MY FATHER-IN-LAW William retired from Duke University after teaching there for more than 30 years. He had a good pension, which—along with Social Security—covered all his expenses at the continuing care retirement community (CCRC) where he spent most of his retirement. Almost to the end, he was mentally sharp. I saw no need to inquire about his finances. I was mistaken.
In summer 2014, my wife noticed that William, then age 96, had left a large check for a matured life insurance policy on his desk for a couple of months. On investigating further, she saw that there were some bills—things not covered by the CCRC—that he had left unpaid. She spoke with her father, who agreed to grant her power of attorney. Since I’m more interested in financial matters than my wife, she enlisted my help.
First, I organized his records. This took some time, because William saved everything he received from his bank, broker, pension fund and more. Next, I moved most of the money he had at the Duke credit union to the State Employees’ Credit Union, which was then paying about eight times more interest on money market accounts. That made him a couple thousand bucks in a year for very little effort.
Then I started looking through his statements from a large national brokerage firm. There were 32-page monthly reports and eight-page quarterly reports, neither of which provided much useful information. Instead, they appeared to be written to impress the reader with the fine management the company provided, making it seem like the folks there were doing a lot of work for their fees. I found that 92% of William’s portfolio was invested in 14 North Carolina municipal bonds with an average 5% coupon rate.
The bonds had a market value of $621,027 and, in 2014, paid $25,501 in interest. On William’s account statement, I found an unexplained “other debits” item of $5,450. From his 2014 brokerage tax statement, I learned that the $5,450 was for a “private investors fee.” It turned out William was paying 21% of his bond income toward an unnecessary management fee, since his bonds needed no management.
The other 8% of his portfolio, equal to $57,428, was split between 15 actively managed mutual funds. These had an “MFA fee” of $948 on top of the fund expenses, which averaged 0.92%. In total, William was paying 2.7% annually in fees for his mutual funds.
I immediately wrote a letter for my wife to sign, telling the brokerage firm that we no longer wanted the municipal bonds managed. We also directed the firm to sell all the mutual funds and send a check. There were some capital gains, but those were more than offset by capital losses carried over from the sale of two timeshares that William also owned.
A representative from the brokerage firm called and tried to convince me that we should continue to let the firm manage the municipal bonds. I told him we were happy to leave the bonds where they were and just collect the interest. He said, “Yes, but these are managed,” as if that somehow made them more valuable. I replied that we didn’t need any further management.
Unfortunately, William’s health deteriorated and he died in September 2015 at age 97. My wife was executor of his estate. The changes we’d made to William’s brokerage account and bank account meant the estate—which was split between my wife and her three siblings—was several thousand dollars larger.
My regret: I wish we had looked into his finances earlier, because he was getting bad advice and paying way too much for it. He didn’t need 92% of his holdings in municipal bonds, especially when his fixed expenses were covered by a pension and Social Security. William would have done far better with his money in a small set of low-cost index funds. For financial advice, he could have hired a fee-only financial planner for less than the brokerage firm was charging—and I would have happily advised him for nothing.
Brian White retired from the University of North Carolina, where he worked as a systems programmer and then director of information technology in the computer science department. His previous articles include A Simpler Life, Time to Retire and Limited Selection. Brian likes hiking with his wife in a nearby forest, dancing to rocking blues music, camping with friends and stamp collecting. He also enjoys doing Volunteer Income Tax Assistance (VITA) work at the Chapel Hill senior center.