Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to All Worth Money Matters. I'm Scott Hanson.

Pat: I'm Pat McClain.

Scott: Yeah, this is a financial program. We talk about financial matters. We're both financial advisors, have been doing this a long time, and like to talk about doing some things that will help you with your finances. Love taking your calls, answering questions you might have regarding a variety of different planning moves. It's interesting, and I know you've gotten this a lot too, Pat. People say, "Pat, hey, thanks so much." Long-time clients. "I couldn't have done this without you. This is..." Well, no, first of all, you did the hard work. The hard work is saving the money.

Pat: We just organize it in the most efficient way we possibly can.

Scott: But that's also really important.

Pat: Correct.

Scott: Right. I mean, it's two things that need to happen. One is the discipline to save, delayed gratification and saying, "I'm going to forgo this particular purchase of that particular purchase." And the second is having the right kind of plan. So it's interesting. Over the New Year's, we spent the New Year's in Newport Beach.

Pat: Wow.

Scott: California, Los Angeles area.

Pat: Swanky.

Scott: Did you know you can rent ravaged places in Newport Beach?

Pat: I know, I know.

Scott: But my point is...

Pat: Did you go to the Gucci stores, that kind of a place that has like the Gucci stores?

Scott: Oh, yeah.

Pat: Versace?

Scott: Oh, yeah. All that. I mean, I didn't go shopping.

Pat: But they have all that.

Scott: Oh. And the cars down there, like Rolls-Royce SUVs, Bentley SUVs, Maserati SUVs, there are so many nice cars down there.

Pat: And what are they piling in the back of these SUVs that they need that much space in the car? I just want to know.

Scott: And if you spend 500 grand on a Rolls-Royce SUV, are you really going to take it up to Mammoth and throw the skis on top?

Pat: Where are you going in this? I'm just curious because I, this morning, actually, had a bunch of material. I replaced all the fluorescent lights in my garage with LEDs. It looks like an operating room now, by the way. My wife.

Scott: You did it yourself?

Pat: Yeah. Yeah, I did it myself. And I'm going to the office, so I'm like, I'll just throw all this stuff in the back of the SUV.

Scott: You made sure no light fell on your Maserati or your Ferrari while you were doing that, right?

Pat: Oh, yeah. So my point, I have an old SUV, but I pile the stuff. If I had a Rolls Royce SUV, I probably wouldn't have...

Scott: So like and G-Wagon, those like Mercedes G-Wagon things.

Pat: Oh, yeah.

Scott: And they're all like the most expensive. All of them are like...it's so interesting down there. And I was looking at some guy driving by and he was not very old. What I mean is, like, sometimes you see guys that are 75 or whatever, I don't know. And I thought, I wonder if this guy can really afford this car.

Pat: Or is he a crypto bro?

Scott: Crypto bro. But my point is if you've got plenty of assets and you want to blow 500 grand on a Rolls-Royce SUV, all the more power to you. Right? And most people aren't looking at 500, but a $150,000 car, $100,000 car, $50,000, like it's all kind of relative.

Pat: Good for you.

Scott: But if you can't...and I was kind of looking. Because I was looking at around and I'm like, how many of these people can really afford these cars?

Pat: How many are big hat, no cattle?

Scott: Well, I mean, Newport Beach is... It is so showy down there.

Pat: It's right next to Hollywood, is it not?

Scott: No, no, no. It's in Orange County, South Orange County, north of Laguna Beach.

Pat: Okay. Anything south of the Grapevine is all Disneyland to me.

Scott: It's got to be one of the showy... My guess is Beverly Hills, Rodeo Drive, is all the same kind of thing. But...

Pat: I've never been to a Gucci store or Versace. And if I live a good life, I never will.

Scott: I'm sure there's probably some listeners that have...

Pat: Good for them.

Scott: Yeah, whatever. I don't know what my point was on this. I think it really came...all of our views on money...and money is a strange thing. Like it gives us options. And there's some people that are, "Wealthy people are just greedy," or whatever. But like there's something to be said about having some financial resources and some security so that you can be the best version of yourself. It gives you that flexibility, that option. It's pretty hard to have peace in your life when you're worried about how you're going to make your rent payment.

Pat: That is...yes.

Scott: Or how you're going to pay for your grocery bills. Or which utility is going to be shut off this month because you have to choose between the water or the electricity. And so I think it's really important to find ways to get beyond that and have some financial security and ideally get to a point in life where you've got enough financial security so that your work is an option and not an obligation. But then beyond that, there are lots of different viewpoints on what wealth is, what money is, what's the purpose of it.

Pat: You know, so Scott, you bring back memories. My wife and I are actually celebrating our 38th anniversary this week. We bought tires for our first anniversary and we bought the wedding pictures...we paid for the wedding pictures on our second anniversary. Right? And you're thinking, you know? It was like that, that was the way it was, right? That was the way it was. It was like, it wasn't either good or bad. It's just what it was. And you had to be as responsible with the money as you possibly could. And the wedding pictures were a luxury and the tires were a need. Yeah, because...anyway.

Scott: But when you get past that, there are those that want the Rolls-Royce SUV, apparently. And there's, if you find... I mean, if you listen to the show long enough, I don't think anyone's called us with a Rolls-Royce SUV.

Pat: No, no, no.

Scott: But I wouldn't mind driving one once, just to see what it feels like.

Pat: Really?

Scott: I don't know. I'd be embarrassed to be seen in it.

Pat: Why don't you go to Newport Beach and pretend you're going to buy one?

Scott: All right, so full transparency. In the year 2000, maybe it was '99.

Pat: Oh, I know where you're going with this. I remember this.

Scott: Maybe it was '90. It was right around that. I bought a Porsche convertible. Porsche Carrera convertible.

Pat: Used?

Scott: Bought it used.

Pat: Like a dream car? Was it your dream car? People have dream cars, I don't know.

Scott: I don't really have a...I have no sports car now. It was my one foray into sports cars. Oh, I had a second one for a while. That was a mistake. They were both mistakes for me, personally. But I remember having the car. It was a convertible. It was a beautiful car. But, I remember pulling up to a light one day, and the tops down, and I look over next to me, and it was this couple that we knew from our church that were always struggling financially, completely struggling.

Pat: You knew that?

Scott: I knew that about them. It's just some people that, for whatever reason, their whole life was that. And I just felt funny. I'm just being transparent. I felt funny sitting in my Porsche convertible.

Pat: Did you feel elitist?

Scott: Is that the term?

Pat: Oh, no.

Scott: I'm joking. Well, it felt like I was trying to show something. That wasn't my objective. I had the car less than a year. My wife hated it. She was like, I'm only going to ride it if you can promise I'm not seen in it.

Pat: I drove in it twice. I hated it as well, but I never said anything. I felt like I was driving around in those little scooters you drive at the racetracks, the go-karts. So you got rid of it.

Scott: Well, the final straw, we drove up to Lake Tahoe. We went to a marriage conference in Tahoe. And I talked her into taking the Porsche. And we're speeding up the Highway 80 to go to Tahoe. And nearing the summit, I'm like, "Wow, this is a really rough road here," which happens because of the winter chains and the trucks and all that. And my wife says, "Your tire." And my tire, a picture of the big wheel on the back of a Porsche, right? Really wide, low-profile kind of tire. The tire had, I guess, become flat that I didn't realize. That's why it was... There's that. The tire had broken off the sidewall and had come across the car and was literally passing us on the freeway.

Pat: I've never heard this story. And if I did I don't remember.

Scott: No, literally passing us. "Your tire." "Oh, holy crap." So I pull over. That can't be good. I pull over. And sure enough, the tire's completely gone. Fortunately, there was a little rubber still from the tire, so my rim wasn't damaged. And now I'm looking at the car like, does this car have a spare? Because that's a big old wheel. And I noticed, yes, in the glove box, it says there's an inflatable spare. I'm like, well, it's not going to be like that. Even if I could figure out how to get this thing off, the only place to put the wheel would be in the passenger seat, which means my wife would have to get out of the car or something. So I had to call a tow truck. I had to call a flatbed tow truck. Then they had to tow it. It was such a pain in the butt.

Pat: And did Valerie say, I told you so?

Scott: No, she's a better wife than that.

Pat: That's funny.

Scott: She didn't need to say anything. I think I got rid of it a week later.

Pat: You're like, "I'm eating this."

Scott: Anyway, but...

Pat: This is a financial show.

Scott: And we take calls, by the way.

Pat: Did we give our number out already?

Scott: if you'd like to be part of our program, 833-99-WORTH. By the way, I have no problem with people... We've got clients who've got nice cars and all that stuff. Like I have no problem with any of that stuff. I think my original point was we all kind of value something different from money. And for some it's... Some don't even really enjoy their assets at all. They don't know how to. And some of it's out of insecurity that they keep accumulating more and more and more. There's two sides of the...

Pat: Yeah. And Scott, you know, I have a client. He's, Pretty frugal, but quite wealthy, but likes real estate. And in his mid-70s, he owned four homes. And when I would meet with him, he would talk about the homes. And I said to him, you know...

Scott: Like, four personal residences?

Pat: Yes, yeah. So two vacation homes and two personal residences. And I said to him...every time I met with him for about two years, he would talk about the repairs and what a pain in the butt it was.

Scott: That's the first thing I thought when you said he had four homes.

Pat: And I said to him, you know, you no longer own your stuff. Your stuff owns you. You no longer own these homes. These homes no longer serve you. You serve these homes. And I said, you need to come to the... I said, in my opinion, you're spending valuable time in your seventies taking care of an asset that you no longer...

Scott: Doesn't love you back.

Pat: Yeah, the house doesn't know you own it, right? And he... We put a plan over a three-year period to get rid of three of those houses and to buy a small vacation home, something that's small, condo, easy to take care of. But it took us three years. It, first of all, took him the realization that he was consuming lots of his energy on things that the return wasn't there. And then it took us three years to actually dispose of the assets and get him to where he could actually enjoy, right? Because what's the point? I mean, what's the point of owning a home? So you tell people you own a home?

Scott: Well, and then you say, "Well, maybe I'll just hire someone to manage them," but then you've got to manage those people. And they quit and they get sick and all those other issues happen too. There was an article in an issue of "The Wall Street Journal" years ago. It was a couple and they highlighted this particular woman. Her full-time job was...I think they had five residences all in...like, one in Park City and one wherever those fancy and I think she was, like, bragging showing off her lifestyle or something but all of her time was spent on, you know, getting a new couch or making sure that the plants are being properly watered. And I'm reading this thing and the more I read it, the less attractive this person became. I mean, I'm like is this really what you want to give your life to? I mean, of all things to...

Pat: But maybe they did.

Scott: Obviously, they did. Maybe I shouldn't be judging. Judge how I live, but maybe I shouldn't try judging. Anyway, if you want to be a part of our program, 833-99-WORTH is the number. 833-99-WORTH. Let's go now to Noah. Noah, you're with Allworth's "Money Matters."

Noah: Hey there. How are you doing, guys? Thanks for having me.

Scott: We're good. How are you doing, Noah?

Noah: Not too bad. Another day in paradise. I am down here in sunny South Florida. It's a little cold right now, but I'm doing my best to enjoy that.

Scott: And what is a little cold in South Florida in January?

Noah: Well, right now it's in the 50s and 60s, but next week we're going to see some 20s and 30s.

Pat: Oh, wow. It is cold.

Noah: I'm excited for that. I don't know about my fellow Floridians here, but I'm looking forward to it.

Pat: Well, at least the iguanas won't be crawling all over the place when it's cold.

Noah: No. And it's funny. I heard you guys talking about luxury vehicles. Funny story for you. A long time ago, I used to work for a guy who had a Lamborghini Aventador and a beautiful car. And, you know, the company was down for a while.

Scott: What's a Vanador?

Noah; It's a Lamborghini. They don't make them anymore. They're just the creme de la creme, a $700,000 vehicle fully loaded. It's pretty sweet. But he kept it in Boca Raton, and Boca Raton has about as many iguanas as it does senior citizens. So during, I'm a funny guy, by the way.

Scott: Thanks for telling us. All right.

Pat: And super attractive and modest.

Noah: Oh, yeah. But one winter in Iguana fell right out of a tree, right onto the hood of his Aventador, and it was quite the... Oh, did it?

Pat: How nice of you to tie those two things together, my statement about iguanas and then our talk about automobiles. That was really, really graceful. So what can we do for you? Did it do any damage to the Vanator?

Noah: No, no, no. It didn't do any damage, but he and I and a couple of the other team leads were outside, you know, enjoying the nice weather, having a discussion. And about 20 feet away, we hear a nice loud clunk. And the car was fine. It was just, you had to be there. It was so fun.

Pat: So for those that aren't aware of this, in parts of South Florida, they're overrun with iguanas. And because they're warm-blooded animals, when it has a chill, when it gets down there, the iguanas literally fall from the trees. Like you'll be walking down the street and they're just dropping.

Noah: That's absolutely true.

Pat: Yes. So, all right. What's your question for us?

Noah: So, this is kind of a... I don't know how much time you guys have, but I'm in a little bit of a conundrum here. Long story short, I had been left not a massive inheritance, but really an okay-sized inheritance. And I have a little bit of questions because I feel like I'm being given misinformation, I may even be getting lied to.

Scott: From someone in the financial industry? Come on. That never happens. We have such a great reputation. Well-earned.

Noah: You know, it kind of is what it is. You know, I, so just to kind of give you guys backstory, my grandparents come from, you know, a good bit of money. You know, they came from a different generation, a different time where, you know, maybe you could trust a lot more people. Long story short, my grandfather got hit with some kind of an ad for a financial advisor doing, you know, TED Talks at the airport Hilton, and he went. And, you know, down here in South Florida, you know, a lot of times...

Scott: You can go and never have to pay for a meal if you don't want to.

Noah: Correct. And I think that he was...I don't want to say he was conned into it, but I think he was definitely roped into something that he didn't fully understand. And I think that he might have trusted this guy a little too much simply because we're from the same clan, so to speak. So just to use, just to kind of set up again a little bit of the backstory, I am one of the beneficiaries of a trust. My mother is the...what's the word for it? She's the...

Scott: Trustee?

Noah: She's the executor. Yeah, she is the trustee. She is the main...the primary whatever it is. And forgive me. I don't have all the terminology.

Scott: That's all right.

Pat: So your mother's a trustee of the trust. And is she a beneficiary of the trust as well?

Noah: Yes, she is.

Pat: And this was from your grandparents?

Noah: Correct. Okay. And the grandparents...

Pat: And the grandparents still alive?

Noah: No, my grandfather passed before my grandmother and my grandmother was...let's just say a very unusual person and she wanted to do things in a very unusual way. And you know, here we are. Okay. So just to use round numbers, I want to say that there's, you know, the total of trust is worth in the neighborhood of eight, 800 to 850. Okay. Now I do have an aunt and uncle, they have a special needs son. And because of that special needs language, there is a lot of complications as far as the distribution of the trust is concerned.

Scott: So everything went into one trust trying to deal with everyone from Noah to the one with special needs.

Pat: Correct. And how many beneficiaries of the trust are there?

Noah: A total of four.

Pat: Okay.

Noah: And, you know, the way I look at it is it is my grandparents' will. I don't want any more money than I am being given. I recognize that the way they have it set up is, for the most part, fair. Now where I'm starting to get into some complications is, for starters, my aunt and uncle are sealing the trust because they do not feel that because it was written in a special needs language, they will actually not be really receiving, truthfully, very much or any of this money the way it is set up right now. So the way I'm told a special needs trust works in this instance is where they would have to submit receipts to my mother, and she would have to then approve a monthly budget for them to basically receive money the way that an annuity would be distributed. They don't like that, they're suing the trust, that kind of is what it is. You know, win or lose, it doesn't help because it all just hurts the trust. There's nothing I can do about that. That's kind of what it is.

Pat: That's right. That's right. That's right. That's right.

Noah: Now, when I speak to the financial advisor who my grandfather hired in 1980-whenever, I feel like he is utilizing a combination of manipulation and scare tactics to accomplish a couple of things. I think. And this is really what I'm trying to find out. So the majority of this money, about $450,000 of it, to use round numbers, is tied up in a Lincoln Financial account. There's also a MassMutual, there's an MFS, there's an Oceanview, and actually a MassMutual Odyssey

Pat: Are all of these annuities?

Noah: Let me see. A couple of them are. I think two of them are. The two smaller ones, I believe, are annuities. They set it up that way so they couldn't touch the bulk of the money. They can only touch the smaller accounts as annuities.

Pat: Okay, well, that's garbage. But, okay, keep going.

Noah: Trust me, I see how it happens.

Pat: That is just complete crap.

Noah: I know. I know.

Pat: Because, and the reason is the investments have nothing to do with the liquidity of the trust.

Scott: That's right. It's all about the trust document.

Pat: They have nothing to do with the liquidity of the trust. Okay. So keep going.

Noah: So, yeah. Oh, there's more. So, I'm trying to think where to pick up from next.

Pat: You know what you need to do?

Noah: Talk to me.

Pat: You need to go and actually hire a professional trustee and get your mom removed from this.

Noah: I don't disagree. Part of the problem is, is that, that I feel like there's some liquid cash involved that I don't necessarily, I'm not necessarily prepared right this second to put up and also I don't really know where to begin all that.

Pat: No, no, no, no, no, no, no. The trust pays for the trustee.

Noah: So even part of that, like I'd rather, like I know it sounds odd, so my mother was a contract negotiator for UnitedHealth. You know, she's very, I think, qualified. Yeah, she's very qualified, in my opinion, to actually be the trustee.

Pat: Okay.

Scott: Why is the problem with the mom being the trustee, Pat?

Pat: Well, because of the lawsuit from the aunt and uncle.

Scott: It is a lot of work.

Pat: And this is a lawsuit on a relatively small trust.

Scott: Yeah, yeah. Attorney's fees can get pretty large.

Noah: So I will admit we do have an attorney. I like our attorney he's okay. But I also have nothing to compare it to. So for the moment I'm content with my legal services. I don't know that a hired trustee is necessarily the move for me. What I'm trying to really figure out is that...

Scott: Yeah, how can we help you? I'm curious.

Noah: No, I get it. I get it. So where I'm trying to get is that most of this money is tied up in a Lincoln Financial account. Now my financial advisor is trying to tell me that if I were to liquidate, remove, transfer, do anything outside of Lincoln Financial I would be taxed heavily. The account is set up so that I can't withdraw anything until I'm 59, penalty-free.

Pat: It's an annuity.

Scott: That's an annuity.

Noah: Correct. So between the penalties and the taxes, it's not worth it for me to cash it out.

Pat: But when you say you...

Scott: Isn't it in the trust?

Pat: Isn't it in the trust?

Noah: Yes, but I'm a beneficiary, so I'm entitled to, should I choose to distribute it.

Scott: You can't because it's tied to someone's life. Exactly. Who's the annuitant on it?

Pat: Yeah, who's the annuitant?

Noah: As far as...I don't think that's even set up yet.

Pat: Oh, it has to be. You can't open an annuity without an annuitant.

Scott: Annuity has an owner, an annuitant, and a beneficiary.

Noah: So I'm looking at basically a printout of my investment portfolio right now. And to the far left, it says that everything is in my grandmother's name. And I have account names.

Pat: Okay. Well, this goes back to my original, you need to hire a third-party trustee. And the reason is, look, your mother's acting as a fiduciary on this trust to the benefit of the beneficiaries, including your aunt and uncle and the special needs child and yourself. And regardless of what your mother did for a living, she is not acting...

Scott: Like the 59 and a half, that had to do with... First of all, if someone passed away it's regardless of the age. There's no 10% penalty.

Pat: So your mother...

Scott: And it only applies to the annuitant, not to the beneficiary.

Pat: Your mother actually may have some exposure to a lawsuit.

Noah: Okay, that's a fair point.

Pat: No, no, no. I'm telling you flat out.

Scott: Who put the money in the annuity?

Noah: So these were all investments that my grandparents did with their financial advisors.

Pat: Well, that's actually... If they... You don't have enough visibility into this, and your mother doesn't understand it well enough, and you don't have a qualified financial advisor giving you that information.

Noah: That I agree with. I think the guy who I'm dealing with is an absolute clown.

Pat: There's no question. There is no question.

Scott: Just based on what you've said.

Pat: The little you've shared with... But here's what...

Scott: But you have a copy of this annuity with Lincoln? A statement of that?

Noah: I have a copy of basically like the broadest possible overview of the investment policy.

Pat: See, so if you came into my office, if your mother came into my office, your mother, not you, you're the beneficiary. I'm worried about your mother. And she came into my office and she said, "Okay, I've got this and this is what my investment advisor is doing. And by the way, I think I'm being sued by my sister and her husband," or, "my brother and his wife," or, "my brother and his husband," whoever the heck. And I would say, "Look, you have exposure here. You have a fiduciary obligation to make sure that these monies are being managed appropriately." And from what you've told me so far, Noah, you're not even close. And by the way, it removes your mother's responsibility to act as a fiduciary if she hires a fiduciary to manage it, which actually gives her more protection.

Scott: She could be the trustee and have a...still remain as trustee and have a fiduciary manager.

Pat: And then the brother-in-law or sister-in-law come and sue, and she says, look, sue all you want. Show me what I'm doing wrong. Here is a professional fiduciary that is actually abiding by the rules of the trust and the trustee, the trust...the fiduciary, right? So you've got a trustee. She's going to hire a third-party trustee and she's going to hire a fiduciary. I'd hire them both. I'd remove myself as far from this trust as I possibly could if I were your mom.

Scott: There's nothing to win.

Pat: Nothing. She's got nothing in...

Noah: Well, yeah. She's not... Her benefit isn't the issue. There's no good day for her in court. That's just not, we already realized that.

Pat: Well, there's no good day for her to actually even... If you play her a copy of this podcast and say, hey, I called these two jokers out in California.

Noah: I can call her in right now if you want to.

Pat: Oh, I don't want to. No, no, no, no, no, no.

Scott: I'm sure she's a lovely lady.

Pat: Yeah, your mom is very, very nice. But you've got to start at ground zero. You've got to start at ground zero.

Scott: You are a funny guy. You're right.

Pat: You've got to hire a professional trustee and have that professional trustee hire a fiduciary. And it's not going to look anything like the portfolio to have. And then your aunt and uncle get to fight with the trustee about whether the distributions are being done right. I would just do it and remove your mom from it completely. Just hire a trustee.

Noah: That's an interesting idea. It is the only way I'd go.

Pat: It's the only way I'd go. In fact, I actually, if you came in, your mom came in my office and didn't hire a professional trustee and I would act as the fiduciary, I wouldn't work with her, quite frankly.

Noah: Interesting.

Pat: Just wouldn't. And we're fiduciaries. I'd act as a fiduciary on this account, but there's no way I'd allow your mother...I would act as a fiduciary if your mother was the trustee, just because she's exposing herself to so much garbage. It's awful.

Noah: Yeah, I understand. So let's put all the lawsuit stuff aside. That kind of is what it is, I can't even control.

Scott: That's right. You have no control over it.

Noah; I have no control over it, and neither does my mother.

Pat: Nor do you have any control over the investments.

Noah: Correct. Right. Well, as it stands right now.

Scott: Nor should you until the money's distributed to you. As long as the trust has it, you have no control.

Noah: Right. So it's not my goal to sit here and have control over the money. I'm not a professional investor. It's just not my interest. But I do very much want to get away from my financial advisor. And at some point in order to do so, I'm going to have to close these Lincoln Financial accounts.

Scott: No, you're not.

Pat: No, that's the fiduciary's problem. That's the fiduciary's problem.

Scott: You have no right to that annuity. That has nothing to do with you.

Pat: It's got nothing to do with it. It's all about your mother. So your mother hires a trustee and the trustee actually reads the trust and says, okay, this is how the trust is written. These are how the dollars are distributed. They're the administrator of the trust. The trustee then goes and hires a fiduciary to manage the assets. And the trustee and the fiduciary, two different people. So we have trustees, professional trustees where we manage assets as fiduciaries for them. We don't actually care how the money is distributed. That's not our job. That's the professional trustee's job. So you discussing the portfolio with me is a waste of time.

Noah: But at a certain point, this money is going to have to... Like, I plan on buying a house, a certain portion of that.

Pat: You got no control over that, nor how the money is managed. So your mother takes this money, hires a professional trustee. The trustee hires a fiduciary. It's the fiduciary's problem.

Scott; And the fiduciary can say, let's get the money out of these annuities. They cash them all in.

Pat: Pay the taxes.

Scott: It's all based on who the annuitant is, assuming that it actually exists this way.

Pat: So you're a beneficiary of the trust.

Noah: Right. So I guess where it sits right now is I don't think anybody's actually taking a monthly check from any of these.

Pat: Maybe they're not supposed to.

Scott: Have you read the trust document yourself?

Noah: No, I mean, personally, no, but the way it has been interpreted.

Pat: Yeah, it doesn't. Yeah, yeah, yeah.

Noah: Yes.

Scott: You're barking up a tree that's not going to yield you anything.

Pat: You can talk to your attorneys all day long. The right answer. And by the way, attorneys will talk to you all day long.

Scott: Oh, yeah.

Noah: Oh, yeah.

Pat: It's like 18 cents, 18 cents a letter. Yeah. So that's the answer to the question. So appreciate the call.

Scott: Yeah, good luck. It's interesting, Pat, how... Like, there's a lot... I've seen that in my own family, not my immediate family, but lawsuits over estates. Siblings not talking to one another because they get upset the way the estate's being handled. Yes. And like this is an interesting situation because you've got a person who's not even a beneficiary to the trust acting as trustee for both her kids as well as others, extended family members. It's like you're asking for problems.

Pat: Well, they got them. You start at ground zero, turn this whole thing over to a professional. This $800,000 in the trust, you end up in litigation over this trust, you want to watch it shrink quickly, that's the way to do it. That's the way to do it. Having people fight.

Scott: I have a neighbor of mine that is an attorney that specializes in these things. That's what he does. When it's family member's fighting, that's when he steps in. He's a really nice guy. He's probably a pretty good mediator of sorts. But that's the challenge that he enjoys.

Pat: Are you kidding? That doesn't sound like fun to me. It's like right up next to being a divorce attorney.

Scott: That sounds like a nightmare as well, doesn't it? Well, frankly, or any sort of litigator.

Pat: Yeah, good point.

Scott: Wouldn't be my cup of tea.

Pat: Good point, good point.

Scott: I don't really enjoy sparring with people all day long.

Pat: I do for a little bit.

Scott: A little bit.

Pat: I wouldn't want to do it everyday.

Scott: Again, to join the show, 833-99-WORTH.

Pat: Oh, by the way, in the middle of the session, Scott, we should point out, if you like this podcast, while you're listening to it, you can actually review us while you are listening. You could give us the appropriate number of stars that you believe we deserve. You can make comments. You can forward it to a friend while you are listening to this.

Scott: You might driving, you just use your knee to steer, pick up the phone. Joking on them.

Pat: So we would appreciate it because we're trying to get many, many listeners. Our marketing people tell us that there will be a tipping point at some point in time.

Scott: To tip into what?

Pat: I don't know. The abyss.

Scott: I mean, we've been doing this 28 years.

Pat: We're just on the verge, Scott. We're almost there.

Scott: We're the next Suze Orman.

Pat: We're so close. I can see it. It's in the horizon.

Scott: I saw an article on Suze Orman that she doesn't dine out. They made it sound like that's how to save money. I'm thinking, well, she probably doesn't dine out because she gets sick of people coming up and saying, aren't you Suze Orman? She's still around.

Pat: Yeah, I understand. I was just thinking, who are you? Princess Diane? I don't know. One of the royal families?

Scott: No, it was for money. She thought eating out was a waste of money.

Pat: Of course, it is.

Scott: It's a use of money.

Pat: That's right. It's a use of money. It's not a waste of money. It's a use of money.

Scott: It's a use of money. I frankly enjoy eating out. Quite often.

Pat: Actually, I like eating out at mid-range restaurants. Like in Sacramento, there's this...

Scott: You mean like Chili's?

Pat: When the kids were younger, we ate at Chili's a lot. Don't be too harsh on the Chili's. But like the Chicago Fire, the pizza place. But the steakhouses, not enjoying it. If you want, we can spend more time talking about it.

Scott: Let's go to the calls. Let's talk with Chris. Chris, you're with Allworth's "Money Matters."

Chris: Hi, good afternoon.

Pat: Hi.

Chris: Hi, so my dilemma or question is, a few years ago, I rolled my 401(k) into my current employer's 401(k). At the time, I was fully vested. It was about $150,000.

Pat: How old are you?

Chris: I am 57. Now my current company is telling me that I cannot touch my 401(k). My wife and I wanted to invest in real estate and they're telling me that I can't do anything with it. I thought if I were to roll over a certain portion, you know, I would be able to access it in some form or fashion.

Pat: So you rolled from a...

Scott: It was a transfer. He transferred some money from an old 401(k) to this current plan. Now your current 401(k) administrator says, sorry, we don't have any provision for an in-service distribution...

Pat: Until you're 59 and a half.

Scott: You need to wait till you're 59 and a half where you retire.

Chris: Exactly, it was a transfer.

Scott: What's the account value?

Chris: It's probably...right now it's about 165.

Scott: So full account value over the new employer and the old employer to combine. It's $165,000?

Chris: It's $165,000.

Pat: How much money do you want to take out?

Chris: Well, I was hoping to fully the initial vested amount, which was the 150.

Pat: Was it this show or last show that I talked about...

Scott: The IRA, yeah, that was last show.

Pat: ...where you went these IRAs because they have a broader investment?

Scott: More flexibility. Yeah, there's not a lot you can do. Unless you quit. If you quit, you can take the money. But I don't think you want to quit over that.

Chris: No, I was just hoping there was something...

Scott: And what real estate were you hoping to buy with this?

Pat: That's the bigger question, and why were you using the money in the 401(k)?

Chris: We wanted to put in like just a single-family rental.

Pat: Why?

Chris: Why? Because that was the direction that my wife and I wanted to do several rental homes.

Pat: Have you owned Rentals in the past?

Chris: We have.

Pat: Do you have other assets that you can use?

Scott: Well, the challenge, so unless you plan on buying a rental for $150,000 or whatever, it's very difficult to have...you can't have debt encumbered on property if you're using...unless you pull the money out and pay taxes and penalties, which is highly discouraged. But if you wanted to use IRA dollars to own real property, you can't have a loan on that property. So you couldn't use this as a down payment and have a traditional mortgage.

Pat: Is that what you were thinking?

Chris: Oh, I see what you're saying. So that couldn't be rolled over in a self-directed IRA.

Pat: No, it certainly can. Certainly can. And you can buy a piece of property. You could buy a $160,000 piece of property.

Scott: But you can't buy a $500,000 piece of property or $400,000 and have a loan. It's against rules for IRAs, whether it's self-directed or not.

Chris: Okay, well then...

Scott: That's why it's interesting because Jason's like...

Pat: It's Chris.

Scott: I'm sorry, Chris. You read about these...the self-directed IRA, you can do this and that. But the reality is when push comes to shove, I think it's the worst way to own real estate.

Pat: By the way, I could give you another reason why I would not do it. One is you lose a lot of the tax benefits of actually owning that property.

Scott: It's really problematic once you hit age 59...I mean, age 72 or whatever it requires.

Pat: Minimum distributions. And it's really problematic if you actually have to do repairs to the house and putting money from outside of an IRA into that property itself becomes problematic because it's like making more contributions into your IRA. Unless you own it partially inside the IRA and partially outside the IRA, which is even more problematic in terms of the accounting for it.

Scott: That's right. It's very complicated.

Chris: That does sound complicated.

Scott: It is complicated.

Pat: It would be the last place. I would not, I got to tell you, if I wanted real estate exposure, I'd do it in my IRA... Oh, yeah. In your 401(k). If your 401(k) has a self-directed brokerage window you can go out and get real estate exposure inside of the 401(k) while leaving it in the 401(k).

Scott: Using a real estate investment trust.

Pat: Using a traded real estate investment trust. And in fact, if you thought it was going to be in properties, there are real estate investment trusts that actually specialize in...

Scott: In residential rentals.

Pat: In residential rentals, not multifamily rentals, residential rentals, where they buy a thousand homes and they manage it just like they would an apartment complex. So if you want that exposure, there's a way you could get the exposure inside of your 401(k). Without doing what you want to do. Now, I'm not saying whether I agree with that sort of idea that you should be putting that much exposure. But if you wanted it, that's how you'd go about getting it.

Chris: Okay. Well, thank you, gentlemen. I do greatly appreciate it.

Scott: Okay. Thanks.

Pat: Thanks for the call.

Scott: Pat, I read an article in the last week or two on that. So institutional ownership of individual homes has exploded since the Great Recession, right?

Pat: Yes.

Scott: So a lot of companies are out there doing it. That's what they specialize in, owning rental homes. To your point, not apartment complexes, but single-family dwellings. But I read this article that they're running out of opportunities. Now they're building their own entire neighborhoods.

Pat: I read the same article.

Scott: The whole... Actually, I skimmed the article.

Pat: Well, they used to buy them from builders. So they'd go to a Lenar or a KB Homes or you name it, and they'd buy inventory. They'd say, okay, we'll buy these 50 homes, especially if those homes aren't moving, which there are periods of times where there will be little gaps in the market where the homes aren't moving. The institutions would just go in and they're like, we'll take 50 of these things, and then they'd rent them out.

Scott: And they get favorable deals because the home builder's like, hey, I'd rather sell something for what we know than bet on the come.

Pat: Yeah, and they get favorable financing because it's institutional financing versus a regular homeowner. But then they realized, you know, we could cut the home builders out of this completely, and we're just going to build developments where we are the owners. So we're the builder and the owner of the particular...

Scott: I was thinking, like, longer term for that neighborhood. What happens?

Pat: I mean, if I was buying a new home today and I realized...

Scott: You had renters on either side. Both sides of the house had renters.

Pat: And a new... Not to sound...well, it does sound terrible.

Scott: There's some good renters that take good care of their property and there's some that don't.

Pat: There's some that don't, right? And that some will have quasi-pride of ownership and some don't really care because it's a rental. Like I worked with Fried Fred when I was in high school and he was a cook at a restaurant, Fried Fred. His name was Fred. I don't really know.

Scott: Was it Fried because he was a fry cook or because he took too many drugs?

Pat: Oh, the latter. Fried Fred was a renter and he explained to me how they'd move every 12 months after they destroyed the house and ruined their own credit. But there were four of them, so they'd cycle through. And I thought, "My gosh, Pat, remember this forever. Never rent a house to fried fred if you own a rental home at some point in the future."

Scott: I don't know how we got on that. But to real estate investment, to your point, you can get real estate exposure. One of the reasons investors don't like that sometimes is because they can see the value of it on any particular basis any particular day. It marks the market as opposed to, well, I don't know... I know Zillow says this, but who can trust those numbers anyway? So it doesn't really matter because they just view them differently. That's right. It's all behavioral finance issue. It's not a...

Pat: People like rentals because they say, well, they only go up in value.

Scott: Because they're not gonna sell them until they're up in value. Unless they get repoed because they had too much debt. Yeah, they don't always go up in value.

Pat: Yeah, they don't always go up in value. Just because it doesn't price on a daily basis doesn't mean it doesn't go down in value.

Scott: Yeah. Hey, real quick, before we move on here. We are hosting...if you'd like to be part of our program, we are hosting a special call-in session. So we'll be in the studio on Martin Luther King Day, that afternoon between 3:00 and 5:00 Pacific time taking calls. And if you want to join us, mark it on your calendar for one. Or two, Send us an email, at questions@moneymatters.com, questions@moneymatters.com, or you can call 833-99-WORTH, and we'll schedule a time during that block. So it'll be fun. We look forward to your calls. Now we want to turn to talk with one of our partners, Brian Murphy in our Tucson office. And, Brian, thanks for taking a little bit of time to chat with us.

Brian: Thank you, Scott. Thank you, Pat. Good to hear your voices reconnect. Thank you.

Pat: Thank you. Thank you. And Brian, before we start, I've got to thank you. I am friends or something with you on LinkedIn. And the articles that you actually post on LinkedIn, I read almost every single one of them and there was no other person on LinkedIn where I actually... If there's an article posted, most of them I just blow right past. But when you post an article, I'm thinking, all right.

Scott: This is Brian Murphy with Allworth Financial in Tucson, Arizona. My guess, Pat, there's going to be some listeners like, well, if Pat really likes reading the articles, maybe I should read the articles.

Pat: Yes, that's right.

Scott: And you talk a lot about behavioral finance issues.

Brian: I do. And, you know, my belief on the articles that I put up on LinkedIn is primarily, you know, you only get to keep what you truly give away, right? So if I'm not really interested in that article and I haven't read it and I don't think it's great, it doesn't go up there. They're pretty much all related to either retirement income planning or behavioral finance. Those are my two areas that I really focus on.

Scott: And you've been an advisor for how many years?

Brian: Thirty-eight years.

Scott: Wow. And where'd you get your start?

Brian: Merrill Lynch, 1985.

Scott: And how long did you stay in the brokerage world before you became an independent fiduciary?

Brian: Thirteen years. By the time 1998 rolled around, I was done with the model, the big brokerage model. It was, you know, it's just not one that I believe necessarily has the client's best interest at heart. And not saying there aren't great people at any big firm, Merrill Lynch included, there are, but there's also a lot of bad things, I think, that go on at those places. And kind of that's my topic for today, if you guys are ready for me.

Scott: Yes.

Pat: Yes.

Brian: You know, a client story and I have a couple, but let's just say the most recent story. Client comes in, they've had a multi-decade relationship with Morgan Stanley. They're a little bit concerned about returns. They're not quite getting what they had hoped for. They haven't had any significant planning work done. And so they're thinking about retiring. They don't have income plans. They're thinking about doing some more estate planning. It's a second marriage for both parties. They haven't really done that. So basically, the Morgan Stanley advisor is just a broker in many ways, the traditional sense. And so we always request that clients bring their Morgan Stanley statements or whatever their brokerage firm is. And it could be any of the majors because we've experienced it with all of them. And they come in and, you know, we get multiple statements and we start scratching our head a little bit. "Well, how come they have two IRAs?" And, you know, "How come there are, you know, two trust accounts?" And, you know, so on and so forth. And we start doing our analysis and we start scratching the surface and we see a few things. And the most recent example that I'll share with you is clients owned American Funds for a long time with about...and it's about a $3.5 million account, total relationship. And the American Funds are not in a managed account where the customer is paying a fee, they're in a traditional brokerage account, whereas you guys both know at $750,000, you're well below the million-dollar breakpoint, which is where the sales charge goes to zero. So every time they put new money in...

Scott: These are loaded mutual funds, old school.

Chris: Loaded mutual funds.

Scott: They're still putting... They use them?

Brian: They're still at a $3.5 million account value. They're still keeping the account, which I would argue, having been in that world, that that account is being managed for the broker's best interest and not the client's.

Scott: I didn't know that any dollars was still going into front-loaded mutual funds. This is 2024.

Brian: Not to mention the internal expenses, including the 12B-1 fees, which is the ongoing commission that the broker is paid for retaining those assets of 25 basis points or 25 one-hundredths of 1%. They're paying 1.5% on every new dollar that goes in. And then the broker is making, you know, the 25 basis points on the rest. But the other big key with all of these accounts combined is essentially what you had was an overpriced global index fund. They did own the globe, I'll give them credit for that, but they did so at a very high cost. And then in both cases, in the trust as well as in the IRAs, you had separate accounts that had been carved out that were managed accounts, that were managed by some money manager that's approved by, in this case, Morgan Stanley. But again, it could be any of the majors. And then you have this other account over here. So one account is a commission-based account, and the other account is a fee-based account. And so you're not deriving the benefit of either scenario, as the client, because you haven't moved through the million-dollar breakpoint at American Funds, and you're paying the maximum fee for gaining access to the money.

Scott: So he's a fiduciary in the morning and a broker in the afternoon or vice versa.

Brian: Exactly. Exactly. That's exactly right. And then the other thing which really riles me...and we sit down with the client, and you look at, and you guys know how this works, but you look at the trades that have happened, and there's always...a couple of managed accounts, you're gonna have 10, 20, however many, 30, 40 trades a month. And when you look at the statement, it says, "Acted as agent." "Acted as agent." "Acted as agent."

Scott and Pat: Oh, no.

Pat: Well, explain to the...

Scott: Pat and I both looked at each other.

Pat: Explain to the listeners what that means, please.

Brian: Yeah, that's what I was going to do. For your listeners, that means, so if you pick up your Wall Street Journal or your local paper or Barron's or whatever it is, Investor's Business Daily, and you look for every stock that trades, there's a bid and an ask. And what goes in the middle is a spread. And that's the commission that gets paid to the broker for executing the trade. Well, in this case, with every single one of these accounts, the broker was acting as agent on all the transactions, which means in addition to the fee that they're charging, there's this opaque undisclosed amount that's going to Morgan Stanley for acting as the agent and getting both sides of the trade.

Scott: I didn't even think that would still be legal.

Brian: So they're making way more than 1%.

Pat: Or they could be dealing out of their own inventory.

Brian: Right. Which, you know, as we all know, God forbid, you know, there's bonds in there, it's even worse.

Pat: So what's interesting to me...

Scott: Sorry, Pat. What you stated early on this call, that it's the structure of these firms, right? There's some good advisors there, but they are riddled with so many conflicts.

Pat: Well, that's why that industry is shrinking and a large portion of it is growing RIA. So Brian, so let me get this right. So they hire a third-party asset manager to direct allocations. But so they've hired a fiduciary as a third-party manager. I'm trying to get this right. And then they're trading as their broker, Morgan Stanley, and Morgan Stanley's making money on every trade, even though the fiduciary is getting paid a fee. Is that correct?

Brian: Correct. Correct. Where they could decide that they're just going to go to the lowest-priced broker in all markets and decide who's going to fulfill on that. But aren't they violating their fiduciary duty by actually placing all the trades with that single broker?

Brian: Well, I think that's a question for your friends at the SEC, and I'm not qualified to answer that. If I were qualified, my answer would be yes.

Pat: Because what happens is you want to actually... If you're a fiduciary, you want to go to best execution, especially if you're a third-party asset manager.

Scott: Right.

Pat: I didn't even know this still...

Brian: We both know there's probably some craftily worded document that they signed that said on occasion, it's okay for, you know, Merrill Lynch, Morgan Stanley, UBS, whoever, to act as agent for your benefit.

Pat: I've got to tell you, well, I haven't taken on new clients in a number of years. So I have not...

Scott: This is not uncommon though. Wait.

Brian: Very common.

Scott: What you witnessed with this new client is not uncommon. And look, I encourage you, if you haven't had a second opinion in a while, just get a second opinion from an independent advisor. Because what you uncovered, Brian, two major issues in my mind. One is buying a loaded mutual fund. American Funds, that's how they started with the loaded mutual funds. But the industry has changed dramatically in the last couple of decades. They also have institutional class funds that the costs are dramatically lower, that there's no commission when someone buys that could be offered to the client. Right?

Pat: That's one.

Scott: And then the second is, there's a compensation received on the trades that they're acting as a fiduciary.

Pat: I'm going to give you a third, Scott. They're paying as much money as they would pay for full financial advice, and they're not receiving it.

Scott: Probably more.

Pat: So they're going to go to Brian, and Brian, you're going to clean this all up and then give them that estate planning, tax planning advice?

Brian: Absolutely. I mean, that's what we do, create an income plan with discipline, holding short-term bonds, holding things that are good for people that need income over the next however many years, and allocating some portion of it to the equity markets and other things that make sense for longer-term growth. But taking the risk out of the portfolio, particularly on the eve of retirement. And also the analysis that we did without even really sinking our teeth into it, we really felt comfortable that with our published fee schedule and the additional costs that they were paying, etc., that we were going to save them at least $50,000 a year, including our fee.

Pat: Wow.

Scott: Wow.

Pat: And not to mention, you said it's a second marriage.

Scott: And large firms, they state, we cannot provide tax advice.

Pat: And Brian, you stated that they were second marriage, children from previous marriage?

Brain: Correct.

Pat: Which, by the way, if you've got any assets at all and you're in that position, you need some quality estate planning advice. That's just right. I mean, you looked at it and you're like, my guess is you said, have you addressed this issue? What was the answer?

Brian: Well, of course, yes, that's really significant. And here we are on the eve of, you know, the current tax laws expiring at the end of December 2025, when the line at your favorite estate planning attorney's office is going to be really long. And how long are you going to wake up to that? If I don't tell you now that it's time to update your trust and you don't set all of that up and build a relationship with an estate planning attorney, if you are looking for one in June of '25, you're not going to find one.

Scott: That is correct.

Brian: They're going to be so busy, they're not going to be able to help you.

Pat: They are only going to work with their existing clients. So, Brian, thank you, as always, for being a great part of the team. And for those that are on LinkedIn, I would suggest that you friend or follow or something on LinkedIn.

Scott: Connect.

Pat: It's connect. Connect.

Brian: There you go.

Pat: Connect on LinkedIn. All these different things have something to do. Yeah. Brian... What's your middle? Is your middle initial in your LinkedIn profile?

Brian: I don't think...

Scott: Brian Murphy Allworth.

Pat: Brian Murphy Allworth. You'll find him.

Scott: Thanks, Brian.

Brian: I'm up there, and I'm actually wearing a tie and a suit jacket.

Scott: Oh, look at you.

Brian: So I'm not like all those younger people on LinkedIn. You can identify the old guys by the tie.

Scott: And you've got a good haircut. Very similar to mine.

Brian: I take it down to nothing every day.

Scott: Thanks, Brian. Happy to hear you, thanks.

Brian: Take care.

Scott: Hey, we're about out of time here. We so much appreciate everyone taking part. I just want to let people know we've got a financial planning virtual event that you can participate in at allworthfinancial.com. It's essentially five must-know strategies for building a confident financial plan. And during this virtual event, you're going to learn how to calculate your retirement income needs, some kind of simple ways to calculate that, some approaches to investment management. So kind of overview there. And then also how to potentially save thousands on future tax filings. So it's really with an eye on taxes as well. Three different times. Wednesday, January 24th at noon Pacific, Thursday, January 25th, noon Pacific, and Saturday, January 27th at 9:00 a.m. Pacific time. You'll get more details. And to register, simply go to allworthfinancial.com/workshops. Another great education source for you. So with all the time we've had, great having you with us. This has been Scott Hanson and Pat McClain of Allworth Financial.

Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.