Your thoughts on this mutual fund "investment" UPDATED

[gacpa]

Please advise if I have posted this on the wrong board. 

My mother's broker has had her invested in a "track fund" for many years now.  This "fund of funds" re-balances every year.  Since I do her taxes, I spend much time entering mutual fund sales.  The account balance of this "track fund"  is a little over $150,000.  For 2016, she earned $5,710 in dividends and capital gains.  She paid an investment fee of $2,160 to earn this income in 2016.  She had realized losses on the "track fund" of (1,608) that I reported on Schedule D.  To me, this means she netted almost $2,000 on a $150,000 balance.

I think she could do much better investing in regular mutual funds that did not charge an investment fee every year.  She pays this fee whether the market goes up or down, whether the funds making up the "track fund" make money or not.


Do any of you have any experience with this type of "investment".  I think she is getting ripped off.  What do you think?

[Rob Base 2.0]

Her "investment" is just slightly better than putting it under her mattress

[gacpa]

I agree.  I am trying to get her out of it.

[ArchietheDragon]

So she is paying a manager to put her into many, many mutual funds which they churn each year to earn a commission (on top of the exorbitant 1.4% management fee) and she ends up making no money, but has to pay taxes on the dividends and capital gains generated from the investments.

I don't see anything wrong with that. 

[Rob Base 2.0]

Mar 15, 2017 20:00:33 GMT -5 ArchietheDragon said:

So she is paying a manager to put her into many, many mutual funds which they churn each year to earn a commission (on top of the exorbitant 1.4% management fee) and she ends up making no money, but has to pay taxes on the dividends and capital gains generated from the investments.

I don't see anything wrong with that. 

Archie!!!  I missed you dude!  Please say something even more snarky either here or on another thread.....pretty please with sugar on top?

[buystoys]

Does she also pay fund fees on top of the investment fee?  Sounds pretty dodgey to me.

[gacpa]

So glad you are back Archie!  You nailed it!

Buystoys-I don't know if she pays fund fees on top of the investment fees.  I know she is getting ripped off. 

I am trying to get her out of those funds.  I have asked her to speak to her broker about getting out.  She says he will try to talk her out of it.  I told her to have him call me and I will speak with him.

She is so tight with her cash, she scrimps and scrapes by, sparing no effort to spend as little money as she possibly can.  Then she turns around and lets these people rip her off with nary a whimper, paying these fees year after year.  I told her so tonight it is so unnecessary.  I am hoping she will take action right away.

I have owned mutual funds most of my adult life.  I have never paid an "investment advisory fee" to the broker.

[countrygirl2]

I bet they talk hard. I have a fund trying to get me to invest with them monthly, now when I

see the number I just disconnect. The guy is going to make money so he is after us.

She likely will have a time getting out of it, you definitely need to help her.

[busymom]

I suggest you make an appointment where you are both sitting in this guy's office.  There was a "snake oil salesman" who was constantly calling & badgering my Mom after she'd purchased an investment fund from him some years back.  (He was trying to get her to invest more money.)  Depending on how the contract is written up, she needs to get her money & get out, IMHO.

[resolution]

I agree you should go with her to the appointment. She is probably a very nice lady to let herself get pressured into this kind of investment.

When I first got married and looked over my husband's stuff, he was getting ripped off like crazy, and when he went in alone to get out of some of their products, they doubled down on the sales pitch  and he left with more poor products than he started with. Same thing happened to my sister-in-law when she tried to get out of her whole life insurance (no kids, spouse or dependents) and she ended up increasing it because they convinced her that was the ideal way to save for retirement.

[alabamagal]

She needs to get out of her mind that this guy is trying to help her. He is trying to sell a product.

Its like when you walk on a car lot, the sales guy will tell you that you need a new car.

[Value Buy]

Mar 15, 2017 21:22:13 GMT -5 gacpa said:

So glad you are back Archie!  You nailed it!

Buystoys-I don't know if she pays fund fees on top of the investment fees.  I know she is getting ripped off. 

I am trying to get her out of those funds.  I have asked her to speak to her broker about getting out.  She says he will try to talk her out of it.  I told her to have him call me and I will speak with him.

She is so tight with her cash, she scrimps and scrapes by, sparing no effort to spend as little money as she possibly can.  Then she turns around and lets these people rip her off with nary a whimper, paying these fees year after year.  I told her so tonight it is so unnecessary.  I am hoping she will take action right away.

I have owned mutual funds most of my adult life.  I have never paid an "investment advisory fee" to the broker.

She has to start by firing the advisor and the brokerage company.
Talk to her. 
Is she using the dividends and capital gains for living expenses, or re-investing them?
Ask her to call Fidelity or Vanguard funds. You sit in on the call. You say you have owned mutual funds, and never paid an advisory fee, so explain it to her and walk her through a transfer from the broker.

Between these two fund companies you can pick so many good funds. With $150,000 balance you can even get her in their low cost cloned fund category, if so desired.
If not a fund, find her a large solid electric or ng utility with a 3%or more dividend yield at the very least.

[gacpa]

To all,

Everything you have said has run thru my brain.  Thank you all for confirming my thoughts.  My mother is very secretive about her money, does not want anyone to know she has any.  However, since she will not pay someone to do her taxes, I do them for her.  Thus, I see these things and they make me cringe.  She usually mails me only the necessary parts of her Form 1099 so I can do her taxes.  However, this year the 1099's are very late in arriving and she had the broker email me the entire 1099.  I got a complete picture of what was being earned and the fees being paid.  I asked her to tell me how much was invested in this track fund.  Ridiculous!

She did not want anyone in town to know she had a brokerage account and she moved the account to a broker on the other side of the state.  She lives in MO, I live in GA.  If necessary, I will accompany her to the local brokerage office in town the next time I am home and see what we can do to get out of this mess.

She also has stocks in her brokerage account.  This is an account that my dad started and left her when he passed.  She also owns some very good stocks in this account which I have no problem with:  JNJ, Monsanto, P&G, US Bank, Southern Co., etc. 

She hates the stock market, and will not reinvest the dividends.  She won't sell the stocks because of the taxes she would pay on the gains.  She pulls the earnings out of the account each year and parks them in a bank account.  She will not spend the money, she is very tight and will do without necessities before turning loose of cash.  She was born near the end of the depression.

Value Buy's ideas are good and I like them.  It seems it would be very simple to get into a better investment for her. 

I will keep you all posted of what happens next.  I just wanted others to confirm my thoughts.

[alabamagal]

A little OT, but this thread makes me wonder, what is it about the elderly that makes them so susceptible to scams?  I know that times are changing, but there were always "snake oil salesmen" around.  Do you become more trusting as you get older?  In the OP case, it looks like the parent is trusting the advisor, but not trusting her children.

I think my mom is still pretty financially savvy at 76.  She does all finance for her and my dad.  She manages investments, rental house, does her own taxes, still does part time work doing bookkeeping work for 2 doctors.  I have noticed a few small changes, but I am glad she is able to manage her finances.  My brother (a CPA) and I try to keep an eye on my parents without trying to get too much into their business.

[Value Buy]

gacpa,
I did not realize you lived that far away from your mother.
That does present it's own set of problems to fix it.
If you are happy with the individual stocks, might leave them there, unless she is hit with broker mgmt fees for managing them in her account.
Good luck!

[resolution]

Mar 16, 2017 9:31:43 GMT -5 alabamagal said:

A little OT, but this thread makes me wonder, what is it about the elderly that makes them so susceptible to scams?  I know that times are changing, but there were always "snake oil salesmen" around.  Do you become more trusting as you get older?  In the OP case, it looks like the parent is trusting the advisor, but not trusting her children.

I think my mom is still pretty financially savvy at 76.  She does all finance for her and my dad.  She manages investments, rental house, does her own taxes, still does part time work doing bookkeeping work for 2 doctors.  I have noticed a few small changes, but I am glad she is able to manage her finances.  My brother (a CPA) and I try to keep an eye on my parents without trying to get too much into their business.

Yes, your brain changes as you age and becomes more trusting. Most studies consider this to be beneficial as it is accompanied by an increase in happiness.

www.scientificamerican.com/article/why-older-adults-are-too-trusting/

[gacpa]

Yes, your brain changes as you age and becomes more trusting. Most studies consider this to be beneficial as it is accompanied by an increase in happiness.


www.scientificamerican.com/article/why-older-adults-are-too-trusting/

They also have a desire to please others, at least mine does.  She also trusts brokers and insurance agents more than her own family.  I am a CPA and my sister is a licensed securities broker, she will not ask us about how to handle her money, she strictly wants cash in the bank whenever possible.  I don't know why that is, but she has always been that way.  I could go on all day.  She also bought an variable annuity from them with proceeds from selling her insurance agency.  They guaranteed her 6% return on her money.  She says she is leaving the annuity to me and my sister. !!!

I do not have to worry about charity scams, at least not yet.  She is 79, still manages her own finances.  She is too tight to give money to charity.  I am not saying that to be mean.  She has a lot of fear of turning loose of cash.  She sees everything in terms of cash flow, not assets and growth opportunity.  My thoughts if you don't need to spend it, or have it around for emergencies then money should be invested.  I realize at her age, that ship has sailed.

My sis and I are like Alabamagal, we do not interfere with her money.  I would not have spoken up now except she is getting so royally ripped off.  She is 79, still mows her 10 acres of land around the house.  She gets around really well.  She drove to GA to visit us this year, will not hear of flying or letting us drive her down here.  She wants to do it all herself!

[Blonde Granny]

Mar 16, 2017 10:13:21 GMT -5 gacpa said:

Yes, your brain changes as you age and becomes more trusting. Most studies consider this to be beneficial as it is accompanied by an increase in happiness.


www.scientificamerican.com/article/why-older-adults-are-too-trusting/

They also have a desire to please others, at least mine does.  She also trusts brokers and insurance agents more than her own family.  I am a CPA and my sister is a licensed securities broker, she will not ask us about how to handle her money, she strictly wants cash in the bank whenever possible.  I don't know why that is, but she has always been that way.  I could go on all day.  She also bought an variable annuity from them with proceeds from selling her insurance agency.  They guaranteed her 6% return on her money.  She says she is leaving the annuity to me and my sister. !!!

I do not have to worry about charity scams, at least not yet.  She is 79, still manages her own finances.  She is too tight to give money to charity.  I am not saying that to be mean.  She has a lot of fear of turning loose of cash.  She sees everything in terms of cash flow, not assets and growth opportunity.  My thoughts if you don't need to spend it, or have it around for emergencies then money should be invested.  I realize at her age, that ship has sailed.

My sis and I are like Alabamagal, we do not interfere with her money.  I would not have spoken up now except she is getting so royally ripped off.  She is 79, still mows her 10 acres of land around the house.  She gets around really well.  She drove to GA to visit us this year, will not hear of flying or letting us drive her down here.  She wants to do it all herself!

My kind of woman!!! And I suffer from the same "do it self" syndrome.  I haven't told my only child (son 45) that I'm selling my house and moving to where he lives.....will drop that bomb on him this weekend.  I can't imagine where he grew up and has the same "do it self" ideas......oh well.  I sit here now awaiting the real estate agent to arrive.

[gacpa]

Yep,  I see a lot of personality traits my Mom has in you, BG.  Also, countrygirl2-very independent and frugal and likes to stay busy and accomplish things.  Not a lazy bone in her body anywhere, that is you gals. 

[gacpa]

UPDATE:

My mom gave the broker my email.  He states she is earning 18% on her money.  NO WAY!  He also says she has $34,000 in unrealized cap gains to report for tax if she sells the investment.
I have asked him to mail me the details of the performance numbers, and specifically the numbers that make up this alleged unrealized capital gain.

[swamp]

Mar 16, 2017 12:13:30 GMT -5 gacpa said:

UPDATE:

My mom gave the broker my email.  He states she is earning 18% on her money.  NO WAY!  He also says she has $34,000 in unrealized cap gains to report for tax if she sells the investment.
I have asked him to mail me the details of the performance numbers, and specifically the numbers that make up this alleged unrealized capital gain.

Is his name Bernie Madoff? Holy crap!

[Value Buy]

Mar 16, 2017 12:41:48 GMT -5 swamp said:

Mar 16, 2017 12:13:30 GMT -5 gacpa said:

UPDATE:

My mom gave the broker my email.  He states she is earning 18% on her money.  NO WAY!  He also says she has $34,000 in unrealized cap gains to report for tax if she sells the investment.
I have asked him to mail me the details of the performance numbers, and specifically the numbers that make up this alleged unrealized capital gain.

Is his name Bernie Madoff? Holy crap!

This claim could be true, if she bought the stocks in the brokerage account years ago, she might have unrealized capital gains, both long term, short term, and there could be non-covered funds in the mix. They remain unrealized, because they have not been sold yet.

[swamp]

Mar 16, 2017 12:48:39 GMT -5 Value Buy said:

Mar 16, 2017 12:41:48 GMT -5 swamp said:

Is his name Bernie Madoff? Holy crap!

This claim could be true, if she bought the stocks in the brokerage account years ago, she might have unrealized capital gains, both long term, short term, and there could be non-covered funds in the mix. They remain unrealized, because they have not been sold yet.

I'm saying holy crap about the 18% gain, not the gains issue.  I understand realized vs. unrealized.

[Value Buy]

Mar 16, 2017 13:43:36 GMT -5 swamp said:

Mar 16, 2017 12:48:39 GMT -5 Value Buy said:

This claim could be true, if she bought the stocks in the brokerage account years ago, she might have unrealized capital gains, both long term, short term, and there could be non-covered funds in the mix. They remain unrealized, because they have not been sold yet.

I'm saying holy crap about the 18% gain, not the gains issue.  I understand realized vs. unrealized.

Okay, I understand now.
As long as the brokerage is not investing in a private "Madoff fund equivilant" she might be ok.

Maybe she could move the entire account to a large mutual fund provider, open a brokerage account there including the personal stock investments via transfer rather than selling everything.

[gacpa]

Another Update:

Another email from the broker:  His mistake-her unrealized cap gains are only $4,169.  That makes more sense, because they are constantly buying and selling funds each year.  That re-sets the cost basis, so I can more easily believe this regarding the Trak fund investment.  She does have stocks in there that she has owned for years, and I could easily imagine the cap gains on those would be significant.  But we are not talking about those, just the Trak fund which she pays investment fees on.

[gacpa]

I have been emailing the broker back and forth all afternoon.  He is ready to get her out of that Trak Fund and into American Funds C class-no upfront sales charge.

Mother is going to allow me to review her latest statement to confirm her capital gains tax exposure, then I am hoping she will agree to sell the Trak Fund and get out of it.

Hopefully she will follow through with this.