Question
My parents are over 80 years old and have an investment portfolio of approximately $1.4 million. They have been working with the same advisor in a large bank for several decades and claim that she is like family. They have segregated funds, mutual funds, annuities, GICs, and some single stocks, but I checked what the MERs they pay and I know they are high. (My parents had no idea that mutual funds charged fees, they thought they only paid commissions). I finally managed to convince my dad that their wallet might not suit them and I think they’re becoming open to the idea of ​​moving at least some of their money. What next steps should I suggest to parents?
Answer
I am one of six children. Add parents, spouses and children to the mix and our annual Sellerybration event grows to 25 people and sometimes even more. I love my family, but I don’t need a financial advisor to complete it. While I think it’s great that your parents have a close bond with their parents, the relationship needs to be primarily about their investment, not family ties. You’ve flagged many signs of dysfunction on this front, and now it’s time to do something about it.
Move parents to a fee structure
Your parents are desirable clients in the investment world. Their asset level puts them in the high net worth category, which means they can get excellent service and investments for less than 1.75% or $24,500 per year at the low end. This includes any fees they would incur on ETFs and Class F mutual funds. They currently pay much more – about $34,000 if the average MER in their portfolio is 2.4%.
Using a paid consultant does more than just reduce costs. The idea is that a fee-only advisor has fewer conflicts of interest and no incentive to sell unsuitable products like seg funds. You should pay for good advice and services, not products.
These numbers are very basic estimates, but the point is that your parents should at least switch to a fee-based relationship. Their current advisor may be able to operate this way, or they may need to find someone else. However, I don’t see how anyone could justify keeping them in high MER mutual funds given their asset levels.
Get a second opinion from another advisor
You have flagged fees as an important issue for your parents. However, I would still recommend finding another advisor to give him a second opinion. I wrote a blog about how to find a financial advisor and recommend that people start by talking to a fee-only advisor who can provide a fresh perspective on their situation. They will be able to compare fees, as well as look at the portfolio itself – what is in it (Do they need segregated funds? Really? Why?) and how much of each they have (Does the asset allocation make sense given the investment goals?)
I’m focusing my comments on the issue of fees, but I bet a conversation with another financial advisor will cover topics such as estate planning and investment purposes. It seems unlikely that your parents would spend that $1.4 million in their lifetime, so what kind of legacy do they want to leave behind, and what portfolio set will provide that?
Reconnect with your current advisor
I’ll give your parents’ advisor the benefit of the doubt and say she just got lazy with them and didn’t demonstrate the benefits of moving to a fee-based structure. Once you have your second opinion, I will meet with your current advisor and let her know that you are considering a change. I would definitely give her a chance to demonstrate the value she thinks she can bring that will keep your parents there.
It is very important that you attend this meeting to support your parents in having this potentially difficult conversation and to ensure that your financial advisor does not try to come between you and your parents.
Give the “status quo” the upper hand
In my opinion, your parents basically have two options: switch to a paid contract with their current advisor or with a new one. I wouldn’t recommend your parents use a hybrid strategy of giving only part of their money to someone else. As with your family doctor, you need one person who has the full picture and can ensure continuity of treatment. It’s easier to have one person responsible for giving them financial advice.
I would give the advantage to the status quo here. Your parents have a long history with their current advisor and transitioning to a new advisor will take a lot of work. That being said, this relationship is critical to their financial health and you all need to be confident that whoever you choose will do a great job.
If your parents decide to leave, here are some tips on how to break up with your financial advisor. This won’t be easy and they risk damaging their relationship with their current advisor. But if she’s really like family, she’ll get over it soon.
