Author Topic: Evaluating Financial Advisor with my mom  (Read 1920 times)

FrugalFisherman10

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Evaluating Financial Advisor with my mom
« on: August 27, 2018, 11:07:48 AM »
Would like to know what steps you would take to research all the fees being charged to your mother:
1) by her Financial Advisor
2) by the mutual funds and other investments he has her money in
3) any hidden fees (like those 'built in' to the sub-par performance of a certain fund)

I can sit with my mom and look at the statements for her account and also see what the tickers are for the investments she is in.
For the 'Cash, Money funds, Bank deposits' portion for example, I can see that she is being charged $25 a month for her cash being held with Deutschebank. That seems high. The interest rate on the account is 0.8% APY. So this account is costing her money to own. This is FDIC insured like a bank account.

For the Mutual Fund portion
, her money is in IMOLX which is a Transamerica fund with a load fee and a high expense ratio. I don't understand the 'objective' of this fund though..it says it is a balanced fund. So it has an allocation to stocks and bonds right? I don't know much more beyond that. Is it trying to beat some benchmark? Why the high expense ratio?
Additionally, assuming the FA is a good guy and has my mother's best interest at heart, perhaps this fund has a place in her portfolio for some reason... What place could that be?

For the "Equity" portion she is in BAC Callable Preferred stock with a 6.2% dividend. This seems pretty cool, but I have no idea what fees are being charged for her to be a part of this, and it is a single stock accounting for 8% of her portfolio which seems a bit high.


I am then going to take this information to my mother's FA and try to understand why he has her invested in the ways he does, see if there are alternatives with lower fees/better performance that she could be in (given her risk-appetite, ie. nearly none), and see what he says.

What would be your next steps? How would you further evaluate this information beyond what I've said above?

(honestly I think we should have a sticky for this type of research, if it doesn't exist somewhere already)
something like:

"1) Obtain your statements and documents for your account. look for documents  titled "Fee Disclosure" and "Disclosure 1A-14B" (that's just an example made up name..would be nice to have some financial advisors and Lawyers weigh-in here, so that people can know exactly what they may need to ask their FA about if they are looking into this stuff for the first time
2) within those documents look for headings like "Fee Disclosures".
3) look for actual fees being charged to your account, not just broad statements like "fees may be paid by your broker to Pershing LLC for clearing...etc."

FYI this is a spinoff from my thread about researching a Life Insurance policy with a long term care rider that my mother is considering, here: https://forum.mrmoneymustache.com/ask-a-mustachian/ltc-insurance-for-mom-prepping-for-call-tomorrow-with-agent/
« Last Edit: August 30, 2018, 07:50:49 AM by FrugalFisherman10 »

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #1 on: August 30, 2018, 07:51:26 AM »
bumpitty bump

Frankies Girl

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Re: Evaluating Financial Advisor with my mom
« Reply #2 on: August 30, 2018, 08:26:21 AM »
There is no reason for any person in this time to pay a service/management fee to a bank to hold a savings or checking account with them. Even Chase - which is a right bastard about fees - only charges $8-$12 monthly, and only if you fail to follow through on some pretty low bar things to remain "free" accounts (like minimum balance or monthly direct deposits/ACH transfers).

So her bank likely should be on the chopping block. Check out any other big name banks that would be easy to access for their minimums to get free accounts, or go to a credit union. Honestly a credit union would be best if she isn't in need of national branches and most of them have handshake agreements with national networks anyway so access to ATMs and such aren't a big issue. Spending $300 a year for the privilege of letting them hold her money is ridiculous.

Where are her investments held? I can see on Fidelity any breakdown I'd like per fees and charges easily, and I'm pretty sure Vanguard's site also allows this with a few clicks/tabs to locate. If you don't have access to online reviews of the funds in the investment group's website, I'd request a breakdown from her financial rep, and make sure you make him spell it out to the penny all fees including the ones built into the funds. I'm pretty sure there are large paper booklets called fund prospectuses that are sent out if you don't opt to receive all mailings online (I still get some of those damned things in the mail due to legal ramifications), but not sure how comprehensive they are compared to websites breakdowns.

So you can also review funds on Fido's site (for instance) to see what they have built into the fund, and also see what Fido would charge (they have a transaction fee for non-Fido funds buy/sell).

https://fundresearch.fidelity.com/mutual-funds/summary/893957613?type=o-NavBar
IMOLX. You can click over to the "fees and loads" tab to get a breakdown of basic costs (not Fido's charge to buy sell - literally what you'd pay pretty much at any financial institution). Wow. That is a shit fund. 2% ER, A 12b-1 fee of 1%? Oh hell no...that's a "sell our product to your clients/advertising/bullshit" fee - any fund that has a 12b-1 fee is automatically a bullshit fund to me, because that's a promotional/kickback fee to get financial reps to sell their bullshit fund to folks. And don't get me started on any fund that has loads - front and back.

I'm unfortunately out of time for this post, but I may revisit if I get a chance to dig into these funds... but just based off the above, the adviser is crap. It won't help you to get all of this figured out and go talk to them tho. They'll have a reason and charts and graphs and there is no way a layman can get a professional snake oil salesman sales rep to ever admit they are out to profit themselves and their company primarily and their client is a distant third if considered really at all... their livelihood depends on this.

MDM

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Re: Evaluating Financial Advisor with my mom
« Reply #3 on: August 30, 2018, 11:47:44 AM »
What would be your next steps?
1) Move to a local bank or credit union for checking/savings (enough to avoid bouncing checks in any given month).  Put any extra cash she wishes to hold in one of these online banks: http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001.
2) Look at (in alphabetical order) Fidelity, Schwab, and Vanguard and pick one based on whatever criteria she chooses.
3) Call that company and have them transfer all investments from her current advisor to that company.
4) Choose some version of a Three-fund portfolio (or even simpler, something like a LifeStrategy Fund) and move all her investments into that.

markbike528CBX

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Re: Evaluating Financial Advisor with my mom
« Reply #4 on: August 30, 2018, 12:32:49 PM »
Concur with prior posters.

IMOLX = IMmOLation of your mothers future wealth. 

Do NOT trust an "advisor" who sells such things.   No need to talk to them. Move the money far away, as previously described.

cchrissyy

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Re: Evaluating Financial Advisor with my mom
« Reply #5 on: August 30, 2018, 01:15:12 PM »
I saw you said the advisor seems like a good or caring guy. Maybe he really is. 
But the fact is he gets paid a percent of your mom's life savings. That's how he makes a living. His fees, and the loads of the funds he put her in, and the dumb monthly banking fee, those things are all a drag on her wealth, and she doesn't have that much really so I'm a bit outraged like, how dare he make a living off of her. I know she's not his typical client and it feels like he's "helping" by giving her small portfolio any of his time and attention. But honestly it's inappropriate for her to pay anything for these kind of services. She can get them free at Schwab or Vanguard or whatever.

Psychstache

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Re: Evaluating Financial Advisor with my mom
« Reply #6 on: August 30, 2018, 01:35:21 PM »
Additionally, assuming the FA is a good guy and has my mother's best interest at heart, perhaps this fund has a place in her portfolio for some reason... What place could that be?

https://www.youtube.com/watch?v=nxXEPk3dzFg

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #7 on: August 30, 2018, 02:38:32 PM »
Additionally, assuming the FA is a good guy and has my mother's best interest at heart, perhaps this fund has a place in her portfolio for some reason... What place could that be?

https://www.youtube.com/watch?v=nxXEPk3dzFg
Mannn yall so harsh.


What if I said I don't feel I could necessarily trust myself having her move all her money and put it in a life strategy fund? Im only 28! Sure ive been researching this stuff for a while but what do I know. I'm pretty confident in my position and understanding of asset allocation, low cost index funds etc. but I'm sure I have so much to learn.  I've never even had to rebalance for example!

 Like if markets tank and she gets hit one day 10 years from now really badly, I don't want to be the one that 'made her move her money' and I don't want to be the one talking her off some cliff (the cliff of selling in a downturn).
That could lead to resentment.  My mom and I have a good relationship and I'd like to keep it that way haha.


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mxt0133

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Re: Evaluating Financial Advisor with my mom
« Reply #8 on: August 30, 2018, 03:00:01 PM »
I did something similar with my parents, in helping them make the decision to invest with low cost index funds vs funds that high fees.  My situation was simpler because they did not have 'professional' helping them out.  I made it clear to them that I was not making the decisions so if they lost all their money I was not the one that made the decisions on how they invested.  All I did was explain to them why funds with lower expenses beat more expensive funds and did that math on how much it was costing them. 

In your shoes, I would flat out ask the adviser why the funds your mom is currently on is superior to say a lower cost fund from Vanguard or Fidelity.  Do your own research on the past 10 year performance and see which did better.  Also have the adviser clearly state how he is compensated, does he get any sales commission from the funds that he is directing your mother too.

If you yourself don't feel comfortable advising your mom, I would set up an appointment with a fee only advisor and get their opinion on your mom's investment.

patchyfacialhair

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Re: Evaluating Financial Advisor with my mom
« Reply #9 on: August 30, 2018, 03:02:46 PM »
Additionally, assuming the FA is a good guy and has my mother's best interest at heart, perhaps this fund has a place in her portfolio for some reason... What place could that be?

https://www.youtube.com/watch?v=nxXEPk3dzFg
Mannn yall so harsh.


What if I said I don't feel I could necessarily trust myself having her move all her money and put it in a life strategy fund? Im only 28! Sure ive been researching this stuff for a while but what do I know. I'm pretty confident in my position and understanding of asset allocation, low cost index funds etc. but I'm sure I have so much to learn.  I've never even had to rebalance for example!

 Like if markets tank and she gets hit one day 10 years from now really badly, I don't want to be the one that 'made her move her money' and I don't want to be the one talking her off some cliff (the cliff of selling in a downturn).
That could lead to resentment.  My mom and I have a good relationship and I'd like to keep it that way haha.


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Is your mom even asking you to do this? I say that because parents sometimes have a mentality of "I used to put diapers on you, kid" when anything in relation to money comes up. They'll automatically discount their kids advice, even if the advice is correct, or well meant, because they like how things are done. Like you said, what if it hits the fan: are you ready to be that person to help your mom stay the course?

Even with my folks, I have no idea what their asset allocation is, nor is it my business. I know rough balances and that they'll be fine in retirement and that's all they've released to their offspring at this point. I'm sure that they could be doing things better, but if they'll be fine in retirement, who am I to complain that my brother and I are going to split less of an inheritance?

Now, if she has come to you, see if she'll read JL Collins stock series, move everything to Schwab or Vanguard, pick a safe AA she's fine with, and do that.

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #10 on: August 30, 2018, 03:09:22 PM »
There is no reason for any person in this time to pay a service/management fee to a bank to hold a savings or checking account with them. Even Chase - which is a right bastard about fees - only charges $8-$12 monthly, and only if you fail to follow through on some pretty low bar things to remain "free" accounts (like minimum balance or monthly direct deposits/ACH transfers).

So her bank likely should be on the chopping block. Check out any other big name banks that would be easy to access for their minimums to get free accounts, or go to a credit union. Honestly a credit union would be best if she isn't in need of national branches and most of them have handshake agreements with national networks anyway so access to ATMs and such aren't a big issue. Spending $300 a year for the privilege of letting them hold her money is ridiculous.

Where are her investments held? I can see on Fidelity any breakdown I'd like per fees and charges easily, and I'm pretty sure Vanguard's site also allows this with a few clicks/tabs to locate. If you don't have access to online reviews of the funds in the investment group's website, I'd request a breakdown from her financial rep, and make sure you make him spell it out to the penny all fees including the ones built into the funds. I'm pretty sure there are large paper booklets called fund prospectuses that are sent out if you don't opt to receive all mailings online (I still get some of those damned things in the mail due to legal ramifications), but not sure how comprehensive they are compared to websites breakdowns.

So you can also review funds on Fido's site (for instance) to see what they have built into the fund, and also see what Fido would charge (they have a transaction fee for non-Fido funds buy/sell).

https://fundresearch.fidelity.com/mutual-funds/summary/893957613?type=o-NavBar
IMOLX. You can click over to the "fees and loads" tab to get a breakdown of basic costs (not Fido's charge to buy sell - literally what you'd pay pretty much at any financial institution). Wow. That is a shit fund. 2% ER, A 12b-1 fee of 1%? Oh hell no...that's a "sell our product to your clients/advertising/bullshit" fee - any fund that has a 12b-1 fee is automatically a bullshit fund to me, because that's a promotional/kickback fee to get financial reps to sell their bullshit fund to folks. And don't get me started on any fund that has loads - front and back.

I'm unfortunately out of time for this post, but I may revisit if I get a chance to dig into these funds... but just based off the above, the adviser is crap. It won't help you to get all of this figured out and go talk to them tho. They'll have a reason and charts and graphs and there is no way a layman can get a professional snake oil salesman sales rep to ever admit they are out to profit themselves and their company primarily and their client is a distant third if considered really at all... their livelihood depends on this.
Thanks for the detailed response so far. I genuinely appreciate you and MDMs response

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #11 on: August 30, 2018, 03:54:20 PM »

Is your mom even asking you to do this? I say that because parents sometimes have a mentality of "I used to put diapers on you, kid" when anything in relation to money comes up. They'll automatically discount their kids advice, even if the advice is correct, or well meant, because they like how things are done. Like you said, what if it hits the fan: are you ready to be that person to help your mom stay the course?

Even with my folks, I have no idea what their asset allocation is, nor is it my business. I know rough balances and that they'll be fine in retirement and that's all they've released to their offspring at this point. I'm sure that they could be doing things better, but if they'll be fine in retirement, who am I to complain that my brother and I are going to split less of an inheritance?

Now, if she has come to you, see if she'll read JL Collins stock series, move everything to Schwab or Vanguard, pick a safe AA she's fine with, and do that.
[/quote]
That's a good point. Honestly, it was the Financial Advisor that wanted me included on the phone call about a Life Insurance policy with a LTC rider benefit. which then led me to look into all this.  He made sure I was aware of what was going on and had me set up a time that worked for all of us.

patchyfacialhair

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Re: Evaluating Financial Advisor with my mom
« Reply #12 on: August 30, 2018, 03:59:23 PM »

Is your mom even asking you to do this? I say that because parents sometimes have a mentality of "I used to put diapers on you, kid" when anything in relation to money comes up. They'll automatically discount their kids advice, even if the advice is correct, or well meant, because they like how things are done. Like you said, what if it hits the fan: are you ready to be that person to help your mom stay the course?

Even with my folks, I have no idea what their asset allocation is, nor is it my business. I know rough balances and that they'll be fine in retirement and that's all they've released to their offspring at this point. I'm sure that they could be doing things better, but if they'll be fine in retirement, who am I to complain that my brother and I are going to split less of an inheritance?

Now, if she has come to you, see if she'll read JL Collins stock series, move everything to Schwab or Vanguard, pick a safe AA she's fine with, and do that.
That's a good point. Honestly, it was the Financial Advisor that wanted me included on the phone call about a Life Insurance policy with a LTC rider benefit. which then led me to look into all this.  He made sure I was aware of what was going on and had me set up a time that worked for all of us.
[/quote]

It seems weird that he'd be the one to want to include you. My guess: he's going to try to pitch you his services because "your mother trusts me, and look at all the money she has saved." I'd check with your mom about this and make sure she's cool with you being involved, at which point you can briefly mention your concerns to your mother about the whole situation in general, to see how she reacts.

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #13 on: August 30, 2018, 04:05:20 PM »

Is your mom even asking you to do this? I say that because parents sometimes have a mentality of "I used to put diapers on you, kid" when anything in relation to money comes up. They'll automatically discount their kids advice, even if the advice is correct, or well meant, because they like how things are done. Like you said, what if it hits the fan: are you ready to be that person to help your mom stay the course?

Even with my folks, I have no idea what their asset allocation is, nor is it my business. I know rough balances and that they'll be fine in retirement and that's all they've released to their offspring at this point. I'm sure that they could be doing things better, but if they'll be fine in retirement, who am I to complain that my brother and I are going to split less of an inheritance?

Now, if she has come to you, see if she'll read JL Collins stock series, move everything to Schwab or Vanguard, pick a safe AA she's fine with, and do that.
That's a good point. Honestly, it was the Financial Advisor that wanted me included on the phone call about a Life Insurance policy with a LTC rider benefit. which then led me to look into all this.  He made sure I was aware of what was going on and had me set up a time that worked for all of us.

It seems weird that he'd be the one to want to include you. My guess: he's going to try to pitch you his services because "your mother trusts me, and look at all the money she has saved." I'd check with your mom about this and make sure she's cool with you being involved, at which point you can briefly mention your concerns to your mother about the whole situation in general, to see how she reacts.
[/quote]
Yeah we've already crossed that bridge. I peppered him a few years back on questions about the merits of low cost index funds vs. active management or higher expense stuff, and decided I wouldn't be putting any money with him. I know this guy. I graduated with his son.

Now, you're probably wondering why at that point I didn't also have my mom move her money away from him... and honestly I should have... but at the time didn't know that or have the confidence in it myself. Similar to how I feel now. I feel young. Do i really know what's best? If I was my mom's age would I be down to take this detailed of financial advice from my son one day?  It would be pretty bold to tell her to go her own way and help her manage this stuff more. At the time I figured "well he's probably getting compensated in some way out of her assets for looking after all this stuff, and I'm fine with that. It's outsourced to him and it's done. This way I don't need to worry about it"

patchyfacialhair

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Re: Evaluating Financial Advisor with my mom
« Reply #14 on: August 30, 2018, 04:10:31 PM »
Good luck. Even now I find myself growing up more and more at the same pace my parents do, but that does mean they're a little less on-the-ball compared to how they used to be and it makes me worry sometimes. Boundaries and all that.

I'm educated in accounting and have working knowledge of finance, accounting, insurance, retail banking, and retirement planning, and I still don't feel comfortable pushing my parents to tell me more and let me give them advice.

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #15 on: August 30, 2018, 04:42:02 PM »
Good luck. Even now I find myself growing up more and more at the same pace my parents do, but that does mean they're a little less on-the-ball compared to how they used to be and it makes me worry sometimes. Boundaries and all that.

I'm educated in accounting and have working knowledge of finance, accounting, insurance, retail banking, and retirement planning, and I still don't feel comfortable pushing my parents to tell me more and let me give them advice.
Thanks,  this gives me some context for how far I may want to take this with regards to her.

For example I've posted 275 times on some Internet forum about finances...woopty doo..you know? I know some stuff  but if that's any indication I'm no expert yet

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Goldielocks

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Re: Evaluating Financial Advisor with my mom
« Reply #16 on: August 30, 2018, 05:13:15 PM »
Hi, you asked a clear question, so I will try to answer...

For the 'Cash, Money funds, Bank deposits' portion
$25 a month for her cash being held with Deutschebank.
 The interest rate on the account is 0.8% APY.
- I am not in the USA, so I look at this as two different services.  For some reason she has chosen to pay a full service banking fee for "private banking".  This fee often includes special priority access when she goes to the bank, zero extra charges, a private safety box, free travellers cheques, multiple accounts, maybe free wire transfers and / or reduce forex exchange fee.  You need to find out what banking service she NEEDS, and what the competition is offering.  There is a chance that the current bank has another much cheaper plan.   Banks here typically have three levels of service plans, with $25/month being the most expensive.  FYI my Dad has this type of plan and although I don't think he needs it (he could do less), he does use most of the services and gets close to his money's worth..
--I DON"T INCLUDE BANK FEES as INVESTMENT FEES, UNLESS THE ONLY REASON SHE PAYS THIS IS FOR ACCESS TO THE 0.8% SAVINGS ACCOUNT or the FA.

- the 0.8% savings rate
High interest savings accounts (with substantial money that you don't generally touch) earn around 1% here, right now.   I think she can do better unless it is less than $20k in the savings account.

For the Mutual Fund portion,
 IMOLX which is a Transamerica fund, investing in large capitalization (large companies), with 30% to 50% equity and the rest as fixed income (govt bonds, mortgage securities, commercial bonds and loans, etc).  The equity portion is in world-wide accounts.  this is actually a transamerica "wrap" product that consists of several other mutual funds from trans america, in different percentage to create a "balanced" fund.   These accounts are pricey because of the % MER, but could be good for people with limited $'s invested that want to keep it simple. e.g., if you only had $3k invested, I would not be panicked that you are spending 2% MER, as that is only $60 per year.
 
This is a pretty conservative fund, suitable for people that may want to take out some, but not all, of their money within the next 5 -10 years.  I am going to assume Class fund C shares.  2.01% MER

- load fee costs , assume 3% Front End Load, and $100k invested.  To keep it simple I will assume that the gains on the account are withdrawn each year, (or losses topped up) keeping the fund to $100k as the years go by.

You need to look up the actual FE load, but let's say it was a 3% front end load fee, and she holds the fund for 7 years.   Then the cost of it would look like:
3% x $100k / 7 years = $428/yr, or 0.428% per year. (okay, simplified but close).

If it is a declining rear load fee, than the cost to her is the lesser profit made in it, to hold it until the rear load fee goes to zero, compared to another investment that she would have switched to.  Too many assumptions, so just state it a 0% fee (and PITA) and hold it for now.

PLUS -- MER fee 2.01%-- this is the combined fee for account management, buying and selling the underlying stocks, the fund manager, PLUS the trailing commissions paid to your FA each year.

2.01%MER x $100k = $2010/yr.

Total cost IMOLX if held for 7 years and 3% front load:  $3k + $2.01k x 7yrs = $17,070 / 7 years = $2,438/yr = 2.438% of every $100k invested.   Note, that most of the Front end load goes to the FA, and maybe 25-40% of the MER.

The MER is because someone is actively reasearching companies and deciding what to buy, and when, and when to sell, the mix will not look like any index.  They are trying to beat the index.   And the people can hands-on manage that mutual fund cost a LOT of money and someone has to pay them through MERs. 

Unfortunately, you may find that it is such a broad based fund that it looks a lot like any worldwide balanced ETF.   Instead, Check out Vanguard's Global fund VT, and BND bond fund.  You could invest 50/50 with these two and get somewhat close to what the IMOLX is trying to do.   (Not exact, but they also have only 0.33% MER in comparison).


Additionally, assuming the FA is a good guy and has my mother's best interest at heart, perhaps this fund has a place in her portfolio for some reason... What place could that be?

Other than being very expensive for the MER / load fees, the role of this fund is a broadly diversified asset allocation across global stocks, conservatively balanced with a wide array of fixed income types of investments.   It is a one stop shop fund to get a bit of all the markets, really, in a single, simple, fund to manage.  It is good (but expensive) for people with smaller $'s invested and want less complexity.  It is good for people that are a bit risk adverse and / or may want to withdraw some of the (but not all) money in 5 to 10 years.

"Equity" portion she is in BAC Callable Preferred stock with a 6.2% dividend. This seems pretty cool, but I have no idea what fees are being charged for her to be a part of this, and it is a single stock accounting for 8% of her portfolio which seems a bit high.

This is actually a dividend player, and the main reason to hold it (rather than just adding to IMOLX instead) is because there is a tax reason or income preference, or a "hot tip" ?!?.   It generates good income, as tax -preferred dividends and is the type of stock that retirees like when they start wanting to draw income each month.

The cost for this one will depend on the arrangement with the FA.  Here, we look at the year end statement and can see what (in addition to the trailing fees the MER provide the FA for IMOLX), the bank and the FA recieved  from these investments.     Usually they don't get any money each year from direct stock like BAC being held.  Charges tend to be account fees (maybe that $25/month pays for this?) and brokerage fees to buy / sell (that the FA does not keep) .  So this one could be "free" other than the account bank fees or a flat annual rate. 

Note -- Most FA that do this charge a % for the total value of investments they help manage..  such as 1% or 1.5% of the total investment, but that depends on the contract agreement with your mom and shows up on the annual statement (here it is the December year end one).

 I hope this helps.  Good luck.


Overall it could look like:
$25/month x 12 months = $300/yr
$100k IMOLX with 3% Front end load, held for 10 years:  $2438/yr
BAC -- free otherwise, unless there is a 1% to 1.5% "Fee only" planning charge on the account.
Saving account -- can you get a better rate?
« Last Edit: August 30, 2018, 05:18:01 PM by Goldielocks »

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Re: Evaluating Financial Advisor with my mom
« Reply #17 on: August 30, 2018, 08:05:50 PM »
I would also check whether he's buying and selling a lot of investments in your mom's accounts.  That can churn up commissions while adding zero value.

This thread reminds me why I'm skeptical of financial advisors...


lhamo

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Re: Evaluating Financial Advisor with my mom
« Reply #18 on: August 30, 2018, 08:13:18 PM »
I would also check whether he's buying and selling a lot of investments in your mom's accounts.  That can churn up commissions while adding zero value.

This thread reminds me why I'm skeptical of financial advisors...

+1

Does your mom still have/have access to her annual statements for these accounts for the last 10 years?  I would be very interested to look back and see how he "helped" her (or not) during the crash and the subsequent bull market.  Would not be hard to create a comparison graph showing her actual performance versus a given index or blend of indexes.

This would probably be a very useful part of your own financial education, too.

FrugalFisherman10

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Re: Evaluating Financial Advisor with my mom
« Reply #19 on: August 31, 2018, 08:49:09 AM »
Hi, you asked a clear question, so I will try to answer

Overall it could look like:
$25/month x 12 months = $300/yr
$100k IMOLX with 3% Front end load, held for 10 years:  $2438/yr
BAC -- free otherwise, unless there is a 1% to 1.5% "Fee only" planning charge on the account.
Saving account -- can you get a better rate?
Thanks, this is very helpful. FYI it is a back end load. So that means everytime she takes a little money out it costs her 3% right? Turns out it is a 1% Back end load...I think you were just assuming the 3% but I looked on Fidelity's website and it's 1%. Still bad, but not quite as bad.
And if she wanted to take it all out now and put it in a different mutual fund, or with a different advisor, it will cost her that 3% right?
Shall we call that "jet black handcuffs"???


Also, I figured out that the $25 fee for the Deutschebank deposits are not monthly. They are annually. So that's not nearly as bad. Still doesn't make any sense when she could have that cash somewhere like Ally returning 1.8% for free, but I'm not as concerned about it now.
« Last Edit: August 31, 2018, 09:23:04 AM by FrugalFisherman10 »

Goldielocks

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Re: Evaluating Financial Advisor with my mom
« Reply #20 on: August 31, 2018, 04:06:41 PM »
Hi, you asked a clear question, so I will try to answer

Overall it could look like:
$25/month x 12 months = $300/yr
$100k IMOLX with 3% Front end load, held for 10 years:  $2438/yr
BAC -- free otherwise, unless there is a 1% to 1.5% "Fee only" planning charge on the account.
Saving account -- can you get a better rate?
Thanks, this is very helpful. FYI it is a back end load. So that means everytime she takes a little money out it costs her 3% right? Turns out it is a 1% Back end load...I think you were just assuming the 3% but I looked on Fidelity's website and it's 1%. Still bad, but not quite as bad.
And if she wanted to take it all out now and put it in a different mutual fund, or with a different advisor, it will cost her that 3% right?
Shall we call that "jet black handcuffs"???


Also, I figured out that the $25 fee for the Deutschebank deposits are not monthly. They are annually. So that's not nearly as bad. Still doesn't make any sense when she could have that cash somewhere like Ally returning 1.8% for free, but I'm not as concerned about it now.

Back end load of 1% should always be 1%.  Check the agreement.   Some back end loads start at 5% and then drop to zero over 6 or 7 years, and others are just fixed.

So, 1% back end load.   If the money is kept in there for 5 years, that works out to approx. 0.2% per year, (simplified math) plus the 2.01% MER....

Total annual cost on IMOLX is 2.21% per year x $Amount in the fund.

The BAC cost is between 0% and and 1.5% -- whatever the FA contract / agreement is that he takes on an annual basis, based on the value of the funds under management... plus $25/year account fee (typical "small" account annual charge for most banks until you get over $100k or more).


OR... she could move it all to a self directed account, and have well under 0.5% NET for the year, inclusive of all fees.