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Hello all...I am fairly new to the boards - and am seeking some advice on behalf of my dear Mom, and her no-income portfolio. Here are some facts:

Neither she nor I have much investing background or savvy, with no one to trust for advice.

Was with former brokerage firm for 10+ years who were charging her in excess of 3% in fees for a less than $500,000 portfolio (the portfolio having plunged post-911.) Heavy in tech stocks, with a number of Beta numbers over 1.

Moved to new brokerage firm for 1.5% fee, with caveats to new broker than she was in need of $25,000 income per year over & above her pension & ss. Broker said he saw no problem.

16 months have passed and no re-organization of her portofolio (no movement at all), with something around $4,500 income from dividends/interest in this time period.

After some weak attempts with calculator, we find she's withdrawn and/or lost a further $50,000 in this past year. It's dwindling awayyyyy....

New broker feels her portfolio, relating to current market, is fine to sit on. Mom wants income, as well as growth with a future for her money for the kids.

We need some "educatin', and don't necessarily believe this broker's interested in actively "manipulating" Mom's portfolio for his small 1.5% fee, as he keeps throwing lines such as "well, you know, the market's been bad" at us.

Do we need to bring in a money manager? Financial Advisor? How do we find out who can get this portfolio turned around? And would that manager or advisor be from OUTSIDE her particular brokerage firm, or within?

Help, please.....(sorry to ramble..not sure what facts are needed)

Surfmermaid & Mom
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Do we need to bring in a money manager? Financial Advisor? How do we find out who can get this portfolio turned around? And would that manager or advisor be from OUTSIDE her particular brokerage firm, or within?

Hi Surfmermaid (and Mom). Welcome to the board!

In my opinion (IMO), what you need is a 'fee-based' financial advisor. That is a financial advisor who will charge you a fee for their advice/time/services. Their services might include formulating a plan for your mom. Fee-based advisors have no vested interest in 'selling' you anything, or convincing you to buy something that they earn money on (transparent to you), and you are not paying fees for the 'privilege' of parking your money with them.

Such an advisor will most certainly be OUTSIDE her particular brokerage firm. They will also NOT be affiliated with any other brokerage firm! or American Express! Or sitting behind a special desk at your local bank! Please, do not listen to any of those 'advisors'.

As to exactly how to find one, I don't know. :-(

But I'm sure there are smarter folks than me who will respond to your post and advise you how to do so.

2old
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Greetings Surfmermaid,

Another reply mentioned a fee-only planner. Below is a link to their association which should have directions on how to find one:

http://www.napfa.org/index2.htm

I would likely suggest having a list of questions ready to ask any planner before agreeing to sit down and have them work out a plan with you. Here are a few questions to think about and possibly ask anyone you'd work with:

1) How do you charge? Is it a percent of assets, by the hour, or some flat fee?

2) How often would we have updates on our portfolio and make changes to it?

3) Would you be educating us about what we are investing in or would we be blindly trusting you?

4) Are you OK with an account of this size?

These are in addition to how comfortable you feel with them and trust you'd have in putting your money with them.

Some food for thought on your numbers:

Given a less than $500,000 portfolio you plan to withdraw $25,000/year which is 5% which is above the safe withdrawal rate of 4%. For background look at http://www.retireearlyhomepage.com/restud1.html as well as the REHP board here at http://boards.fool.com/Message.asp?mid=20740602 if you want a link.

Mom wants income, as well as growth with a future for her money for the kids.

I'm not sure this is doable in a sense. She will be eating into principle likely so that there likely won't be that much growth if she plans on drawing 5% each year and the portfolio isn't generating that level of income.

We need some "educatin', and don't necessarily believe this broker's interested in actively "manipulating" Mom's portfolio for his small 1.5% fee, as he keeps throwing lines such as "well, you know, the market's been bad" at us.

Do we need to bring in a money manager?


Well, there has to be someone to manage this money. The question is do you want to do this or pay someone to do it? This is aside from the planner, IMO.

Financial Advisor?

I'd advocate looking at a few fee-only planners as one way to initially handle this though another option would be to look at whether you want to manage this portfolio yourselves or not.

How do we find out who can get this portfolio turned around?

Careful here. Depending on what the market does it could be lucky twits that turn it around while some experts may turn out to have poor picks.

And would that manager or advisor be from OUTSIDE her particular brokerage firm, or within?

If you like to know what you are paying the planner then I'd suggest the fee-only route. If you don't want to see those fees and don't mind getting blindsided then go ahead and take the case where there is a conflict of interest, IMO. The advisor at a firm likely has their own agenda that may well be different from yours. After all, "why not stick you in a mediocre fund that will pay me 5% rather than take that good fund that doesn't pay me anything?" would be my thinking from the advisors view.

HTH,
JB
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Welcome Surfmermaid & Mom,

Get the money out of that broker's control and run, don't walk, as fast and far as you can.

Not to be taken as a rec on where to place that money, but more to emphasize what these brokers have done, I've created the following table. It is based on 5 different Vanguard funds, where $500k was invested in each on 9/17/01.
Note that the gains shown do not reflect dividends that have been paid out, nor did I track down the Admiral Class (a slightly lower fee for their high value investors) fund tickers.

Symbol $/sh Shares Curr. Val. Buy$/sh Gain$ Gain%

VFINX 107.91 5,200.208 $561,154.44 96.15 $61,154.46 +12.23%
VTSMX 27.52 21,607.605 $594,641.31 23.14 $94,641.34 +18.93%

VWELX 30.32 18,518.518 $561,481.44 27.00 $61,481.47 +12.30%

VASIX 13.47 38,940.809 $524,532.69 12.84 $24,532.71 +4.91%
VSCGX 15.03 36,549.707 $549,342.06 13.68 $49,342.08 +9.87%

VFINX is their S&P Index Fund which is sorta the bogey around Fooldom.
VTSMX is their Wilshire 5000 Fund which is trending to take VFINX as the baseline around here. It more or less adds more Mid/Sm Cap exposure.
VWELX is a managed fund that invests at least 60-70% of assets in dividend-paying value stocks and 30-40% of assets in intermediate bonds.
VASIX is their income focused fund of funds which invests 60% in bonds, 20% in short-term fixed income and 20% in stocks.
VSCGX is their conservative fund of funds which invests 40% in bonds, 20% in short-term fixed income securities and 40% in stocks.

As 2old notes, a fee-only planner may be a place to start, though I suspect it's a treacherous path to find a good one that doesn't have ulterior motives in making additional fees from where you're directed to invest.

I haven't tried it, but Vanguard has their own planner service which I think runs around $500-1,500, which is waived if you end up moving $250k+ there.
http://tinyurl.com/4sstj
If you do end up using them, please report back as I have yet to find anyone posting that has. I only suggest them off hand in that I have had positive experiences in all my dealings with Vanguard and wouldn't expect them to be recc'g anything too obtuse.

Another alternative would be to place the funds in a CD ladder, or in your case a set of ladders since you would need to spread the money out over several banks to keep your balances below the FDIC insurance limits of $100k/SSN tied to the accounts.

Here's an example of what you would yield:

Investment Amount APY Ann Int Net Int Simple Rate

1-year CD $100,000.00 2.60% $2,600.00
2-year CD $100,000.00 3.40% $3,400.00
3-year CD $100,000.00 3.95% $3,950.00
4-year CD $100,000.00 4.35% $4,350.00
5-year CD $100,000.00 4.61% $4,610.00
Totals $500,000.00 $ 18,910.00 3.78%

The APY's are from what I found a couple of months ago when I layed this matrix out to explain to my in-laws on how a CD ladder works.
You can find current rates, which I expect would be slightly higher now, by searching at www.bankrate.com

With this scheme, you buy time to study and be prepared to re-invest portions of your mom's funds in annual increments. You may feel savvy enough to direct your own investment in to other instruments/funds, or you may wish to just re-purchase new 5-yr CD's to keep the ladders going.


Hope this helps to get you away from the broker and on the way to better opportunities!
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Surfmermaid,

Who Do you Trust?

I believe yobria http://boards.fool.com/Profile.asp?uid=136271682 is a fee only planner. I think buzzman is too, but I don't see a recent post of his. I think both these guys are pretty sharp.

Gup
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I haven't tried it, but Vanguard has their own planner service which I think runs around $500-1,500, which is waived if you end up moving $250k+ there.
http://tinyurl.com/4sstj
If you do end up using them, please report back as I have yet to find anyone posting that has.


I'm considering it. I've finally convinced Mrs. Goofy to look at the mutual funds she bought from a Dean Witter broker in Chicago 10 years ago. They're all high fee and have very crappy performance.

The Vanguard Retirement program is one I'm looking into (I just got their literature last Friday). I'm also investigating a fee-based local guy; I expect I'll have my research done in another couple of weeks, and I will report back then.

I should say that I do trust Vanguard, but my only interaction with them to date has been that they manage one of the 401(s) that both I and Mrs. Goofy have, so it's been at a distance. Their funds, however, are very low cost, good performers, and more important to me, Eliot Spitzer walked right past them during his journey through investmentland.

My initial phone call with the Retirement Advisor was pleasant enough (innocuous, actually), but unfortunately they don't have an office here in Tennessee, so if I go with them everything will have to be by telephone. I'd rather get face to face with someone, but I suppose that's not the most important thing.
 
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Such an advisor will most certainly be OUTSIDE her particular brokerage firm. They will also NOT be affiliated with any other brokerage firm! or American Express! Or sitting behind a special desk at your local bank! Please, do not listen to any of those 'advisors'.


Thank you ALL(!) for your responses. You've confirmed suspicions I've had for a long time based on my paltry knowledge of the investment world. Question is, a fee-based advisor has to have a broker they buy & sell through, right? Are there any caveats there? We'd met with a fee-based "NAPFA" planner who indicated he'd be conducting business through a large, known brokerage firm....???

Or, do we find an advisor who will use HER broker/firm where her portfolio currently is?

Thanks again,

Surfmermaid
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Question is, a fee-based advisor has to have a broker they buy & sell through, right?

No. They/you need a brokerage 'vehicle' thru which to trade--that could be an online brokerage account with Scottrade, Ameritrade, etc., or a brokerage account at at mutual fund house like Vanguard or Fidelity.

Or, do we find an advisor who will use HER broker/firm where her portfolio currently is?

I'm not sure why you would want to do that when trades would probably be less expensive elsewhere. But first find an 'unaffiliated' planner and see what 'plan' is suggested. After that you should have a much better idea of which direction to go in in terms of accounts.

2old


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Greetings surfermaid,

Question is, a fee-based advisor has to have a broker they buy & sell through, right?

I suspect most would have this though there may be some rare ones that don't where they would give you a list of funds to invest where you'd do the paperwork instead of them to invest in the funds. I'm not sure how easy or hard it would be to find such planners however.

Are there any caveats there?

There are caveats everywhere in the world, though here would be a few I'd look for: 1) What type of investment vehicles will the portfolio be invested in, i.e. is it going to be mutual funds, exchange-traded funds, individual stocks and bonds, or some other type of security? 2) Are there fees associated with such vehicles that they'll be using, e.g. if mutual funds or exchange-traded funds what are the expenses? 3) Does the advisor get a break on the comission for trades at this brokerage which may be worth noting?

We'd met with a fee-based "NAPFA" planner who indicated he'd be conducting business through a large, known brokerage firm....???

Which makes sense to me in a way. Of course a little due diligence never hurt.

Or, do we find an advisor who will use HER broker/firm where her portfolio currently is?

You could try that though I'd be tempted to wonder if the broker/firms costs on trades aren't just a little on the high side compared to others where one could try to cut some costs.

Regards,
JB

-Who may be a bit of a cynic at times
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And would that manager or advisor be from OUTSIDE her particular brokerage firm, or within?

If they are "within" that firm, then they have a vested interest in selling you certain products over others because they will certainly be measured by the firm on "how much they sell."

When Mrs. Goofy asked for "advice" from her Dean Witter broker, guess what, all the funds were Dean Witter proprietary funds. High fees. And 10 years later, crappy returns. I begged her to tell the guy "I won't buy any funds managed by Dean Witter, because that's a conflict of interest for you to sell them to me" but she wouldn't.

We can't even pull them out of Dean Witter without selling them, triggering tax events, and starting over. And yet she's been paying the 2.5% year after year. Dean Witter makes money on it every year, whether she does or not. Good deal? I don't think so. Luckily she also bought some individual stocks and bonds through them and those we could and did move to Schwab (without cost.)

Schwab has an "investment counselor network" of independent financial planners. They get no kickback from Schwab, as I understand it, they agree to route your purchases and/or sales through Schwab, so that's how Schwab gets its "kick." But there are no "Schwab" funds, so they can't steer you to something inappropriate just to make the boss happy. Although you could probably find a cheaper broker (Schwab is now down to $20 per trade, I think), you will still need hand holding, so this might be worth your while.

I think it should be clear you want an INDEPENDENT voice, not somebody who is paid to push a particular product ("Gee Mr. Ford Salesman, do you think I should buy a Ford?"), nor someone who is paid based on your level of activity (more trades = more commissions you don't get).

That's why I would think about investigating an "independent" person who is affiliated with one of the reputable houses. In my case that turns out to be the Schwab referred advisor and/or the Vanguard referred retirement advisor.

Since I'm just starting this part of the journey I can't recommend either (and I may go with neither, of course, but I think I'm more comfortable around all of this than you) but hopefully in a couple/few weeks I'll have a better sense of it.
 
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I doubt surfermaid's mother needs a financial planner for investing the money she has, I suspect an age-targeted Vanguard fund would serve her well. No, I suspect she may need a financial planner to help with financial management. I agree with JB that expecting to draw $25K annually from a portfolio whose value has slipped under $500K, is not prudent. She may need help in managing cash flow to live within her means.

db
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The Vanguard Retirement program is one I'm looking into (I just got their literature last Friday). I'm also investigating a fee-based local guy; I expect I'll have my research done in another couple of weeks, and I will report back then.

FYI, I just stumbled across this article in the Oct. Kiplingers on VG's service.
http://www.kiplinger.com/magazine/archives/2004/10/vanguard.html

Not sure if it's indicative of their success in attracting business, but I just pulled the brochure and submission pack from when I 1st looked at them a couple of years ago. At that time, for $1,500, you'd get a Financial Plan, a Retirement Plan and an Estate Plan - with $500 of that credited back if you moved $250k to them within the 6 months before and after the plans were provided. Now it's $1,500 for just one of those.

Eliot Spitzer walked right past them during his journey through investmentland.

For the most part, but not completely. IIRC, VG's Wellington arm is being investigated.


For surfmermaid,
The article that followed (the above link) provided 4 questions that should be posed to a potential advisor and what the nature of their replies should be.
http://www.kiplinger.com/magazine/archives/2004/10/insights.html
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At that time, for $1,500, you'd get a Financial Plan, a Retirement Plan and an Estate Plan - with $500 of that credited back if you moved $250k to them within the 6 months before and after the plans were provided. Now it's $1,500 for just one of those.

The $1,500 is waived if you bring $250,000 in new money to them.

For the most part, but not completely. IIRC, VG's Wellington arm is being investigated.

Thanks. I didn't know that.
 
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