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Arrrgh the f#*&$!@ financial industry is so intentionally opaque
Old 01-13-2017, 11:06 PM   #1
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Arrrgh the f#*&$!@ financial industry is so intentionally opaque

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....
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Old 01-13-2017, 11:15 PM   #2
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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
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Old 01-13-2017, 11:20 PM   #3
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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?
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Old 01-13-2017, 11:31 PM   #4
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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.
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Old 01-13-2017, 11:34 PM   #5
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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?
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Old 01-13-2017, 11:37 PM   #6
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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.
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Old 01-13-2017, 11:39 PM   #7
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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.
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Old 01-13-2017, 11:40 PM   #8
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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?
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Old 01-13-2017, 11:47 PM   #9
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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.
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Old 01-14-2017, 12:02 AM   #10
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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!!!
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Old 01-14-2017, 03:09 AM   #11
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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...
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Old 01-14-2017, 05:37 AM   #12
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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.
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Old 01-14-2017, 06:00 AM   #13
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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.
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Old 01-14-2017, 07:47 AM   #14
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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.
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Old 01-14-2017, 07:56 AM   #15
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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.
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Old 01-14-2017, 09:16 AM   #16
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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.
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Old 01-14-2017, 10:09 AM   #17
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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.
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Old 01-14-2017, 10:22 AM   #18
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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.
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Old 01-14-2017, 10:37 AM   #19
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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.
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Old 01-14-2017, 10:48 AM   #20
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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.
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