Our case of the week involves a three-generational family that had just lost the patriarch of the family, “George”, who died a few weeks ago at the age of 91. His wife of 66 years, “Lucille”, is in relatively good health at age 89. Unfortunately, she could not say the same about her financial portfolios and investment strategies.
Like many people who have small or large portfolios, they often get stuck in a rut, letting months and years go by before they actually sit down with their financial adviser for a consultation. Most wealth managers won’t complain, as they get paid incredible fees every month or quarter – whether they perform on not.
Lucille had “a little” knowledge of the portfolio strategy, which can be a dangerous thing. She came into my office with her two children (both in their sixties) and two of her grandchildren (in their late twenties). The family wanted us to evaluate their wealth manager, his investment management, the estate and wealth planning, how their assets were being serviced and the overall financial information they were being provided.
My staff and I evaluated all the financial documents provided by the family. The net worth of all funds in both retirement and savings totaled $9 million. More striking was the last date that the financial adviser had met with George and Lucille: June, 2011. Phone calls from the adviser were documented by George, and it appeared he called the couple about three to four times a year.
The biggest red flag I uncovered was the family was paying 2% annually to the adviser. This meant that he was receiving fees in the amount of $180,000 per year. Not bad for a few phone calls. Sadly, the overall portfolio had not been changed or updated with new purchases or investments. We determined that the total investment package was returning about 3.5% to George and Lucille meaning the adviser was making more money per year than the family was.
The next nightmare we found was the revocable living trust had not been updated since 2001. New property purchases since then were not included. People were listed in the trust that were no longer alive. Many new grandchildren, who George and Lucille thought were in the Trust, never got a mention.
Our office has a list of wealth managers that we recommend throughout all 50 states. This list has painstakingly been developed over the past 46 years in the investigative business. We know who are the “time and tested” best financial advisers. This information is sacred to us and our clients. You can recommend an attorney or family counselor without losing too much sleep. When you recommend someone who will be dealing with your client’s life savings, that is definitely a more serious proposition. The advisers are recommended on a sliding scale of how much money you have to invest, the tolerance level of how aggressive you want to be and what stage in life you are at this time.
The scale levels are as follows:
- A few thousand dollars to $500,000
- $500,000 to $1 million
- $1 million to $3 million
- $3 million to $5 million
- $5 million to $10 million
- $10 million and above
A week later we met with the entire family at our corporate office in Newport Beach. We made specific recommendations to terminate the services of the current manager, provided three new names of wealth managers they could interview and then a few tips about what to be cautious about during those interviews. Here is what we recommended.
First, determine exactly what fees you are going to pay. Beware of compounding fees and heavy upcharges on first year insurance premiums. The golden rule in our office is never to pay fees in excess of 1%. For Lucille and her family, based on the amount in the portfolio, they might negotiate fees in the range of 0.50% to 0.75%.
Second, many wealth managers are simply “slick-willy” types and just great at public relations not investing. For many, their sole purpose in life is bringing new clients into their firm with a large monetary portfolio. That is how many are judged and sadly it has nothing to do with keeping or growing your hard earned money.
Third, know the difference between a broker and a registered investment adviser. Never hire just a broker who has no obligation to suggest investments that are in your best interest. They are not bound to compare the cost of what they recommend and provide you option. The registered investment adviser is legally required to act in a fiduciary role and to put you and your family’s interest at the forefront.
Fourth, don’t be impressed with a fancy portfolio composition. We all want a positive return but balance that with how you define wealth in different decades of your life. I tell clients to run away from the financial advisers who rely primarily on a colored pie chart promoting how your money is in a diverse portfolio. Communication often with your adviser and saving enough that meet your goals is far more important both now and in the long run.
Fifth, make sure you have an attorney that is experienced and knowledgeable in wills and trust. I am not a big fan of wills, and you can read why in this post. The attorney should work with your financial wealth manager as a team. Neither should do the work of the other professional.
If you need help in selecting a wealth manager or someone who can help you with your trust, call our toll-free number at (800) 577-1080 and we will be pleased to make every effort to assist you. We do not charge for this service.
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