Ask the Money Coach – Financial Planning:
Question from Michael about financial planning after a parent’s death:
My father recently passed and the attorney who drew up the trust recommended a financial planner to my mother. He made a couple of the recommendations during the initial appointment and I’m a bit concerned about the type of advice being given.
One recommendation was for her to move $10K out of her CD’s into her checking account and if it was still there after a year then she was doing pretty well. In another recommendation he suggested that she purchase a new vehicle (currently driving a 10yr old car).
We have decided to go it alone.
Response from Boston Money Coach:
First, please accept my sincerest condolences.
Advice Sounds Good to Me
Let’s take a look at these two recommendations. On their face these may seem like trivial recommendations but I think there’s more to them when you look under the hood. Moving cash from low-yielding CDs to more liquid cash is a smart move. Your mom may need to adjust to her new reality that may include lower income because of the loss of your dad’s Social Security benefit and possibly the loss of a pension check.
Buying a new car may not seem to be a germane area for advice. But it is more than reasonable. Your mom’s driving a 10-year old car. There may be safety issues or costly repairs to consider. And on a less analytical point, buying a new car may help signal a fresh start for your mom. And lastly, it’s your mom’s money and she should use it. That’s why your parents worked, saved and sacrificed. She should enjoy it.
Sure, there may be other issues to address like taxes, investment allocation and dealing with a new household budget but that’s for later when you have hired a planner. And if you’re going to hire a planner, you should consider using a rated adviser or using an objective process and not rely solely on your “gut.”
Don’t Go It Alone
While I’m sorry for your family’s loss, I think that going it on your own especially after such a traumatic life transition is simply short-sighted. You’re obviously concerned about your mom’s well-being after the loss of your dad. And given the potential complexities of her financial needs and resources, you’ll need the guidance of a solid team which includes a financial planner, investment manager, tax professional and estate lawyer.
Without more background information about your parents’ situation and the resources that remain with your mom, I find it difficult to judge or offer specifics about this particular adviser’s advice.
I gather from what you’ve noted that you seem to have a concern about the competence of the adviser because of his recommendations. Judging an adviser’s worth on the basis of a couple of suggestions is not the proper context. There will undoubtedly be a number of tax, legal and financial issues to tackle over time. You’ll need trusted advice from one or more people qualified in their area of expertise to provide proper guidance in much the same way you’ll probably rely on a Primary Care Physician who brings in other medical specialists.
It looks to me that your dad and mom had sufficient resources to warrant putting together a trust. Obviously the lawyer provided you with the legal advice and the documents to put together an estate plan. Normally, this is only one part of a total plan. Unless the lawyer is trained in taxes and financial planning, he’s only part of a total team.
Now you note that the attorney recommended a financial adviser. That’s good. That’s what usually happens. What I find difficult to understand is why your parents did not already have a financial planner involved here acquainted with them and their plan. Did they have one who retired, died or left the business? Did they simply decide that they were “all set” because they had the legal documents? That’s like hiring an architect who drafts a blue print for a house but not hiring a contractor to build it.
Have Realistic Expectations for Any Adviser
So now you’re meeting with a new guy recommended by the lawyer. It’s probably a complimentary meeting to get acquainted and find out what the issues are. Without knowing about your mom’s situation, he has a learning curve. He’s going to try getting to know you, your mom, what your needs are and what are your motivations. And you really can’t expect him to dispense all sorts of advice for free and do it without testing to diagnose the problems. Anything short of that is akin to medical malpractice.
Avoid Sudden Moves
In my practice, I generally subscribe to the belief that after a challenging life transition a widow or widower should not be taking any huge changes to investments. There are practical administrative reasons as well as legitimate emotional reasons. First, you have to find where everything is. Second, and more importantly, the surviving spouse may be dealing with financial and investment matters that they may have not ever dealt with because this was handled by the deceased spouse. And this leads to an emotional attachment that needs to be gingerly approached.
Separation Anxiety
Oftentimes, surviving spouses do not feel comfortable selling anything acquired by the deceased spouse. Take the widow I met who had nearly 100% of her investment portfolio in one stock – Apple – that her husband had bought in the early days long before iPhones were a gleam in the mind’s eye of Steve Jobs. This widow’s spouse had bought the stock early and held it. Sure, it’s done extremely well. But more than fifteen years after burying her husband she has done nothing to diversify much less protect her position with some sort of hedge because this investment represents her husband.
