What the heck is a brokerage account? If you’re caring for an elderly person, now is the time to learn more about this mysterious term. When I took my now 88-year-old dad to a lawyer two years ago to get his will drawn up, the lawyer looked at his overall financial papers. She told me, “This is a total mess. He has so many different accounts that it is going be a nightmare for you to settle his estate if you outlive him.” He had a total of about 20 different accounts, that is stocks, bonds, mutual funds, etcetera, that he was using to supplement his Social Security for his retirement income. She told me I was going to have to get a separate death certificate for each one of the accounts, contact each account holder, and arrange with them to divide each account into the amounts that he had specified in his will, which happened to be an equal division between all of his children – and there’s a bunch of us.
When I asked her what I should do about it she told me that her best advice for me was to get in touch with a good broker and to set up a single brokerage account for all of his accounts. She said if all the accounts were under a brokerage account, a single brokerage account that is, that then the accounts could be divided up among the children. For example, if he had 12 accounts and each had an equal value in it then two accounts could be assigned to each child when his estate was settled. This sounded a lot easier to me then dividing each one of the accounts – and there were about 20 of them – into six different amounts
Now, I am a structural engineer with a bachelor’s degree from a well-known college – I am pretty good at understanding complex things – and I don’t even know what a brokerage account is. She gave me several names of brokers she thought might be good to contact and sent me on my way. I promptly filed the names in a safe place and completely forgot about them. You see, when you’re caring for elderly person and you’ve just finished going through the whole process of helping them prepare a copy of their will, you’re about worn out and want to get on with your own life for a while.
Fast forward to a few weeks ago. I got a call from someone at Morgan Stanley. He said “I’ve been trying to call your Dad for days and I cannot get through to him. He has to take a certain amount of money out of his IRA account as a distribution. This is required by the federal government. This is the law because they want to get their taxes now. He’s been saving this money all these years and never had to pay taxes on it. Now they won’t allow him to let it sit there tax-free any longer. He will have to take it out of his IRA and move it into the one or several of his other accounts. But he can’t keep it all. I have to withhold a certain amount that is estimated as the amount he will owe in taxes and I have to deposit that with the federal government.”
It turned out he had one digit wrong in my father’s phone number. But I told him the guy from Morgan Stanley that it wouldn’t do any good to call my Dad anyway. He can’t hear a single word when people call him on the phone. His hearing has been going downhill ever since he was a gunner in World War II in Europe. He sat right next to the gun at the time and whenever they shot it they did not use ear protection in those days.
After I thought about everything he said, I said “Who did you say you are?” He said he was a broker from Morgan Stanley and that he managed Dad’s IRA account and even a couple of other investment accounts for Dad. He said that usually every year Dad would just take the money out of the IRA and transfer into one of the other Morgan Stanley accounts. “So he had a broker after all” I said to myself. It turns out that I had probably misunderstood Dad’s lawyer. I thought she said that my Dad didn’t have a broker. But what she probably meant was that he had more than one broker and that the different accounts should all be consolidated under one brokerage account.
The Morgan Stanley broker said that he agreed that one brokerage account would simplify matters. He said my Dad must have another broker for the other accounts. I decided that now would be the perfect time to sit with my Dad and get the process started. I invited him to meet me at my Dad’s the following week.
So what exactly is a broker? The best example I can think of is an analogy from the construction industry. I am structural engineer and I specify special fasteners to connect structural members together when a building is constructed. For example, if I specify a Hilti anchor bolt, the contractor cannot just go out and buy it from Hilti. They have to go to a local supplier who will in turn order it from Hilti. Hilti wants local suppliers all over the country that have a one-on-one person-to-person presence to push and promote their products. The local supplier also becomes an expert in the pros and cons of the Hilti fasteners in comparison to the competitor’s products and can give good sound advice to the contractors on which products are best for him. In the same way, financial brokers are kind of like construction contractor suppliers. They become an expert in the various types of products that you can invest in, for example, mutual funds, bonds, or stocks.
I remember a few years ago I wanted to invest in Apple stock. I thought it would be a great thing at the time. It was a couple of years after the iPhone had come out. My friends told me it would not be a good investment because the iPhone had been out for a while and Apple stock had probably already reached its high value. Well they were totally wrong about that but I am not too upset because I did not have any money to invest at that time anyway. Ha-ha! At any rate I did some research and found out that I could not buy the Apple stock myself. I would have to go through broker. “Why, why” I thought to myself. I thought it was such crime that I would have to pay somebody to buy the stock for me. Now I think I know the answer. I always suggest to contractors that are building the projects I design that they should go to a good reputable supplier to buy their materials and equipment. They can get sound advice from them. They educate themselves as to all the competing products out there in the construction industry and often know more about the products than contractor could ever learn themselves. The suppliers also hear feedback from all their various customers as to how the products performed at various construction projects. This helps them to know the advantages and disadvantages of each product. Even though the supplier marks up the price it is worth the higher price because of the value-added by the suppliers.
To finish the story about Dad, we met with the broker and transferred all his accounts into one brokerage. We were thinking ”Aah, time to relax for a while now.”. Nope! A few days later Dad’s Christmas gift checks started bouncing. It took two trips to the bank to determine he was writing checks on one of his old brokerage accounts. Turns out you can write checks against the investments in your brokerage account. A few years ago Dad would have told us about this when we transferred the account to the new brokerage, but now those types of details slip his mind. It’ll possibly be another trip of two to the bank before we clean up the checks and can breathe a sigh of relief. There are so many other things we’ve thought of to do for him to help him at this twilight time of his life but for now they are going to have to wait if it’s up to me to initiate them. It’s time to take a break and recharge my batteries before I dive into his next need. Luckily my brothers, sisters, and ‘step-sister’ actively jump in and do lots for him too.
‘Nuff said! If you are caring for an elderly parent and they have investments, now is the time to start learning what brokers are and how they fit into the care of your elderly parent.