Question: “Our 80-year-old mother was widowed in 2011 and when her adviser moved to a large investment banking company in 2014, he had her move her accounts (Trust, Roth and Traditional IRAs) with him. Her husband was the financial person; she is trusting and not a financial person. Recently I acquired power of attorney for her accounts and assumed a quick review would be all that was needed to satisfy our need for due diligence. We reviewed the latest statements and had questions for the adviser. Our first phone call went OK except for a couple of red flags; he said his fees were 1% AUM, that the returns on accounts average 6% net of fees and that he always considered her like she was his own mother. Upon further review of documentation and calculation of fees, it turns out his actual fees were 3% AUM and slightly graduated down in $500,000 increments and returns were more in the order of 1.6% per year.
Our second phone call with him didn’t go nearly as well. We confronted him about fees and performance and after about 10 minutes of banter, we began asking follow-up questions. He stated that subsequent to the first phone call, he had adjusted fees to 1%. We expressed our displeasure about the discrepancies between what he said and what was reality. He responded with ‘I don’t know what to say.’ We requested a statement of all activity into and out of the main trust account (exclusive of internal dividend reinvestment) and a refund of 2025 fees through July.
He went radio silent and we haven’t had a response from him or his supervisor/manager. We have initiated an ACAT Transfer of Assets to a big financial services company, but still have unresolved issues/concerns. What can we do? We feel like our mom was taken advantage of. What should our next steps be and should we seek out a new adviser based on a referral or personal relationship only?”
Answer: “While it’s not illegal for an adviser to charge 3%, it’s certainly excessive,” says Joe Favorito, certified financial planner at Landmark Wealth Management. (You can use this free tool to get matched with advisers, from our partner SmartAsset, as well as sites like CFP Board and NAPFA.)
“Most reader complaints and stories have to do with the sale of annuities and REITs because commissions taint advice. Your example may be one of an adviser abusing a fiduciary fee model, the assets under management (AUM) model. There are very few situations where charging a 3% advisory fee could be considered reasonable,” says certified financial planner Mark Struthers at Sona Wealth Advisors.
When advisers do financial, estate and tax planning, charging more than 1% is not unheard of depending on the asset level. “There would be a lot of extra non-investing time and expertise to justify anything close to 2% or more and it does not sound like that is the case in your situation,” says Struthers.
To begin, “I would suggest you ask for a copy of the client agreement that your mom signed for asset management services and if the adviser’s stated fee was 1% but he actually charged 3%, you can take him to arbitration and possibly get a credit,” says Favorito. However, an adviser often has the authority to increase their fees in their client agreement. “At the same time, they are typically required to notify you of this change in advance and if they didn’t, you may have a case,” says Favorito.
Document everything. “It’s an adviser’s job to document everything as well. If you’re missing documents, you should easily be able to contact them to obtain the documents needed. Save copies of all your statements, as well as any documents with disclosure agreements that you signed. It’s also important to print out or take screenshots of any emails, text messages or phone calls that you’ve had with the adviser. It’s crucial that you do this while everything is still fresh in your mind,” says elder law attorney and financial adviser Patrick Simasko at Simasko Law.
Next, ensure your mother’s money and investments are safe and that no further damage is done. “Given that this adviser and their firm may not behave appropriately, I would make sure you and any new firm are staying on top of the ACAT transfer. Try to stay on top of all the positions coming over. Some firms that behave poorly will often use investments that may not transfer electronically so be aware of what needs to be sold and the consequences,” says Struthers.
Continue to be an advocate and after you get to a good place, it may be time to consider some estate planning and what-if scenarios. “Being with a big firm means little as far as long-term safety. If anything, the pressure to produce revenue for the upper management can make things worse. And they can find backdoor fiduciary ways of getting more revenue, like a bank adviser investing funds in structured notes issued by the same bank. They get the advisory fee and the hidden fee with the structured note,” says Struthers.
When large banks say they’re fiduciaries, it’s possible they’re pushing their own products that have built-in incentives. Large banks also tend to have sales quotas where advisers are encouraged to produce a certain amount of revenue, which can cloud what’s truly best for the client. When looking for an independent adviser, ensure they’re fee-only, meaning the only fee they’re paid is from you. They should be transparent about their compensation and use a third party custodian to hold your money. CFPs are considered the gold standard in the financial planning industry as they have the highest level of training and an ethical commitment to put clients’ best interests ahead of their own.
Once everything is settled, you could go online and write a review about your adviser. “Be truthful and write it from the standpoint of wanting to let people know of your experience. If you’ve had an unpleasant experience, it’s unlikely you’re the first person. That’s why before you find a new adviser to work with, you should go online and look at reviews,” says Simasko.
As far as looking for a new adviser, while a referral can be a good starting point, it’s crucial to conduct your own due diligence. “Blind trust in a relationship can sometimes lead to overlooking red flags. Start with fiduciary organizations like XY Planning Network or the National Association of Personal Financial Advisors (NAPFA) and then narrow down your search. Credentials are no guarantee of good behavior, but often, the bad actors are the ones who prefer shortcuts. Prioritize rigorous credentials like Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) which require extensive training and difficult exams, as a sign of an adviser’s commitment to the profession,” says Struthers.
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