By Beth Pinsker
You need to find the right financial adviser for you, regardless of previous relationships
Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at beth.pinsker@marketwatch.com. Please put “Fix My Portfolio” in the subject line.
Dear Fix My Portfolio,
I recently lost my last surviving parent, and when all is said and done, my siblings and I will each end up with about $600,000 as trust beneficiaries due to the value of their investments and their house. My parents used a full-service wealth-management firm – high fees and, I guess, high returns. While going through the process of administering the estate and trust I’m not making any changes with the management of it.
But after we each get our distributions, I want to go in a different direction. My husband takes care of our own – more modest – investments on his own through a discount brokerage. I don’t want to just hand this money to him to manage because I think he’s getting to the age where he shouldn’t be doing this anymore. So what’s an in-between road between a DIY guy like my husband and a very full-service firm? I’m sure I’m going to do something very basic and just try to keep up with the market through index funds or something like that.
Inheriting Fees
Dear Inheriting,
I’m sorry for your loss. You’ve got a lot going on right now, and I think you’ve made a good decision to not make big changes with the money management while you’re in transition. It’s hard enough to settle an estate without moving big sums of money around.
But once the dust settles, yes, look around at options that suit you better. Some people stay with the former money manager out of convenience, some out of fear and some out of guilt. Many people in your circumstances actually do move their money around. In fact, that goes also for people going through any kind of significant life change like a divorce or even a big change in their net worth. Inheriting somebody else’s money is one thing. Inheriting their professional relationships is another.
So step one is to see what the current firm has to say. “Before they just decide to pull the money and go someplace else, they should have a meeting,” suggested Bob Mauterstock, a retired financial planner who now coaches other planners on eldercare issues. “They should at least give them the opportunity to at least try.”
Inheriting somebody else’s money is one thing. Inheriting their professional relationships is another.
Maybe the fees could be adjusted to more suit your needs, or maybe they could help structure you on a path that you can manage on your own going forward, without having to pay a percentage of the assets under management. Maybe they’ll be interested in making you a package deal with your siblings so they can keep your account on their books.
Don’t let guilt or longstanding relationships get in the way of what you want to do, though. This is sometimes easier said than done. Your parents might have had the kind of relationship with their adviser where they got close to the family, maybe they were invited to your weddings and gave birthday gifts to your children. If you’re in a small town, there might not be too many other options, or you’d feel weird about going to one of their competitors.
“Guilt is not a reason,” said Mauterstock. “Either they’re doing a good job or not. It’s business, it’s not about keeping friends.”
Compatibility also matters. This is an issue many widows face if they haven’t been part of the financial decisions in a family. It’s said that some 80% of people will leave a financial adviser after the death of a spouse. When adult children come to dealing with the adviser of their parents, there might be similar issues. Is the adviser near retirement age? Do you connect with them the same way your parents did? All of that can be important. It’s one thing to be successful with the investment return, “but lf but you can’t relate to them, maybe that might be a reason to change,” said Mauterstock.
In-between options
There are ways to go in-between an expensive full-service firm and doing it yourself. It’s going to cost you something, however. No matter who you pick, you want to make sure that the person handling your account is a fiduciary, who is either a certified financial planner, chartered financial adviser or another designation that will ensure they are acting in your best interest and not just for commissions.
At the top, you’re going to pay a percentage of your assets under management, typically around 1%. This is what you’re trying to get away from, so you might want to steer clear of an ongoing relationship that charges this kind of fee.
You can also find fee-only financial planners who charge a yearly flat amount for their services. It will depend on your assets and their fee if this works out to be less than the assets under management approach. At least it’s more upfront about the costs, however. If you pay 1% on $600,000, it’s always a little trickier than just paying a fee that they tell you straight out is $6,000 a year. Also, as your money is likely to grow faster than inflation, that 1% is going to be more eventually than the yearly flat fee.
There are also financial advisers who work on a project basis or per hour, and this is probably your best bet. You can engage them to evaluate your current financial situation and how best to integrate your inheritance into your overall strategy. They can even give you a plan for how to invest it.
Then you can proceed from there to implement the plan on your own, and if you want, you can set up another engagement down the road to check on things or make adjustments.
You can find these kinds of planners through a variety of networks like NAPFA, Wealthramp, XY Planning and Nectarine. You’ll want to vet the suggested planner and have a preliminary meeting with them to make sure you feel comfortable. Location doesn’t really matter anymore.
“Most of my life, it was about location. You had to be able to get to those people and meet with them,” said Mauterstock. “But now they can be across the world and you can still create a relationship with them. All it has to be is somebody you are comfortable with. Some of the best financial advisers are in obscure parts of the country.”
And it doesn’t have to be forever, either. “Most of the investments now have very little cost to get in and out,” said Mauterstock. “If you discover you don’t like the adviser or the plan that they set up, you can move your money somewhere else.”
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-Beth Pinsker
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11-24-24 0906ET
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