Parent brokerage holdings doesn't make sense

[yofi]

I (50s) recently checked my parent's brokerage for the first time to make sure everything is in order as we worry about dementia and noticed they have 85 stock holdings, 33 mutual funds and 3 etfs, which seems quite excessive. However they have used this broker since the 80s who is now with Wells Fargo.

Is this over diversification a concern to be addressed or just let sleeping dogs lie since they completely trust this broker.

 

[Time2]

I (50s) recently checked my parent's brokerage for the first time to make sure everything is in order as we worry about dementia and noticed they have 85 stock holdings, 33 mutual funds and 3 etfs, which seems quite excessive. However they have used this broker since the 80s who is now with Wells Fargo.

Is this over diversification a concern to be addressed or just let sleeping dogs lie since they completely trust this broker.

Seems quite excessive to me. I would also be concerned about churning going on in the account, i.e. the broker just buying and selling to generate commissions for the broker rather than profits for your parents. As to being with the broker since the 80s, why would the broker fire a profitable customer?

 

[euro]

Definitely excessive, but brokers/FA will often do this for a number of reasons. Generating commissions is one but making it confusing for the customer is another. Because of potential tax liabilities, it may be very difficult for anyone to unravel such a situation (job security for the FA). At this point, you may be best off just leaving it alone and then have all the assets benefit from step-up when the owner passes away. Or maybe selectively trim the worst (or smallest) positions.

 

[cathy63]

Is this a WF Advisors brokerage where they charge a percentage of assets under management? How many transactions is the broker doing on a yearly basis?

WFA has a centralized group of planners who set up portfolios for different risk tolerances and the advisors in the branches duplicate those portfolios for each client with some personalized tweaking. They also use a computerized planning tool called Envision to help with financial planning for various life events. We started working with them a few years before we retired for the planning service and still have a portion of our money in their Conservative Growth plan. They've done very well with it.

If my parent were in this type of account and they were happy with the broker and with the returns, I wouldn't worry about it. It's more concerning if the broker doesn't have any oversight or if the parent is paying transaction fees and he's churning the account.

 

[Sunset]

OP - while you are at it, check on the fees being charged. Not just the fund fees, often some places are charging 1% or 2% of the account total in fees in addition.

 

[target2019]

I would get involved to oversee, and document total fees. If ever asked, or I had to get involved, then go the next level.

If it is just one taxable account, then look at how appropriate the mutual funds are.

It sounds to me like an EJ advisor who went to WF. Crazy.

But if your parents are happy with this nice guy, there's not much you can say that won't alienate them.

 

[OldShooter]

There is no benefit to the client from having this kind of portfolio. As others have said, I would look the account over very carefully including looking for churning. To do this you may have to get a Wells power of attorney over the account, which will probably alarm the rep. Their reaction will tell you something, too.

While you're at it, check out the rep at https://brokercheck.finra.org/, looking specifically for customer disputes and resolutions. Most brokers have none, but one time I checked one of those free-steak-dinner guys and found 21 disputes, most of which had been resolved in six figures in favor of the customers.

If you feel there has been malfeasance, including also inappropriate investments, call the rep's branch and set up a face-to-face meeting with their compliance officer. Consider taking an attorney.

 

[Texas Proud]

I (50s) recently checked my parent's brokerage for the first time to make sure everything is in order as we worry about dementia and noticed they have 85 stock holdings, 33 mutual funds and 3 etfs, which seems quite excessive. However they have used this broker since the 80s who is now with Wells Fargo.

Is this over diversification a concern to be addressed or just let sleeping dogs lie since they completely trust this broker.

I started a thread about a Wells Fargo FA having my BIL buy an annuity inside his IRA...



It seems that it might be Wells Fargo is the problem.. my BIL has used the FA for 20+ years and recently moved to Wells Fargo and according to my sister has been bad since then...


I would suggest that you try and get them to move to a better firm..

 

[Texas Proud]

OP - while you are at it, check on the fees being charged. Not just the fund fees, often some places are charging 1% or 2% of the account total in fees in addition.

YES!!! I did mention to my BIL to check fees... I am sure they are excessive....

 

[yofi]

Is this a WF Advisors brokerage where they charge a percentage of assets under management? How many transactions is the broker doing on a yearly basis?

They came to WF when their broker moved from Lehman Brothers years ago. They always took a percentage cut and I think it's 1% - 1.5% in WF (~2M).

I just checked transactions for the past 360 days, and excluding t-bills, see there were 22 BUY transactions split between individual stocks and mutual funds for ~$3k each, and 17 SELL transactions, all relatively small amounts like ~$3K. I guess that may be a normal rebalancing or tax harvesting?

I also manually added up the advisory fees for the last 360 days and it came to ~$18K.

I noticed that around 5 of the funds were 1 and 2 stars and ones with front load fees etc.

 

[yofi]

I started a thread about a Wells Fargo FA having my BIL buy an annuity inside his IRA...

I would suggest that you try and get them to move to a better firm..

Thankfully I don't see any annuities. Mom is quite elderly and trusts their broker so much I doubt I could get her to move.

Interesting, they do have ~100K sitting in a JP Morgan brokerage that over the past 6 years has made a grand total of ~$5K. She asked what she should do about this and I'm tempted to tell her to open a Fidelity account and move everything to FSKAX since they don't need it anytime soon.

The only concern I have is that with the market this high, if it drops over the next year or so, she'll think I gave her bad advice.

 

[Texas Proud]

They came to WF when their broker moved from Lehman Brothers years ago. They always took a percentage cut and I think it's 1% - 1.5% in WF (~2M).

I just checked transactions for the past 360 days, and excluding t-bills, see there were 22 BUY transactions split between individual stocks and mutual funds for ~$3k each, and 17 SELL transactions, all relatively small amounts like ~$3K. I guess that may be a normal rebalancing or tax harvesting?

I also manually added up the advisory fees for the last 360 days and it came to ~$18K.

I noticed that around 5 of the funds were 1 and 2 stars and ones with front load fees etc.

Those are the fees you can see... there are many that you do not see...

Thankfully I don't see any annuities. Mom is quite elderly and trusts their broker so much I doubt I could get her to move.

Interesting, they do have ~100K sitting in a JP Morgan brokerage that over the past 6 years has made a grand total of ~$5K. She asked what she should do about this and I'm tempted to tell her to open a Fidelity account and move everything to FSKAX since they don't need it anytime soon.

The only concern I have is that with the market this high, if it drops over the next year or so, she'll think I gave her bad advice.

I did this with my mom back in the 80s... she had never owned stock and we bought Exxon and Fidelity Magellan... at the end of the year Magellan gave off a big distribution but she was mad as the fund was less than what she paid...


I told her that it can happen but you need to look at the long term... she made a boatload of money off those two investments... and said so at different times...

 

[Souschef]

I had a smaller problem like this. When I married, DW had an account with UBS, who bought Paine Weber.
She had a number of mutual funds, and when I checked the expense ratios, they were ridiculous. I did not like dealing with UBS at all, so I moved her account to Fido, where I had my account.
I sold off most of her funds, and replaced them with similar Fido funds with much lower expense ratios.

 

[OldShooter]

... I just checked transactions for the past 360 days, and excluding t-bills, see there were 22 BUY transactions split between individual stocks and mutual funds for ~$3k each, and 17 SELL transactions, all relatively small amounts like ~$3K. I guess that may be a normal rebalancing or tax harvesting? ...

No, not normal. Depending on the type of account, these transactions may be generating fees of about $25 each. (https://www.wellsfargo.com/investing/wellstrade-online-brokerage/pricing/)

... I noticed that around 5 of the funds were 1 and 2 stars and ones with front load fees etc. ...

The killers are the load funds. Not just the loads, but the 12b-1 fees. (https://www.investopedia.com/terms/1/12b-1fees.asp) This broker is milking your parents account, assuming no one is watching. So you are extremely wise to start watching.

... Mom is quite elderly and trusts their broker so much I doubt I could get her to move. ...

Yes. The path to fixing this is through the compliance officer. Wells does not need any more bad publicity and the compliance officer knows this. If you don't take your attorney to the meeting, at least make it very clear that you have talked to him. (Whether you have or not. It doesn't matter.) You are looking for a substantial refund on fees and to have the account reassigned to a broker with instructions to ditch all inappropriate investments (odds are there will be some) and to radically simplify the portfolio in a tax-efficient way.

Be relentless. Study this page: https://www.investor.gov/introducti...alerts/alerts-bulletins/investor-bulletins-48 but avoid making direct threats. The time to escalate may come but right now you want the situation dealt with. You do not want them running for cover.

 

[target2019]

Thankfully I don't see any annuities. Mom is quite elderly and trusts their broker so much I doubt I could get her to move.

Interesting, they do have ~100K sitting in a JP Morgan brokerage that over the past 6 years has made a grand total of ~$5K. She asked what she should do about this and I'm tempted to tell her to open a Fidelity account and move everything to FSKAX since they don't need it anytime soon.

The only concern I have is that with the market this high, if it drops over the next year or so, she'll think I gave her bad advice.

Do you know any of their tax situation? That should be considered before making moves!

 

[yofi]

Those are the fees you can see... there are many that you do not see...

Do you mean like fund expense ratios? I checked and most were ~0.5%. Compared to a ~0.05% I could get with a passive index, it's ridiculous thinking about the difference over the long term, but at this late stage, I feel like it wouldn't matter that much and would just cause her to be more confused since she wouldn't have her advisor telling her everything is ok.

 

[yofi]

Do you know any of their tax situation? That should be considered before making moves!

Dad passed away recently, and she has a couple of pensions and SS that cover almost all expenses. She was surprised at the amount of taxes due to the RMDs. I see she has a Roth but most in a trad IRA.

I am concerned at tax implications which is why I'd rather just leave it be as long as she's not getting completely ripped off.

 

[OldShooter]

... expense ratios ... most were ~0.5%. ...

Take a rough look on a dollar-weighted basis. If they are concentrated in a couple of high fee funds, those will dominate their costs despite their also having a lot of small positions in less expensive funds.

 

[MichaelB]

Dad passed away recently, and she has a couple of pensions and SS that cover almost all expenses. She was surprised at the amount of taxes due to the RMDs. I see she has a Roth but most in a trad IRA.

I am concerned at tax implications which is why I'd rather just leave it be as long as she's not getting completely ripped off.

If the accounts are taxable it often doesn’t make sense for older folk to sell and pay capital gains just to consolidate their portfolios and reduce the overall expense. If they are in a tax deferred account they can be sold and the proceeds reinvested in a way that reduces the holdings and the expense level without incurring any tax.

I would guess the large number of holdings is the result of some investment model, which is common with advisors.

One thing you can try is to have all the RMDs and taxable distributions sent to her bank. There you can help her invest to consolidate and reduce the overall expense level.

 

[cathy63]

They came to WF when their broker moved from Lehman Brothers years ago. They always took a percentage cut and I think it's 1% - 1.5% in WF (~2M).

I just checked transactions for the past 360 days, and excluding t-bills, see there were 22 BUY transactions split between individual stocks and mutual funds for ~$3k each, and 17 SELL transactions, all relatively small amounts like ~$3K. I guess that may be a normal rebalancing or tax harvesting?

I also manually added up the advisory fees for the last 360 days and it came to ~$18K.

I noticed that around 5 of the funds were 1 and 2 stars and ones with front load fees etc.

You can find the actual advisory fees in the 1099 detail pages. If it's $18K/$1.3M then that's 1.3%, which is high but probably not the highest anyone charges, and the advisor definitely should not be charging a per transaction fee in addition to that. I also don't think 22 buy and 17 sell transactions are particularly outrageous for the number of investments in the account, especially if there's no transaction fee.

Yes, it's an expensive way to have your investments managed, but it's really unlikely that there's a compliance issue here. Your parents presumably signed the management agreements after the fees were explained to them and nobody is forcing your Mom to keep her money there. If she wants to move to another brokerage, then WF will transfer the money. If it is giving her peace of mind and she has enough money to live out the rest of her life in comfort, then she's probably not going to want to move it.

I do think it's entirely reasonable to ask her if you can accompany her to her next meeting with the advisor, and you should ask your questions then. Maybe she should be in a more conservative portfolio at her age. He probably won't talk to you unless she's present because of confidentiality.

 

[OldShooter]

... it's really unlikely that there's a compliance issue here. ...

At a minimum the broker is obligated to put her in "suitable" investments. My backstory is that I found a muni bond fund in my mom's account, marked "unsolicited trade." No way she asked for the trade and her income was low enough that we weren't even required to file a return. Scenario, I'm sure, was that Dreyfus was running a sales contest and the broker was stuffing the fund into anywhere he could find. The "unsolicited trade" marking was an attempt to cover his butt because he knew the fund was unsuitable.

More likely, considering the apparent AUM fee, the broker can be held to a fiduciary standard. IMO such a standard would preclude large quantities of tiny trades (and load funds in the portfolio) and begs the question of whether the broker was somehow getting extra compensation by making the trades. Best case all of this is innocent as you are implying. I am less sanguine, probably because of decades of elder financial abuse stories DW brought home from work.

 

[GrayHare]

Individual stocks had been the way to avoid mutual fund expense ratios that were higher 20 plus years ago. Could be some of those stocks were purchased decades ago and now have substantial cap gains waiting to be taxed when you sell.

 

[athena53]

Way too many, IMO. I'm 71 and have fewer and am still working on consolidating (carefully with tax consequences in mind on the after-tax accounts). In my case, it happened over time when I'd sell one security because it wasn't performing and then instead of looking to where I could add to current positions, I'd buy some other shiny new thing. Now I'm more likely to add to SPY.

I agree with meeting with the advisor and your mother- it would be interesting to see what the advisor has to say. In any case, I'd start on a plan to simplify.

 

[yofi]

Individual stocks had been the way to avoid mutual fund expense ratios that were higher 20 plus years ago. Could be some of those stocks were purchased decades ago and now have substantial cap gains waiting to be taxed when you sell.

Ok, that makes sense, and that is most definitely what happened, but 85% of their holdings are in IRAs, wouldn't that mean that cap gains are irrelevant?

 

[yofi]

I agree with meeting with the advisor and your mother- it would be interesting to see what the advisor has to say. In any case, I'd start on a plan to simplify.

I'm afraid they would drop them if I started talking to them because I would verbally rip them to pieces.

I've already had to deal with a junior associate who didn't process a 529 payment due to massive incompetence and I'm in the process of transferring the entire 529 to my own (fafsa not being used). Then I'll roll over my other kid's 529.