Arrrgh the f#*&$!@ financial industry is so intentionally opaque

[urn2bfree]

As I have previously posted, my mother is coming into a lump sum life insurance payment on my father. With my father gone, I now can see what my parent's broker has been investing their money in. Besides the 40(!) individual stocks which no way she should be in all of them, I am just trying to evaluate the mutual funds that he has them in. All are managed funds, of course. They are generating decent yields, but I Have to believe on principle that these are almost certainly doing nothing special that can't be done cheaper.
The frustration I have is how far these companies and most of the finance websites bury the expense ratio information. You almost might think they don't want people to easily know what they are paying for the "privelege" of owning these funds. Of those I can find they all charge over 1% expense ratios. Trying to figure a cheaper alternative is a bit confusing as they do seem to be designed for income production. But yields are only given for the year. Whereas price performance can be compared over many years.
Anybody have a suggestion as to how to evaluate and replace these?
Right now I am looking at some money in an MLP, from Kayne Anderson, for which I Do not see any expenses. Do You suppose they provide it at no cost, out of the goodness of their hearts? Then there is the Calamos Strategic Total Return Fund, Royce MicroCap Trust, Royce Value Trust Income fund and Templeton Emerging markets Income fund, DNP Select Income Fund....

 

[brewer12345]

This suggests quite an amazing expense ration for KYN, which is also highly leveraged: KYN Kayne Anderson MLP, closed-end fund summary - CEF Connect - Brought to you by Nuveen Closed-End Funds

 

[gcgang]

Sounds like a lot of "fund of the month" specials.

Why don't you take over as her broker, and with the guidance of this forum, invest for her in a lower cost, more transparent portfolio?

 

[urn2bfree]

I have every intention of gradually changing her over to a better selection. It's complicated why this has to be done delicately. (He is a family member). One of those financial professionals who William Bernstein describes as unaware that they are moral cripples.

 

[urn2bfree]

This suggests quite an amazing expense ration for KYN, which is also highly leveraged: KYN Kayne Anderson MLP, closed-end fund summary - CEF Connect - Brought to you by Nuveen Closed-End Funds

Thanks. Looks like 4.88% Expense... But yielded 11%. But what would be a similar investment without the expense to compare?

 

[samclem]

Anybody have a suggestion as to how to evaluate and replace these?

I would only bother to evaluate them at all if they were in a taxable account and selling them would cause a big cap gains tax hit. Otherwise, just assume that it is a giant pile of steaming poop designed to generate commissions/fees/charges for somebody else. If there are not tax implications, I'd wipe the slate clean and put them into a very simple diversified portfolio of low-cost investments that are appropriate for your mother's age and risk tolerance. That likely means less volatile investments than you might choose for yourself or for other of your Mom's heirs--you guys can optimize for your own situations when the dough is no longer hers (that's what I'd do--others can differ). Picking a well-known sample portfolio from a reputable source may help avoid any second-guessing or finger pointing from Mom or others.

 

[brewer12345]

Thanks. Looks like 4.88% Expense... But yielded 11%. But what would be a similar investment without the expense to compare?

Perhaps something like AMLP, although there are a bunch of MLP ETFs. Part of the reason KYN has such high expenses and yield is that they have borrowed money to invest to try to juice returns. Of course, risk also gets juiced.

 

[CaliforniaMan]

I have every intention of gradually changing her over to a better selection. It's complicated why this has to be done delicately. (He is a family member). One of those financial professionals who William Bernstein describes as unaware that they are moral cripples.

Unless I misunderstand the relationship, this family member has raking in a ton of money off your mother and you are worried about handling the relationship delicately?

 

[samclem]

I have every intention of gradually changing her over to a better selection. It's complicated why this has to be done delicately. (He is a family member). One of those financial professionals who William Bernstein describes as unaware that they are moral cripples.

So you need to find comparable investments with comparable investment results but lower fees (and therefore better returns) so that you can make the case to somebody that your Mom is being ripped off and a basket of these other investment vehicles would have done better? That will take some work, and you can bet the broker/advisor/shark is ready with very well-practiced counterarguments and convincing explanations. Good luck with this, as it my be nearly impossible unless your Mom already truly trusts you more, but needs a rationale to get away from the shark. Would a subscription to Morningstar have the data you need in an easily compared format? I think they still have a free limited-time introductory offer.

 

[Texas Proud]

I would only bother to evaluate them at all if they were in a taxable account and selling them would cause a big cap gains tax hit. Otherwise, just assume that it is a giant pile of steaming poop designed to generate commissions/fees/charges for somebody else. If there are not tax implications, I'd wipe the slate clean and put them into a very simple diversified portfolio of low-cost investments that are appropriate for your mother's age and risk tolerance. That likely means less volatile investments than you might choose for yourself or for other of your Mom's heirs--you guys can optimize for your own situations when the dough is no longer hers (that's what I'd do--others can differ). Picking a well-known sample portfolio from a reputable source may help avoid any second-guessing or finger pointing from Mom or others.

But, might have step up in basis and cap gain not as important...


I do agree that any tax exempt should just be moved to a low cost provider and be done with the blood sucker.... who cares if he is family... heck, especially if he is family...

But, as you say, some of these people actually think they are doing their clients a service!!!

 

[Midpack]

Probably a greater concern since personal finance is involved, but it seems most consumer service industries these days are intentionally opaque - television subscriptions, internet subscriptions, home & auto insurance, mobile plans, and on and on...

 

[DrRoy]

FA's have to get paid one way or another. You should probably exit the individual stocks and buy a S&P 500 or total market index ETF. The other funds in many cases can be compared by their long term (10 yr+) return vs similar index ETF's for the best performance. Also dump anything that is too specialized, like perhaps the microcap. Do watch out for the tax implications, though. Also, you should probably move the accounts to someplace like Fidelity or Vanguard.

 

[target2019]

While these funds are under control of FA, you have an extremely difficult challenge. Picking a better, cheaper fund implies fees, taxes, and so on for the accounts.

Do no harm. That is what I continually remind myself when dealing with in-laws' accounts.

 

[pb4uski]

ER info is reasonably available... you need to get the "prospectus" for that investment filed with the SEC and look in the "Summary of Fund Expenses" section.

 

[pb4uski]

Well for one thing... make sure that the FA doesn't get any of the life insurance proceeds... if those are to be invested do it outside in a Vanguard or Fido fund... you can spin it as "diversification".

Then pick off the individual tickers one at a time depending on tax implications... 40 individual stocks is too complicated... if you are now "taking charge" of helping your Mom with her money you can spin it as "simplifying" her finances.

FWIW I manage my Mom's money and she has 5 tickers .... Total Stock, Total International Stock, Total Bond, FTSE All-World ex-US and Prime MM.

You might look at the overall performance from statement and online account access and then compare that with the benchmark performance for the same periods of what you would put her in... if the performance is better with less risk and volatility then hopefully it will be an easy pitch.

 

[travelover]

I admire your intentions, but be aware that no good deed goes unpunished. If you rearrange her fiances and she is not enthusiastically OK with it, the next big stock drop will have all fingers pointed at you, because, of course, her wily FA would have foreseen the crash and would have reinvested her in gerbil pelts or a similar clever hedge. Your investment just slogged right into the trap.

 

[Chuckanut]

Unless I misunderstand the relationship, this family member has raking in a ton of money off your mother and you are worried about handling the relationship delicately?

I agree with you point. And....

Have you ever read about infidelity and cognitive dissonance? I suggest that the family member is going through the same three stages as the unfaithful spouse.

First, the [-]cheating spouse[/-] financial person feels guilty but does it anyway, after a while he/she decides that the [-]affair[/-] financial junk is not so bad since 'nobody is really getting hurt', finally they reach the point where the [-]affair[/-] high fee investments becomes the right thing to do.

It is possible the family member has reached stage three where they have convinced themselves and firmly believe that putting the old lady into high cost mediocre funds is actually the right thing to do. Or maybe my theory is just a bunch of baloney.

 

[MRG]

Rather than look at what was, other than the ER. Go for a nice balanced portfolio that matches the risk profile. I'd try to get DMs buy in with facts if possible.

I recognize most the names, they were clients in a former life. You're not going to find any lower than 1% as that's the typical(maximum allowed) 12B1 fee most tack on to the funds ER.

Good luck.

 

[samclem]

I admire your intentions, but be aware that no good deed goes unpunished. If you rearrange her fiances and she is not enthusiastically OK with it, the next big stock drop will have all fingers pointed at you, because, of course, her wily FA would have foreseen the crash and would have reinvested her in gerbil pelts or a similar clever hedge. Your investment just slogged right into the trap.

Yes. If the OP is having to "sell" this idea of taking things over, rather than just responding to a request from Mom for help (and she already suspects something is amiss), then there are big potential pitfalls ahead.
In the OP's shoes, I'd probably do a damage assessment. How much do >all< of he fees really add up to? Is the portfolio generally in an appropriate asset allocation? Is there any monkey business going on (stock churning, life insurance payout setup, unexplained transfers from the account, etc). If the rodent isn't stealing much of the grain, it's not worth the trouble to smoke him out and get everyone upset. But I'd put Uncle Fester on notice (tactfully) that I am now helping Mom with her accounts, we are conscious of fees, and maybe ask or some explanations of things in the account record so he knows you are serious and will be watching this like a hawk. Add up all the fees and show him the tally. Then tell Mom that you aren't really satisfied with the setup or the FAs ability to foretell the future, but let it go. When the market does decline, the OP will be in the position to sharpshoot the advisor's results and be seen as the better alternative, rather than the guy who upset the well-oiled machine that Dad and Uncle Fester had set up.

 

[GTFan]

Don't see why OP couldn't just get the money gradually redirected in a wealth mgmt company like Betterment or Wealthfront and be done with it. Or just use Fido or Vanguard's mgmt services. You can still claim that it's an FA handling it and not you if you want to avoid possible trouble with family.

 

[MRG]

Don't see why OP couldn't just get the money gradually redirected in a wealth mgmt company like Betterment or Wealthfront and be done with it. Or even simpler just use Fido or Vanguard's services. You can still claim that it's an FA doing it and not you.

+1

Vanguard PAS costs .3%, low ER funds and a CFP is doing the work. IME Fidelity charges much more.

 

[target2019]

OP may benefit by getting involved in small skirmish rather than large battle.
If there is an insurance settlement, start with that amount.
"I've examined your investments and they are doing well. However, I know that we can trim expenses another 1% and get that working for you. Here is a plan that was given to me for this $100K by Vanguard. There are no fees, and in a year or two we'll have enough info to compare Uncle Johnny's company to a lower cost alternative."

 

[nun]

Your FA family member probably believes that they are doing a good job and so has no misgivings about getting paid. This is always the case with FAs that set up actively managed portfolios......they believe in what they are doing and have an infinite number of ways to ignore the true performance.

Your mother is key hear and you need to convince her that there is a better way to manage her money. If she agrees don't spare the FA family member's feelings. Be straight forward and come up with an efficient plan to move everything to somewhere like Vanguard.

 

[Sunset]

Besides the fees of the various mutual funds, read though the annual report and see what the management fees are that are being charged.

I did that for a relative, and found besides being in about 30 funds/etc, the FA company was charging $2,000 per year, so the actual cost for a $100K investment was close to $3,000 per year. He agreed to switch to Vanguard.

 

[ESRwannabe]

As I have previously posted, my mother is coming into a lump sum life insurance payment on my father. With my father gone, I now can see what my parent's broker has been investing their money in. Besides the 40(!) individual stocks which no way she should be in all of them, I am just trying to evaluate the mutual funds that he has them in. All are managed funds, of course. They are generating decent yields, but I Have to believe on principle that these are almost certainly doing nothing special that can't be done cheaper.
The frustration I have is how far these companies and most of the finance websites bury the expense ratio information. You almost might think they don't want people to easily know what they are paying for the "privelege" of owning these funds. Of those I can find they all charge over 1% expense ratios. Trying to figure a cheaper alternative is a bit confusing as they do seem to be designed for income production. But yields are only given for the year. Whereas price performance can be compared over many years.
Anybody have a suggestion as to how to evaluate and replace these?
Right now I am looking at some money in an MLP, from Kayne Anderson, for which I Do not see any expenses. Do You suppose they provide it at no cost, out of the goodness of their hearts? Then there is the Calamos Strategic Total Return Fund, Royce MicroCap Trust, Royce Value Trust Income fund and Templeton Emerging markets Income fund, DNP Select Income Fund....

I don't think anyone has stated this explicitly yet, although Brewer mentioned the leverage. Anyway, these funds you list are all Closed End Funds. They are going to have a much higher ER than an index fund, but that's not really a good comparison. A CEF is basically like buying stock in a small-cap investment company.

So for comparison, how do the fees on what a small REIT company spends to run their business for example, compare to the ER on an index fund? I don't know but I bet it would look very high when compared to the ER on an index fund.

Anyway, you'd need to know what kind of a discount/premium the FA paid for these to know if it was a good deal or not. I have purchased some CEFs at a 15% discount before which goes a long way towards offsetting ER.

CEF's throw off a lot of income because the assets are fixed (CEFs raise money at an IPO just like a company and then shares trade on the stock exchange, they do not have constant fund flows like an open ended mutual fund), which allows the CEF to then use leverage and also buy illiquid investments. Most CEFs are invested in fixed income.

Can you replicate this on your own? Not really.

You are not going to be able to borrow at the cheap rates they can. Also most people are not going to use even the basic options strategies to increase returns (like covered calls), which most CEFs will do.

I personally use CEFs along with various ETFs and even sometimes individual stocks. Most people on financial boards are 100% bogleheads and will not consider anything else. To each his own, more than one road to Rome, and all that.