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Advising/managing other peoples money
Old 01-15-2012, 09:22 AM   #1
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Advising/managing other peoples money

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?
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Old 01-15-2012, 09:40 AM   #2
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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.'
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Old 01-15-2012, 09:51 AM   #3
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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.
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Old 01-15-2012, 10:16 AM   #4
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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
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Old 01-15-2012, 10:30 AM   #5
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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.
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Old 01-15-2012, 10:39 AM   #6
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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.
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Old 01-15-2012, 11:10 AM   #7
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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.
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Old 01-15-2012, 12:04 PM   #8
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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.
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Old 01-15-2012, 12:39 PM   #9
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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.
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Old 01-15-2012, 01:28 PM   #10
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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.
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Old 01-15-2012, 02:37 PM   #11
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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"
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Old 01-15-2012, 02:42 PM   #12
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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.
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Old 01-15-2012, 03:00 PM   #13
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. "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.
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Old 01-15-2012, 03:05 PM   #14
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...(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.
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Old 01-15-2012, 03:08 PM   #15
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Nice act to follow.
Definitely takes the pressure off...
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Old 01-15-2012, 03:22 PM   #16
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Originally Posted by jimnjana View Post
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.
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Old 01-15-2012, 03:25 PM   #17
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Originally Posted by jimnjana View Post
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.
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Old 01-15-2012, 03:40 PM   #18
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...(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.
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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".
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Old 01-15-2012, 03:51 PM   #19
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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/archive...90s/upia94.pdf
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Old 01-15-2012, 03:59 PM   #20
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I would stay out of it. I find it hard enough to manage my own finances.
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Curious if anyone else is helping/advising or just plain managing other peoples money, just to help, not for business purposes.
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