Mother-in-law in a pickle

Q – My father-in-law passed away two years ago leaving his wife in a very comfortable financial position. Taking advice from her eldest son, my 67-year-old mother-in-law consulted with a financial adviser employed by one of the big-name banks.

The financial adviser suggested that she put half her savings ($100,000) in GICs and the other half in mutual funds. The mutual fund asset allocation mix is very aggressive in my opinion – approximately 40% in equity funds, including tech funds.

So you guessed it. The funds have performed terribly over the past two years – she has lost approximately $15,000 on paper. My mother-in-law wants to sell, cut her losses, and transfer everything to GICs.

Her financial adviser says wait and give it time to rebound. I think he’s an idiot for getting an elderly woman in this mess. What do you think she should do? – B.K.

A – Actually, the asset mix itself isn’t that aggressive. The way I read your numbers, only 20% of a total of $200,000 went into equity funds. That would certainly seem to be on target for an older person. The question is more about the nature of the fundshosen. Certainly, technology funds do not seem appropriate and in hindsight they weren’t. Dividend income funds and conservatively-managed, broadly-based equity funds would be a more logical mix for someone of her age and in her situation.

I suggest you have a meeting with the advisor to determine how the selection was made. Ask to see the investment profile that should have been prepared at the time. If your mother-in-law was classified as a conservative or very conservative investor, you may have a case for trying to claim restitution (this has happened). If she wasn’t, find out why not. Did it come down to how she answered the questions?

If you aren’t satisfied with the responses you receive, arrange a meeting with the local branch manager and make your case.

As for whether she should put the remaining money in GICs, I can’t answer that. It depends on many considerations, including her willingness to accept risk, her tax situation, her income needs, etc. I can say, however, that I would not leave the money in higher-risk funds. – G.P.