Financial Advisor

[Donald]

My daughter (age 42) got a pretty large amount of money after her husband died of COVID-19. I believe she gave it to a financial advisor to manage. I think he is some kind of family friend.

I have tried to get her to ask the tough questions like has he given to a document that says he is a fiduciary with respect to her account.

Ask about fees?

Ask about his rate of return for 2022 vs S&P 500. His 10 year vs S&P 500?

I think it's probably best to have the financial advisor NOT be a family friend so you can get pissed and tear into them. Tell them they are greedy with their fee structure.

Best to pay an hourly fee or yearly fee and invest how they suggest vs handing over money to a financial advisor.

Or just buy Vanguard S&P 500 index fund.

 

[atikovi]

Simple savings accounts pay 5%. What more can you expect to get that is insured and won't maybe drop in value? Financial advisors advise you to buy whatever makes THEM the most money.

 

[Jimmy_Russells]

S&P500 has returned over 10% annually on average for the last 100, 50, 20 years. Over 13% for the last ten years. Insane to keep money in a savings account unless you are retired.

 

[Dave Hess]

She needs to proceed with caution, some financial advisors are crooks that are like vultures when they see that large amount of money.

RIP to your son inlaw.

Invested wisely that money can last generations.

 

[PWMDMD]

My thoughts:
1. Confirm he is a fiduciary
2. Should be a flat fee - no assets under management BS.
3. Should be advocating passive vs active management of investments and as flat-fee not making money off of every trade.
4. Is this a comprehensive review or are they just helping with asset allocation of this money?

I have a flat-fee financial advisor who gave me an initial look and recommendations to reach various goals but does not get into active asset management because I told him I didn't want him to. We now talk every 3 years or so to see where I'm at with goals. My business partner has a "friend" who works for Edward Jones and he's a crook.

 

[reemoeMO]

I would suggest putting it into a balanced index fund, something like VBIAX with Vanguard. The fund invests 60% in the US stock market, and 40% in the US Bond market. Very simple to do yourself and you save paying advisor fees. VBIAX has a low 0.07% expense ratio, which works out to just $7 per year per $10,000 invested.

** Also, this assumes that this money is to be invested for at least 5-10 years.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vbiax#overview

 

[atikovi]

I would suggest putting it into a balanced index fund, something like VBIAX with Vanguard. The fund invests 60% in the US stock market, and 40% in the US Bond market. Very simple to do yourself and you save paying advisor fees. VBIAX has a low 0.07% expense ratio, which works out to just $7 per year per $10,000 invested.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vbiax#overview

Says

Performance​

YTD returns

5.16%​

What's the point when you get that much from a savings account with NO risk?

 

[Donald]

S&P500 has returned over 10% annually on average for the last 100, 50, 20 years. Over 13% for the last ten years. Insane to keep money in a savings account unless you are retired.

I would say retired and might need it. Wife and I are almost retired (I forgot to retire) and don't need any of the investment money we have in 401K or similar. At least not for awhile.

The one thing that separates us from most other retired people is wife's healthy (as in very good) NYS pension. And thanks to current NY residents paying NY taxes so wife can enjoy her pension. We now pay just a tiny bit of taxes in DELAWARE.

 

[JeffKeryk]

Personally I would make an appointment with Charles Schwab. Good luck.

 

[Passport1]

Sorry about your loss. This just anectdotal. My brother and mother both invested a large amount with a 'trusted friend.' He was a crook. They both passed away and my inheritance is still affected. My advice is beware.

 

[Danh]

Personally I would make an appointment with Charles Schwab. Good luck.

Or Fidelity/Vanguard. Fidelity does have physical offices and meeting someone face-to-face is always preferable. Neither charges fees other than those baked into any mutual fund.

 

[JeffKeryk]

Or Fidelity/Vanguard. Fidelity does have physical offices and meeting someone face-to-face is always preferable. Neither charges fees other than those baked into any mutual fund.

I fired Fidelity.

 

[Astro14]

Simple savings accounts pay 5%. What more can you expect to get that is insured and won't maybe drop in value? Financial advisors advise you to buy whatever makes THEM the most money.

In the short term, a savings account is reasonable for some of your money.

In the long term, keeping your portfolio there is financial suicide.

In a world of 8% inflation, a 5% return is a guaranteed loss.

OK for short term cash. Not OK for investing.

 

[Astro14]

I fired Fidelity.

Good. Many of their advisors churn accounts and the company is riding on the reputation of David Lynch, who retired decades ago.

 

[reemoeMO]

Says

Performance​

YTD returns

5.16%​

What's the point when you get that much from a savings account with NO risk?

Yes, you can currently earn close to 5% in a money market/savings account. But assuming this is long-term money, invested at least 5-10 years, a balanced fund will be better positioned to keep you ahead of inflation.

Vanguard Money Market fund (VMFXX) - 3 year return: 0.92% / 5 year return: 1.34% / 10 year return: 0.82%
Vanguard Balanced Index fund (VBIAX) - 3 year return: 9.69% / 5 year return: 6.84% / 10 year return: 7.68%

 

[JeffKeryk]

Good. Many of their advisors churn accounts and the company is riding on the reputation of David Lynch, who retired decades ago.

They sold me an annunity. Ultimately it is on me, because it is my money and I signed on the dotted line. There are bad and good annunities, like most products. Regardless, I am not a good candidate for an annunity. I know may advisor caught heck after I moved everything to Schwab because I got a couple of calls...

 

[PWMDMD]

They sold me an annunity. Ultimately it is on me, because it is my money and I signed on the dotted line. There are bad and good annunities, like most products. Regardless, I am not a good candidate for an annunity. I know may advisor caught heck after I moved everything to Schwab because I got a couple of calls...

This is why I'm a big fan of flat-fee advisors who don't sell anything other than their advice. My advisor is an independent financial advisor and you don't pay a cent beyond the agreed-upon flat fee. If he recommends someone buys something the client buys it on their own and none of the trades/purchasing goes through him. He generally recommends Fidelity, TD Ameritrade, Vanguard, or Charles Schwab as the platforms to buy and sell his recommendations but he doesn't get a cent from those companies.

 

[Dave Hess]

Donald,

A fee structure is OK if the person is making money and not taking big risks / churning her account.

Is there anyway you and your daughter can meet with this advisor in person and you can ask all the questions you need answered ?

I agree with others about very low fee index fund(s). Lots of high quality funds.

 

[PandaBear]

First of all, how much are we talking about? Personally I wouldn't bother with an advisor if the account is less than $2M sum, I'd just buy an index fund and leave it alone. Anyone who would spend the time to research non general advise for you is going to cost too much (say they make 200k a year and have 200 clients, they need to make 1k each and their employer need another 2k, so it would have to cost you 3k a year regardless of your account size), and those who doesn't usually have other agenda like higher fee products or higher risk products, or just end up recommending some sort of index fund anyways (say they have 2000 clients and only spend 1 hr a year on you, to make 200 from your account they can only recommend something you can google yourself).

IMO when you have a lot more (above 5M in a portfolio, upper middle class), then you should start customizing what you want and what kind of plan you have for your money (will it be a fund that goes for another 80 years to cover your children, or stability of your family business empire, etc), or some sort of "cost averaging between nations for tax and risk reason" consideration.

Anything less than 2M would just all goes to index fund and withdraw as needed for hardship (college, major home repair, etc), and occasionally buying bargain investment like a distressed foreclosed home you always wanted, etc.

This is why I don't have an advisor, I just buy index fund and a few individual stocks I have domain knowledge on and kept them for 3-20 years.

 

[atikovi]

In the short term, a savings account is reasonable for some of your money.

In the long term, keeping your portfolio there is financial suicide.

In a world of 8% inflation, a 5% return is a guaranteed loss.

OK for short term cash. Not OK for investing.

To each his own. I'm not getting greedy to make a few more percentage points with investments that may lose value. And that inflation figure is an average across many different goods and services. If I don't buy those, my personal inflation rate might be 2 or 3 percent. And that doesn't even take into account the money you add to your savings during the year.