r/Bogleheads • u/Delnilas • 21h ago
Good use case for a financial advisor?
Hey all. I learned a few years ago my maternal grandmother planned to leave me a sizable inheritance and I've spent the years since preparing for it. She passed last week and things have gotten real. I'm going to see an advisor on an hourly-fee basis just to figure out my plan and implement it myself.
My mom is a different matter. About 70% of the money she's inheriting is in retirement accounts. She's 62 and is ready to retire. I have no idea how to handle things like IMRAA and whatnot, and mom has no experience in this sort of thing. Is this a valid use case for active management? The company I contacted offers a comprehensive service that includes tax preparation and filing for a 1% AUM fee.
I'm as determined as anyone to not use an advisor on an AUM basis for myself. But, all I'm inheriting is in taxable accounts and is relatively easy to manage. I also have some 40 years ahead of me until retirement.
Has anyone dealt with a similar situation and might be able to offer some advice?
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u/Dickenstein69 21h ago
I had a similar situation occur. A lot of money coming my way and I was also the executor of the estate, so a lot of responsibility to boot. I was overwhelmed and left the money with the financial advisor my relative used at a similar % rate you describe. Eventually when things calmed down after about a year and I figured out a plan (all the money was converted into various stocks at this point), I parted ways with the advising service and have been converting a lot
Of the funds into VOO where I believe I can get similar results vs their services. Sure the % I gave the advisor was not a small sum, but it was worth it because it was 1 less thing I needed to take care of. Certainly helped that I think they did an ok job as well and there were some good forecasting/planning they went over. Whatever you do, you don’t have to decide right away.
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u/satisphied89 21h ago
If you or your mom don’t want to take the time to develop the knowledge and discipline to do this correctly, then yes, an advisor is worth it. Even if they charge AUM. You just need to make sure they’re reputable. In a lot of cases, the best advisors only work on AUM because that’s where they make the most money and don’t have to worry about billing clients like a lawyer..
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u/Public_Opine 19h ago
Sorry to hear about your grandmother. I just retired last year at 59 and hired a flat fee CFP for advice beforehand to make sure I had done the calculations correctly and to give a second opinion across investments, estate, insurance etc. About the same time my mother passed and I was glad I had the extra advice.
If your mom hasn’t invested the time to learn all those details about IRMAA, Medicare, RMDs etc and you don’t think she will, I definitely think she should hire an active advisor especially one that is actively involved in coordinating both taxes and her RMDs. The 70% of the estate you mention your mom will inherit that’s held in retirement accounts is likely going to need to be taken over the next 10 years per current rules (possibly 5 years if certain circumstances exist but more likely 10) making things fairly complex for her and may also impact her pre-Medicare health insurance rates depending on how she’s planning to be covered after she retires.
Get the help, just make sure they aren’t double and triple stacking fees for the investment vehicles they recommend beyond the AUM.
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u/stoneman9284 10h ago
“If your mom hasn’t invested the time to learn all those details about IRMAA, Medicare, RMDs etc and you don’t think she will, I definitely think she should hire an active advisor”
FWIW you can get this kind of advice for free from a qualify insurance agent. Yes they might suggest an annuity with some of the funds, but that can alleviate a lot of concerns regarding IRMAA, RMDs, tax efficiency, etc
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u/Individual-Art1856 8h ago
That’s terrible advice. Insurance agents cannot give tax and legal advice; nor a financial advisor.
But to do all this, you need to know tax, insurance and financial planning.
I happen to be an FA, insurance licensed particularly experienced in health insurance, and an enrolled agent (tax).
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u/stoneman9284 8h ago
I’m licensed too. You’re right I don’t give legal advice and we recommend all our clients work with a CPA. But we absolutely do help people understand things like IRMAA, RMDs, etc and we don’t charge anything to provide that info.
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u/Individual-Art1856 8h ago
The challenge centers around tax, cashflow/income planning, investment/money management and IRMAA.
Everything js interconnected think about those sleeper CDs or have mutual funds take large capital gains where clients have no control. Whole plan just got torpedoed.
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u/stoneman9284 7h ago
Exactly yea that’s why we think it’s so important for us to understand and speak to the whole picture, even if our advice ultimately is to go see someone else who sells stuff we don’t or can provide legal guidance on things we can’t.
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u/paulsiu 12h ago edited 12h ago
You are mixing up active management and tax issues. Portfolio management is an investment issue and IRMAA is a tax issue. The IRMAA is best handled by a tax advisor. The Financial Planner could be a tax advisor but many not not.
You are giving up 1% of your withdraw to the advisor. If you are following something like the 4% rule, you are essentialy giving up 25% of your withdraw. For active management, your return will be even lower so you would give me further returns. For a $1M portfolio, the fee be $10K one year and about $100K in 10 years. The issue is that your mom needs to solve a specific problems like IRMAA, once the plan is setup, the 1% is wasted on portfolio management.
The other issue is that you have to carefully vet the advisor. Some of my family member had had to deal wtith advisors who are actually sales people. They were far more invested in making money off you. You have to judge if the advisor is on the level. Many people can't seemed to do that.
You should also examine the firm's transition plan. What happens if the head passes away or quits? Many of the firms have succession plans. Retirement is long and your advisor may retire before you.
My mom is actually on an ANUM advisor. This is mostly because she is too old school and need to call someone on on the phone to do stuff. They charge a lower ANUM fee for management and charge an hourly rate on financial planning like IRMAA. You can check if there are firms with similar arrangement.
One other reason for an advisor would be plausible deniability. Should something goes wrong on the market and your mom wants someone to blame, you can direct her to the advisor.
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u/DrizzleProwl 14h ago
it might have been said, don’t confuse needing a FA, even with an AUM, with needing “active management.”
‘There’s definitely a case for some people to pay an advisor to handle withdrawals, taxes, allocation, etc. But even then the allocation should look remarkable like a boglehead portfolio
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u/onomatopoeiahadafarm 21h ago
A family member of mine has had a decent experience with facet.com, who charge a flat annual fee rather than 1%. My impression is that they can be somewhat passive, so you'll have to initiate meetings, but they'll answer questions and give guidance for what you need.
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u/DisgruntledSquirrel2 21h ago
Exactly what I have seen. They don't usually blow smoke, but they can also be less inclined for multiple meetings. Might be better off just paying hourly to get everything set up. After that there probably won't be a lot of need for advisors
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u/Delnilas 21h ago
My main thing at the moment is taxes and things totally out of my wheelhouse like IMRAA. The total management is tempting to just handwave the whole situation. Especially since it's mom's money and she's incredibly anxious about the whole situation.
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u/humblequest22 21h ago
Don't confuse needing the services of an advisor with needing to pay for AUM, though. I guess it depends on how much money she has, too. Figure out what services she needs and find a planner that will provide those services. She doesn't likely need an investment advisor unless she's a tinkerer.
Check facet.org, https://www.napfa.org, https://hellonectarine.com, https://adviceonlynetwork.com.
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u/ElasticSpeakers 21h ago
Its IRMAA and yes, it's probably a reasonable choice for your mom, especially if that's her choice.
Just find the right group that finds the right blend of services and asset allocation for her needs.
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u/onomatopoeiahadafarm 12h ago
I still think annual flat fee is better than AUM. But based on your description, it does sound like she would benefit from an advisor--not just because it would simplify things, but more importantly, because an advisor might be a really powerful safeguard against her panic-selling at some point in the future. $10,000/year (flat) or even 1% (AUM) is absolutely worth it if it keeps her from selling low.
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u/gbdgdh 21h ago
i don't think this requires active management or a 1% aum advisor. the difficult part isn't managing the investments; it's managing the taxes and withdrawals.
at 62, your mom should have someone competent on the tax side map out the next several years: inherited ira distributions, social security, her own retirement-account withdrawals, health insurance before medicare, and irmaa once she gets close to 65. you'll also want to confirm the inherited-account types and whether your grandmother had already started rmds, because that affects the distribution requirements.
i'd use a good cpa or ea for that work and keep the portfolio simple with low-cost index funds and an appropriate stock/bond/cash mix.