Hi Guys,
A week or so ago, my sister visited a financial advisor. Her husband past away a decade ago and her resources are slowly being depleted. She is approaching 80.
The solution proposed by that advisor was criminal. It likely might be appropriate to a thirty plus widower, but surely not practical or applicable for anyone near my sister’s age. The advisor is State credentialed, but I wonder in what discipline.
If he was not familiar dealing with older folks, he should have directed her to another more qualified advisor. That didn’t happen.
Instead, what did happen reminded me of a fun story. A man wanted to capture a mouse but didn’t have any cheese. So be baited the mouse trap with a picture of cheese. He was rewarded when he checked the trap and discovered it had captured a picture of a mouse.
I equate the fake cheese with a fake advisor. They exist and they advertise the prospects of some solid instruction. In some instances, they must be universally avoided. The advisor gave my sister a flawed plan and a heavy bill. The old buyer beware adage once again came into play.
Finding the right financial advisor is not necessarily an easy task, especially for an older person with very limited financial experience. A few selection criteria should be defined and applied. Here is a Link to an article that proposes a set of criteria and rules of the road:
http://files.consumerfinance.gov/f/201304_CFPB_OlderAmericans_Report.pdfGiven the financial acuity of FMO members, this reference will probably not be too useful. However, you might want to pass the Link to other less informed folks that you know.
I’m sure you don’t need the help that my sister requires. Today, she’s a wiser and smarter investor.
Best Regards.
Comments
The writeup was age-appropriate and very Vanguard-ish, emphasizing bond index funds and large cap stock index funds. The plan served its purpose - to provide a certain level of comfort. There was no requirement to use the particular funds recommended. One could map the asset allocation onto current holdings and tweak as appropriate.
Vanguard still provides access to CFPs, though on a more limited basis, or via various advisory programs. Could be worth looking into.
But they were highly dubious about the safety of such an investment from the start and withdrew all their cash within a year in favor of a passbook bank account yielding something around 3%. Probably says more about how we've come to trust and accept mutual fund investing over the past 40-50 years, than any particular squeamishness on their part.
Good topic. I find it hard to give financial advice to relatives. Can come back to bite you if the advice doesn't work or is misunderstood.
My parents were the same way. My thinking is that the Depression made a huge impact on them regarding money and safety. That generation was generally frugal. Some of that rubbed off on me and I consider that a benefit.
I agree that the Great Depression had a multigenerational impact on many of us. The conservative life style that the Depression forced on our parents for survival was absorbed and practiced by many of us. Much of my wealth is the result of those valuable learned lessons during my childhood.
Good observation Hank. I too find it a challenge to make financial recommendations to relatives. I listen well and normally remain silent in terms of advice. I don't want to give the impression that I'm a know-it-all since that would be a false representation. I do ask a few questions that are designed to encourage a more careful consideration of alternate and competing options. Those questions are not always welcomed.
Great comments. Thank you.
Best Wishes for better family relationships.
If MJG's sister had received "good advice" from the subject advisor ... Would this been the making of the thread? I think not. We still don't know the advice rendered ... just that it was not, form MJG's perspective, stated to be in the best interest of his sister.
Kinda of reminds me of being in elemetary school where Mary tells the teacher that Johnny is misbehaving. The teacher has to ask ... Well, what did Johnny do? Perhaps, form the teachers perspective Johnny did not misbehave but from Mary's perspective he did.
So ... I now ask. What did the advisor say?
Sorry for my omission. You are on target in that the quality of advice sometimes does depend on perspective. I assessed the received advice as being much more in support of the advisor's wellbeing than to fundamentally help my novice investor sister.
The advisor constructed a portfolio of mostly equity mutual funds. At her age, my sister should be more into fixed income products. The mutual funds recommended did not include a single passive Index position. Not only did the so called advisor select active funds, they were of the expensive entry and cost variety. These were sure to line the advisor's pockets with my sister's diminishing gold.
I don't claim to be an expert, but that advisor should be disbarred from the industry for bad practice. No that's wrong! He should go to jail for what closely approaches swindling behavior. Fortunately, my sister escaped his web of faulty advice that was totally age inappropriate.
EDIT: I choose not to name specific fund recommendations because most of them are excellent funds with long records that are suitable for some portfolios - just not for my sister given her present circumstances. And they were all expensive.
Thanks for asking.
Best Wishes
everyone likes etf indexes.
I am retired, in my mid 60s and have a 65% equity position, to some that may seem high, but I am comfortable with it. I am using my taxable cash/bond allocation first and adding bonds funds to ira as it depletes (deferring social security and iras til 70). However, I agree with the comment on not using high cost (assume we are talking load funds), but if it is an advisor who charges 1% aum for someone who is not knowledgeable on choosing investments, I do not consider that excessive. If it is not a wrap account and charges 5% for each fund, there are certainly good choices that are not load funds and advantage has been taken by this advisor.
Since the advice was not taken ultimately, I assume MJG has helped her make a better use of her money.
So some of the missing information concerns the needs of the sister (age alone isn't enough). Another piece of missing information is the duty of the advisor. Was he a fiduciary, or was he required merely to meet a suitability standard? (Something I'd love to see done away with, for just this situation.)
A fair question, since "criminal" appears in the posts, though apparently in a broad qualitative (dare one say hyperbolic) sense as opposed to a literal sense.
P.S. Professionals can be "barred" or, curiously enough, "debarred" from practice by their professional organizations or by the courts. AFAIK, only lawyers are members of the "bar" and thus can be "disbarred".
Indeed, jail time is far too harsh a penalty for bad advice. I said it with tongue-in-cheek; I was definitely being hyperbolic for emphasis purposes. We would need to build far too many new jails.
My general impression is that there are too many financial advisors that are unfortunately supplemented with underqualified folks posing as such. Presently, there are 285,000 financial advisors in the US. That's a ratio of roughly 1 to 1120. That seems like an overcrowded field. The numbers support that feeling since the practicing number of financial advisors has decreased over the last 5 years. And they are getting older on average. That should improve the quality of their service. I believe in the benefits of experience.
I have never employed a financial advisor myself. But I do know and respect some for their knowledge, honesty, and commitment to service. Not all within that profession satisfy that description. Nothing new here, since that can be said of just about every profession. Buyer beware!
EDIT: I had to research AFAIK ( as far as I know ). I learn something new pretty much every time I visit this website. Thank you all.
Best Wishes.
I assume your post is directed towards me and I'm somewhat puzzled by it.
I am a completely amateur investor and have never charged for any proffered advice. It's likely worth what folks pay for it. In fact, I resist offering any investment advice whatsoever. As a rule I eschew giving any specific fund recommendations. Even in my sister.'s exceptional case, I offered an array of options to her being as neutral as psssible.
Each of us respond to our own drummers. I suspect my investment record is no better than the next Guy's history. Anything is highly dependent on circumstances. At my and my sister's advanced age, neither of us buy green bananas.
Best Wishes.
I'll get straight to the chase with this question as a lot has not been detailed about this alleged misconduct on the part of an unknown subject investment advisor.
It makes me wonder ...
Did the subject advisor performed a risk tollerance and need analysis of MJG's sister before he rendered a recommendation?
If not ...
Then I can better understand MJG's being miffed and if he feels very strongly about this then perhaps the best course of action is to take this matter to the compliance office of the subject advisor's firm and express a concern directly to the firm itself. Let them investigate and handle the matter since it appears from what has been stated, thus far, no money has been invested.
If the subject advisor did perform a risk and need analysis then there is a conflict of perspectives as to what might be best and what might not be. If it were me, and I was as concerned as MJG states he is then I'd let those responsible within the firm carry this forward, if they feel so warranted.
Perhaps, the advisor felt certain equity risk was better over certain fixed income risk to satisfy the need in todays investment environment.
It is for certain there is a lot that is not known that would be necessary for one to make an informed statement whether good advice or bad advice was rendered by the advisor.
Respectfully,
Old_Skeet
John Craighead turned 100 Aug. 14. A name associated with early grizzly research, falcon research, much else.
http://mtpr.org/post/legendary-biologist-john-craighead-celebrates-100th-birthday
I know I am not a genius and sometimes think our parents were smarter than us. They were less trusting and perhapsfrom an era where they invested in other things and knew there was trust of the government contract of social security. Now we feel compelled to invest. It doesn't help when we read things like the soc sec fund is 48 billion short and the armed forces had an accounting error of 6.4 trillion in 2015.
Regardless I can somehow manage to sleep if I lose money making my own mistakes. Will never let others do it for me.
Finally, what does it take to be a financial advisor. A honest one I mean. Look at the person's age, decide stock vs bond allocation vs international allocation. Invest in index funds. 99% of people scrutinizing you can't find fault with you regardless of how well your clients do. ANYONE can be a financial advisor. I'm not saying this tongue in cheek. It actually takes more effort to be a corrupt financial advisor. What I laid out above, how much effort it needs?
@ Informal Econ. Thanks so much for your post & ref about J Craighead. As a kid I spent hours at my Grandparents' perusing their collection of Nat. Geo. and vividly recall the exploits of the young Craigheads (which I read enviously!). Had no idea John Craighead was still around -- & clearly doing OK.
@VintageFreak
Obligatory On-Topic Tale: I had one experience (years ago) with an "advisor". He analysed my (modest) IRA portfolio. He congratulated me on my results -- "but" -- he cautiioned "it is very, very risky". He proposed "his" alternative portfolio, which "would have" produced the same results -- but with much, much less risk! I don't recall the details, but all of his proposed "safer" funds were totally unknown to me. Checking them out later one thing was immediately clear why -- all had front-end loads! Eeewww! (This was all back in the days of Max Heine, Michael Price, Ab Nicholas, etc -- heaven knows how, being a dumb kid, I had found them, but if I wasn't smart, at least I was too cheap to pay front-end loads!) The "advisor" struck out anyway because he didn't realize that my professional job was computational mechanics and I knew very, very well how easy it is to get the desired result when you know the answer in advance.
I believe one C.F.A. who posts here advises his clients to plan to go to 100.