John Train, one of the most respected financial author, his book, The Money Masters, published in 1980. Mr. Train shares a story of one woman, her family, and the difficulty of applying proper fiduciary management to her trust account. He ends the piece with a call for help from other professionals, as “it’s a problem that requires airing.

Trustees' Dilemma
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Trustees’ Dilemma

Retired baby boomers, more than ever, need financial advice. They retire at 65 and most of them have a life expectancy of 20 years plus. But the key is to make their money last as long as 30 years or more. I never bought into the theory as you get older you need more bonds. Bonds looks riskier than ever.  A portfolio full of “safe” bonds barely provide any income and the “safe” capital could be in for a shock in inflation and interest rates starts creeping up. Anyway that’s another story. The point is it’s hard to find a solid reliable financial advisor. They operate in a conflict of interest. Financial planners earn their living from selling products (commission) and from a % of managed assets. The majority of these “advisors” have lived in an isolated world of product distribution whose portfolio management skills revolved around a suitability standard. There are some good advisors out there and they are hard to find. You need to ask around, check their experience, qualifications, and find out how they work.  Talk to a few of them and you will see the difference. See if anybody can referred you somebody good. Is the person product centric or portfolio management focus?  Advisors have a fiduciary duty to the client. That means that the client’s interest comes first and should provide the highest standard of care. Make sure it’s respected. As the article suggest, another advice is to surround yourself with professionals. Make sure you get the input of a tax lawyer and an accountant on your situation. A financial advisor is not a tax expert. Here’s the article:

The Trustees’ Dilemma by John Train The Money Masters

Reposted from the July 9th, 1979 edition of Forbes Magazine

A widow was left a substantial amount of money by her husband when he died. The income went to her for life, with the capital to be divided among their three children after her death.

Her late husband had been a successful New York businessman, and the family had two large houses: one in Greenwich, Conn. and one on Cape Cod, where they went in summer. The children liked coming to the Greenwich place on the weekends and spending long periods on Cape Cod in summer, so she kept both. As a result, the widow found herself living at the limit of her resources.

At her annual meetings with her trustees, the problem was aired frankly. How could she maintain the houses and keep up roughly the same standard of living as before, with her husband’s considerable salary no longer available? Each year it was decided to sell some growth stocks with low yields and move into bonds or high-yielding equities to maintain the needed income, and hope that all would end well.

So the trust portfolio eventually became roughly half fixed-income securities and half high-dividend stocks, notably utilities and the like.

Unfortunately, however, the investment objective was impossible on its face. At a time when costs are rising 10% a year, income has to rise 12% to 15%, as the tax bracket rises, in order to stay even in real terms.

Full article by Trustee’s Dilemna on Forbes somewhere

The Money Masters

Here are insights into nine of the most successful investors of our time — Benjamin Graham, Warren Buffett, John Templeton, and Philip Fisher, among others. In these fascinating profiles John Train reveals the unique investment styles that have made each a master: the traits that distinguish them from the crowd and the techniques that create the single characteristic unifying them all — consisently profitable investments. Their methods, Train reveals, include those both the nonprofessional and the seasoned investor can apply for profit.