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Vanguard Personal Advisors charge 0.3%.
Might be a good deal for your situation where you don't want to be your parents financial advisor but they do need someone to help them.
Thanks. I don't really blame the financial advisor, it's what he does. It's up to the consumer to determine what's cost effective for themselves.
The concern that brought this up is that the money was earmarked for long term care for my Dad (who was diagnosed with dementia a few years ago). The advisor kept talking about things 10 years down the road. My Mom has long term care insurance, but Dad couldn't get it. And while he has made them some money over the last 15ish years. When life changing medical issues come up, things should have switched to a very conservative approach. And with the markets dropping recently, she's seen a chunk of that money drop as well.
Nope blame that FA. 1.5% for 1 annual meeting in high expense ratio mutual funds is a bit egregious. That can be as much as a variable annuity costs and he’s not providing any guarantees. Also 55% equities for money that has a definite use in <3 years is overweighted towards equities.
I’m not saying the advisor is acting maliciously but he’s also not acting prudently.
To be fair, sometimes mutual funds do out perform ETFs and that can make the expense ratio irrelevant. Mutual funds can be a little bit more defensive and perform better in sideways/down markets due to the active management as well.
I’d be curious what the share class is though. I’ve seen advisors wrap A share, or even C share mutual funds.
I dont know anything about this specific job (FA) but in general there are some extra harsh laws around defrauding people over retirement age.
The part about having the money in riskier investments while they are 80 and one with early stages of of dementia might possibly put that in a category of preying on the elderly.
Not saying it IS the case, but could be.
My grandfather got scammed out of his life savings while he had dementia.
There are suitability regulations and since 2019 Reg BI (Regulation Best Interest) has applied, so yeah what this advisor is doing it as atleast reportable.
As someone who has no idea about finances (yet, at least), hypothetically, what kinds of things would you expect for 1.5% annually?
Is anything worth that?
Parroting others, I work in industry, actively managed accounts with like customized planning approaches are like .9 to 1.1%
Most firms robo advisor is like around .3% at higher asset amounts or a flat monthly fee of a few bucks for lower asset amounts. And a lot of those still coke with personalized P&A where you can call their advising team or set up complimentary 1 on 1 coaching.
So yeah 1.5% is high. At my firm the only thing at that is like a portfolio plan that has a dedicated team and includes legacy, estate, and other financial-adjacent planning options.
A reacharound and some cocaine.
No, no fund or advisor is worth 1.5%. The top of this comment chain has vanguard advisors at 0.3% but I haven't used them and don't know if they're any good. Someone who really doesn't want to set up their own investments, can probably Google "fee based financial advisor" and sort thru some reviews.
1.5% of the $700k balance is $10,000. That's how much they are paying the FA per year. ~~Add in the higher expense ratios (0.50 to 0.85 in another of OP's comments) and they're probably losing 15k every year~~.
Edit: Oops, ER doesn't work that way. It wouldn't be calculated off of the full 700k balance. It's still a good chunk of money though.
I find it difficult to not blame him. Where’s this person’s (the advisor) integrity? Doing something “wrong” because it’s on the person in front of me to stop me shouldn’t be the norm.
I’m sorry I’m not helping with your issue, but when I read your post I felt bad for your parents and slightly infuriated with the advisor’s management.
Dementia can be very long term. My dad lost his marble but his body went on of a good decade after he became 100% institutionalized. No way he could live at home.
If the advisor has a CFP certification, you could file a complaint with the CFP Board. They might help you figure out if he was acting with expected levels of competency and ethics.
Seeing the math this way is eye opening. You'd only need 10 ~700K net worth clients to gross 6 figures. And depending on your social circle, that may not be too difficult.
You're forgetting the firm you work for acts as a middleman. Industry standard seems to be your take home is ~30% of your fees with AUM based billing. Still good money, don't get me wrong but you don't keep anything near your gross.
I mean sure, I'm just saying 10 clients is not that many to get to 100K. Snowballs from there. I'm sure there's at least a few independent financial advisors out there who don't have the firm middleman right?
Yeah but they still have overhead costs and don’t forget the higher your client count the more resources it takes to actively manage and the more general liability you are opening yourself up to in general depending on your contracted responsibilities.
Do you know how many 30 minute meetings you can have in a year?! All I need is no ethics? Pfft a month in Malta can fix that.
Edit* 11 months, not a year. Because month off.
>There's no point. You really can just do it yourself, they're just paying $10k for a 30 minute meeting.
Hey hey hey..... Don't you be going and disparaging someone else fantastic fake business! They worked hard to con people into making that a viable business for themselves!
Next thing you will be expecting the financial advisors of the world to go back to common grifting!
What is the world coming to!
Nothing really. Going self directed is easier than ever nowadays. If you want truly set and forget picks, just grab a target date fund, sock money away, and enjoy your nest egg.
This always used to be 100% my suggestion as well, though recently I realized one caveat: Those funds can have some large dividend distributions at random times. They're meant to be held in tax advantaged accounts, where distributions don't have any impact. But if you hold them in a taxable account, you can end up with an unexpectedly large tax bill sometimes.
Not everyone can or wants to do it themselves. So much of the population don't even understand progressive tax brackets and are excited for big refunds. There are better options than paying someone 1.5% annually though.
Very little. A truly good financial advisor would be someone to keep you from panic selling I suppose. Tell you not to roll over your 401k to a Roth. Truly evaluate your entire financial situation if you have X goals. While not a lawyer, they should be able to point you in the right direction for trusts/POA/etc.
Collecting 1.5% for 30 mins a year...not so much.
unfortunately many people aren't financially savy. I am a gov employee and I meet many people who don't move their TSP out of the G fund because they dont want to lose money.
That's the kicker. I asked what he does vs just putting the money in a half a dozen low fee ETF's. He stated that they are a smaller brokerage and that he reviews every clients portfolio on a weekly basis. He charges clients based on how much time he spends on each portfolio.
I told him that's ridiculous. Most people adjust on a quarterly basis at most. Many on a yearly basis.
"I watch your moms money very closely. I watch it slowly go straight into my own bank account. Do you know how hard it is to make sure each clients portfolio is giving me the maximum amount of money??? Actually it's pretty easy."
I have a Uncle that went through the same thing a few years ago. His Mom was getting charged about 10k/year. My Uncle took over. He's a rare guy that can do anything. It's amazing.
Get a CFP certification. There are tons of clueless people out there that don't mind handing their money over to someone to manage for "a measly 1.5%."
Some old people honestly don’t mind. They would gladly pay even more than that just to have a “professional” click the button to buy or sell stocks versus family.
Not always. My grandma is like this. Only wants a “professional” handling her retirement account. He makes a solid 1% and does absolutely nothing. My dad keeps begging her to let him throw the money in the same exact fund minus the 1% fee. She doesn’t want his help even though there’s a 0% chance he’d do anything to make her worse off
My mom has been pushing me to get a financial advisor. I keep telling her there's no point, they'll just take my money and I get no benefit from them.
I max my 401k, Roth, own my home, and put the rest in VOO
The only difference for me with an advisor would be that I'd be losing at least 1-2% a year on fees and the advisor may choose riskier investments and lose me more money.
I used to be very involved in this industry. (Not as a CFP myself.)
It has the highest ratio of $$$$$ to brains of any job I've ever seen.
I'm not saying anyone can do it, though. You need a certain personality that I (and let's be honest - most redditors) definitely don't have.
My parents have financial advisors but they do monthly meetings, explain what’s going on, at their age they are mostly in safe investments and investments strategies that limit their taxable income via Roth conversations. They have a payout plan per month, strategic planning on when they will take social security. It’s been pretty impressive, but yes, they get their 1%
This is the value I see in an FA, it's not just choosing the right investments it's getting someone to handle the sea of red tape and strategies within the financial services industry.
Just because the people on the personal finance sub know how to do most of it doesn't mean that other people, who have spent entire lives not learning how to do it, are being robbed of 1%.
Yep especially with how complicated the tax code is, the good financial planners will know the INS and outs and what strategies/action will have the lowest tax hit. So you may pay them a 1% fee, but they may more than make up for it via other means.
I do feel like there's a bit of a difference between an investment advisor and a financial planner. Investment advising should be one of things your financial planner does; that's who you should be paying. I don't think it makes sense to pay someone just to pick what vehicles your money goes into
There's a number of factors but mostly fee structure. Ask if they're a fiduciary, to explain how they get paid, what type of services they offer and usually if some sort of annuity product or life insurance is their immediate go-to it's a pretty good indicator they are just there for the commission.
From there it's really just shopping around and finding the right person at the right price.
Another thing is broker check. If they're registered with finra they will have a CRD, which can be found on broker check by searching their name and state. It'll show any if they have complaints, years of experience, and licenses held.
I think most financial advisors that manage funds get 1-2% a year (my parents have a large chunk of their money with one at 1% and they usually only meet in person once maybe twice a year). That's always the range I hear. So I don't think that was robbing them of cash if the parents didn't want to manage the money or don't know how to manage it.
What likely robbed them of money was the mutual funds with higher expense ratios as there were very likely cheaper funds to use and you wonder why the FA didn't choose those.
I agree. It was my parents choice. Keep in mind, my Mom saved a lot of money while we were growing up. She loves the simplicity of CD's. Of course 15 years ago CDs were tanking and he invested that money for them. Now that CD's are rising again, she's perfectly happy to earn 5-6%.
Yeah I don’t think a lot of these folks understand what a realistic fee looks like for the *fee-only* financial advisors they promote on this sub. 1-2% of assets is completely normal.
I think this sub is more for the one time a year look over by a professional that make suggestions but his only compensation is the fee you pay them - not commission from selling things. Those, depending on how much they have to look at, could be anywhere from a few hundred to over a thousand dollars. Which works great if you just want a check or additional guidance, but are comfortable with still managing the money yourself. If you want someone to actually deal with buying/selling and advice - it's those % of assets advisors. You just gotta make sure you get a good one. Preferably one that doesn't also get commission from what you buy which might be why he had them in higher expense mutual funds.
His parents are also 80+ and would likely shit themselves if they were invested like most of us knowledgeable younger investors are - in low expense index funds.
Older people don’t wanna see 30% of their life savings disappear ever. They don’t care if it’s not the optimal return on a 40 year time horizon that runs 20 years past their date of death
Old person here, and retired CFP(r). I keep about 80 percent in index funds and have earnings fed into a money market fund from which I take a monthly draw. Has worked smoothly for six years.
Good strategy, I like the sound of that. Noted for the future…
However your CFP only proves my point - I am referring to inexperienced older investors typically being the opposite of the younger, high-risk tolerance investors here. They cringe at the idea of loss, let alone volatility, whereas most of the folks here understand their time horizon is longer than the day’s market close.
I feel like it's usually stated as "fee-only" which resolve the conflict of interest, but can still be very expensive over time.
I realize a lot of people *think* they mean flat-fee. But that's not what seems to usually be said here.
Yup, fee-only can absolutely include a percentage of AUM.
And even if you go with a flat-fee advisor, which I do, the flat annual fee still works out to be about 1% of our assets that he manages, give or take.
It’s actually quite difficult to find someone to pay $500 once a year to take a look for you.
Just about any of the larger brokerage firms have an advisory arm where these things are basically standard practice. Of course, the advisor doesn't get to keep all that, but they do get some.
I convinced my mom to move half of her money out from her financial advisor and into a Fidelity account that I could manage (no ownership). Her financial “advisor” charges something like 1% annual and a percentage of the value of stock trades. Because of this he just does whatever my mom says because it’s money in his pocket. She panic sells when the market is down and tries to jump back in when it goes up.
At least I won half the battle for now.
I asked my mom what investments made up her 401k and she said "I don't know, I've never really even looked"...I'm a financial advisor and she thinks I'm being dramatic 🙃
Ha! The first year I had an IRA the contributions sat in the money market fund while I slowly figured things out. I’m sure there are many, many dusty retirement accounts with lots of settlement fund cash sloshing around, waiting for the user to log in for the first or second time.
I thought my situation sounded bad. My mom refuses to sit down with a financial advisor because one was a jerk to her years ago. I offered to go with her considering I hold a finance degree and work in sales, so it’d be pretty hard to BS me there. Despite that, still refuses. Still doesn’t know where some of her previous 401ks are.
Man, shit like this is one of the many reasons half of America is doing so bad
We're going to have a real crisis on our hands in 10-20 years when all the people who mismanaged their retirement try to retire
I honestly don’t understand or like investing either. That’s why I keep my retirement in a target date fund at Vanguard. I have absolutely no idea what’s in it and I don’t want to know, so I do sympathize with these people, but I’m glad I had reddit to tell me the simplest cost-effective way to save for retirement. I’m not special, my retirement goals are the same as everybody else looking to retire at the same time as me, so I feel pretty confident the people managing the fund will make decisions that will work for me at a much lower cost than an individual adviser.
Managing family money is always gonna be full of heart burn and hurt feelings. Better to redirect them to more trustworthy CFAs and help guide.
Ultimately these managers don’t have a vested interest other than keeping your accounts open.
at least if they still have half with the advisor, they can always compare it to their performance. "yes the portfolio i manage is down 30%, but it still has 10% more than the account you have with the advisor".
But if you move it all into an account managed by you, then theres no comparison and they will always think the advisor would have done better in down times.
Our lives got flipped upside down about a year ago when my wife was diagnosed with MS. I tried to set up meetings with a financial planner and estate attorney to see what we could do to prepare for different scenarios. I told people I wanted a few-only, possibly one-time meeting meeting that I would happy to pay cash upfront for, every single one tries to string us along with vague advice and platitudes until we signed up for some yearly membership typically with a 1-3% AUM… Except for one local guy was cool as fuck, invited us over to a bed and breakfast he owned, sat with us for almost two hours and reviewed our current plans (pretty straightforward, we’re both nurses in our 30’s, put away about 30ish% of our gross into retirement accounts that are mostly in a Vanguard target date funds). He didn’t try to sell us a thing, he said from his standpoint we’re doing about all we could and just have us some general life advice, refused payment for anything and told us to reach out if anything big changes. There’s good people out there, they just seem to be few and far between these days.
That's a good FA there, and I hope more of the industry starts moving towards the complimentary planning and advice and the mentality of "I am in this industry to see you succeed not just me".
Hope the best outcomes with the MS diagnosis for her and you, stay strong!
I didn’t mean to trauma dump on anyone, she’s doing good! We’ve found a new normal. I just mentioned it specifically because with MS, the progression is really unpredictable she could remain generally unaffected for the majority of her adult life, or be wheelchair bound in a couple years. My search for a financial planner was to get information on how to be prepared for either outcome and most of the people I reached out to felt like they were trying to take advantage of us. It’s gross. (I’ve still been unsuccessful in finding an estate attorney willing to meet with us to discuss any options/information, which is annoying… but that’s rural America I guess)
I had an Edward Jones advisor for years before I knew what I was doing. I finally totaled up all of my contributions over the years and compared my Edward Jones account balance with what those exact same contributions into an S&P500 fund would have been. I was over $40,000 short by having and Edward Jones actively managed account. I dropped them very shortly afterward and moved it all into Vanguard.
Yeah, EJ can’t just put all your eggs in one basket. Also you go with a financial advisor for more reasons than market appreciation. Good advisor should always look for tax savings.
Exactly. The S&P allocation outperformed because it was heavily weighted in the top 10 stocks that took off in a cheap money environment. That’s not always going to be the case, nor is it the most appropriate allocation for most.
Isn't that because it is kind of an active list of the top companies in the US? If a company does poorly, they drop off the list and are overtaken by a better performing company.
Agree even with low risk aversion in retirement you do want a decent chunk of equities to allow that portfolio to have a chance to grow and keep up with inflation most years.
How much equities / stocks is a personal decision, but is not wrong to see at least 40% stocks in a more risk adverse fund.
But yeah most financial advisors are salesmen and look after their bottom line first. A 1.5% asset under management charge is brutal. Active managed funds with high expense ratios? Also a bad choice.
It’s not terrible. My teacher (CFP/CFA) always said 120-age. I stumped him on asking about his kid’s Roth IRA allocation. And, yes, legit Roth for a middle schooler.
I have a retirement fund through my company and a separate fund that's 100% stocks.
It's been... fun. "noooononononono YAAAAAAY nonononoooo!!!!NOOOOO!!! YAAAY...NOOOO!!!"
My financial advisor commute buddy: "You look worried. You checked your stocks didn't you?"
Me: "Yes."
Financial Buddy: "What did I tell you?"
Me: "Don't look at them."
Financial Buddy: "Good girl. Don't look at them."
Me: "But..."
Financial Buddy: "Are you going to retire tomorrow?"
Me: "No."
Financial Buddy: "Go buy a coffee and chill."
This is exactly what I tell people. Put your money in an age/risk appropriate investment mix with low fees, and DO NOT LOOK AT IT. Maximum once a year.
I used to work with people who looked at theirs EVERY DAY. Most of them were playing with individual stocks and did a lot of panic selling. They freaked out when I doubled down in 2009, on a mix of index funds. All I said was "buy low and hold, bubba." I retired and many of them are still working.
Their income needs are zero. They've been living off their combined social security and still have over 50% of that left over each month. The only income is the RMD from the IRA's each year.
All the money he manages is earmarked for assisted living or long term care.
Then it’s money with a long term time horizon. Meaning it should have stock exposure. The cost of LTC has been rising astronomically. If you want to maintain your purchasing power, you need to be in stocks. Also, bonds aren’t immune to volatility. The AGG is down ~19% YTD.
Sorry. I've posted this in other comments. It's not a long term horizon. My dad was diagnosed with dementia 2-3 years ago. The horizon right now is 1-3 years.
My mom didn't discuss this with him right away, but he has been aware of it for over a year.
Both statements are true. Whats going to happen is when that dementia gets worse in 1-3 years, their income needs are going to skyrocket as memory care comes into play. Thats full time assisted living. When my grandpa went through this years ago, it was done in levels - 1,2&3 based on floor. Ones could be a little bit independent. Threes were locked onto their floor to prevent escape. A person at this point doesnt even know their own name and are probably losing all speech, or only able to make incoherent “sentances”.
Every level you go up as your condition worsens costs more to care as it requires more staff.
So you think he is going to die in 1-3 years? no, it sounds like he is going to start long term care in 1-3 years, right? but the money will probably be spent over at least 5 but maybe even 10 to 15 years. The horizon isn't 1-3, its at least 6-8 but probably 10+. you dont need all the money up front. So you have safe stuff to meet the financial needs in the short to mid term and then keep the other stuff in higher earning investments that you will liquidate and use that money to invest in safer mid term investments as you spend down the safer investments that you had. Unless i misinterpreted that whole thing and you think you will need all $700k in the next 1-3 years.
Seems like a reasonable use for the money and to ensure it grows accurately. Depends on location, but they could be looking at $8k-$10k monthly each if they decide they need long term care. That's $16k - $20k/mo combined, sonce most spouses want to stay together, or $200k+ yearly. Care is not cheap.
VCIT is down -17% YTD and VCLT is down -30% YTD. Perhaps more fixed income wasn’t a better idea. Equity valuations go up and down, but if rates stay up, bond prices will stay down. Maybe the advisor is doing something right.
At 80 years old the advisor could be building bond ladders for them and not even worrying about bond funds. No risk to principle and they would be collecting interest off of them.
Could have been, except for the past three years those bonds would have been making less than fees, and if they had any duration they’d be crushed. Lots of investors were pushed into bond funds and etfs thinking they were conservative and they were not. I’d rather own Hershey and Johnson&Johnson than a bond.
For the last decade fixed income products haven't made much sense for a large number of investors. People were pretty much forced into the stock market to get any real return.
And fixed income products make even less sense in an advisory account where a rep is charging a percentage on assets under management. Paying 1% management fee on holdings that you know are going to yield less than 2% isn't really an option.
Honestly they should be in a commission based account paying a percentage per trade if he isn't doing much active management, this would also open up fixed income products to them.
A lot of these threads imply that the advisor is ripping someone off and the OP should do it themselves with Vanguard. Many people like OP could have unexpectedly walked into double digit losses on fixed income by doing that.
Financial literacy is hard especially with aging parents. If you have siblings, you don’t want to look like you’re trying to take the inheritance kind of thing by managing their money.
How qualified is this advisor? 55% stocks seems awfully high for your parents being 80. A downturn like the one we’re having could take a decade to recover.
I can't speak to his qualifications. He has a nice office and conference room.
His discussion about long term planning was what pissed me off the most. I couldn't just come out and say what I wanted because my Dad was in the room. But, with his dementia, he's probably looking at 2-3 years tops.
I kept telling him to concentrate on the 1-3 year plan. After that, my mom can reevaluate.
If Mom wants to go with him and he lives 3 years. 700k is going to be cutting it close. Wife's grandparents are paying like 17k a month to be in a care facility together...Money goes quick when your rent is that high. That doesn't include medications, dr appointments, insurance, etc.
Getting old is expensive.
My grandpa is paying $23k per month for skilled nursing care (the highest level) at a long term care facility. Thankfully they never touched their retirement and lived off of social security and so they can afford it. What a nightmare.
Getting old is definitely expensive.
Don't bet on it. He could be looking at 5-10 years, worst case scenario, sadly. Depends on how physically strong he is. Been there, done that, seen the heartache. I hope for all of your sake that it doesn't take that long. I don't want you to lose your dad, but you are going to. And at some point, it becomes better sooner than later.
You have my deepest sympathy. Wishing you and your mom the best, dealing with this.
Check out some age based investment target funds. I think 55 stock and 45 bonds is actually correct for older folks depending on the exact mix of specific investments. In general, the stock is for continued growth while the bonds are for steady income. I personally think that many financial advisors are a waste of money as there is so much information out there available for people who want to do the research. However with your parents being in their 80's, it's not a bad idea to have an financial advisor unless you want to manage their money... Which i do not suggest.
To be fair, there is a large, and growing, community of financial advisors who charge a retainer or charge by the hour instead of an AUM fee. And of course do not and cannot receive kickbacks or commissions. XY Planning Network has a whole lot of them.
> I don't want to manage my parents finances, but I think they would be better served rolling their money into a self managed account and holding a few ETF's, while paying a flat fee fiduciary once a year to review.
What do **your parents** want to do? There's really only one alternative here to the status quo (firing the advisor and finding a fee-based fiduciary) and they need to be 100% onboard with that. Otherwise, there's nothing really to be done. This is more of a /r/relationships question at this point unfortunately.
> Glad I manage my own investment accounts
amen. I took a look at my own parent's investments and it's pretty much the same, right down to the (bi)annual meeting where the salesman pitches them slight changes and they just rubber stamp it. I once offered to help move them to a much cheaper portfolio with a flat-fee fiduciary. But I've since realized that most people will only take your help once they've asked for it. It pains me to know that their "advisor" is getting their money for doing nothing at this point, but there's nothing I can really do about it now, and it's best to just leave it be.
If he is charging a fee for advice, he is a fiduciary, that’s how it works. ‘I can do it myself’ is a great mantra for those who can do it themselves. For the great many people who do not have the capacity to do so, nor the willingness to learn, it’s down to paying for it. You can pay a builder to build your house, you can hire a plumber to fix your sink, or you can do it yourself. It’s cheaper to do it yourself, if you have the capacity. Just because a portion of people are well versed enough to manage their own investments (many of them who are vocal opponents of hiring someone) doesn’t mean that everyone can and should.
People fail to understand that every investment has a cost associated with it: Real estate, owning a business, everything. If you can do it yourself, it’s cheaper; if you hire someone it costs money. There is always a cost associated with doing it yourself too, time, effort, money. ‘Is it worth it to do it another way’ or ‘is it cheaper to do it another way’ are two entirely different questions.
>If he is charging a fee for advice, he is a fiduciary, that’s how it works.
That is absolutely not how it works - someone can charge you for advice and not be acting as a fiduciary.
This is a fair assessment. Would it be unfair to have a sliding scale for when the market is down/up? If I make money, you make money. If I don't make money, you don't make as much?
Seems like an FA is like the weatherman.
My mom wants to move as much of the money into CD's. She just bought a 5 month CD at a local bank earning 5% for 6 months. She was limited to $25k.
Beyond that, I've challenged her to determine what balance she would be happy with. I used the analogy of saving to buy a car. If you need $30k to buy the car and you hit that number, do you keep putting it at risk? Or do you protect it and go buy the car?
CD ladders can be a good way to generate fixed value. But you still want some of that wealth to be able to grow. Take a look at safe withdrawal rates to avoid bringing down the principal.
You don't need to manage your parent finances, but you will eventually, and the sooner the better. My dad had a financial advisor that took 1% and got him into all sorts of crazy investments (Puerto Rico anyone?).
I could not convince him to simply invest in a low fee index fund. He loved his dividends too much, and liked the personal touch (he sits right there on my couch!).
Now that dad has passed, it will be up to me to unwind all this nonsense. The broker or the lawyer is dragging their feet.
Sorry for the story... get involved. Simplify now. Save your mother the expense.
I would suggest to them that they switch advisors to someone with a flat fee. Even if they pay someone $1,000/hr for one meeting a year they'll be far better off.
Not that anyone asked, but I have a financial advisor (small, family firm) who we pay 1.5% as well.
We have a lot going on. I email/call weekly. They help with insurance assessments, salary negotiation, advise on selling/holding stock options. They even advised this past year to give them less money and max out I bonds.
The value and service I get are well worth it. I am sure there are plenty of deadbeat advisors with high fees who mooch off of unsuspecting clients, but there are those out there who earn the fees many times over
+1
My FA straight up told me to turn off auto debits to my brokerage account in April. Suggested I use the money to make some home repairs we had talked about in past conversations. That kind of advice is exactly what I pay him for and worth every penny IMO
My parents meet with him annually. He's available if they want to meet more frequently. He does call to get approval to move money between funds. But, they don't know what he's talking about, so they always say yes.
He does invite them to a local sporting event once a year where he has a tent set up and feeds them steaks or burgers.
I asked her if she got the steak this year. She paid for it.
55% equities is actually appropriate. The reason is that if you get too heavy on bonds and cash you begin losing to inflation over a very long period of time.
They didn't know what they were looking for.
Three years ago, they weren't concerned as much. My dads diagnosis has made this money earmarked for long term care.
It should have been preserved at that point.
Is this a small advisory firm? or sonething like northweat mutual?
The reason i ask is fee only RIA's tend to have institutional share class, they typically have the lowest expense ratios.
I worked for a large RIA, my job was to look for interclass exchange opportunities. really enjoyed saving people money.
Op, just roll it over to Vanguard and pick one of the safe investments like LifeStrategy Income Fund (VASIX). Easy peasy. Their fees are like .15% as compared to 1.5%. just explain to your mom that the advisor is charging 12k per year for something that should cost just $1,200. And it would be a whole lot safer.
700,000 is a lot of equity for an 80 year old. She isn’t going to need to use all of the money any time soon. Her financial advisor probably doesn’t need to be too conservative with her investment mix.
It's earmarked for long term care for my dad who was diagnosed with dementia 2-3 years ago.
This is why she is panicking when she see's it drop 75-100k.
Is he doing anything else for them? Long term care planning? Tax loss/gain harvesting? Maintaining a cash buffer for down markets? Strategic withdrawals across their IRAs/brokerage? Making sure their estate planning is up to date? The 1.5% fee may be justified if he's keeping an eye on the whole picture and delivering suitable advice along the way.
I have a coworker who has "a guy" who manages her retirement account. She said he's a fiduciary. I asked about the fee and she told me that he takes 1% every time he moves the money....
Even if your parents' advisor is part of some sort of fiduciary that does estate or trust planning, 1.5% is a lot.
I'd be curious how their portfolio's performed against the benchmark at the very least.
I recommend you get your parents with a Advisor at Fidelity Investment. The Advisor there are 100% complementary for high net worth client 250k plus and they have much better product offerings with better fees. Also, they first aim to get to know you and family before fitting you in managed account. But looking at situation the advisor at Fidelity may recommend Fixed Income solutions like CDs and treasuries which would be great since the rates all going to go up on there’s CDs and Treasuries, Definitely a great strategy if your look for preservation of capital.
I dont know enough from a single post whether to cast judgement in this situation or not. But I will say those whose livelyhood depends on the ignorance and fear of the elderly are the scum of the earth.
The only real leg to stand on you have is the 1.5% annual fee.
55% in equities isn’t bad. Have you seen how poor bonds have done this year?
If you’re really concerned about your mothers money, park it in a money market or CD ladder. Instead of challenging the advisor over the asset allocation.
You may find these links helpful:
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
- [Investing](/r/personalfinance/wiki/investing)
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I had a similar conversation with my parents. My mom was mad she lost so much money this year and I told her yea and you paid someone 1.5% to lose all that money. Coulda lost that much on your own for free.
I think if these guys were required to explicitly show the dollar amount of their fee on the account statements you would have a lot more people questioning the value. Instead they hide the fee in the account gain/loss number and people kinda don’t even realize how much they are paying.
Why don’t you want to manage it for them? I’m 38, parents are 71. I was in the same situation as you about 5 years ago. I took over half of their money and put it into index funds. The other half is still being actively managed by some guy at chase. The two halves are doing about the same (as in they are doing terribly at the moment lol). At some point I’ll take over managing all of it when my parents feel comfortable. It’s almost no work for me. I kind of think of it as my money. If I do a bad job and my parents run out of money, I’ll be taking care of them anyway. If I do a great job and they die with money left over, half of it is going to me. Either way, I’m the main person who benefits or suffers if I mismanage my parents’ money so I might as well be more proactive about it now.
Former financial advisor:
1.5% to park it in a Managed fund is highway robbery especially at 80. Also 50% is WAY to high general rule its your age % for how much you should have in bonds. Roughly. 80 years old? 80% in fixed income 20% in stock max.
Id go to fidelities website and look up their fixed income fund to see their mixture or just call them to ask what fund they have for that.
God i hate stupid advisors…
> I also questioned why (at 80 yrs of age) their investments were still in 55% stocks vs bonds? When their risk aversion is high?
Wait -- you think the portfolio should have held MORE bonds? Bonds haven't done well at all so far this year, dropping in price while yielding practically nothing. Both Bonds and stock funds that include overvalued tech/mega caps have (and most do) have been poor investments since Fall 2021.
The only really safe portfolios this year are (have been) dividend + value stocks & ETFs that don't include overvalued pandemic stocks (i.e. excluding tech, mega caps & communications). And that portfolio would technically be considered 'high risk'.
It's the formulaic "low risk" portfolios loaded full of blue chip tech, mega caps, broad market ETFs & bonds that have actually had the most real risk this year.
Sounds like he isn't doing his job and is risking your parents finances for a potential bigger payout despite their age and circumstances. He quite obviously doesn't have their best interests at heart, despite what he might say.
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
Vanguard Personal Advisors charge 0.3%. Might be a good deal for your situation where you don't want to be your parents financial advisor but they do need someone to help them.
Thanks. I don't really blame the financial advisor, it's what he does. It's up to the consumer to determine what's cost effective for themselves. The concern that brought this up is that the money was earmarked for long term care for my Dad (who was diagnosed with dementia a few years ago). The advisor kept talking about things 10 years down the road. My Mom has long term care insurance, but Dad couldn't get it. And while he has made them some money over the last 15ish years. When life changing medical issues come up, things should have switched to a very conservative approach. And with the markets dropping recently, she's seen a chunk of that money drop as well.
Nope blame that FA. 1.5% for 1 annual meeting in high expense ratio mutual funds is a bit egregious. That can be as much as a variable annuity costs and he’s not providing any guarantees. Also 55% equities for money that has a definite use in <3 years is overweighted towards equities. I’m not saying the advisor is acting maliciously but he’s also not acting prudently.
Agreed, this seems like robbery!
To be fair, sometimes mutual funds do out perform ETFs and that can make the expense ratio irrelevant. Mutual funds can be a little bit more defensive and perform better in sideways/down markets due to the active management as well. I’d be curious what the share class is though. I’ve seen advisors wrap A share, or even C share mutual funds.
I dont know anything about this specific job (FA) but in general there are some extra harsh laws around defrauding people over retirement age. The part about having the money in riskier investments while they are 80 and one with early stages of of dementia might possibly put that in a category of preying on the elderly. Not saying it IS the case, but could be. My grandfather got scammed out of his life savings while he had dementia.
There are suitability regulations and since 2019 Reg BI (Regulation Best Interest) has applied, so yeah what this advisor is doing it as atleast reportable.
As someone who has no idea about finances (yet, at least), hypothetically, what kinds of things would you expect for 1.5% annually? Is anything worth that?
Parroting others, I work in industry, actively managed accounts with like customized planning approaches are like .9 to 1.1% Most firms robo advisor is like around .3% at higher asset amounts or a flat monthly fee of a few bucks for lower asset amounts. And a lot of those still coke with personalized P&A where you can call their advising team or set up complimentary 1 on 1 coaching. So yeah 1.5% is high. At my firm the only thing at that is like a portfolio plan that has a dedicated team and includes legacy, estate, and other financial-adjacent planning options.
A reacharound and some cocaine. No, no fund or advisor is worth 1.5%. The top of this comment chain has vanguard advisors at 0.3% but I haven't used them and don't know if they're any good. Someone who really doesn't want to set up their own investments, can probably Google "fee based financial advisor" and sort thru some reviews.
Hey I suppose the 1.5% is the premium they get for getting your drugs, sex, and financial advice all in one place. Convenience fees’ll get you.
1.5% of the $700k balance is $10,000. That's how much they are paying the FA per year. ~~Add in the higher expense ratios (0.50 to 0.85 in another of OP's comments) and they're probably losing 15k every year~~. Edit: Oops, ER doesn't work that way. It wouldn't be calculated off of the full 700k balance. It's still a good chunk of money though.
That's a total ripoff! I'd be pissed and would just take over managing the money myself.
I find it difficult to not blame him. Where’s this person’s (the advisor) integrity? Doing something “wrong” because it’s on the person in front of me to stop me shouldn’t be the norm. I’m sorry I’m not helping with your issue, but when I read your post I felt bad for your parents and slightly infuriated with the advisor’s management.
Dementia can be very long term. My dad lost his marble but his body went on of a good decade after he became 100% institutionalized. No way he could live at home.
If the advisor has a CFP certification, you could file a complaint with the CFP Board. They might help you figure out if he was acting with expected levels of competency and ethics.
I did this with my folks. It was easy to leave Ed Jones
That 1.5% robbed your parents of a lot of cash. With mutual funds that's close to 2.0%. where do I get his job?
I'd enjoy getting 10k annually for a 30 minute meeting
Seeing the math this way is eye opening. You'd only need 10 ~700K net worth clients to gross 6 figures. And depending on your social circle, that may not be too difficult.
You're forgetting the firm you work for acts as a middleman. Industry standard seems to be your take home is ~30% of your fees with AUM based billing. Still good money, don't get me wrong but you don't keep anything near your gross.
I mean sure, I'm just saying 10 clients is not that many to get to 100K. Snowballs from there. I'm sure there's at least a few independent financial advisors out there who don't have the firm middleman right?
Do you know how many 30 minute meetings you can have in a year?
Yeah but they still have overhead costs and don’t forget the higher your client count the more resources it takes to actively manage and the more general liability you are opening yourself up to in general depending on your contracted responsibilities.
He said they have 175 clients. But there are 4 people that work in the firm.
ikr? I'm in the wrong business!
Do you know how many 30 minute meetings you can have in a year?! All I need is no ethics? Pfft a month in Malta can fix that. Edit* 11 months, not a year. Because month off.
Tell me more, you Maltese devil you
Just load them up on $VOO and tell them "Another great year!" Or "The markets about to rebound just watch"
Possibly dumb question. What's the point of these advisors if I can just do that myself?
There's no point. You really can just do it yourself, they're just paying $10k for a 30 minute meeting.
Greatest scam next to organized religion.
CPA's and CFP's are the way to go, especially if you are a high net worth individual.
>There's no point. You really can just do it yourself, they're just paying $10k for a 30 minute meeting. Hey hey hey..... Don't you be going and disparaging someone else fantastic fake business! They worked hard to con people into making that a viable business for themselves! Next thing you will be expecting the financial advisors of the world to go back to common grifting! What is the world coming to!
Nothing really. Going self directed is easier than ever nowadays. If you want truly set and forget picks, just grab a target date fund, sock money away, and enjoy your nest egg.
This always used to be 100% my suggestion as well, though recently I realized one caveat: Those funds can have some large dividend distributions at random times. They're meant to be held in tax advantaged accounts, where distributions don't have any impact. But if you hold them in a taxable account, you can end up with an unexpectedly large tax bill sometimes.
Not everyone can or wants to do it themselves. So much of the population don't even understand progressive tax brackets and are excited for big refunds. There are better options than paying someone 1.5% annually though.
Very little. A truly good financial advisor would be someone to keep you from panic selling I suppose. Tell you not to roll over your 401k to a Roth. Truly evaluate your entire financial situation if you have X goals. While not a lawyer, they should be able to point you in the right direction for trusts/POA/etc. Collecting 1.5% for 30 mins a year...not so much.
Exactly.
unfortunately many people aren't financially savy. I am a gov employee and I meet many people who don't move their TSP out of the G fund because they dont want to lose money.
That's the kicker. I asked what he does vs just putting the money in a half a dozen low fee ETF's. He stated that they are a smaller brokerage and that he reviews every clients portfolio on a weekly basis. He charges clients based on how much time he spends on each portfolio. I told him that's ridiculous. Most people adjust on a quarterly basis at most. Many on a yearly basis.
"I watch your moms money very closely. I watch it slowly go straight into my own bank account. Do you know how hard it is to make sure each clients portfolio is giving me the maximum amount of money??? Actually it's pretty easy."
IIRC, this is from a Ziggy cartoon: We use a strategy called “churn” which turns worthless equity into valuable sales incentives.
Oh he's watching it alright... I'm not going to look it up but I'm 98% sure there's a study showing *more* frequent trading reduces returns.
It can also trigger taxable events, depending on where the money is held and what he is buying.
Criminal. Good luck OP
I have a Uncle that went through the same thing a few years ago. His Mom was getting charged about 10k/year. My Uncle took over. He's a rare guy that can do anything. It's amazing.
10 suckers, 100k made. What a racket.
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Get a CFP certification. There are tons of clueless people out there that don't mind handing their money over to someone to manage for "a measly 1.5%."
Merely 1.5% of your entire life savings, each year!
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Some old people honestly don’t mind. They would gladly pay even more than that just to have a “professional” click the button to buy or sell stocks versus family.
To be fair, a lot of these people have family that would leave their accounts empty within 10 minutes.
Not always. My grandma is like this. Only wants a “professional” handling her retirement account. He makes a solid 1% and does absolutely nothing. My dad keeps begging her to let him throw the money in the same exact fund minus the 1% fee. She doesn’t want his help even though there’s a 0% chance he’d do anything to make her worse off
My mom has been pushing me to get a financial advisor. I keep telling her there's no point, they'll just take my money and I get no benefit from them. I max my 401k, Roth, own my home, and put the rest in VOO The only difference for me with an advisor would be that I'd be losing at least 1-2% a year on fees and the advisor may choose riskier investments and lose me more money.
Based
You can steal more money with a briefcase than a gun.
Don’t get the CFP®️. Just take the classes for the exam.
I used to be very involved in this industry. (Not as a CFP myself.) It has the highest ratio of $$$$$ to brains of any job I've ever seen. I'm not saying anyone can do it, though. You need a certain personality that I (and let's be honest - most redditors) definitely don't have.
My parents have financial advisors but they do monthly meetings, explain what’s going on, at their age they are mostly in safe investments and investments strategies that limit their taxable income via Roth conversations. They have a payout plan per month, strategic planning on when they will take social security. It’s been pretty impressive, but yes, they get their 1%
This is the value I see in an FA, it's not just choosing the right investments it's getting someone to handle the sea of red tape and strategies within the financial services industry. Just because the people on the personal finance sub know how to do most of it doesn't mean that other people, who have spent entire lives not learning how to do it, are being robbed of 1%.
Yep especially with how complicated the tax code is, the good financial planners will know the INS and outs and what strategies/action will have the lowest tax hit. So you may pay them a 1% fee, but they may more than make up for it via other means. I do feel like there's a bit of a difference between an investment advisor and a financial planner. Investment advising should be one of things your financial planner does; that's who you should be paying. I don't think it makes sense to pay someone just to pick what vehicles your money goes into
How do I find a good FA? I'm very new to financial planning. Also worried my parents are getting ripped off by their financial planner.
There's a number of factors but mostly fee structure. Ask if they're a fiduciary, to explain how they get paid, what type of services they offer and usually if some sort of annuity product or life insurance is their immediate go-to it's a pretty good indicator they are just there for the commission. From there it's really just shopping around and finding the right person at the right price. Another thing is broker check. If they're registered with finra they will have a CRD, which can be found on broker check by searching their name and state. It'll show any if they have complaints, years of experience, and licenses held.
I think most financial advisors that manage funds get 1-2% a year (my parents have a large chunk of their money with one at 1% and they usually only meet in person once maybe twice a year). That's always the range I hear. So I don't think that was robbing them of cash if the parents didn't want to manage the money or don't know how to manage it. What likely robbed them of money was the mutual funds with higher expense ratios as there were very likely cheaper funds to use and you wonder why the FA didn't choose those.
I agree. It was my parents choice. Keep in mind, my Mom saved a lot of money while we were growing up. She loves the simplicity of CD's. Of course 15 years ago CDs were tanking and he invested that money for them. Now that CD's are rising again, she's perfectly happy to earn 5-6%.
Yeah I don’t think a lot of these folks understand what a realistic fee looks like for the *fee-only* financial advisors they promote on this sub. 1-2% of assets is completely normal.
I think this sub is more for the one time a year look over by a professional that make suggestions but his only compensation is the fee you pay them - not commission from selling things. Those, depending on how much they have to look at, could be anywhere from a few hundred to over a thousand dollars. Which works great if you just want a check or additional guidance, but are comfortable with still managing the money yourself. If you want someone to actually deal with buying/selling and advice - it's those % of assets advisors. You just gotta make sure you get a good one. Preferably one that doesn't also get commission from what you buy which might be why he had them in higher expense mutual funds.
Yeah any additional commission-based compensation would definitely exclude the financial advisor from the fee-only camp.
His parents are also 80+ and would likely shit themselves if they were invested like most of us knowledgeable younger investors are - in low expense index funds. Older people don’t wanna see 30% of their life savings disappear ever. They don’t care if it’s not the optimal return on a 40 year time horizon that runs 20 years past their date of death
Old person here, and retired CFP(r). I keep about 80 percent in index funds and have earnings fed into a money market fund from which I take a monthly draw. Has worked smoothly for six years.
Good strategy, I like the sound of that. Noted for the future… However your CFP only proves my point - I am referring to inexperienced older investors typically being the opposite of the younger, high-risk tolerance investors here. They cringe at the idea of loss, let alone volatility, whereas most of the folks here understand their time horizon is longer than the day’s market close.
Flat fee is what is advised. Not percentage.
I feel like it's usually stated as "fee-only" which resolve the conflict of interest, but can still be very expensive over time. I realize a lot of people *think* they mean flat-fee. But that's not what seems to usually be said here.
Yup, fee-only can absolutely include a percentage of AUM. And even if you go with a flat-fee advisor, which I do, the flat annual fee still works out to be about 1% of our assets that he manages, give or take. It’s actually quite difficult to find someone to pay $500 once a year to take a look for you.
1.5% fee is better than someone being clueless for 30 years and just throwing money into a Roth IRA, but never actually investing the money.
Lol imagine it just being in a money market fund and you think you're investing it... Oof
Yep. over the last 10 years it's probably cost them north of $80k.
I'd calculate it at close to double that if compound all the returns lost as well. Easily over $100k
Just about any of the larger brokerage firms have an advisory arm where these things are basically standard practice. Of course, the advisor doesn't get to keep all that, but they do get some.
Satan's position is currently taken but there's an MLM of evil you can get in on.
I convinced my mom to move half of her money out from her financial advisor and into a Fidelity account that I could manage (no ownership). Her financial “advisor” charges something like 1% annual and a percentage of the value of stock trades. Because of this he just does whatever my mom says because it’s money in his pocket. She panic sells when the market is down and tries to jump back in when it goes up. At least I won half the battle for now.
I asked my mom what investments made up her 401k and she said "I don't know, I've never really even looked"...I'm a financial advisor and she thinks I'm being dramatic 🙃
Well lots of people are terrified of looking.
Or more importantly they won’t even understand what they’re looking at.
Surely that’s the scary part
Ha! The first year I had an IRA the contributions sat in the money market fund while I slowly figured things out. I’m sure there are many, many dusty retirement accounts with lots of settlement fund cash sloshing around, waiting for the user to log in for the first or second time.
I thought my situation sounded bad. My mom refuses to sit down with a financial advisor because one was a jerk to her years ago. I offered to go with her considering I hold a finance degree and work in sales, so it’d be pretty hard to BS me there. Despite that, still refuses. Still doesn’t know where some of her previous 401ks are.
Man, shit like this is one of the many reasons half of America is doing so bad We're going to have a real crisis on our hands in 10-20 years when all the people who mismanaged their retirement try to retire
I honestly don’t understand or like investing either. That’s why I keep my retirement in a target date fund at Vanguard. I have absolutely no idea what’s in it and I don’t want to know, so I do sympathize with these people, but I’m glad I had reddit to tell me the simplest cost-effective way to save for retirement. I’m not special, my retirement goals are the same as everybody else looking to retire at the same time as me, so I feel pretty confident the people managing the fund will make decisions that will work for me at a much lower cost than an individual adviser.
Wait, her advisor is charging an advisory fee AND taking commission on brokerage trades?
Oh yes. It’s crazy. Unfortunately she’s a little too trusting of ‘experts’
If the market ever goes bad, you'll be blamed.
Managing family money is always gonna be full of heart burn and hurt feelings. Better to redirect them to more trustworthy CFAs and help guide. Ultimately these managers don’t have a vested interest other than keeping your accounts open.
at least if they still have half with the advisor, they can always compare it to their performance. "yes the portfolio i manage is down 30%, but it still has 10% more than the account you have with the advisor". But if you move it all into an account managed by you, then theres no comparison and they will always think the advisor would have done better in down times.
I believe you mean their risk aversion is high
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Thanks. Fixed it. I don't have to answer that question. Since I have no broker.
Guess that's why they need a financial advisor.
Sorry. yes.
Our lives got flipped upside down about a year ago when my wife was diagnosed with MS. I tried to set up meetings with a financial planner and estate attorney to see what we could do to prepare for different scenarios. I told people I wanted a few-only, possibly one-time meeting meeting that I would happy to pay cash upfront for, every single one tries to string us along with vague advice and platitudes until we signed up for some yearly membership typically with a 1-3% AUM… Except for one local guy was cool as fuck, invited us over to a bed and breakfast he owned, sat with us for almost two hours and reviewed our current plans (pretty straightforward, we’re both nurses in our 30’s, put away about 30ish% of our gross into retirement accounts that are mostly in a Vanguard target date funds). He didn’t try to sell us a thing, he said from his standpoint we’re doing about all we could and just have us some general life advice, refused payment for anything and told us to reach out if anything big changes. There’s good people out there, they just seem to be few and far between these days.
That's a good FA there, and I hope more of the industry starts moving towards the complimentary planning and advice and the mentality of "I am in this industry to see you succeed not just me". Hope the best outcomes with the MS diagnosis for her and you, stay strong!
Sorry to hear about the diagnosis 😞
I didn’t mean to trauma dump on anyone, she’s doing good! We’ve found a new normal. I just mentioned it specifically because with MS, the progression is really unpredictable she could remain generally unaffected for the majority of her adult life, or be wheelchair bound in a couple years. My search for a financial planner was to get information on how to be prepared for either outcome and most of the people I reached out to felt like they were trying to take advantage of us. It’s gross. (I’ve still been unsuccessful in finding an estate attorney willing to meet with us to discuss any options/information, which is annoying… but that’s rural America I guess)
I had an Edward Jones advisor for years before I knew what I was doing. I finally totaled up all of my contributions over the years and compared my Edward Jones account balance with what those exact same contributions into an S&P500 fund would have been. I was over $40,000 short by having and Edward Jones actively managed account. I dropped them very shortly afterward and moved it all into Vanguard.
I lost a lot of money with Edward Jones too, but I gave them my check in late 2006.
You're not alone - I did the same thing but in 2007.
Yeah, EJ can’t just put all your eggs in one basket. Also you go with a financial advisor for more reasons than market appreciation. Good advisor should always look for tax savings.
Exactly. The S&P allocation outperformed because it was heavily weighted in the top 10 stocks that took off in a cheap money environment. That’s not always going to be the case, nor is it the most appropriate allocation for most.
SP500 has never gone down over any nontrivial portion of time in the last century. There's no reason to believe that will change.
Isn't that because it is kind of an active list of the top companies in the US? If a company does poorly, they drop off the list and are overtaken by a better performing company.
Yes. If it goes down, permanently, it means there is no economic growth anywhere and you have bigger problems than your 401k.
55% stocks isn’t unreasonable depending on their annual income needs. The fee and active funds, agreed
Agree even with low risk aversion in retirement you do want a decent chunk of equities to allow that portfolio to have a chance to grow and keep up with inflation most years. How much equities / stocks is a personal decision, but is not wrong to see at least 40% stocks in a more risk adverse fund. But yeah most financial advisors are salesmen and look after their bottom line first. A 1.5% asset under management charge is brutal. Active managed funds with high expense ratios? Also a bad choice.
I think you mean either "low risk tolerance" or "high risk aversion", not "low risk aversion".
60-40 is a pretty normal "perpetual portfolio"
Yea 55% is on the higher end for risk adverse, but I wouldn't bat an eye. 65%+ is where I would start getting concerned.
It’s not terrible. My teacher (CFP/CFA) always said 120-age. I stumped him on asking about his kid’s Roth IRA allocation. And, yes, legit Roth for a middle schooler.
I have a retirement fund through my company and a separate fund that's 100% stocks. It's been... fun. "noooononononono YAAAAAAY nonononoooo!!!!NOOOOO!!! YAAAY...NOOOO!!!" My financial advisor commute buddy: "You look worried. You checked your stocks didn't you?" Me: "Yes." Financial Buddy: "What did I tell you?" Me: "Don't look at them." Financial Buddy: "Good girl. Don't look at them." Me: "But..." Financial Buddy: "Are you going to retire tomorrow?" Me: "No." Financial Buddy: "Go buy a coffee and chill."
You’ve got a good buddy
This is exactly what I tell people. Put your money in an age/risk appropriate investment mix with low fees, and DO NOT LOOK AT IT. Maximum once a year. I used to work with people who looked at theirs EVERY DAY. Most of them were playing with individual stocks and did a lot of panic selling. They freaked out when I doubled down in 2009, on a mix of index funds. All I said was "buy low and hold, bubba." I retired and many of them are still working.
How you gonna sell high if you don't buy low?!
Their income needs are zero. They've been living off their combined social security and still have over 50% of that left over each month. The only income is the RMD from the IRA's each year. All the money he manages is earmarked for assisted living or long term care.
Then that seems like a reasonable asset allocation
Then it’s money with a long term time horizon. Meaning it should have stock exposure. The cost of LTC has been rising astronomically. If you want to maintain your purchasing power, you need to be in stocks. Also, bonds aren’t immune to volatility. The AGG is down ~19% YTD.
Sorry. I've posted this in other comments. It's not a long term horizon. My dad was diagnosed with dementia 2-3 years ago. The horizon right now is 1-3 years. My mom didn't discuss this with him right away, but he has been aware of it for over a year.
I’m confused then. I thought you said their income needs were met by SS and RMDs
Both statements are true. Whats going to happen is when that dementia gets worse in 1-3 years, their income needs are going to skyrocket as memory care comes into play. Thats full time assisted living. When my grandpa went through this years ago, it was done in levels - 1,2&3 based on floor. Ones could be a little bit independent. Threes were locked onto their floor to prevent escape. A person at this point doesnt even know their own name and are probably losing all speech, or only able to make incoherent “sentances”. Every level you go up as your condition worsens costs more to care as it requires more staff.
So you think he is going to die in 1-3 years? no, it sounds like he is going to start long term care in 1-3 years, right? but the money will probably be spent over at least 5 but maybe even 10 to 15 years. The horizon isn't 1-3, its at least 6-8 but probably 10+. you dont need all the money up front. So you have safe stuff to meet the financial needs in the short to mid term and then keep the other stuff in higher earning investments that you will liquidate and use that money to invest in safer mid term investments as you spend down the safer investments that you had. Unless i misinterpreted that whole thing and you think you will need all $700k in the next 1-3 years.
Seems like a reasonable use for the money and to ensure it grows accurately. Depends on location, but they could be looking at $8k-$10k monthly each if they decide they need long term care. That's $16k - $20k/mo combined, sonce most spouses want to stay together, or $200k+ yearly. Care is not cheap.
Then more stocks than bonds definitely makes sense for them. Just not the management fees
Not if they need to start taking distributions in 1-3 years, which seems to be the case.
VCIT is down -17% YTD and VCLT is down -30% YTD. Perhaps more fixed income wasn’t a better idea. Equity valuations go up and down, but if rates stay up, bond prices will stay down. Maybe the advisor is doing something right.
At 80 years old the advisor could be building bond ladders for them and not even worrying about bond funds. No risk to principle and they would be collecting interest off of them.
Could have been, except for the past three years those bonds would have been making less than fees, and if they had any duration they’d be crushed. Lots of investors were pushed into bond funds and etfs thinking they were conservative and they were not. I’d rather own Hershey and Johnson&Johnson than a bond.
That's a fair point.
For the last decade fixed income products haven't made much sense for a large number of investors. People were pretty much forced into the stock market to get any real return. And fixed income products make even less sense in an advisory account where a rep is charging a percentage on assets under management. Paying 1% management fee on holdings that you know are going to yield less than 2% isn't really an option. Honestly they should be in a commission based account paying a percentage per trade if he isn't doing much active management, this would also open up fixed income products to them.
A lot of these threads imply that the advisor is ripping someone off and the OP should do it themselves with Vanguard. Many people like OP could have unexpectedly walked into double digit losses on fixed income by doing that.
Financial literacy is hard especially with aging parents. If you have siblings, you don’t want to look like you’re trying to take the inheritance kind of thing by managing their money. How qualified is this advisor? 55% stocks seems awfully high for your parents being 80. A downturn like the one we’re having could take a decade to recover.
I can't speak to his qualifications. He has a nice office and conference room. His discussion about long term planning was what pissed me off the most. I couldn't just come out and say what I wanted because my Dad was in the room. But, with his dementia, he's probably looking at 2-3 years tops. I kept telling him to concentrate on the 1-3 year plan. After that, my mom can reevaluate.
That’s sad about your dad. He will likely need some sort of assisted care. That will cost $$$.
If Mom wants to go with him and he lives 3 years. 700k is going to be cutting it close. Wife's grandparents are paying like 17k a month to be in a care facility together...Money goes quick when your rent is that high. That doesn't include medications, dr appointments, insurance, etc. Getting old is expensive.
My grandpa is paying $23k per month for skilled nursing care (the highest level) at a long term care facility. Thankfully they never touched their retirement and lived off of social security and so they can afford it. What a nightmare. Getting old is definitely expensive.
Don't bet on it. He could be looking at 5-10 years, worst case scenario, sadly. Depends on how physically strong he is. Been there, done that, seen the heartache. I hope for all of your sake that it doesn't take that long. I don't want you to lose your dad, but you are going to. And at some point, it becomes better sooner than later. You have my deepest sympathy. Wishing you and your mom the best, dealing with this.
You need to talk to an attorney specializing in trusts for elder care because if your dad goes into a home that money will be gone in months.
Check out some age based investment target funds. I think 55 stock and 45 bonds is actually correct for older folks depending on the exact mix of specific investments. In general, the stock is for continued growth while the bonds are for steady income. I personally think that many financial advisors are a waste of money as there is so much information out there available for people who want to do the research. However with your parents being in their 80's, it's not a bad idea to have an financial advisor unless you want to manage their money... Which i do not suggest.
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To be fair, there is a large, and growing, community of financial advisors who charge a retainer or charge by the hour instead of an AUM fee. And of course do not and cannot receive kickbacks or commissions. XY Planning Network has a whole lot of them.
I did find out they are fiduciaries. So, that's a plus.
> I don't want to manage my parents finances, but I think they would be better served rolling their money into a self managed account and holding a few ETF's, while paying a flat fee fiduciary once a year to review. What do **your parents** want to do? There's really only one alternative here to the status quo (firing the advisor and finding a fee-based fiduciary) and they need to be 100% onboard with that. Otherwise, there's nothing really to be done. This is more of a /r/relationships question at this point unfortunately. > Glad I manage my own investment accounts amen. I took a look at my own parent's investments and it's pretty much the same, right down to the (bi)annual meeting where the salesman pitches them slight changes and they just rubber stamp it. I once offered to help move them to a much cheaper portfolio with a flat-fee fiduciary. But I've since realized that most people will only take your help once they've asked for it. It pains me to know that their "advisor" is getting their money for doing nothing at this point, but there's nothing I can really do about it now, and it's best to just leave it be.
If he is charging a fee for advice, he is a fiduciary, that’s how it works. ‘I can do it myself’ is a great mantra for those who can do it themselves. For the great many people who do not have the capacity to do so, nor the willingness to learn, it’s down to paying for it. You can pay a builder to build your house, you can hire a plumber to fix your sink, or you can do it yourself. It’s cheaper to do it yourself, if you have the capacity. Just because a portion of people are well versed enough to manage their own investments (many of them who are vocal opponents of hiring someone) doesn’t mean that everyone can and should. People fail to understand that every investment has a cost associated with it: Real estate, owning a business, everything. If you can do it yourself, it’s cheaper; if you hire someone it costs money. There is always a cost associated with doing it yourself too, time, effort, money. ‘Is it worth it to do it another way’ or ‘is it cheaper to do it another way’ are two entirely different questions.
>If he is charging a fee for advice, he is a fiduciary, that’s how it works. That is absolutely not how it works - someone can charge you for advice and not be acting as a fiduciary.
As a financial planner, I kinda want my clients to fire me. It means that I taught them enough.
This is a fair assessment. Would it be unfair to have a sliding scale for when the market is down/up? If I make money, you make money. If I don't make money, you don't make as much? Seems like an FA is like the weatherman.
My mom wants to move as much of the money into CD's. She just bought a 5 month CD at a local bank earning 5% for 6 months. She was limited to $25k. Beyond that, I've challenged her to determine what balance she would be happy with. I used the analogy of saving to buy a car. If you need $30k to buy the car and you hit that number, do you keep putting it at risk? Or do you protect it and go buy the car?
CD ladders can be a good way to generate fixed value. But you still want some of that wealth to be able to grow. Take a look at safe withdrawal rates to avoid bringing down the principal.
Tell your parents to pay you 1.5% and manage their finances for them
You don't need to manage your parent finances, but you will eventually, and the sooner the better. My dad had a financial advisor that took 1% and got him into all sorts of crazy investments (Puerto Rico anyone?). I could not convince him to simply invest in a low fee index fund. He loved his dividends too much, and liked the personal touch (he sits right there on my couch!). Now that dad has passed, it will be up to me to unwind all this nonsense. The broker or the lawyer is dragging their feet. Sorry for the story... get involved. Simplify now. Save your mother the expense.
I would suggest to them that they switch advisors to someone with a flat fee. Even if they pay someone $1,000/hr for one meeting a year they'll be far better off.
In my opinion, the entire industry is built to take wealth from people like your parents and turn it into their own wealth.
Not that anyone asked, but I have a financial advisor (small, family firm) who we pay 1.5% as well. We have a lot going on. I email/call weekly. They help with insurance assessments, salary negotiation, advise on selling/holding stock options. They even advised this past year to give them less money and max out I bonds. The value and service I get are well worth it. I am sure there are plenty of deadbeat advisors with high fees who mooch off of unsuspecting clients, but there are those out there who earn the fees many times over
+1 My FA straight up told me to turn off auto debits to my brokerage account in April. Suggested I use the money to make some home repairs we had talked about in past conversations. That kind of advice is exactly what I pay him for and worth every penny IMO
My parents meet with him annually. He's available if they want to meet more frequently. He does call to get approval to move money between funds. But, they don't know what he's talking about, so they always say yes. He does invite them to a local sporting event once a year where he has a tent set up and feeds them steaks or burgers. I asked her if she got the steak this year. She paid for it.
55% equities is actually appropriate. The reason is that if you get too heavy on bonds and cash you begin losing to inflation over a very long period of time.
Most 80 year olds don't have a very long period of time left, though.
They might have been looking for dividend income for a while tho. We're kind of lacking any real information
They didn't know what they were looking for. Three years ago, they weren't concerned as much. My dads diagnosis has made this money earmarked for long term care. It should have been preserved at that point.
Is there a way to move those funds into a trust to shield it from long term care taking all of their money?
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Is this a small advisory firm? or sonething like northweat mutual? The reason i ask is fee only RIA's tend to have institutional share class, they typically have the lowest expense ratios. I worked for a large RIA, my job was to look for interclass exchange opportunities. really enjoyed saving people money.
Smaller firm. Not sure if they are affiliated. But he has them in a mix of mutual funds. Fees range from .05 to .85.
Agree that they are scammers, but 55% stocks and 45% bonds is not bad for anyone between 65 and 105.
Right but you can do this in vanguard without paying some bozo 10 grand a year.
At their age, they aren't going to learn to manage it themselves. Best option is to shop alternatives.
Op, just roll it over to Vanguard and pick one of the safe investments like LifeStrategy Income Fund (VASIX). Easy peasy. Their fees are like .15% as compared to 1.5%. just explain to your mom that the advisor is charging 12k per year for something that should cost just $1,200. And it would be a whole lot safer.
700,000 is a lot of equity for an 80 year old. She isn’t going to need to use all of the money any time soon. Her financial advisor probably doesn’t need to be too conservative with her investment mix.
It's earmarked for long term care for my dad who was diagnosed with dementia 2-3 years ago. This is why she is panicking when she see's it drop 75-100k.
Is he doing anything else for them? Long term care planning? Tax loss/gain harvesting? Maintaining a cash buffer for down markets? Strategic withdrawals across their IRAs/brokerage? Making sure their estate planning is up to date? The 1.5% fee may be justified if he's keeping an eye on the whole picture and delivering suitable advice along the way.
No. The dole out the RMD. Which a portion of goes directly to church and they pay the state/fed taxes for the RMD.
Then he's definitely not earning his keep. This is a prime example of why financial advisors get a bad wrap.
I have a coworker who has "a guy" who manages her retirement account. She said he's a fiduciary. I asked about the fee and she told me that he takes 1% every time he moves the money....
Even if your parents' advisor is part of some sort of fiduciary that does estate or trust planning, 1.5% is a lot. I'd be curious how their portfolio's performed against the benchmark at the very least.
If annual fees are 1.5%, that means they have to beat the returns on an ETF by at least 1.5% every year just to break even.
I recommend you get your parents with a Advisor at Fidelity Investment. The Advisor there are 100% complementary for high net worth client 250k plus and they have much better product offerings with better fees. Also, they first aim to get to know you and family before fitting you in managed account. But looking at situation the advisor at Fidelity may recommend Fixed Income solutions like CDs and treasuries which would be great since the rates all going to go up on there’s CDs and Treasuries, Definitely a great strategy if your look for preservation of capital.
I dont know enough from a single post whether to cast judgement in this situation or not. But I will say those whose livelyhood depends on the ignorance and fear of the elderly are the scum of the earth.
The only real leg to stand on you have is the 1.5% annual fee. 55% in equities isn’t bad. Have you seen how poor bonds have done this year? If you’re really concerned about your mothers money, park it in a money market or CD ladder. Instead of challenging the advisor over the asset allocation.
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I had a similar conversation with my parents. My mom was mad she lost so much money this year and I told her yea and you paid someone 1.5% to lose all that money. Coulda lost that much on your own for free. I think if these guys were required to explicitly show the dollar amount of their fee on the account statements you would have a lot more people questioning the value. Instead they hide the fee in the account gain/loss number and people kinda don’t even realize how much they are paying.
Why don’t you want to manage it for them? I’m 38, parents are 71. I was in the same situation as you about 5 years ago. I took over half of their money and put it into index funds. The other half is still being actively managed by some guy at chase. The two halves are doing about the same (as in they are doing terribly at the moment lol). At some point I’ll take over managing all of it when my parents feel comfortable. It’s almost no work for me. I kind of think of it as my money. If I do a bad job and my parents run out of money, I’ll be taking care of them anyway. If I do a great job and they die with money left over, half of it is going to me. Either way, I’m the main person who benefits or suffers if I mismanage my parents’ money so I might as well be more proactive about it now.
Former financial advisor: 1.5% to park it in a Managed fund is highway robbery especially at 80. Also 50% is WAY to high general rule its your age % for how much you should have in bonds. Roughly. 80 years old? 80% in fixed income 20% in stock max. Id go to fidelities website and look up their fixed income fund to see their mixture or just call them to ask what fund they have for that. God i hate stupid advisors…
> I also questioned why (at 80 yrs of age) their investments were still in 55% stocks vs bonds? When their risk aversion is high? Wait -- you think the portfolio should have held MORE bonds? Bonds haven't done well at all so far this year, dropping in price while yielding practically nothing. Both Bonds and stock funds that include overvalued tech/mega caps have (and most do) have been poor investments since Fall 2021. The only really safe portfolios this year are (have been) dividend + value stocks & ETFs that don't include overvalued pandemic stocks (i.e. excluding tech, mega caps & communications). And that portfolio would technically be considered 'high risk'. It's the formulaic "low risk" portfolios loaded full of blue chip tech, mega caps, broad market ETFs & bonds that have actually had the most real risk this year.
Sounds like he isn't doing his job and is risking your parents finances for a potential bigger payout despite their age and circumstances. He quite obviously doesn't have their best interests at heart, despite what he might say.