Taking responsibility for a parent's finances is a multistep process. Once you've worked your way through all of the legal formalities, you need to find out as much as you can about the accounts your parent currently has. If your parent has relied on outside financial advice, then you will need to speak with your parent's financial advisors to get information.
Working with your parent's financial advisors
If your parent has a financial advisor for any accounts, your first step in reviewing those accounts is to meet with the advisor. This initial meeting is extremely important, and your goal is to accomplish two main things. First, you should get as much detailed information as you can about your parent's investment accounts. For instance, did your parent prefer investing in mature dividend-paying companies like AT&T
Second, you should find out more about how your parent conducted business with the advisor. Did the advisor and your parent have regular meetings on a quarterly or annual basis, or did your parent simply get a call if the advisor had an idea for a new investment? What written materials did the advisor prepare for your parent? Was the advisor authorized to complete transactions without communicating with your parent, or did your parent have to approve any transaction first?
In addition to asking these professional questions, you should also get a sense of some of the intangibles involved in the relationship. By asking about how the advisor met your parent, you may get valuable insight into how much the advisor values working with your parent. All too often, large financial institutions assign new advisors to accounts, especially accounts belonging to older clients who don't generate large commission revenue. On the other hand, if the advisor is a personal friend of the family, then both you and your parent may feel more comfortable with the situation. Also ask whether the advisor thinks that doing business directly with you might differ from the way he or she conducted business with your parent.
In your first meeting with an advisor, try to keep an open mind. If you handle your investing on your own, your first thought in meeting an advisor may be that you can handle your parent's finances by yourself and that your parent doesn't need to pay additional fees for a financial advisor. Indeed, this may well turn out to be true. However, you won't know the full extent of the services your parent's advisor provides until after your first meeting. Once you take a closer look at all of the information you gather, you'll be able to make a more informed decision about whether to change advisors.
Crunching the data
After you have all of the information you need, the next step is to evaluate your parent's investments in light of the overall financial plan. Calculating the asset allocation of your parent's portfolio will help you determine the level of market risk that your parent has assumed. More stocks indicates more risk, while more fixed-income holdings generally indicate less risk. Checking for diversification ensures that risks specific to one particular investment will not cause extensive losses in your parent's portfolio. Especially if your parent has a multitude of accounts with many different financial institutions, looking at account fees and expenses may guide you in choosing how to consolidate your parent's investments among a manageable number of accounts. In addition, by looking at the income your parent's investments generated and comparing that information with your parent's expenses, you can get an idea of how viable your parent's current portfolio remains under the current circumstances.
As you perform this evaluation, take into account that your parent's needs may be changing. For instance, if the reason you are taking responsibility for finances is health-related, then your parent's medical expenses may well rise. This doesn't mean your parent's investments weren't appropriate when they were made; it just means the new situation may require some modifications to the original investment plan.
The result of your initial evaluation should include a list of investments with which you are comfortable and investments about which you want to inquire further. Getting a basic explanation of the underlying financial plan will be helpful in considering future changes to investments. It will also you determine whether plan modifications are necessary to address your parent's changing needs. When this evaluation is complete, you can integrate it into your overall report about your parent's finances. This initial report will serve as a baseline for you to use on an ongoing basis and will remind you of the condition of your parent's finances before you took responsibility.
After you have completed your initial report, the next step is to determine what actions, if any, you need to take to achieve the best results for your parent. The next part of this article talks about some of the factors you should consider when thinking about and following through on changes to your parent's financial plan and investment portfolio.
- Managing Mom's Money
- Managing Mom's Money: Part 2
- Managing Mom's Money: Part 4
- Managing Mom's Money: Part 5
Fool contributor Dan Caplinger wants to assure all of his readers that he's not a sexist, but he does like alliterative headlines. Dan is an estate-planning attorney, independent financial consultant, and licensed CFP professional. He owns none of the stocks mentioned in this series of articles. AT&T is a former Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.