Advising/managing other peoples money

[jimnjana]

Curious if anyone else is helping/advising or just plain managing other peoples money, just to help, not for business purposes.

I'm currently helping 3 of my sisters and one BIL with their retirement savings. This help ranges from advising one on which mutual funds to buy within their 401k plan. To actively managing two others 401k investments.

Now another sister and BIL are firing their financial adviser and have asked me to help them.

Besides personal family issues, is there any liability issues that I might be setting myself up for?

 

[Midpack]

Probably no right answer, but I've refused to advise friends, family and co-workers all my life, even though they all know investing has been a successful hobby of mine most of my adult life and many have asked. I will recommend books to get them started, or plant questions in their heads if they're asking about something that I'm convinced is a bad idea, but that's as far as I'll go.

If I did make recommendations, what happens when the market takes a dive, as it always does periodically? Odds are they are going to be concerned, angry or even disillusioned with my 'bad advice' - not worth it to me. I have watched way too many people, who I haven't advised, meltdown when the market goes south and sadly make all the wrong moves. There's not much upside - the people who would understand and accept down periods, wouldn't be asking me for advice to begin with.

IMO the most elusive trait for successful investing is not picking funds or even asset allocation, it's the discipline to then stick with a plan. I just don't think you can easily instill that in another person.

Again, I am sure people have been successful helping friends and family with investing recommendations, I don't think I could. I'll gladly help anyone 'learn how to fish, but I won't fish for them.'

 

[frayne]

I have helped young couples get their finances in order, primarily showing them how to budget and pay down debt. It amazes me how smart people can get so far in debt at such a young age and then wake up in their 30s and realize how stupid it was to buy that bedroom or living room furniture with a credit card charging 19% interest. As far as investing advise, I profess the wisdom of the Bogle philosophy, no load index funds, to anyone who asks.

 

[easysurfer]

Like others here, I'm more than happy to discuss my approach with others (the need for budgeting, LBYM, no load indexes, asset allocation) but will not manage others money for them.



Reminds me of a joke:

Q. How many psychologists does it take to change a light bulb?

A. One, but only if the light bulb wants to get changed

 

[W2R]

Like others here, I'm more than happy to discuss my approach with others (the need for budgeting, LBYM, no load indexes, asset allocation) but will not manage others money for them.

+1 Few ask me for advice, but when they do I might talk about AA, diversification, Vanguard, and so on, and the ravages of inflation upon money left sitting in the bank, but nothing any more specific than that. I also mention that nobody has their best interests in mind, to the extent that they do themselves. I emphasize the necessity of learning, taking responsibility, and making one's own financial decisions.

 

[racy]

I'm dismayed about how few people participate in their company's 401k plan. I meet with all new employees in my manufacturing department to complete orientation and discuss my expectations. After we're done with that I encourage them to join the company's plan. I show them a spreadsheet that demonstrates how regular savings and compound interest can make them a millionaire.

 

[Lsbcal]

A friend recently took up my suggestion about looking into Vanguard. I think it helped when I mentioned that if you are living off 4% of assets and have to pay a 1% ER, that hurts your spending level a lot.

Recently he came over and I showed him some links and tools from Vanguard, Morningstar, etc. plus book recommendations from Swedroe and Bernstein. I specifically emphasized I'm not an advisor and he should do his own due diligence. He's fine with that.

Besides possible legal issues, if you are wrong on specific investment recommendations some people will secretly hate you for that. If you are right they might just pat themselves on the back and consider themselves a hero -- forgetting the source of the idea.

The other problem with giving out investment advice is that you now feel compelled to defend yourself at market twists and turns. That can cause you to loose focus on your specific reasoning. And if you are wrong, you don't want to feel any worse then you already feel. No need for public humiliation or adulation.

 

[pb4uski]

I don't but if I was asked, I would be glad to explain what I do and why and how it might or might not apply to them. I would do this more in the mode of helping them to educate themselves so they can make their own decisions. My hesitancy to be more involved is like others have expressed that if things go to hell I don't want to be blamed.

I do however, manage my parents investments and the financial affairs of a 94 year old great aunt who is in a nursing home.

 

[chemist]

I manage my MIL's assets and based on how well she has done my wife's brother has come to me for help. Recently one of my running buddies has asked for advice as well. I advise everyone the same: maximize tax deferred savings, getting the match if offered, invest in a diversified portfolio of low cost index funds. My favorite portfolio and the one I have my MIL in is simplicity itself: Total Stock, Total International, and Total Bond.

 

[Bestwifeever]

Looking over the 401K funds that someone has available and showing the risk and expenses of each is probably very helpful and many of us who post here would be comfortable doing that.

Having someone say "help me manage my $1 million portfolio, I've just fired my financial advisor and you can do what you want," would be very scary for me and I would probably just tell them to call Vanguard, Fidelty, Schwab.

 

[clifp]

I manage my Mom's money. My sisters and to a lesser extent one of their husband sometimes ask for advice which I dispense with freely. It tends to be fairly generic no different than the advice I dispense on this or sometimes other forums. I've also helped my girlfriend with her money,even for a while after she was an ex-girlfriend.
I tried very hard to convince one of my best friend to escape the clutches of Ameriprise but to no avail.

I should add, that while I have lots of individual stocks for myself. My mom's portfolio is 85% Vanguard funds GNMA, SP500, extended market, and Wellesley, and International. I'd go total bond, and total stock, but they didn't exist when I started investing her money with Vanguard and I figure no reason to pay capital gains to switch.

I personally think it is a good thing you are doing Jim. As far as liability my wild ass guess, is no as long as you are not being compensated. I think the important thing to do is set expectations. "I not smart enough to get you in and out of the stock market or bond markets before they go down. So some years you'll lose money following my advice I will however reduce your expense and ensure that you have a diversified portfolio"

 

[Bestwifeever]

...
I personally think it is a good thing you are doing Jim....

I definitely agree with this, and I should add that there's a reason some people on these forums, like the OP, are asked for advice etc. from family and friends--they know you've been successful and are knowledgeable and they trust you.

 

[jimnjana]

. "I not smart enough to get you in and out of the stock market or bond markets before they go down. So some years you'll lose money following my advice I will however reduce your expense and ensure that you have a diversified portfolio"

Pretty much what I have told them... I try to talk them into moving their IRAs to Vanguard first or Fidelity. For the most part I try to fit the mutual funds available to them to the risk tolerance they have. BIL told me to go for it and take as much risk as I wanted to. I balanced what he said with the known risk tolerance of my sister, so his IRA has less than 25% in speculative growth stocks or high yield stocks and the rest in 4 or 5 star mutual funds and dividend paying stocks.

His adviser has lost at least 5%, in addition to the 1.5% annual management fee over the past 5 years. His ideal of diversification is shorting both gold and oil. Total lack of any coherent investing philosophy in the positions this paid adviser put my BIL money into.

 

[Lsbcal]

...(snip)...
His adviser has lost at least 5%, in addition to the 1.5% annual management fee over the past 5 years. His ideal of diversification is shorting both gold and oil. ...

Nice act to follow.

 

[jimnjana]

Nice act to follow.

Definitely takes the pressure off...

 

[Nords]

Curious if anyone else is helping/advising or just plain managing other peoples money, just to help, not for business purposes.
I'm currently helping 3 of my sisters and one BIL with their retirement savings. This help ranges from advising one on which mutual funds to buy within their 401k plan. To actively managing two others 401k investments.
Now another sister and BIL are firing their financial adviser and have asked me to help them.
Besides personal family issues, is there any liability issues that I might be setting myself up for?

I don't know about legal liability, but you're going to be totally and perpetually responsible for every move the markets make. Whether or not they're even invested in them, it's all your fault. And, of course, they've shed themselves of all responsibility but will hold you personally accountable.

Then you're going to get to hear "Hey, why do you have my brother-in-law Schmuckatelli invested in Wellesley while I'm only in Wellington?!?" or "I think you gotta get me some of that there gold bullion stuff for my portfolio. It's up big! How come you don't do that?"

I'm conservator for my Dad's assets because he's in mid-stage Alzheimers. I'm in the process of moving him from 85-10-5 stocks-bond-cash to something more like 25-25-50. My brother has little or no interest in investing so I never hear any questions or feedback.

We manage our daughter's college fund (I bonds & CDs) for her, as well as advising her on her asset allocation in her Roth IRA. Every college break we sit down over her portfolio for an hour or two, talking over the options. At one point (for a variety of reasons) we offered to turn the whole thing over to her and let her run it on her own. She said that she'd rather have me do it because she didn't want to have to sit in front of the computer all day managing it herself. Fair enough-- she's watched me do that for her whole life. I'd never thought of it that way, and we had a new chat about the difference between "managing your assets" and "hobby investing".

Neighbors & friends frequently ask for my financial advice, and I'm just as frequently ignored. Nobody wants to listen to a scruffy, badly-dressed, chronically-unemployed military veteran who spends all his time surfing.

 

[james7]

Curious if anyone else is helping/advising or just plain managing other peoples money, just to help, not for business purposes.

I'm currently helping 3 of my sisters and one BIL with their retirement savings. This help ranges from advising one on which mutual funds to buy within their 401k plan. To actively managing two others 401k investments.

Now another sister and BIL are firing their financial adviser and have asked me to help them.

Besides personal family issues, is there any liability issues that I might be setting myself up for?

I can't tell you about liability issues, but I surely wouldn't be doing what you are doing. If asked, the most I would do is explain more about the funds available in their retirement plans, their risks, rewards, and what they contain. For everything else, I would tell them to get a financial advisor. Good luck, you'll probably need it.

 

[Lsbcal]

...(snip)...
We manage our daughter's college fund (I bonds & CDs) for her, as well as advising her on her asset allocation in her Roth IRA. Every college break we sit down over her portfolio for an hour or two, talking over the options. At one point (for a variety of reasons) we offered to turn the whole thing over to her and let her run it on her own. She said that she'd rather have me do it because she didn't want to have to sit in front of the computer all day managing it herself. Fair enough-- she's watched me do that for her whole life. I'd never thought of it that way, and we had a new chat about the difference between "managing your assets" and "hobby investing".

Sounds like your daughter is unusually mature and has a great relationship with her family.

Neighbors & friends frequently ask for my financial advice, and I'm just as frequently ignored. ...

Being ignored on this topic is a good thing. I just like to stick in a little thought like (I mentioned above) "that 1% ER will take away 25% or your spending money in retirement".

 

[Gumby]

I manage my church's endowment fund (without compensation). The board of trustees receives monthly reports from me. And, once a year, I must stand before the entire congregation to explain what I have been doing with their money. So far, they have not seen fit to throw me out.

jimnjana:

Only your own lawyer can give you specific advice as to potential legal exposure, but for general background information, I would direct you to the Uniform Prudent Investor Act, some version of which has been adopted by most states.

http://www.law.upenn.edu/bll/archives/ulc/fnact99/1990s/upia94.pdf

 

[obgyn65]

I would stay out of it. I find it hard enough to manage my own finances.

Curious if anyone else is helping/advising or just plain managing other peoples money, just to help, not for business purposes.

 

[FinanceDude]

Well, none of you got sued yet, so it's all good. Do family members ever sue one another? Sure, I have seen it twice in my career. I guess I'll skip paying my $2700 E&O insurance for this year, thanks guys........

 

[jimnjana]

.

Only your own lawyer can give you specific advice as to potential legal exposure, but for general background information, I would direct you to the Uniform Prudent Investor Act, some version of which has been adopted by most states.

http://www.law.upenn.edu/bll/archives/ulc/fnact99/1990s/upia94.pdf

Thanks for the link. Guess I have some research to do on the subject.

 

[Nords]

Sounds like your daughter is unusually mature and has a great relationship with her family.

Pretty much. In this one area she was driving herself nuts and taking us along with her. I thought offering her control of the college funds would remove me from being an authority figure and make her feel more in control. It certainly got her attention and made her settle down for a serious conversation. Turns out she liked having us run that money so that she didn't have to.

The dorm is going through its annual "Will we have room for everyone next year or will we have to force some students to live off campus" drama. She was obsessing over all the blow-by-blow details and had worked herself up into a frenzy because she didn't want to live off campus. But apparently the intrigue is bad enough to make a dozen students volunteer to live off campus just so that they don't have to go through the uncertainty again next year, and she'll probably get to stay in the dorm anyway.

We'll all feel the earth move sometime in late March, and we'll know that the question has been answered.

 

[Sue J]

I've been managing my Dad's checking and savings accounts and paying all his bills for a few months while he recovers from a broken hip. He's very grateful. He's just moved home and still wants me to manage things for him for a while, which is fine.

I've been monitoring his investments but haven't touched anything except for completing his IRA RMD for 2011. He's got a nice portfolio of mutual funds, preferred stocks and some bonds paying him dividends that are providing him about half of his monthly income.

In the mid 90's my sister was divorcing her first husband and trying to make it on her own and failing terribly. Her way of coping with stress and life was retail therapy and a laundry basket of unopened bills. She asked me for help and I tried to straighten out her checkbook which was a jumbled disaster. She sort of kept a check register when she felt like it and only recorded whole dollar amounts instead of the actual amount so it was difficult to reconcile what cleared and what was outstanding.

What I ended up doing was creating a tutorial of how to run a checking account with scenarios and examples of transactions and color coded steps. I taught her how to include dates, descriptions, actual amounts and real subtraction, not close guesses. I couldn't prevent her from declaring bankruptcy but once she got her fresh start at least she learned to keep a checkbook that means something. She thanked me for this later, which meant a lot.

Luckily her 2nd husband is wealthy and she doesn't have to think about inconvenient things like digits and value and delaying gratification. She has a very warped sense of money now but her husband doesn't mind.

During this recent crisis with my Dad I was POA on his affairs and she was not. This was very deliberate on my Dad's part. He and I have talked about how she is not the one you want to handle anything more than your pocket change. Her frame of reference on the value of money is just so out of whack. I pointed this out to her one time and although she denied it then, I think she understood why I said it and toned down the way she refers to things, especially our Dad's assets.

 

[chris2008]

I am managing my Mom's assets since my Dad passed away in 2003.
She is mentally ok at age 83, always been a saver, has decent assets and can live well on her (german) social security.
But understanding investments and seeing the big picture never has been her thing. When I added up all her savings and told her how much the total of her + Dad's savings was she just could not believe it.
And I am an only child. So there are no arguments with siblings and in laws.