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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 12:18 pm 

Joined: Tue Oct 09, 2012 12:20 pm
Posts: 10
jaiko wrote:
Your parents would be a prime target for any bank's investment management services. Whether they would be BEST SERVED by a non-independent IMS, is another matter.

It isn't easy finding a good independent CFP. So it is very tempting to take the easy way out and use a recognizable institutional name. The problem is that you are actually 'small potatoes' to them, and the FinInsts know very well that such customers as your parents (and you, by default) are usually the less demanding, most timid, least knowledgeable about the extra services that should accompany the paying of high management fees.

First of all, there is NO rush to move the money around. None! Don't let any advisors pressure you into the whole "This is the best time to get into the market" bullsh$t. You want advisors that take the long view; not the short, commission-heavy churning attitude.

If the family attorney has not had experience dealing with large estates, it could be a good time to find a new one. No matter what happens, your parents are likely to incur estate taxes. They need advice, BUT….

They need to set some goals FIRST. Only they can do that, although a neutral advisor can help. But you'll have to pay that advisor, and honestly, you and they can do that groundwork yourselves. Use the advisor to "vet" those goals and assist in prioritizing them.

An advisor can help determine longer-term issues: How much flexibility do they need in terms of future potential family crises (taking into account current assets and income)? What are the various ways to move excess cash out of the estate to avoid estate taxes? Which ones will work better within the framework of achieving those goals?

What a good advisor does is think of all the bad things that could happen, not just to your parents but to you, any siblings, your current or future children. Then you prioritize those issues, and find out what the risk mitigation will cost for each one. Some will be affordable, others may fall into the "we'll accept that risk" category. But you ALWAYS want to be prepared. Money gives you the options of what to do, but it's the mindset that's important. Feeling prepared is, as the Boy Scouts believe, 75% of the battle.

It isn't uncommon for a couple to have strong differences of opinion on how extra money should be handled. Sometimes a neutral third party can help avoid a lot of hurt feelings and "whose side are you taking, anyway?" disagreements.

Do they want some 'mad money' on a regular basis? What kind of family issues do they want to address that they couldn't do before? How good is their own health? Do they want to set up a trust for current and future generations, or let the future generation fend for themselves (sometimes a good idea, LOL)?

And what people who have never used an advisor don't understand, is that a good fiduciary advisor takes the long view of building wealth. They are always there not only for advice but as a sounding board for anything that affects your financial health, which is a whole lot more than just investments.

Marriage counselor, psychologist, therapist – a successful advisor with fiduciary responsibility has many of those qualities. It's a service-oriented business. Most people with "new" money have no idea how much service you can buy for $15M. Believe me, that's a whole new world of service available, but most FinInsts don't go out of their way to let you know about those details, because that would mean spending time to earn the money they charge you.

If you (or your parents) don't enjoy investment research and freak when markets go down, then use a professional advisor. But with the inheritance of such a substantial sum, I would strongly suggest that you will learn far more from a good independent CFP who is willing to spend time helping your parents prioritize their goals, advise on the best methods of preserving the estate to achieve those goals, and be an active part of the team of professional advisors (financial, legal, and tax) that will help safeguard their wealth.

In summary, I am saying that a good fiduciary advisor wants input from the client, in order to help with their holistic financial well-being. A lazy advisor assures you that "they will take care of everything." Which they will…but their goals might not be aligned with yours, especially if they have no idea what your goals are, nor will they offer any opinion about them (which a non-fiduciary advisor would be careful about, because they are NOT allowed to do financial planning by the SEC).

The CFP.net website has an excellent list of questions you should ask any advisor. This website also has a search function for finding a CFP, and they are more geared towards asset-based mgmt CFPs. I would advise going to the Garrett Planning Network ONLY for their downloads on financial checklists and their own version of "what to ask an advisor?". GPN is an international network of fee-only financial advisors and planners and although very good, they are not 'in the game' in the investable portfolio size your parents have.

Good luck, and as I said, don't let anyone push your parents into making any quick decisions. It takes a long time to interview advisors and check references, something they absolutely MUST do. A good advisor takes time on this, because they have to determine which of their clients is in a similar situation as your parents asset-wise, get permission to be contacted, as well as giving the prospective client copies of the types of reports they will be receiving (which sometimes have to be redacted, if they are copies of real client reports).

Once they find someone who is comfortable with the 'hard questions' and has the right personality and qualifications your parents want, I think they will find all the effort is worth it. A fiduciary advisor who can be trusted and relied upon to actively work with you is worth their weight in gold, because there's very few of them.



I would just note that in terms of market timing, don't forget that there is a ton of uncertainty about the looming "financial cliff", specifically its impact on cap gains. There are a TON of deals happening right now because of this, and nobody wants to get caught 6 months from now with cap gains at 20%+. I can't imagine that it would go up for long, if at all, but there's no point in taking a chance on it.

You're right generally though, of course. I think you do a lot better planning your tax exposure or mitigating risk than trying to work the market.


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 1:28 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5394
Khamul01 wrote:
I've thought about this. The things I don't understand well involve tax planning, insurance, risk mitigation strategies, etc.. and I want to see first hand how they handle those things. If, after I see what they do I feel like I can do it myself, I'll probably go on my own, but for now I can't tell exactly what I don't know. One big benefit of this might be the education.


I'd love to hear back from you what you learn, not about your private situation but about the offerings in general. We have enough to meet the private bank minimums at some institutions, probably not JPM but NT for sure. And, we are retiring in a few years and will be moving to a different state so we need to find a new bank anyway. There seem to be a few options there that are "private banking" from a couple of regional banks.

In general I don't see the need for a bank (or CFP) to handle everything and I've never wanted a bank handling my investments because they typically have high fees. But at the same time, with as little as say, $2,000,000, one would be paying $5000 a year for Vanguard Wellesley and even more for some other Vanguard funds. I'm not sure I'd have a big problem paying that to a bank instead if I could get the same performance and get other services thrown in. In other words, if a bank wanted to charge me $400 a month but gave me no fee institution funds, free cash management, discounted loans, and a personal to call day or night, it could be worth it.

We do have enough to get extra-tier services from some of the companies we deal with and a few years ago had our attorney's staff take care of a LOT of paperwork associated with estate planning changes. Having someone else take care of all that kind of stuff was fantastic and worth a great deal.

I just don't like going into a bank and getting accosted with the sales pitches that are so common these days. So, I don't even want to go in and ask about private banking services. But if I could hear about it from someone like you, I'd love to. I'm probably too cheap to go for something like that even if I had $20 million but at least I'll know what I'm missing.

I am very glad to hear that you have a competent attorney helping out. Because no matter how smart you are, another set of eyes and ears and another brain in the room is always good, especially with so much money at stake.


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 1:41 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5394
Khamul01 wrote:
jaiko wrote:
Your parents would be a prime target for any bank's investment management services. Whether they would be BEST SERVED by a non-independent IMS, is another matter.

It isn't easy finding a good independent CFP. So it is very tempting to take the easy way out and use a recognizable institutional name. The problem is that you are actually 'small potatoes' to them, and the FinInsts know very well that such customers as your parents (and you, by default) are usually the less demanding, most timid, least knowledgeable about the extra services that should accompany the paying of high management fees.

First of all, there is NO rush to move the money around. None! Don't let any advisors pressure you into the whole "This is the best time to get into the market" bullsh$t. You want advisors that take the long view; not the short, commission-heavy churning attitude.

If the family attorney has not had experience dealing with large estates, it could be a good time to find a new one. No matter what happens, your parents are likely to incur estate taxes. They need advice, BUT….

They need to set some goals FIRST. Only they can do that, although a neutral advisor can help. But you'll have to pay that advisor, and honestly, you and they can do that groundwork yourselves. Use the advisor to "vet" those goals and assist in prioritizing them.

An advisor can help determine longer-term issues: How much flexibility do they need in terms of future potential family crises (taking into account current assets and income)? What are the various ways to move excess cash out of the estate to avoid estate taxes? Which ones will work better within the framework of achieving those goals?

What a good advisor does is think of all the bad things that could happen, not just to your parents but to you, any siblings, your current or future children. Then you prioritize those issues, and find out what the risk mitigation will cost for each one. Some will be affordable, others may fall into the "we'll accept that risk" category. But you ALWAYS want to be prepared. Money gives you the options of what to do, but it's the mindset that's important. Feeling prepared is, as the Boy Scouts believe, 75% of the battle.

It isn't uncommon for a couple to have strong differences of opinion on how extra money should be handled. Sometimes a neutral third party can help avoid a lot of hurt feelings and "whose side are you taking, anyway?" disagreements.

Do they want some 'mad money' on a regular basis? What kind of family issues do they want to address that they couldn't do before? How good is their own health? Do they want to set up a trust for current and future generations, or let the future generation fend for themselves (sometimes a good idea, LOL)?

And what people who have never used an advisor don't understand, is that a good fiduciary advisor takes the long view of building wealth. They are always there not only for advice but as a sounding board for anything that affects your financial health, which is a whole lot more than just investments.

Marriage counselor, psychologist, therapist – a successful advisor with fiduciary responsibility has many of those qualities. It's a service-oriented business. Most people with "new" money have no idea how much service you can buy for $15M. Believe me, that's a whole new world of service available, but most FinInsts don't go out of their way to let you know about those details, because that would mean spending time to earn the money they charge you.

If you (or your parents) don't enjoy investment research and freak when markets go down, then use a professional advisor. But with the inheritance of such a substantial sum, I would strongly suggest that you will learn far more from a good independent CFP who is willing to spend time helping your parents prioritize their goals, advise on the best methods of preserving the estate to achieve those goals, and be an active part of the team of professional advisors (financial, legal, and tax) that will help safeguard their wealth.

In summary, I am saying that a good fiduciary advisor wants input from the client, in order to help with their holistic financial well-being. A lazy advisor assures you that "they will take care of everything." Which they will…but their goals might not be aligned with yours, especially if they have no idea what your goals are, nor will they offer any opinion about them (which a non-fiduciary advisor would be careful about, because they are NOT allowed to do financial planning by the SEC).

The CFP.net website has an excellent list of questions you should ask any advisor. This website also has a search function for finding a CFP, and they are more geared towards asset-based mgmt CFPs. I would advise going to the Garrett Planning Network ONLY for their downloads on financial checklists and their own version of "what to ask an advisor?". GPN is an international network of fee-only financial advisors and planners and although very good, they are not 'in the game' in the investable portfolio size your parents have.

Good luck, and as I said, don't let anyone push your parents into making any quick decisions. It takes a long time to interview advisors and check references, something they absolutely MUST do. A good advisor takes time on this, because they have to determine which of their clients is in a similar situation as your parents asset-wise, get permission to be contacted, as well as giving the prospective client copies of the types of reports they will be receiving (which sometimes have to be redacted, if they are copies of real client reports).

Once they find someone who is comfortable with the 'hard questions' and has the right personality and qualifications your parents want, I think they will find all the effort is worth it. A fiduciary advisor who can be trusted and relied upon to actively work with you is worth their weight in gold, because there's very few of them.



I would just note that in terms of market timing, don't forget that there is a ton of uncertainty about the looming "financial cliff", specifically its impact on cap gains. There are a TON of deals happening right now because of this, and nobody wants to get caught 6 months from now with cap gains at 20%+. I can't imagine that it would go up for long, if at all, but there's no point in taking a chance on it.

You're right generally though, of course. I think you do a lot better planning your tax exposure or mitigating risk than trying to work the market.


Jaiko often posts with "pro-CFP" comments. I often disagree with her (?). I generally think most people should learn to management their money themselves because they will always have their own best interests in mind.

In this case, however, I agree with her. With $20 million you have a lot more at stake and you have a lot more complexity in dealing with the same issues. For example, as Jaiko notes, you WILL pay estate tax. Minimizing the amount of estate tax you pay could literally save millions and that means some complicated and expensive approaches might make sense in your case. Similarly, with insurance, while you'll want the ordinary old home policy, liability insurance takes on a whole new complexity and importance. So, even though I still believe 99% or more of people do not need a CFP, you seem to be in the 1% that do.

She also makes a good point about institution size. You need someone more skilled and experienced than the average CFP. But you might be a small fish to JPM and maybe even to NT. You might not get the same kind of attention and focus as you would with a smaller firm with appropriate experience. You might get a kid 2 years out of school at JPM while a smaller firm might match you with the founding partner who has far more experience.


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 3:52 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
I too generally disagree with Jaiko a lot. And it isn't solely because of the amount of money you are talking about, it's because of the amount of money you are talking about and the fact that you are asking stranger on the internet for help that I suggest you talk to a professional as well. Navigating that mine field is another story. And something, fortunate for me, I have no experience doing.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 4:55 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5394
Bichon Frise wrote:
Navigating that mine field is another story. And something, fortunate for me, I have no experience doing.


Yeah, when you get right down to it, it would suck to be rich wouldn't it


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 6:22 pm 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1200
DoingHomework wrote:
Bichon Frise wrote:
Navigating that mine field is another story. And something, fortunate for me, I have no experience doing.


Yeah, when you get right down to it, it would suck to be rich wouldn't it

Wish I had that problem.


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 8:44 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
DoingHomework wrote:
Bichon Frise wrote:
Navigating that mine field is another story. And something, fortunate for me, I have no experience doing.


Yeah, when you get right down to it, it would suck to be rich wouldn't it


it's the leeches in the water that's the problem.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Fee Only Advisor Question
PostPosted: Tue Nov 13, 2012 11:36 pm 

Joined: Tue Oct 09, 2012 12:20 pm
Posts: 10
Very helpful comments, a couple of things crystallizing for me now. I do agree it's important to get some help with this, I ask on the internet to help prepare myself for it - and i get the impression that a few of you are info junkies that have stewed over these topics many times. The thing that caught me was "You WILL pay estate tax at $20M". I finally did the math, gifting to the kids and grand-kids isn't going to cut it. at 4% you're pulling in 800k/year, and if you max gift to 10 people (x2 b/c they're a couple), that's still <$300k/year. They could maybe blow $500k/year on stuff, but that's hard, and they still have another business income, and this still doesn't touch the principle. In that context, <1% to an advisory firm that helps you strategize to keep more $$ in the family is definitely worth it! If you don't get that help, it just goes to taxes.

Honestly it wouldn't suck to be rich, but I feel like $4-5M sounds a lot easier than $20 or $200M, and in either case I'd be comfortable.


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