IANY Parents' Financial Advisor
May 4, 2021 10:31 PM   Subscribe

If you are involved with managing your parents' finances in some way, how do you... deal with it? Specific reasons why I am not dealing inside.

My parents have a nest egg with bank A that is large enough that bank A has assigned them a "relationship manager". Said relationship manager has been recommending a mixture of unit trusts and structured notes across the risk spectrum with the aim of growing their principal. My parents are in favor of an active investment strategy, but are not financially literate enough to evaluate bank A's recommendations. I, armed with my memory of CDOs in 2008 and a tendency to read everything I can about new things, have become a sort of intermediary/ translator vis-à-vis bank A. However, my parents have also decided that they can outsource their decision-making to me and I am therefore... effectively... their investment manager now.

So: the dilemma now is that I would rather be at the table for these decisions than not, so that they're not taking bank A's recs at face value, but I'm also kind of uncomfortable with the fact that I'm making decisions about a large chunk of their retirement money slash my eventual inheritance (only child).

If you've been in a similar situation, how did you see your obligations/ reconcile yourself to the responsibility/ make decisions as ~impartially~ as possible?
posted by ahundredjarsofsky to Work & Money (9 answers total) 2 users marked this as a favorite
My goal is to have my mother spend her last dollar on her last day. That is, I have no expectation of inheritance; I want her money to go to making her life as comfortable and pleasant as possible for as long as possible. This is relatively easy in that her assets are modest, but, if you love your parents, shouldn't be that challenging. (If the relationship is more fraught, that may require addressing separately.)

For God's sake, get them away from this "relationship manager." He is a salesman. Pure and simple. His job is to extract maximum revenue from your parents. He does not have their best interests at heart. Structured notes are not, in my opinion, an appropriate retail product. Find a fee-only financial advisor and discuss basic principles together. This will both give you and your parents better information and reassure you that a competent third party thinks your plan of action makes basic sense.
posted by praemunire at 10:41 PM on May 4 [31 favorites]

Exactly what praemunire said. And if one of your parents' goals is to leave you with an inheritance, that's fine too. I think there are some good relationship managers out there... but they focus on understanding the client's needs, goals and risk tolerance more than they focus on product recommendations (RMs who recommend products are generally getting paid to sell those products, via direct commissions or otherwise).

If someone needs financial advice that is going to amount to anything more complicated than "invest X% in equities and X% in fixed income, and maybe consider these mutual funds or ETFs" they should be getting that advice from someone chosen on purpose, not from someone randomly assigned to them by their bank.
posted by mskyle at 4:17 AM on May 5 [2 favorites]

You want to find a Fee based Financial Advisor, that can help give an investment strategy to follow, for a fixed amount of money.

Buuuutttttt, it sounds like your real question is "I'm kinda uncomfortable managing my parents money". I don't think you should be. You're the most capable person to do so, and, you also are incentivized to do a good job. If you weren't doing it, some sleazy salesperson (like they currently have) would take as much off the top as possible.

If I was in your situation, this is what I would do:

1. Pay a fee-based financial advisor to set up an investment plan you are comfortable with. It should be pretty simple. X amount into these accounts, Y amount into these accounts, withdraw Z from both each year.
2. Find an institution you like to carry out those instructions. I like Vanguard.
3. Now that you have a long term plan, from an unbiased source, rest easy!

If you want to skip #1, my suggestion would be to invest 2% in bitcoin/ETH, 43% in VFIAX (S&P 500 index fund), 40% in VTIAX (Total international stock index fund), and 15% in bonds. I don't like bonds very much, usually retired people put more into bonds. I think there's going to be inflation soon and bonds seem like a Bad Idea, but of course, the stock market could tank and the opposite advice could be true.

While bitcoin is sketchy AF and bad for the environment, it's reliably beat the rest of the market for a while now. the S&P obviously tracks extremely well over time, and even when it's down, it's usually better to put most of your investment into it, because those recessions are short and don't wipe out your gains, even in retirement. The Total International Stock Index Fund is very similar to the S&P 500, but it's different enough where you've diversified your investment slightly, so all youre eggs aren't in one basket. And Bonds are bonds. The fewer the better. If S&P500 goes down 30% and stays there for years, there's bigger problems than needing bonds money.

Of course, just my opinion! Everyone will have a different one. That's why you should pay for someone more unbiased and more educated than mine!
posted by bbqturtle at 6:13 AM on May 5 [3 favorites]

Quoted For Truth: "relationship manager." He is a salesman. Pure and simple The economy at this moment is quite strong(who knows when that will change), and moderate growth should be pretty easy. My brother had a name brand MBA and always reminded me that there were legions of people whose business it is to know the markets inside and out, and most of them are really lucky to do as well as an index fund.

I am a partly-retired person, thank you for looking out for your folks and shielding them from vampires.
posted by theora55 at 7:01 AM on May 5 [2 favorites]

Whatever you do make sure that they are investing appropriately for their ages - meaning not high risk stuff on capital they need to draw on to live. When I took over my father's finances he was 100% in stock with a high paid investment manager who didn't want to listen to me. I moved everything and it's now more sensibly set up with an investment manager I trust who listens to what we need. And fancy investment instruments are usually more costly than they are worth.
posted by leslies at 7:44 AM on May 5 [1 favorite]

Like others have said, get a financial advisor, but the other part of your question: my wife partially manages her parent's retirement. They basically get an allowance and we review every medical bill to make sure they are being billed correctly and paying for things like home and car insurance and taxes on time. She doesn't really shop around to get the best rates, just continues with what they currently have. She does quite a bit of haranguing about daily purchases, but mostly because they do that instead of make necessary repairs on their home.

It works out ok - her mom needs and asks for the help even if she is often defensive about sharing the responsibility.
posted by The_Vegetables at 7:46 AM on May 5 [3 favorites]

The costs of unit trusts and structured notes in terms of both commissions and annual fees is going to be very much higher than the costs associated with well managed index fund. (like others I particularly like and trust Vanguard because it is owned by the mutal fund share owners (avoiding other set of people who need to make a profit) and their costs are consistently the very lowest while the returns of their index funds match the market.

It shouldn't cost much to get a simple investment plan for a for-fee advisor. (Vanguard offers this service if you take my recommendation and move the nest egg over there.) That gives you the advantage of not having to take full responsibility for deciding how to invest.

Also, it is in both your interest and your parents' interest that they not run out of money during their lifetime and ideally they have something left over for you to inherit. So, I think your goals are aligned. Keeping enough in safe investments to cover their living expenses and enough in stocks to provide long term growth for the part they don't need for a while.
posted by metahawk at 9:30 AM on May 5 [3 favorites]

Your parents need to either invest in index funds or use a fee-based financial planner or both, as set out in other answers.

But I think the actual question you need to ask yourself is who is going to take the blame in any given set up if the investments don't do as well as your parents hope. You really need that not to be you.
posted by plonkee at 9:34 AM on May 5

who is going to take the blame in any given set up if the investments don't do as well as your parents hope. You really need that not to be you.

An advantage of reviewing everything with a third party is that a good advisor will establish the baseline of uncertainty of returns in their minds. Note that if the parents are past retirement age, their investments should be skewing fairly conservative at this point, anyway, such that really bad returns will occur primarily in the context of an obvious economic collapse.

(All this assumes fairly reasonable parents. There will be conflicts regardless, but if the relationship is already bad, one should consider in advance whether one should take on this task at all.)
posted by praemunire at 11:45 AM on May 5 [1 favorite]

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