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Do I need a financial advisor?

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  • Do I need a financial advisor?

    I am a 76 year old retired surgeon. I have always managed all of our finances and investments, and I have been reasonably successful. Our net worth is about $15M, of which $10M is in a traditional IRA , another $1M in Roth IRAs, and about $1.5M in after tax brokerage accounts. The annual RMD is considerable, but I have structured my IRA with a ten year ladder of zero coupon bonds, such that the bonds that mature each year cover the RMD. The remainder is invested in equity index ETFs. Other than occasional rebalancing to maintain the 40/60% asset allocation, it's all on autopilot. We have no debts and own our home, cars, etc. free and clear. I have done the usual estate planning, have a will, a living revocable trust, etc. My concern is how to anticipate the possibility that at some time I may be unable to manage our financial affairs due to impairment or death. My spouse is three years younger than I am. She has always managed all the household expenses, the checking account, all of our bills, etc., but has little interest in our investments. Because I am a male, I assume she will outlive me. I have created a document for her, listing all accounts, assets, passwords, and the requirement for RMDs and QCDs. Our adult children are financially responsible, and I have created documents that designate them to have financial power of attorney if my spouse is unable or unwilling to monitor and manage our investments. My question is whether I should at some point have a financial advisor or someone else to monitor our finances, be certain RMDs are taken in appropriate amounts, etc.

  • #2
    My wife is the same way. Sounds reasonable to interview and hire a financial planner you would be comfortable managing the investments for your wife if you were to pass away first or become unable to manage the money. You should be able to find one willing to do it for a flat annual fee (not assets under management). WCI has a list on this site.

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    • #3
      I am interested in the responses to this thread. I am 64 and have a networth just shy of 11 million. I have not started doing RMDs or QCDs but I know you can automate RMDs at Vanguard. Not sure on QCDs. I will likely do QCDs as well. Your financial affairs sound very organized. I am not sure what a financial advisor would add at this point. If you feel your mental acuity is slipping then that is another story. You might consider interviewing advisors who charge on a hourly basis to establish a person to help your spouse if you become incapacitated. David Graham at FiPhysician is one such person and Johanna Fox Turner is another. Both post here.

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      • #4
        Likewise interested in the recommendation. In California, there is state licensed professional fiduciary. I would like to hear people's experience and collective wisdom.

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        • #5
          If your children are financially responsible and suitable to have powers of attorney, then you may not need anything else. I would have them as successor, or even better, co trustees on your funded living trusts. Financial institutions often refuse to accept a power of attorney.

          If you feel the need for another look at what you are doing, consider engaging an hourly-fee, advice-only planner. This person would not sell anything, no investments, no insurance, no asset management. All they would do is offer advice, for an agreed hourly fee. This might be helpful to a spouse who does not attend to investing. Or to children who may be responsible but who do not pay attention to investing.

          If you have children who do pay enough attention to financial matters, then they may not need any help.

          Question: How can you set up a ladder of zeroes to cover the RMDs when the size of the required distributions are determined every year based on the 12/31 value of the IRA? This is unknown until the end of each year? How can you know that 10 years in advance? What am I missing?

          If eventually you want to turn over management of your assets to someone other than your kids, I would probably look to a bank trust department or a trust company, rather than a planner. The former have deep compliance systems to protect against fraud, large resources and insurance to cover fraudulent losses and they do not attract the kind of people who would steal. There are of course many, many honest planners. But the structure of the industry permits some to steal, keep and spend the money, leaving customers with little recourse. With a bank or trust company, the crook would not get to keep any money they stole, at least not without getting numerous other employees in on the scam.

          Because it would be so difficult to profit, those kinds of people will not find being a trust officer a good career choice. They work somewhere else instead. To my mind, that makes banks safer.

          Or set it up with a bank holding the assets and an investment advisor telling them what to buy or sell, but having no authority to direct distributions to themselves or others

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          • #6
            Thanks for the suggestions, afan. As far as the bond ladder is concerned, I assume a six to seven percent annual growth of assets in the IRA, less that year's RMD. Schwab has a RMD calculator on their web site which projects the account growth and annual RMDs based on your assumptions.

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            • #7
              In response to the above, we do not charge hourly, but quarterly flat fee, no AUM.

              As to whether you need an FA, I would strongly encourage you to at least talk to a few - with your wife - before you decide. It is not uncommon for a couple to be in your situation and, almost always with older couples, it’s the male who manages the finances and the female who has other interests and just wants to trust and not worry. It can be a very daunting experience at your passing if your wife does not have a trusting relationshipwith someone who you’ve chosen and you have both gotten to know together. That doesn’t mean your wife has to learn finances, just that she needs to have someone impartial to turn to who can take over this area and who knows where all of the documents are, how they matter, etc.

              I cannot tell you how many times (well, I could if I’d been keeping count, but I haven’t) I’ve spoken with a couple like you (all age 60+, btw). Basically, the husband does not want his wife to be taken advantage of and wants to know that they both can trust that she is in good hands. Many of the wives in this age group (and I’m only 11 yrs younger than you) have told me that their husband’s advisor ignored them during meetings, i.e. never looked their way, asked if they had questions, or even looked their way during meetings. So demeaning - almost certainly unintentional, but just accepted as part of the relationship. Understand that having an advisor who you know will do what is right for your spouse not only lessens the frustration at a death but it also protects the next generation who might get into squabbles or send their mom to “their guy” who is exactly what you don’t want.

              It’s really not about the dollars, it’s about everything else that requires the dollars. Managing money is stressful and time-consuming (although I know it is a sport to many on this site) and just one more thing for a surviving spouse to stress over. Can the rest of you guys imagine starting over from a point of ignorance (where many of you were) when you’re grieving the loss of your lifetime mate while needing to read all of the blog posts on the site? Even finding your way around? It’s just not something that should be on the radar at that age, at least for most and that is impo, for sure.

              I’m kind of passionate about this topic - have known plenty of SS’s, including my own mom, in this situation. It won’t cost you a thing to meet with a few advisors before you decide your course of action.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                I would think that given your NW, a fee only advisor would be worth it. A very small change could result is increased returns or lower taxes given your NW. I also think it would be worth a few thousand bucks a year to have a guy or gal you trust to walk with your wife in case you predecease her.

                Mind you, I’m only in my 30s and obviously in the accumulation phase. I’ve given my wife the info for a FA I trust. She has been instructed to call him if I die. Once our assets start to get large (probably $5M) we will pay for his advice.

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                • #9
                  You could do it yourself......but with that net worth why would you want to?

                  With that net worth you could do what Buffet said 90 pct 500 fund 10 pct cash/bonds.

                  But you have bigger issues of estate taxes, wills, and asset protection. Even if you could button all these up, it's doubtful your spouse will have the same degree of interest to modify and keep track of this stuff when you'r gone.

                  Lot's of options but I would let your wife choose.

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                  • #10
                    Echo the suggestion re: your astute adult children, if you have them. If you expect they will one day inherit some or all of your substantial NW, you might as well get them involved now.

                    If you don’t have responsible children, and no other younger heirs you plan to leave your estate to, I don’t see an option besides a fee only advisor aligned with your values; and your wife may need a trust company in the picture, too, if she truly has no interest in managing finances and you anticipate that some day she, too, will become incapacitated.

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                    • #11
                      We work with many families in your position. With a large estate as you have, the annual charge is at or under 0.3% a year-the same you would pay to talk to a new CFP at Vanguard on the phone (when available).

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                      • #12
                        We are also in this position. I invest and manage everything financial for sport, and I have done so for decades. My spouse is a creative artist and horticulturist, among other things, but is not at all interested in things financial despite her Ivy League law degree.

                        We have two talented CPAs (one specializing in health care/medicine and one specializing in real estate) and we have an estate attorney and a personal attorney, but there isn't really someone designated to directly manage the finances whenever that need might arise. I am wondering if we should get a financial adviser, someone who doesn't do much other than follow along with what I am doing and sign off on my plan on an annual basis, and who might meet with the two of us for an hour once a year to discuss things. The relationship would already be established and that person would then be ready to step in when the need arises. But I wouldn't want to pay an AUM fee and would rather pay hourly as the need for advice is small at this point.

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                        • #13
                          I sounds like you have done well, however you may want to consult with a FA for tax reasons. I am not an advisor, but this is one issues you may want to look into. If you pass, your wife will have a sizeable estate which will be taxed differently as an individual vs married couple. and it will put her over the $11.7 million maxium , which means more to uncle sam and less to others you wish it to go to.

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                          • #14
                            It actually sounds like you have a plan. The missing piece is "training" either your wife, children or an "employee" to execute it.
                            You say it is on "auto pilot". But not quite. The "program documentation" and "user manual" has not been created.

                            1) Create the documentation
                            2) Identify the tasks to be performed and what changes would be required.
                            3) Then cross train at least two "employees" to run the process.

                            The question is, how much independent judgement is actually needed and identify the source to be consulted.
                            The reality is it does not sound like you need to pay for a lot of advice. It is more a process void.

                            To be honest, I don't know where you keep your investments or how you do your taxes. With Fidelity, you would have a private advisor that could have a copy of your plan.
                            Investments, RMD's, Rebalancing, done.
                            A CPA that does your taxes, done.
                            Attorney that did your estate documents, done.

                            What is missing is actually "auto pilot" and the ability for "employee" to run it by a second person for approval for that years autopilot.

                            The reality is whether your plan needs to be changed. Don't put off a very little amount of training. You may need to rethink your "autopilot".
                            What you described is several tasks, not decision making or planning or complicated.

                            Here is my take, it is a small learning process for your kids to learn as a price for a sizable inheritance that they will need to learn anyways.You do want them to learn eventually I assume.



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                            • #15
                              The real issue is harder to solve if your kids are not the right people. You can hire an hourly-fee, advice-only planner for advice. You can turn custody of assets over to a bank trust department and have them invest the assets in the low cost index funds your adviser chooses. You can set up your taxes as your CPA instructs and check in with your estate planning attorney to see whether changes in tax laws affect you.

                              But you need someone to do the very mundane things like pay the bills.

                              Switch to non-owned auto coverage when you give up your cars, everyday stuff that is easy but that, in general, banks will not do.

                              You also need someone who knows the overall situation. "Grandpa is headed for a nursing home, so we need enough cash to buy in now and pay the monthly bills until the house sells. Then invest the proceeds to generate reliable cash flow."

                              When I helped out an elderly person who was losing the ability to manage for themselves, this was the work.

                              Managing the investments was trivial. I initially looked at trust companies to do it. The price was absurd for what little there was to do. Plus, except for Vanguard, they all wanted to regale me with the brilliance of their active managers. That they seemed genuinely unaware of the evidence against it was scary. The taxable holdings were largely frozen by capital gains anyway. I did some rearranging of retirement account holdings, but their life would have been fine if I had not.

                              But I learned that the true day to day financial management was something the banks did not do. As trustee I was able to do it, but I do not know what I would have done for them if I lost the ability to handle it.

                              I still do not have a solution for that problem. Happy to hear what people suggest.

                              I agree that if there is asymmetry in who handles the finances, then the non-financial spouse should do the talking and ask the questions when they meet with any of the advisers. The finance hobbyist should keep quiet and listen. Perhaps follow up later if needed. The goal is to get the non-finance person informed and comfortable with the plan.

                              That extra time will cost more money but it will be worth it.

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