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My grandson says my financial adviser is steering me wrong and double-charging me

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Sometimes I think it would be fun to be an advice columnist. Here are two situations that recently came my way. The first is about a lady, her broker, and her grandson.

I’m in my late 70s, and for the last seven years since my husband died and could no longer manage our money, I’ve had an adviser who is a lovely lady and obviously very smart.

She always remembers my birthday, asks about my kids and grandkids, and is just as nice as can be. I’ve put my total trust in her, and I don’t seem to be in any danger of running out of money.

Read: The COVID-19 economy is having a polarizing effect on retirement savers

This year my grandson, who I adore, graduated from college with a degree in finance. He expressed an interest in my investments, so I gave him some of my account statements to look over.

I expected him to tell me my adviser is doing a great job for me. But when he came to my house two days later and reported what he found in the investment statements, I was shocked.

According to him, my adviser has done multiple things that do not benefit me.

Read: Skip these ‘free’ sources of financial advice. They will cost you dearly

She invested all my money in stock funds that charge high recurring expenses. These mutual funds are what my grandson calls “actively managed” in an attempt to achieve superior returns, yet not once in the last seven years have they performed as well as the S& P 500 index
SPX,
-0.98%
.
He says I could have invested in that index much less expensively, and I would have made more money.

In addition, I had to pay big sales commissions (my grandson calls them “loads”) when I first bought these funds. Most of that money went to my adviser, apparently to compensate her for recommending the funds to me.

He says she divided my investments into three different fund companies. If she had put all my money into just one company, I would have gotten a discount on the sales commissions.

Read: How to survive the next few months as an investor

Finally, her firm is charging me a “management fee” every quarter; my grandson says her firm is being amply compensated by the mutual funds, and these charges are in effect double-charging me.

I trust my grandson completely, but I’ve trusted my adviser, too, and she’s really nice. What’s your take on this?

—In a Pickle

Dear In a Pickle,

Let me say first that I’m pleased that you’re not in danger of running out of money. This doesn’t excuse anything your broker has done, but it means you can recover from the past seven years.

You may really like your broker, but she is not your friend. She is a salesperson, period.

Your grandson appears to be very savvy, and he has no reason not to have your best interests at heart. If he’s willing to help you get things straightened out, I hope you’ll accept his help.

If he recommends that you close your account with this brokerage house, I would bless that recommendation. If he recommends you consolidate your investments into a few low-cost index funds at Vanguard, I would bless that too.

In your 70s, your investments should not be entirely in stock funds, and I hope he will consider that in his recommendations.

In short, if your grandson is willing to be your informal adviser, that sounds to me like a vast improvement.

Good luck.

Paul

P.S. I’m going to suggest two resources your grandson may find helpful for his own investments. First, an excellent video by my friend Chris Pedersen. Second, an upcoming book that I wrote with Richard Buck, “We’re Talking Millions! 12 Ways to Supercharge Your Retirement.”

Dear Paul,

I’m 84, retired and in good health. Several of my ancestors have lived to be 100 or more, and I might do that, too.

But I’m having trouble living off my meager pension and Social Security. I have about $600,000 in investments, and I’m trying to avoid taking too much out of them. You see, I hope to leave something to my kids in my will, and there’s always that rainy day.

Read: How to compare Medicare Advantage plans

I am worried about running out of money, and I am not much of a risk-taker. The majority of my money is in bond funds that pay me about $15,000 a year.

One of my friends suggested I buy an annuity, but my husband always told me to avoid investments from insurance companies. What do you think?

—Feeling in a bind

Dear In a Bind,

Your late husband may have been referring to insurance products known as variable annuities. These are complex and expensive products that are not the best solutions for most people.

Your friend, on the other hand, may have been thinking about a simple annuity, a straightforward product. From what you say, that could be just the ticket for you.

It works like this: In exchange for a one-time payment from you, the insurance company agrees to pay you a fixed sum every month for as long as you live, no matter how long that is. It’s really that simple.

This is often called a single premium life annuity. Once you sign the contract, the only unknown is how long you will live.

You get a reliable monthly income forever. What you give up forever is the one-time payment to the insurance company. Therefore, don’t put all your money into an annuity.

The size of the payments you get vary quite a bit from one company to another, so it pays to shop carefully. I’ve seen many cases in which this type of annuity is a great solution, and I’ve spent a lot of time looking for a good source of price information.

The best source I’ve found is an independent insurance agent who calls himself Stan the Annuity Man. On his site you can get annuity quotes without having to talk to anybody.

I talked in person with Stan and he told me this: If you paid an insurance company $300,000, you could get a guaranteed monthly payment of nearly $3,000 a month, a huge “raise” from what your bond funds are paying you.

That would still leave you with $300,000 to supplement this income and likely provide some money to leave in your will.

Paul

Note to readers: I don’t have any arrangement with any insurance company or insurance broker, including “Stan the Annuity Man,” whose website is loaded with good educational materials.

Richard Buck contributed to this article.



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My husband doesn’t get along with my son. I brought most of the wealth into our marriage. How do I split my estate?

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Dear Quentin,

How do couples typically handle their estates in a second marriage? My husband and I have been married for seven years, and it is the second marriage for both of us. I have one adult child from my previous marriage; he has no children.

I brought the majority of our wealth to our marriage, including almost $1 million in my 401(k) and a nice home that is almost paid off; otherwise, we have no debt. My husband and I bought a second home together. We work hard to fund our new 401(k)s, and own a successful business together.

I am turning 65 this year, so estate planning is long overdue. My husband is five years younger than me, and we are both in very good health. We have two issues facing us: I see our retirement as living very comfortably on the monthly income generated by our 401(k)s, pension, Social Security, etc., and leaving whatever may be left to my son.


‘The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him.’

I am not interested in scrimping, but I want to be able to have enough money to last us until age 90 (or beyond) by not touching the principal. My husband is more interested in dipping deep into our savings, and living it up in retirement while we are young enough to enjoy it.

The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him, to the point that neither one wants anything to do with the other. As far as he is concerned, my son doesn’t meet his expectations, and so deserves nothing from me and certainly nothing from him.

I want my estate planning to be fair to both my new husband and my son. How do people typically handle this type of quandary? I think that I need to create some type of trust to pass on my share of our estate to my son. My pre-marriage assets involved my son as I pursued my graduate degree through night school and worked long hours throughout his childhood.

Second Wife

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Second Wife,

Don’t allow your husband’s feelings toward your son to influence your estate planning.

Your relationships with your husband and your son and your own plans for retirement are all fair game when making decisions about your estate, but your husband and son’s fractured relationship is their business, not yours. You worked hard for this money, and your son is your legal heir. Any effort by your husband to spend all of your savings and fritter away any inheritance that you intended to leave to your son should be resisted at all costs.

You have worked too hard your entire life to compromise your plans for a comfortable retirement where you have money set aside for long-term medical care insurance, unforeseen emergencies and/or your son. If you jointly own your home, you can leave your half to your son in your will, and specify it can only be sold after your husband passes away.

If you own the home, you can give your husband a life estate. Your son would pay capital-gains tax on the value of your home when he sells it, and not when you bought it. You could also make your son the beneficiary on your life-insurance policy, and/or gift him a certain amount of money per year to see how he manages and spends that money.

Figure out what is fair to yourself first before moving on to what is fair to your husband and your son. It’s OK to put your needs first. I caution against your dipping into savings at a rate that is beyond your own risk tolerance.

Ultimately, you are entitled to leave all other separate property to your son when you die — and, along with a financial adviser, set up a trust with that in mind for you, your husband and your son. Not necessarily in that order.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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These money and investing tips can help you make a place for crypto in your portfolio

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These money and investing stories, popular with MarketWatch readers over the past week, can give you a better understanding of bitcoin and other cyrptocurrency, and help you figure out if digital currency has a place in your portfolio alongside stocks, bonds and other traditional assets.

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