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My almost 66-year-old dad, who retired a year ago, asked me for some financial advice today. He and my mom invested in two IRAs with a financial advisor just shy of 20 years ago. This is a custodial account, so they are not able to log in to the Fidelity website and see history, change things, etc. The title on the statement they get says:

FMTC CUSTODIAN IRA
FBO ParentsNames

One IRA has gained around 10% in total over the lifetime of the investment, and the other closer to 20%. Seems like pretty terrible gains, but, we know gains are not guaranteed. That said, I'm still very irked that so little has happened.

In the almost 20 years they have been invested in this, nothing has changed. The custodian/financial advisor has not lifted one finger to invest in different funds, do anything different, etc. He has not actively managed anything. He plopped the money into a few funds, and ignored it. My parents are too trusting and too nice to challenge him on it, and when they do ask questions, they get responses such as "oh, records don't go back that far. We can't tell you." Or they get answers that talk over their head enough to frustrate them and make them go away.

He has "diversified" into 4 separate funds, if relevant, I can add their names here.

Keeping in mind that they are retired, the thing that made me the maddest when I saw the statement is this: the asset allocation for both funds is 100% growth. To me, this is entirely unacceptable and means one of three things:

  1. The advisor is incompetent
  2. The advisor is negligent
  3. My parent's account has somehow slipped through the cracks, consistently, for 20 years.

I'm wondering if this qualifies as gross negligence or something like that. 100% growth allocation as retired people seems insane to me. My father was a teacher, and doesn't have stacks of money to burn.

As background, the custodian/financial advisor is the son of my father's friend. My dad invested with him, as this son had made his own father large amounts of money. In this same time, the advisor has become very successful judging by his house, cars, land, etc. Not sure if this is relevant. When they invested in this initially, their going-in policy was "Please help me like you helped your dad. Here's my money. Make something good happen."

He has charged them a small fee each year.

If it matters, they live in a small town in the western United States. Also, I know for a fact this is not the only case of him taking people's money, plopping it in some fund, and letting it sit, completely ignored.

My parents are seeking my advice. What should I tell them?


Update: Good news. We just met with the advisor, and found out some facts. The initial investment was substantially less than my parents remembered, meaning the accounts have essentially mirrored the market for the past 19 years, not substantially underperformed. This makes me feel a lot better.

The other news is my dad has a pension I didn't know about that allows him to take a bit more risk than I would otherwise recommend. Not 100% growth, but certainly more than just bonds. The advisor knew this (as his father has the same pension) and was responding to it.

Thanks for all your advice.

  • Did they continue contributing the IRA over 20 years? There's nothing wrong or abnormal with an advisor plopping it in a fund and letting it sit. If your parents are too incompetent to do it themselves as much as they are too incompetent to question the performance, then the advisor is providing a service. – CQM Nov 4 '17 at 20:29
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If they made deposits 20 years ago, and none since, the S&P is up over 300% since then. i.e. a return of $40,000 on $10,000 invested. We wouldn't expect to see that full return, as a prudent mix of stock and bonds (or any treasury bills/CDs, etc) would lower the overall return during this period.

Advice "Transfer the money, directly to an IRA at a broker, Fidelity, Schwab, Vanguard, etc."

For most people, going after the advisor isn't worth it, unless the sums are large and the poor management, pretty clear.

The lesson for readers here - monitor your investments. Ask questions. It's not about "beating the market" which can actually create more risk, but about understanding the returns you see, and the fees you are spending. The mistake didn't occur at the time the money was invested, but every year it wasn't monitored.

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    I would upvote this part ten times if I could: "The mistake didn't occur at the time the money was invested, but every year it wasn't monitored." – Chris W. Rea Nov 4 '17 at 13:10
  • It might be interesting to check if having those specific investments gives the advisor significant bonuses, or if he is just plain incapable. – Aganju Nov 4 '17 at 15:59

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