Switching parents from financial advisor with institutional funds must be cashed out?

[Mushy]

They have an accountant I can talk with, so I'm not just gonna start selling in taxable with abandon haha.

[afan]

I just had a thought. Since I'm now taking over as my parents' financial advisor, could I basically charge them less than the gift tax to put into a solo 401k, and just repay them or pay some of their expenses so it's net even, or is this highly illegal?

What would be the purpose of this? If your parents want hire you as an investment manager, they can do that, but I suspect you would then become subject to a long list of regulations and filings as a paid adviser.
What would the gift tax limit have to do with the appropriate fee for financial advice? Are you suggesting they will give you a gift? In that case, it would not be a fee for your work, it would be a gift.
Are you suggesting that you will give them a gift and then they would pay you back the gift amount? What would be the point? If there are tax issues involved, the IRS would not consider it a gift, since there is an understanding that they will pay you back.

But I do not see what any of this would accomplish.
If you want to make a gift to them, just make a gift. No need to have them pretend to pay you for financial advice.

[Mushy]

Yeah, it would have just been a method to convert some of my own money into tax protected because I would pay them back the same way you might put your child's earnings into a roth IRA but also gift them the same amount. Of course it was a silly shower thought because the tax implications were not considered.

[Mushy]

As a followup if anyone is going through the same thing, everything came over in kind with the cost basis as well, so now they went from 90 different stocks and etfs to VTSAX and VTIAX. (There was a total loss of 30k despite the FA's pleas to not liquidate due to gains, so we will be harvesting that with his tears)

[jfoxcpacfp]

I just had a thought. Since I'm now taking over as my parents' financial advisor, could I basically charge them less than the gift tax to put into a solo 401k, and just repay them or pay some of their expenses so it's net even, or is this highly illegal?

I guess it's kind of like putting your kids' self-employment earnings into a roth IRA for them but also giving them the same amount since it's fungible. Would I have to do a certification or something to prove to IRS I'm actually a financial advisor qualified to be managing their money? I would obviously document meetings with them and send bills so it's on the up and up (I already have a solo 401k too).

NO, there are so many regulations to follow and adhere to as a paid FA that you really don’t want to go there. But I like the creative thinking!

[Larry Ragman]

As a followup if anyone is going through the same thing, everything came over in kind with the cost basis as well, so now they went from 90 different stocks and etfs to VTSAX and VTIAX. (There was a total loss of 30k despite the FA's pleas to not liquidate due to gains, so we will be harvesting that with his tears)

Congratulations on working through this issue.

Just to be clear because I am trying to follow the steps: You actually transferred the funds in kind to Vanguard as opposed to removing the FA from the Fidelity account? Then, once in Vanguard you liquidated in taxable to buy VTSAX and VTIAX? And the net capital gains/loss the liquidation created was -$30K

If that is right, what steps did you take to get the funds to Vanguard? They have a form for you to fill out and they do the rest?

[Mushy]

Yeah it's an automatic transfer they walk you through the steps online. Just need the name of the brokerage and account number. I guess the fund the FA said couldn't be invested in without him was LCG. There was also an OTC fund. Fidelity did charge a small fee per transfer, can't remember if it was $150 or $75 per account number. Free to transfer to Vanguard though. It's called an ACAT, and it transfers in kind.

ETA: It does take a few business days, so it ties up your investments. I probably would have converted to all VTSAX or equivalent in Fidelity before transferring but this eliminated the need to go through the FA.

[Tim]

“. I guess the fund the FA said couldn't be invested in without him was LCG”

LCG is and ETF that is publicly traded.
Sterling Capital
Inception Date. 08.26.2020
Type. Active Equity ETF
CUSIP 66538H385
Primary Exchange NYSE Arca
That can be bought and sold through Fidelity or Vanguard.

[Mushy]

Right, I'm saying he wasn't correct. His big claim to my parents was that only certain financial advisors had special access to Sterling actively managed funds, but the only thing they were invested in from Sterling was LCG.

[Tim]

“And the net capital gains/loss the liquidation created was -$30K”
You started out saying Fidelity showed a $3k capital gain.
WTF???
As their FA, you need to execute an accurate understanding of exactly what gains/losses are. Why?
Now you need a plan for tax gain harvesting before 12/31, if possible. Limited benefit of that $30k loss, only $3k usable with $27k carry forward. Lose it with step up basis as well.

Get to work and make gains.

[Mushy]

Fidelity showed the YTD was 3k gain, but going through the most recent statement from Fidelity it was about 30k losses from basis. Yes, the YTD is not the correct way to look at it, but in conjunction with the knowledge stocks took a nosedive the past year, I used it as a good guess that the FA's claims about liquidating were overblown. The cost basis transferred over to Vanguard, and I double checked against the Fidelity statement. Can you explain why I should tax gain harvest right now unless you mean just "make them more money". I do passive VTSAX VTIAX investing which they are amenable to.

[Tim]

You have a tax loss of $30k net. Only $3k of that will be deductible, $27K Will carry forward.
The only way to use it is more taxable gains.
It will be eligible for using only $3k each year if you never have taxable capital gains.
Got to sell to generate gains.
It is the opposite of TLH. You are the FA. Okay?

Overly harsh. FYI, Fidelity gave to many options online to see the gain/loss all the way down to the tax lot.
Make sure the taxable account is set to specific identification for the taxable.

Don’t intend to be overly harsh. No offense.

[Mushy]

I understand what tax gain harvesting is, but I don't understand why you're saying to do it right now. My parents give a lot to charity, so we'll just donate appreciated shares and carry forward losses for when they need to liquidate for themselves, probably also donor advised fund with four year bunching strategy. I understand about the 3k per year. I had set everything to specific identification already.

No offense taken--I would be concerned if I heard a random resident was taking over their parents' finances haha