Managing Parent's Finances

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bogwrangler7
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Joined: Thu Jan 07, 2021 10:41 am

Managing Parent's Finances

Post by bogwrangler7 »

Hi all,

First post here, long time lurker.

I'm sure my story isn't so different than many others on here. I come from a family where we didn't specifically talk finances/money much, but I knew my parents have not been the most financially savvy people out there, despite always earning pretty good salaries. This caused me (I'm now early 30's) to learn up a lot on personal finance and maximize my saving/investments once I became an adult.

My parents (mid-70's) have been using a financial advisor for a number of years and I never tried to pry too hard or ask too many questions because it felt easier to let things be and leave their money issues with them. That said, a related financial question came up in recent months which I've answered for them, which lead to me learning more about an investment account they have with this advisor. I've seen the most recent statement and this advisor has them in something like 14 different funds (this is a relatively small account), with an expense load of ~1%, on top of an advisor's fees of 1% p.a. I've told my dad he's getting ripped off and offered to take over managing this account for free, which he agreed. Personal finance is just one of my hobbies and I'd feel better knowing I'm helping my dad out here.

So my questions are:

1) What's the best way to take over control of these finances? Do I get a power of attorney, and which brokerage house would be best to use for this? I ordinarily use Vanguard but a quick search seemed to point to issues over there re: POA's.
2) As far as rebalancing, I'd like to consolidate his funds as much as possible, while minimizing the amount of taxes due/recorded gains as much as possible. The allocation of stocks/bonds looks right for his age, but he's in way too many funds.

I'm still in the early part of this process and have researched some but not extensively. What I was searching for typically pointed me in the direction of 'how to take over once your parents have died' or have dementia or something of the sort. That's not the case here, I'd just like to help out with managing a single investment account.

If you all have any relevant threads or links to point me to in lieu of a response, that'd be great too!

Thanks,
Bogwrangler7
junior
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Re: Managing Parent's Finances

Post by junior »

You may be better off getting them a better advisor rather than handling it yourself so there's someone else to get credit or blame if there's a big market crash. Good luck.
tim1999
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Re: Managing Parent's Finances

Post by tim1999 »

junior wrote: Thu Jan 07, 2021 11:11 am You may be better off getting them a better advisor rather than handling it yourself so there's someone else to get credit or blame if there's a big market crash. Good luck.
Yep. I managed my parents' investment accounts (invested in a variety of Fidelity index funds) for years. They blamed me every time the market tanked, but didn't give me any thanks whatsoever when it rallied. I saved them the 1% per year their previous advisor was charging for doing the same thing with similar funds that had all had higher ER's.
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retired@50
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Re: Managing Parent's Finances

Post by retired@50 »

bogwrangler7 wrote: Thu Jan 07, 2021 10:53 am
Thanks,
Bogwrangler7
I don't think a P.O.A. is necessary if you have agreement from your parents. They'll likely need to sign some papers, etc. but since this isn't dementia, their informed consent should do the trick.

In my mind, getting the account transferred to a new custodian will probably be the first half of the battle. This will eliminate the assets under management fee. Generally recommended providers like Vanguard, Fidelity, or Schwab are solid choices because they offer low-expense ratio index funds which are favored by Bogleheads.

The second half of the battle will be to unload the high-expense ratio funds and choose a more appropriate mix. This will eliminate the ongoing high costs of fund ownership. Generally people will transfer the account in-kind, which means moving the assets without selling them. Sometimes it can make sense to sell first, then transfer, it depends on if the assets can be sold anywhere without a fee or commission.

Finally, the tax consequences of such a move will depend on if the account is in a tax-advantaged account like an IRA or Roth IRA. If not, and the assets are held in a taxable account, then being aware of the current cost basis will be important before selling assets. Capital gains and losses can and will be tracked and reported on their tax forms.

Regards,
This is one person's opinion. Nothing more.
go2run
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Re: Managing Parent's Finances

Post by go2run »

bogwrangler7 wrote: Thu Jan 07, 2021 10:53 am Hi all,
So my questions are:

1) What's the best way to take over control of these finances? Do I get a power of attorney, and which brokerage house would be best to use for this? I ordinarily use Vanguard but a quick search seemed to point to issues over there re: POA's.
2) As far as rebalancing, I'd like to consolidate his funds as much as possible, while minimizing the amount of taxes due/recorded gains as much as possible. The allocation of stocks/bonds looks right for his age, but he's in way too many funds.

I'm still in the early part of this process and have researched some but not extensively. What I was searching for typically pointed me in the direction of 'how to take over once your parents have died' or have dementia or something of the sort. That's not the case here, I'd just like to help out with managing a single investment account.
Within the last year, I have done the same for my Mom. She was in the same boat and had many misguidings by plan advisors. During the process, she had one of the plan administrators tell her she can't transfer the money and would need to wait until year end! She told me that and I about blew my lid. Needless to say, I made a trip out to see her and we made the call together and transferred the money to Vanguard. I'll give you my thoughts and experience on what we went through:

1. I am in Vanguard and had her transfer her various accounts into Vanguard.
- I sat with her and had her create a Taxable, Roth IRA, and Rollover IRA account.
- We then went account by account to transfer assets. I started with her old 401k's, old tIRA, and Roth accounts and transferred the funds to appropriate Vanguard IRA account. I left her taxable alone until we had a better idea what her tax situation would be with SS, dividends, pension, and RMD's. Make sure you read current plan information to understand what is required to transfer funds. In some cases, we were able to simply call Vanguard to initiate the transfer. In others (the example above), we had to start with where the money was and initiate if there.
- In most cases, Vanguard accepted the invested funds from the other accounts. Where they did not, the fund was sold and bought in an equivalent Vanguard fund.
Note: If you are in Vanguard and set-up your parents in Vanguard, they can grant you access to their accounts. This is easy to do and can be found from My Accounts --> Profile and Account Settings.

2. Since we started with all Traditional and Roth type accounts, we sold the funds and I set-up an allocation with Vanguard funds appropriate for her asset preservation and income goals. As noted above, we are working through her Taxable account as appropriate taking into account her tax liability.

Good luck!
chitownguy
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Re: Managing Parent's Finances

Post by chitownguy »

I had a similar experience with my father. While he is not incapacitated in any way he had ignored his finances and didn't understand what his advisor was doing or have any interest in his accounts. His advisor (really a stockbroker) was trading into and out of hundreds of stocks, including risky bitcoin and non traded partnerships. I am in Chicago and he is in Boston so for me a POA was helpful. I did gain control of his accounts with his permission in writing and transferred everything to Fidelity. I have been happy with Fidelity for my personal accounts and was happy with the service I was provided by an advisor there to move these accounts.If you get an associate involved from a company like Fidelity you'll find the transfer process very easy. Of course it's in their own best interest to transfer these accounts so you do get very good service.
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KneePartsPro
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Re: Managing Parent's Finances

Post by KneePartsPro »

I started down this path with my own parents several years ago. Ultimately, I could not go through with it. What bothered me was that:

a) They didn't really understand their investments or have any desire to.
b) They didn't know they were paying too much in fees and as a result were completely content.
c) Regardless of the fees, their investments were more than meeting their goals.

I knew my parents' returns were based on what the market was doing at the time and not the remarkable performance of their advisor. This was a point however, that they did not realize. My fear was that I would take over, coincidentally the market would turn, and there would be a natural association between the two. For me, with their remaining time on earth, it was not an opportunity to save them lots of money over a long period of time, but rather a chance for something bad to happen.
I can tell you almost anything about artificial knees used in knee replacement, and almost nothing about investing.
jimkinny
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Re: Managing Parent's Finances

Post by jimkinny »

Consider using Vanguard's Personal Advosr Servide which charges 0.3% AUM and what the ER of the funds are which will likey be around 0.1% or so.
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KingRiggs
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Re: Managing Parent's Finances

Post by KingRiggs »

Just because they are paying fees which Bogleheads would consider obscene is not a reason for you to feel compelled to step in.

Are they actually being swindled? Are their investments not enough to meet their needs? Are they in such risky investments that their nest egg might get depleted?

If the answer to the above is "no", I would think long and hard about getting involved. Look at the fees they are paying as the soct of keeping them happy (albeit ignorant).
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fourwheelcycle
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Re: Managing Parent's Finances

Post by fourwheelcycle »

I did the same task you are considering for my father. I have his DPOA, but I did not use it. I just helped him open an account at Vanguard in his own name and he signed the necessary form to give me full transaction authorization. He did not have any financial advisor, but he did have his savings split between accounts at two other brokers. I worked with him to complete all of Vanguard's required forms to transfer his funds from the other brokerage accounts to Vanguard. As I recall, he never had to initiate any transactions at his existing brokers - Vanguard did everything once he submitted the transfer forms I helped him fill-out and sign.

As I expected, Vanguard could not hold some of the mutual funds from his other brokerage accounts. Those funds had to be sold and transferred into my father's new Vanguard account as cash. Vanguard did not charge any fees for the sales. One of the other brokers charged a minor account close-out fee, about $75, and the other broker did not charge anything. My father ended up paying capital gains taxes equal to about .9% of the total amount we moved to Vanguard.

I realize some people have concerns about current customer service issues at Vanguard. I have always had excellent service experiences with Vanguard. I encouraged my father use Vanguard because I have an established rep and Vanguard agreed to link my father's new account to my account. As a result, my rep also covers my father's account and I can manage my father's account right from my own account when I sign in.
delamer
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Re: Managing Parent's Finances

Post by delamer »

If you have physical proximity to your parents, I’d work with them to open new accounts, change investments, etc. rather than going the POA route.

How does your mother feel about your plans? You refer to your father in the post but the money is apparently your parents’, not just his.

Without knowing details, the forum can’t advise on tax issues. But assuming that there is money in a taxable account, make sure that you obtain all cost basis information before you transfer/sell and investments held at the current advisor. You may not get much cooperation from him for suxh information once he knows you are leaving.

Once you decide where to move the assets, the receiving firm can help you determine what to sell with the current advisor versus transfer to it.

I’d also urge you to consider an all-in-one fund for the majority of the investments. If you get hit by the proverbial bus next year, your parents’ investments will be in good hands. And you’ll get less pushback from them if you jointly choose such a fund with them that reflects their preferences in terms of risk level, compared to investments that you pick for them.
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FelixTheCat
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Re: Managing Parent's Finances

Post by FelixTheCat »

Show your Dad the Bogleheads site. Teach him how to invest. Let him move the accounts if he wants.
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NotWhoYouThink
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Re: Managing Parent's Finances

Post by NotWhoYouThink »

Do you have siblings? If so, I strongly recommend either
- leaving things as they are, or
- transferring their accounts to Vanguard and letting the PAS manage them.

Your parents and siblings will blame you for losses due to market downturns, even if you can prove to a bunch of bogleheads that the losses with the current advisor would have been worse.
David Althaus
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Re: Managing Parent's Finances

Post by David Althaus »

As someone in mid 70s let me offer the following:

1. Your parents have a duty to establish an estate plan, living will, and establish a POA if or when they are no longer capable. These steps should not be viewed as relinquishing control over their lives but establishing the process because there are inevitabilities in life. Their attorney is probably the place to start. If they don't have one get one that specializes in estate planning. Our estate plan, living will, and living trust was less than $5k and has provided a family roadmap. No doubt ours is simple--one marriage and one son but a competent attorney can help you with any vagaries. These attorneys have fiduciary duty to your parents and you as POA and a loving son will soon be seen as a big benefit to their client.

2. You said the account was not large so actual dollars out of their pockets right is probably small as well and those fees likely won't have have much impact on long term performance unless they live 30 years or more. But--I understand--no one likes to see their parents gouged. Still I think 1 above is much more urgent.

3. We have always been DIY investors and have no "friends" in the investment industry. Your parents probably think of this salesman as their good friend--after all that's their job. So tread lightly. "We have reached a new stage in life and moving to a lower cost alternative is extremely important." You'll figure it out.

All the best
RetiredAL
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Re: Managing Parent's Finances

Post by RetiredAL »

bogwrangler7 wrote: Thu Jan 07, 2021 10:53 am ........

My parents (mid-70's) have been using a financial advisor for a number of years and I never tried to pry too hard or ask too many questions because it felt easier to let things be and leave their money issues with them. That said, a related financial question came up in recent months which I've answered for them, which lead to me learning more about an investment account they have with this advisor. I've seen the most recent statement and this advisor has them in something like 14 different funds (this is a relatively small account), with an expense load of ~1%, on top of an advisor's fees of 1% p.a. I've told my dad he's getting ripped off and offered to take over managing this account for free, which he agreed. Personal finance is just one of my hobbies and I'd feel better knowing I'm helping my dad out here.

So my questions are:

1) What's the best way to take over control of these finances? Do I get a power of attorney, and which brokerage house would be best to use for this? I ordinarily use Vanguard but a quick search seemed to point to issues over there re: POA's.
2) As far as rebalancing, I'd like to consolidate his funds as much as possible, while minimizing the amount of taxes due/recorded gains as much as possible. The allocation of stocks/bonds looks right for his age, but he's in way too many funds.

I'm still in the early part of this process and have researched some but not extensively. What I was searching for typically pointed me in the direction of 'how to take over once your parents have died' or have dementia or something of the sort. That's not the case here, I'd just like to help out with managing a single investment account.
...........

Thanks,
Bogwrangler7


It is very common for an Advisor to use a multitude of Funds and/or Stocks to give the impression that investing is complex and best done by an Advisor.

When an account is managed, there is a usually a lot of buying and selling, usually done by a computer program, not the Advisor personally. All the Advisor does is select which pre-configured models to use. 1st - As result of all of the trading, you will likely find the CapGains are usually much lower than what a buy-n-hold account would have. 2nd - Unless your parents well into the 22% bracket, there is a fair amount of LTCG=0 room to sell the LTCG, plus any losses subtract from the gainers.

It is best to have all the processes set up long before there becomes an urgent need for you to step in. In the first years, I mainly directed what my Dad should do. As the years progressed, I became more and more the focal point of all finances.

When my Mom passed in early 2013, my Dad asked me to take over his finances, via me becoming the acting Trustee, joint in his banking/savings accounts, and POA for everything else. Part of his investments were with an Wells Fargo Advisors. All at first appeared to be OK, then major trouble occurred with Wells Fargo in the fall of 2018 while converting to self-directed since his advisor had left the Wells network and Dad was finally agreed to not have any Advisor, compounded by my Dad suffering a sudden health decline 2 days before Xmas 2018.

I have processed POA's for Investments Account with Wells Fargo, Schwab, and USAA for my Dad, plus Fidelity for DW and I. Wells Fargo was a PITA!. Fidelity's POA is the best since it's Durable from the git-go. Schwab's standard POA is not Durable, but they will accept an external POA that has Durability.

Schwab's local office was willing to open IRA transfer accounts via any notarization of their POA, however my Dad improved enough to sign all the paperwork in Schwab's office. We had Schwab transfer his 2 IRAs from Wells because of they being a PITA, having blocked access to the accounts, and screwing up the taking of the RMD's. The transfer by Schwab of those IRAs went quickly and smoothly in just a few days, ending a multi-month battle with Wells over those IRAs.

I had zero Trustee issues with Dad's accounts at Schwab, Wells Fargo, and USAA. I was made the Trustee in 2013 long before the medical issues with my Dad in 2018. In fact, the Trust account is still with Wells today, as the interface between the Trust and his checking has been very convenient for money management.

Last item: Make sure all the accounts have valid and correct beneficiaries set up, and keep copies of that paperwork. Dad and I thought my POA was long established at Wells and his Advisor accepted my directions for years, but after the Advisor left, Wells would only say our computer does not say that.
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