Dear Mr. Berko: After 33 years, my wife and I sold our business to our longtime partners. We're both 66, and we have a little over $3.2 million to invest after taxes. We're debt-free, healthy and active, and our children are independent. A stockbroker, recommended by our lawyer, advises we invest $2 million in a variable annuity, $200,000 each in three mutual funds and $600,000 in a private-equity real estate limited partnership. Then he would charge us 1 percent a year to monitor those investments for us. We wouldn't need to take any of this money for 10 years. Please tell us what you think. Is the adviser giving us good advice? — DS, Cleveland
Dear DS: This guy has delusions of adequacy and is giving you the royal shaft, sans lubricant.
Where have all the good guys gone who recommend stocks such as Johnson & Johnson, Costco, Dominion Energy, Boeing, JPMorgan Chase and AT&T? Where have all the good guys gone who built conservative, long-term income/growth portfolios for clients?
Please tell the mountebank brokster who's peddling this high-fee mishmash to take a long walk off a high precipice. You may have a malpractice claim against your shyster lawyer for recommending that rapacious scoundrel, who'd charge you $192,000 in commission to own those high-fee products.
That variable annuity company is a good name; it's financially strong, and I've owned a life insurance policy through it since 1988. However, I can't abide by a $2 million investment in that variable annuity. The 6 percent commission ($120,000) that broker would make is scandalous, and the 3.45 percent ($70,000) annual maintenance fee would be criminal. That high yearly fee would smother the long-term performance of the investment return in this annuity.
That mutual fund group is a fine fund family that has been serving clients for years. The three recommendations are $200,000 in a preferred stock fund, $200,000 in a government bond fund and $200,000 in a corporate bond fund. Each fund is fairly managed compared with established benchmarks. However, they would be unwise investments; they're fixed income funds, and their values would plummet when interest rates rise. And rates will rise. I can't abide by the 4 percent commission on this $600,000 investment, or $24,000. And I can't approve of the 1 percent yearly management fee ($6,000), $1,500 of which would be deducted from your principal balance each quarter.
Finally, a $600,000 private-equity investment in a real estate limited partnership wouldn't be suitable for you folks. The general partner has a good reputation, and I've seen fair results on two partnerships that originated in 2009 and 2010. Those were exceptional investment years for real estate, and experts believe that prices of apartment and condo units now exceed consumers' affordability limits. But I'm offended by the mortifying 8 percent commission ($48,000) and by your inability to liquidate the investment on demand if needed.
Meanwhile, your lecherous broker has the temerity to suggest charging you 1 percent annually ($32,000 a year) for monitoring all these investments. That really takes the cupcake!
It's difficult to find a competent financial adviser who'll put your financial well-being ahead of his. And the ludicrous new federal rules aren't worth a ding-dong! "Where have all the flowers gone?" sang Peter, Paul and Mary. I've given you the names of one money manager and two bank trust departments. I trust their experience, expertise and performance, and their fees are practically identical. Please call them and request appointments. Have your spouse attend with you. After all, half that money is hers, and she should be involved in the process. This is serious stuff, just as serious as your 33 years running that machine ship in Cleveland. Each of you should take copious notes during the three interviews. List what you believe are the advisers' pluses and minuses — sort of like an Aristotelian scale of balances — and afterward discuss them together. Don't rush the process, which may take a month to complete. This will be an excellent learning experience for both of you. Let's hope you'll have a eureka moment. If not, send me an email, and I'll help you make a decision.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.