: Sun Oct 11, 2020 3:42 pm He says he thinks his current portfolio is ok.
This says it all in my view. I see no problem in just continuing along as they have. He should discontinue reinvesting in Con Ed and Telephone.
Gill
Except that he did some panic selling back in March, so there is a history of making bad decisions when the market drops.

I agree about not reinvesting stock dividends that aren’t spent.

I would push to the extent that they can offset gains on ED with losses in T. Maybe if you approach it with tax management, he’ll be willing? Does he have an accountant that might help persuade him?
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Jack FFR1846 »

VTHRX : Vanguard target date 2030 retirement fund

Why?

Simple
Pays dividends
When the market goes zig, it ain't gonna
Simple
Simple

There is no reason to be doing complicated stuff at their ages. Make it simple. The end.
Bogle: Smart Beta is stupid
Tattarrattat
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Tattarrattat »

Would be cleaner to put the whole thing in a balanced index fund with 20-30% stocks. Lifestrategy income or Target income, something like that. It will be appropriate for age, nothing complicated. And if the market tanks, he wont see a big drop on his holdings, so could help avoid behavioral errors. Advisors tend to recommend excessively complex plans to justify their fees.
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jellieroll
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by jellieroll »

I am glad to hear the proposal is unnecessarily complicated. I do wonder, if the bond funds are needed since she said we would sell bonds to supplement dividends on certain years. Could that be accomplished with only 2 or 3 funds, e.g. a balanced or target fund?
Lookingforanswers
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Lookingforanswers »

jellieroll wrote: Sun Oct 11, 2020 6:32 pm I am glad to hear the proposal is unnecessarily complicated. I do wonder, if the bond funds are needed since she said we would sell bonds to supplement dividends on certain years. Could that be accomplished with only 2 or 3 funds, e.g. a balanced or target fund?
Yes, you could do this with a balanced or target fund. I think one reason to keep a bond fund is if your father holds onto some / most of his ConEd stock, you have a decision whether you want to offset that a bonds-only fund or a balanced fund? If you got a super-conservative balanced fund, one titled very heavily towards fixed income with just a bit of stocks, it probably doesn't matter.

For what it's worth, when I was managing my mother's finances, for a variety of reasons, we did this:

IRA account: A three-fund Boglehead approach (3 index funds: bonds, domestic stocks, international stocks).
Taxable account: About 80% was in a single balanced fund. The rest was in short-term bond fund and a money market fund for cash.

We largely used short-term bond funds for spending when we needed it, but occasionally I had to sell from the balanced fund. Every year when I had the take the RMD in the IRA for her, we would choose what to sell out of the IRA in order to get back to the desired allocation.
Last edited by Lookingforanswers on Mon Oct 12, 2020 1:00 pm, edited 1 time in total.
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by FoolStreet »

jellieroll wrote: Sun Oct 11, 2020 3:42 pm My dad is now 92, mom is 88; both in fairly good health, live itotally ndependently. House, cars paid for. Live frugally on less than they earn from Social Security and dividends.

Joint Ameritrade:$1.24M in 2 single stocks: ED (50%), T (39%)
his: $34K IRA, $32K Roth IRA. $30K annuity,
hers: $17K IRA, $28K annuity, some LTC insurance

Cash on hand now $11K
Social security income: $26K /year
The annuities pay $1600 /year total
Dividends from ED,T: $3000/month (he ends up re-investing some of this, constantly buying more ED & T).

Goal: to accumulate as much as possible; not interested in spending down estate.
My dad & I just met with my fee-only advisor (my idea, I've used her some over that past several years) as I am worried about lack of diversification. Her fee=$2500. Dad has little knowledge of investing & has been burned in past with commision advisor; mom is not involved at all.

Advisor's assessment of current portolio: says now focused on income
Current asset allocation=93.92% US stocks, 0.19% non US stocks, 0.13% bonds.
T,ED: trailing 12 month yield: 4.94% ("fabulous but risky"); trailing 1 year return: -11.51%, trailing 10yr return: 8.52%

Advisor's proposal: go to a "total return" approach, will still give dividends and maintain total nest egg more safely over long term
keeping annuities since interest rates of 5%, 3%
Since he has losses with T, we can sell some T to offset ED gains with 0% tax bracket. (Yay!)
New Dividend yield projected to be 3.03% so he would need to sell bonds each year to make up difference of about 1.9%. She emphasized that dividends are not guaranteed, in current or proposed portfolio.

Recommended funds/& allocation (now will be 72% stock allocation for diversification.)
Consolidated Edison 30.54
iShares Core S&P Total US Stock Mkt ETF 15.06
Vanguard FTSE Developed Markets ETF 11.99
Vanguard Interm-Term Corp Bd ETF 10.01
Vanguard Short-Term Corporate Bond ETF 8.62
Vanguard Global ex-US Real Est ETF 5.00
Vanguard FTSE Emerging Markets ETF 5.00
SPDR® Portfolio S&P 500 Value ETF 4.42
Vanguard Total International Bond ETF 3.98

His only real question during the meeting was "what is an ETF?"
Now I am discussing the advisor's recommendations with him to possibly move forward this month.
He simply filed her proposal documents in a folder (I was hoping he'd review them again) and says he doesn't understand everything she is talking about. He keeps re-iterating how he gets good dividends. He says he thinks his current portfolio is ok. (note: He was literally sick about it in March & kept calling me when the market plummeted ... he did sell off a chunk in panic.)

my question:
1. What do you think of her proposal?
2. How can I sell this to him? I know it will complicate his portfolio but I keep explaining he will still get dividends, just from different funds, should be a little more secure, way less risk overall, way less risk of losing a huge chunk if Ed or T goes bad, that single stocks not recommended for anyone ESPECIALLY at his age. Any easy reading article to drive these points home (I know he won't do a deep dive into researching this)? I've used Enron as an example. He claims T and Ed are diversified.
3. How much should I push him for his own good? I feel so strongly that at his age, he should be more conservative, that he is not making a good decision for the 2 of them. (I am the only surviving child left- [I sure could use my siblings in dealing with this! but I have you all]; my husband & I are good financially so inheritance is not a big issue, unless we had to support my parents)

I'm so frustrated and worried. I appreciate any thoughts!
I’m going to respond broad brush due to time.

1. Spend the money meeting with trust and estate lawyers as appropriate before making too many changes.

2. Agree that he is over concentrated, but he appreciates simplicity. Therefore, just pick one lifestyle fund from Vanguard for example, such as moderate. Keep it simple for everyone, especially Mom.
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by pkcrafter »

Joint Ameritrade:$1.24M in 2 single stocks: ED (50%), T (39%)


These allocations are way out of wack. Very risky.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
inbox788
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by inbox788 »

gwe67 wrote: Sun Oct 11, 2020 3:59 pm According to Actuarial Life Tables, he has 3 years left, and she has 5 years. I say do nothing. He should do like her and not even pay attention to the portfolio. Why stress out over this? Enjoy the time they have remaining.
My first impression was they've gone 9 decades doing what they're doing; why rock the boat now? Old people handle change more poorly, and as I'm aging, I'm noticing dislike for change. But there are risks to the portfolio that can be addressed and should be address if they don't cause too much emotional turmoil.
Lookingforanswers wrote: Sun Oct 11, 2020 5:27 pm(C) Sell the stock that you have losses in (T), use those losses to sell as much Con Ed until your gains = your losses. [I'm assuming from what you wrote he would still have some Con ED. Great pick, Dad! Let's hang onto some of that].
My interpretation was that after offsetting T loses with ED gains, there was still 30% invested. Did dad ever work for these companies?
Her fee=$2500.
What the the amount charged for dads plan or what she charges you (for what?) How much time was spent? What was produced? How many pages? Does it cover any ongoing services? What if he chooses not to follow any or all of the advice. Also, who is her client on this matter? Maximize his needs or yours? Assuming you will inherit what remains, it's consistent with your stated goal. What isn't specific is how much risk and stomach turning heartache you're willing to deal with to achieve that. Hopefully we won't revisit March again for a long time.
jellieroll wrote: Sun Oct 11, 2020 3:42 pmHouse, cars paid for. Live frugally on less than they earn from Social Security and dividends.
... (note: He was literally sick about it in March & kept calling me when the market plummeted ... he did sell off a chunk in panic.)
How big a chunk? For a gain or a loss? Where did it go? I only see 11k cash? What is their usual or comfortable cash level? Maintaining that or twice that may be helpful emotionally. It's an irrational feeling, but it's an expression of insecurity. You can help alleviate some of it by letting them know that it's ok if they spend all of it (highly unlikely) and if they should run out, you're in a position to help out (not that they ever want you to, but it's reassuring to offer, and I'm sure you'd be doing it sincerely).
his: $34K IRA, $32K Roth IRA. $30K annuity,
hers: $17K IRA, $28K annuity, some LTC insurance

The annuities pay $1600 /year total
I'm curious as to these 2 or 3 annuities and LTC insurance mentioned. Any detail on these?
Current asset allocation=93.92% US stocks, 0.19% non US stocks, 0.13% bonds.
My math says some 6% is missing....annuities?

What is his expectation about consuming his portfolio? Does he want more or fewer accounts?
What's his tax rate? Does he have any tax-free capital gains room? Is it up to 80k? He should be withdrawing RMD and more up to 80k taxable income and eliminating the tax-deferred IRA accounts. Or is that going to cause grief and make him feel like he's losing money (he's not). It's silly, but he might feel better if you opened up another account and put the after tax funds there. His state of mind may be more accounts is more money, and not fewer accounts with more money in it.

https://www.taxpolicycenter.org/briefin ... ains-taxed

I think it would help him see more cash in an account, so he feels more secure, and obfuscate the wild gyrations of the equity markets using a variety of diversified low cost index funds. But I do agree the plan from the advisor is unnecessarily complicated (real estate and international bond unnecessary). Total and SP500 are similar enough. Developed & Emerging vs single international fund. Separate short and intermediate funds vs. cash and more intermediate.

1) No more reinvesting in ED, just take the dividends as cash and spend it. Tell him to enjoy it. Any not spent stays as cash in the bank for safety and watch it grow.

2) If you can convince him to sell T at loss and offset with ED gains, no tax and you can invest as you see fit. Bonds is a good idea. Or CDs too. https://www.nerdwallet.com/best/banking/no-penalty-cds

3) Don't push too hard. He's right, ED and T are diversified enough and essential that if another stock befalls like Enron, chances are it's not one of those. What major company went bankrupt in 2019, 2018, 2017? It's still pretty rare for these titan companies to fail. If it bothers you (or you think it bothers him), you can buy some "insurance" in the form of Stock Puts. You'll pay a modest premium (about 12%), but limit your loses (to about 20%). Probably not necessary and more involved than you'd want to get, but it's available to you and doesn't have to involve dad at all.
ED January 2023 75 Puts cost about 10.
https://finance.yahoo.com/quote/ED/opti ... 1674172800

4) Tax optimization if he's up for it.
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by pkcrafter »

jellieroll wrote: Sun Oct 11, 2020 3:42 pm My dad is now 92, mom is 88; both in fairly good health, live itotally ndependently. House, cars paid for. Live frugally on less than they earn from Social Security and dividends.

Joint Ameritrade:$1.24M in 2 single stocks: ED (50%), T (39%)
his: $34K IRA, $32K Roth IRA. $30K annuity,
hers: $17K IRA, $28K annuity, some LTC insurance

Cash on hand now $11K
Social security income: $26K /year
The annuities pay $1600 /year total
Dividends from ED,T: $3000/month (he ends up re-investing some of this, constantly buying more ED & T).

Stop buying individual stocks.


Goal: to accumulate as much as possible; not interested in spending down estate.

Why does dad want to accumulate as much as possible. Is it for inheritance?


My dad & I just met with my fee-only advisor (my idea, I've used her some over that past several years) as I am worried about lack of diversification. Her fee=$2500. Dad has little knowledge of investing & has been burned in past with commision advisor; mom is not involved at all.

Advisor's assessment of current portolio: says now focused on income
Current asset allocation=93.92% US stocks, 0.19% non US stocks, 0.13% bonds.

A 93% equity portfolio makes no sense at all unless dad is just trying to increase inheritance. Even then it makes no sense.


T,ED: trailing 12 month yield: 4.94% ("fabulous but risky"); trailing 1 year return: -11.51%, trailing 10yr return: 8.52%

Advisor's proposal: go to a "total return" approach, will still give dividends and maintain total nest egg more safely over long term

Well, that's better than what dad is doing now, but also isn't necessary. Are you going to manage parents assets, or just recommend?
.

keeping annuities since interest rates of 5%, 3%

OK.

Since he has losses with T, we can sell some T to offset ED gains with 0% tax bracket. (Yay!)
New Dividend yield projected to be 3.03% so he would need to sell bonds each year to make up difference of about 1.9%. She emphasized that dividends are not guaranteed, in current or proposed portfolio.

Recommended funds/& allocation (now will be 72% stock allocation for diversification.)

72% stock simply isn't needed. If you look at need, ability, and willingness to take risk, your parents have financial ability, but little need. They seem to be willing, but it's very risky and completely unnecessary.
Consolidated Edison 30.54

Not a good strategy--single stock risk!.
iShares Core S&P Total US Stock Mkt ETF 15.06
Vanguard FTSE Developed Markets ETF 11.99 Nope
Vanguard Interm-Term Corp Bd ETF 10.01
Vanguard Short-Term Corporate Bond ETF 8.62
Vanguard Global ex-US Real Est ETF 5.00 Nope. RE is stocks.
Vanguard FTSE Emerging Markets ETF 5.00
SPDR® Portfolio S&P 500 Value ETF 4.42 Nope
Vanguard Total International Bond ETF 3.98 Nope

His only real question during the meeting was "what is an ETF?"

This is not a bad portfolio, but not appropriate for your dad. Advisor is going by the book, but in this case and considering dads age and investing knowledge, it's too much.

It is very likely your father cannot follow what the "advisor" is recommending. But at least it's better than what he has now.

Now I am discussing the advisor's recommendations with him to possibly move forward this month.
He simply filed her proposal documents in a folder (I was hoping he'd review them again) and says he doesn't understand everything she is talking about. He keeps re-iterating how he gets good dividends. He says he thinks his current portfolio is ok. (note: He was literally sick about it in March & kept calling me when the market plummeted ... he did sell off a chunk in panic.)

Uh-huh. Dad is going to have to follow the advisor, or let you help with decisions. If the advisor, you are going to have to coach her.

my question:
1. What do you think of her proposal? Hmmm
2. How can I sell this to him? I know it will complicate his portfolio but I keep explaining he will still get dividends, just from different funds, should be a little more secure, way less risk overall, way less risk of losing a huge chunk if Ed or T goes bad,

You (or advisor) does not have to complicate his portfolio. Keep it simple. Don't know what you can do about the dividends, but it's only total return that matters. Vanguard does have a good dividend fund, use it for one of the holdings, but keep the portfolio down to 4-6 funds.

Vanguard Dividend Growth, VDIGX,


https://investor.vanguard.com/mutual-fu ... file/VDIGX

that single stocks not recommended for anyone ESPECIALLY at his age. Any easy reading article to drive these points home (I know he won't do a deep dive into researching this)? I've used Enron as an example. He claims T and Ed are diversified.
3. How much should I push him for his own good? I feel so strongly that at his age, he should be more conservative, that he is not making a good decision for the 2 of them. (I am the only surviving child left- [I sure could use my siblings in dealing with this! but I have you all]; my husband & I are good financially so inheritance is not a big issue, unless we had to support my parents)

I'm so frustrated and worried. I appreciate any thoughts!

I'm sorry you are frustrated, and you certainly have a right to be. Bottom line is he simply does not need all that risk.
Talk to dad and tell him what you learned here. Speak with the advisor about his portfolio, and tell her what you want for dad's best interest. If no enlightenment, you may have to let it go.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
jellieroll
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Joined: Sun Mar 13, 2016 12:54 pm

Re: Critique draft proposal of fee-only advisor for elderly parents

Post by jellieroll »

I have a phone appt with my advisor next week.
So far she has answered
1. Reducing the quantity of funds also reduces the yield. Some funds were specifically added because their yield is higher – like real estate, emerging markets, and international bonds. Because stocks are yielding more than bonds right now, the more conservative we go, the less yield we get. One way to increase yield would be to do an 82% stock allocation instead of a 72%. This will have more volatility, but will yield a bit more.

2. The cost per year to maintain this draft portfolio is about 5-6 hours=$1250-1500 per year to rebalance, free up cash for distributions, look at tax planning to sell additional stock in the 0% tax bracket. I didn't realize diversifying would cost so much time/money. (this yearly fee might be the deal breaker for my dad or I would likely just pay for this myself since he did not request this "help")

3. I asked if going to non-dividend funds (if my dad would every agree) would be simpler and she said yes, we could go to a more pure Total Return approach: just 4 funds – Total Stock, Total International, Total Bond, and Short-Term Investment Grade & yearly fee would be an hour less. I guess I do not understand dividends vs non-div. funds...seems the net result is the same whether you get an automatic dividend payment or you sell off some.
inverter
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by inverter »

I don't think you need that advisor involved permanently. You paid for the analysis and got it.

I concur with others in that while I financial engineer my life, it probably isn't ideal to try to cause a sea change for your parents at this stage. I would recommend that you get them to stop dividend reinvestment, sell what they can at 0% tax rate, and reinvest into something more balanced, like LifeStrategy Conservative.
Shallowpockets
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by Shallowpockets »

93 years old and 88 years old.They have lived their lives until now without any outside meddling in the finances. Why now should they deviate? Seems like it has been successful enough for their needs and wants.
When you inherit, then take it and make your own changes as you see fit. Or else maybe you should look at what dad has now and alter your own investing so you can get to 93 in such financial shape.
bearwithbear
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by bearwithbear »

OP,

While this is not a portfolio I would recommend, if it is what your father wants then it is good enough.
Leave it be.
Dividends should go into a broad based fund, maybe VTSAX.
Tell your father he did a good job.

Best,
Bear
FoolStreet
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by FoolStreet »

jellieroll wrote: Sat Oct 17, 2020 10:01 am I have a phone appt with my advisor next week.
So far she has answered
1. Reducing the quantity of funds also reduces the yield. Some funds were specifically added because their yield is higher – like real estate, emerging markets, and international bonds. Because stocks are yielding more than bonds right now, the more conservative we go, the less yield we get. One way to increase yield would be to do an 82% stock allocation instead of a 72%. This will have more volatility, but will yield a bit more.

2. The cost per year to maintain this draft portfolio is about 5-6 hours=$1250-1500 per year to rebalance, free up cash for distributions, look at tax planning to sell additional stock in the 0% tax bracket. I didn't realize diversifying would cost so much time/money. (this yearly fee might be the deal breaker for my dad or I would likely just pay for this myself since he did not request this "help")

3. I asked if going to non-dividend funds (if my dad would every agree) would be simpler and she said yes, we could go to a more pure Total Return approach: just 4 funds – Total Stock, Total International, Total Bond, and Short-Term Investment Grade & yearly fee would be an hour less. I guess I do not understand dividends vs non-div. funds...seems the net result is the same whether you get an automatic dividend payment or you sell off some.
Sorry, I just want to be the voice of reason again to simplify.

Regarding your #3. That is a Life Strategy fund. Why complicate it with 4 individual funds and an advisor who charges you each year to buy them. Just buy one Life Strategy fund. Pick the appropriate risk-level. Simplify your parents' stocks from 2 to 1.

https://investor.vanguard.com/mutual-fu ... estrategy/

For example, conservative growth yields 1.87% and there is stock exposure for growth, so that when you combine the yields plus stock appreciation, you have a total return that should be higher.

One last point about taxes, this all assumes that your family feels they need to diversify from the 2 stocks immediately and regardless of capital gains tax implications. If your parents' stocks have capital gains, then selling will incur a tax bill. An option is to migrate over time to lower the bill, a little each year, or -- as part of estate planning -- wait for rebalancing for a life event and a basis step-up.
Topic Author
jellieroll
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Joined: Sun Mar 13, 2016 12:54 pm

Re: Critique draft proposal of fee-only advisor for elderly parents

Post by jellieroll »

For example, conservative growth yields 1.87% and there is stock exposure for growth, so that when you combine the yields plus stock appreciation, you have a total return that should be higher.
Is this less maintenance and less likely to need yearly advisor involvement? Let's say I get him to sell off the T to invest in Lifestrategy + reinvest any dividends not needed for cash into same Lifestrategy & while keeping his ED and a little T ...then next year he comes up short on dividends to meet living expenses. Could we easily sell some Lifestrategy to make up the difference?

I just wonder if his regular tax accountant could help determine how much we can sell to avoid high taxes? Or if we need to use the advisor? Is this something "normal people" figure out on their own? I'm not retired, still working/saving so spending/withdrawing is foreign to me plus I don't have the time to devote to babysitting his accounts. I don't want a huge surprise down the road that is my fault.

One last point about taxes, this all assumes that your family feels they need to diversify from the 2 stocks immediately and regardless of capital gains tax implications. If your parents' stocks have capital gains, then selling will incur a tax bill. An option is to migrate over time to lower the bill, a little each year, or -- as part of estate planning -- wait for rebalancing for a life event and a basis step-up.

My advisor says currentlys ince his T is down we can sell a huge chunk with 0% tax right now. Just a matter of what percentage we want to diversify - the max tax free amount or less if that is what he feel comfortable with.
wallygator
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by wallygator »

PSSSST!! you know Wellesley. DONE!
KISS!
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goingup
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Re: Critique draft proposal of fee-only advisor for elderly parents

Post by goingup »

jellieroll wrote: Sun Oct 11, 2020 3:42 pm
Dividends from ED,T: $3000/month (he ends up re-investing some of this, constantly buying more ED & T).

New Dividend yield projected to be 3.03% so he would need to sell bonds each year to make up difference of about 1.9%. She emphasized that dividends are not guaranteed, in current or proposed portfolio.

Recommended funds/& allocation (now will be 72% stock allocation for diversification.)
Consolidated Edison 30.54
iShares Core S&P Total US Stock Mkt ETF 15.06
Vanguard FTSE Developed Markets ETF 11.99
Vanguard Interm-Term Corp Bd ETF 10.01
Vanguard Short-Term Corporate Bond ETF 8.62
Vanguard Global ex-US Real Est ETF 5.00
Vanguard FTSE Emerging Markets ETF 5.00
SPDR® Portfolio S&P 500 Value ETF 4.42
Vanguard Total International Bond ETF 3.98
I just can't see where you'll even 3% dividends from this lineup. Will that bother your dad?

If it were my dad, I'd leave the portfolio as is. If he passes before your mom, the dividend checks will continue on. When they both pass, the heirs will get a step-up basis. Yes, there is risk in the concentrated portfolio, but at this stage of the game, there is very little risk they will outlive their assets. He knows what he owns; he understands it and he can manage it himself. Why would you want to change that?
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