Dear Mr. Miller:
I am getting worried that I am setting things up for a real problem. My wife and I, both well over 80, are fortunate; we have $3 million in investments–basically securities. We have a beautiful house worth maybe $1.5 million in San Diego. My wife knows nothing about investments so I handle that.
Lately, I’ve been going to dinner presentations offered by financial advisors. They all seem so nice and know their stuff. And when I speak with them afterwards, each has had his own good ideas. So I’ve given them each a chunk of my investment money; $500,000 here, $1 million there. Right now I have 5 different investment accounts at 5 different brokerages. And that doesn’t count the 4 different banks we use or the 7 different life insurance policies we have.
At the time I made these moves, it seemed so sensible but I am wondering what problems this will hold for the future.
Seminars–pros and cons
Diversification and Having an Investment Plan
Successor Trustee Duties
Identifying, Gathering and Taking Control of the Assets
Forwarding Mail Issues
Asset Locator Chart
How to Select a Trust Company that is the Right Fit
Rely on Your Attorney
Seminars–pros and cons: First, congratulations on building up such a large investment portfolio. Obviously, you have enough to take good care of both of you during your retirement. There is nothing wrong with financial advisors or attorneys putting on seminars and workshops. Over the years I, personally, have done many of these. It is a great way to advertise oneself and obtain new clients. But, as a consumer, one does have to be careful. You can’t just give your money to anyone who offers a free dinner and a presentation. Further, you can’t give your money to everyone; even if they are all honest and competent, that can create a myriad of problems.
Diversification and Having an Investment Plan: You probably don’t want to lose all of your investment portfolio or even a significant portion. Long ago I went through the certified financial planner education course and learned that investments should be part of a plan; that plan being based on your goals, time horizon, and risk tolerance. It becomes difficult to impossible to have such a plan when you have so many investments spread out over so many advisors, each doing their own thing without any coordination. For example, one advisor may be heavily into foreign stock and the second advisor, not knowing that, may also be heavy into foreign stock; thus, giving you way too much foreign stock for your situation. Remembering the age old advice, don’t put all your eggs in one basket (or too many in one basket)— you could be doing just that.
Successor Trustee Duties: Moving away from investment theory, let’s take a look at your approach from estate settlement and management issues. When you die or suffer a stroke, your wife is not going to know where everything is, let alone be able to handle it. So it will be up to whomever is named as your successor trustee for your Living Trust, power of attorney holder, or executor of your Will (I call them all “the manager.”)
Identifying, Gathering and Taking Control of the Assets: The manager is going to have to gather everything together. And that could be an overwhelming issue. I had a husband and wife client who had their investments spread out sort of like you. They both died a few years ago in rapid succession–approximately 5 weeks between their deaths. Somewhat fortunately, about 9 months earlier, I had suggested that they consolidate their investments. We had started to get that done; actually thought we had succeeded. But it turned out that there were many investments that they had forgotten to tell us about. Evidence of those turned up later as we went through the paperwork and records after their death.
Forwarding Mail Issues: But wait, it gets worse. Typically, almost every investment is going to send a monthly, quarterly, or annual statement to the home or address of record. So all the manager has to do is just wait and collect the mail to identify the investments. Problem here was they were living in an assisted living facility (ALF). After their deaths, the manager requested the post office to forward mail to the manager. The post office refused as the ALF was listed as a business on the post office records and the agency doesn’t forward from business addresses. The manager got lucky when the ALF was gracious enough to agree to forward the mail to the manager rather than returning it to the post office. I can’t say that every ALF would be that agreeable.
Asset Locator Chart: So how do you solve this problem. At the minimum, you need a list of all of your investments, where they are held, and the approximate amount in each. Obviously you need to update this list periodically and you need to tell someone (maybe your attorney if there is no one else) where this document is kept. We call it an “asset locator” chart and give each of our clients a blank one when we create that client’s estate plan (Living Trust, etc.). If you are so inclined you could create the form on your computer or it could be a paper version. Of course, this approach does not solve the problem of having multiple investment plans that don’t work together (i.e. too many eggs in one basket)–what might be called proper diversification.
Consolidation: In order to solve the diversification problem, you need to consolidate–that is the wise way to go. The next question, of course, is which of your present investment houses do you use to consolidate everything under one roof. Or do you use a completely different company. It, of course, can be a trust company or an individual advisor. For a number of years, I tried to find the best trust company. I went through various iterations: the biggest, the one with the trust officer with the advanced degree, the one with the best return, the one with the lowest fees, etc. None of those approaches worked. They all tend to follow similar investment approaches, hire the same types of smart people to handle the investments, and each report their returns by varying different methods preventing comparison (there is no federal formula for calculating return as there is with mutual funds). Comparing fees is equally impossible.
How to Select a Trust Company that is the Right Fit: I finally came down to the best is the one which is going to be the most responsive. And that responsiveness depends on your situation. For example, would one of the really big trust companies be appropriate? If you are Warren Buffett you are going to receive its top people and they are going to fall over themselves to return your phone calls. You are not Warren Buffett. One of the large companies I have dealt with has several trust centers around the country for their “smaller accounts.” The junior trust officer is going to be to whom you are assigned. Maybe the junior-junior trust officer. I don’t know how many accounts that officer is handling at any one time (although I have been told it is a lot) but let’s agree that responsiveness is gong to be somewhat less than Warren would receive.
There is another trust company that is very large with relatively low fees (no, I’m not going to name names). They have different levels of investment divisions. Less than $500,000, less than $1 million, etc. They do a fairly good job. But, the good officers keep getting kicked upstairs to the next higher level leaving the investor to create yet another new relationship and the advisor to become familiar with the investor’s goals, time horizon, and risk tolerance. And the officer is typically a youngster (in his/her 20’s or 30’s). I don’t know about you, but I would like someone who is a bit more seasoned.
Rely on Your Attorney: So how do you know what company is “right.” That is your attorney’s job. Yes, that’s right, your attorney should not be there to just draft documents as this person should have a wealth of experience and knowledge that can be used for your benefit. He/she should know with whom he has a good relationship and who has good responsiveness for your wealth level.
Transfer Assets: Once that company is selected, all of the investments will be transferred (generally in kind so that there is no tax ramification) to the selected company. And life will become much easier for you (just one monthly statement and one person with whom to discuss things). And certainly, life will be much easier for the manager if something happens to you.