Opinion: My grandson says my financial adviser is steering me wrong and double-charging me. What should I do?

by admin

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.

Dear Paul,

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.

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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.

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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, +1.36%. 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.

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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.


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.

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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.


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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