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Aug. 13, 2022, 1:30 p.m. EDT

After my mother-in-law died, we learned that her adviser had picked investments that ‘paid less interest than the adviser charged.’ Is this even ethical and can we do anything about it?

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Alisa Wolfson

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Question: My mother-in-law invested with a registered advisor for years. After her death, I learned that a large percentage of her money was invested in vehicles that paid less interest than the adviser charged. Do you consider this ethical? Can anything be done about it?

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Answer: Firstly, we’d like to extend our condolences on the passing of your mother-in-law. Secondly, there are a few factors at play here, and we’d like to examine them all: How the adviser invested, what the adviser charged, and what, if anything, you can do about his actions.

Lauren Lindsay, certified financial planner at Beacon Financial Planning, says it’s a good idea to reach out to the adviser and talk about why your mother-in-law was in those things and find out what steps were taken to ascertain risk tolerance and suitability. “If the adviser went through the steps to ascertain suitability, they should be able to show this. Also, ask how they conveyed the fees to see if she knew how much she was paying,” says Lindsay. Starting with this and seeing what information you receive can be a helpful jumping off point. “It’s possible that it was an ethical decision in the best interest of the client and the opposite is also possible,” says Lindsay. (That said, unless you’re the power of attorney or a trustee, the adviser isn’t obligated to talk to you about what they did with your mother-in-law’s money.)

Next let’s look at how the adviser invested. There are parts of a diversified portfolio that may sometimes have a lower return profile than an adviser fee, says certified financial planner Chris Russell of Tempus Pecunia. “Safer investments like government bonds or tax-free municipal bonds pay very little return, but still have a place in the portfolio to provide diversification,” says Russell. Still, the “large percentage” you talk about should have been determined by your mother-in-law and her adviser talking about her investments and risk tolerance, he explains. “The adviser is required to retain those records, so the client could request them for review to determine if the investments were appropriate or not,” says Russell.

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For his part, Ken Robinson, certified financial planner at Practical Financial Planning, says ethical investment advice is more than rate of return, meaning there’s a lot of value in making sure you’re not taking on more risk than is appropriate. But, he adds: “When risk is low, returns will be as well. So don’t just think about how much your mother-in-law made,  but also how much loss she might have been spared,” says Robinson. That said, it may well be that the adviser was making the wrong moves.

It may be that the adviser was simply charging too much. “Many flat-fee advisers set the same amount for each household, such as $7,500 per year, paid monthly or quarterly. This would be an ideal annual fee for a client with investments exceeding $750,000,” says certified financial planner Cody Garrett of Measure Twice Financial. A common range for flat-fee advisers is between $2,000 and $10,000 per year, depending on an adviser’s skills and experience. A financial planner who charges based on assets under management (AUM) typically charges 1% annually, though that amount can fluctuate based on a person’s total amount of assets. “Since hourly fees range from $200 to $400 per hour, this fee structure is usually not beneficial to those with complex financial cases,” sasy certified financial planner Danielle Miura of Spark Financials. Many professionals, including Nick Holeman, director of financial planning at Betterment, says he doesn’t recommend using an adviser who gets paid commissions from selling products. “Make sure the adviser is a fiduciary. It means they’re legally required to act in your best interest and not every financial adviser has this obligation,” says Holeman.

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But what if the adviser was acting unethically?  Certified financial planner Marguerita Cheng at Blue Ocean Global Wealth recommends the following resources to submit a complaint: FINRA , SEC or NASSA .

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