Am I Being Taken Advantage Of by My CFP/RIA? Understanding First Trust UITs and Fees

Planning Forum
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Background:

I recently inherited my mother’s IRA, which has been managed by her long-time CFP and RIA. My mom was financially secure, so I never delved into her finances much. However, since her passing a year ago, I’ve started to scrutinize the investments and fee structures more closely. My own retirement portfolio is primarily in Vanguard index funds, so I’m accustomed to low fees and straightforward investments.

Current Situation:

The CFP keeps suggesting First Trust Unit Investment Trusts (UITs) whenever I express an interest in more aggressive investments. For instance, she recently recommended spreading $112K across five UITs: Aerospace & Defense, FT Diversified Target Income, S&P Dividend Aristocrats Target 25, Tactical Alpha, and WCM International Equity. She charges a 0.8% fee, which seems reasonable at first glance. However, when I look at the fee tables for these UITs, I notice terms like “Standard” vs. “Fee/Wrap,” with significant differences in charges—e.g., a 2.25% sales charge under “Standard” that is blank under “Fee/Wrap.”

My Questions:

  1. How do these fee structures work? What’s the difference between “Standard” and “Fee/Wrap” in the context of these UITs?
  2. How much is she making from this? Beyond her 0.8% fee, are there other commissions or incentives she’s earning by pushing these investments? Is this legal and ethical for someone who is supposed to be a fiduciary?
  3. Is this the right strategy? Given that I’m 37 with a high income and substantial savings, does this investment approach make sense for someone in my situation? Or is this a case of being taken advantage of?

Portfolio Overview:

Looking at the rest of the portfolio, the top holdings include:

  • $92K in FT UNIT 11388 Brookmont Equity Dividend Portfolio (another FT UIT)
  • $69K in Meeder Dynamic Allocation Institutional
  • $63K in FDUXX Fidelity Treasury Money Market (appears to be a cash equivalent)
  • $37K in FT UNIT 10757 Balanced Income Select Portfolio
  • $36K in FT UNIT 11109 CBOE Vest Large Cap Deep Buffered 20
  • Plus several other FT UITs and funds like FLMIX, IWF, JBALX, FTGC, MDIX, IWS

What’s Really Going On?

Is this part of a legitimate strategy tailored to my needs, or is it just a way to saddle me with excessive fees? Given that this portfolio was originally designed for a retiree, should there have been a significant adjustment after my inheritance? I’m ready to fire her this week, but I want to understand just how badly I might be getting screwed and how much she’s profiting from this.

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If your advisor charges an annual fee to manage your account, the fee for the UIT comes from the managed/wrap column, typically around 0.50%. This amount is deducted from the UIT over its term. In this situation, she wouldn’t earn an extra commission for selling the UITs, just the 0.8% yearly fee you mentioned.

This UIT lasts 24 months. If you were in a regular brokerage or IRA account without a yearly management fee, she would get 3% when she first sold you the UIT, and then another 2% if you decided to “roll over” the proceeds into another portfolio at First Trust when it matures in 2 years.

I used to be a financial advisor.

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You can ask her what the average annual return on your mom’s investment portfolio is. That should give you a clear picture.

My coworker, who is with RBC here in Canada, got a financial advisor. Financial institutions often have their own investment products that they manage and invest in.

When she asked about the return, it was 6-8%, so my coworker decided to withdraw her money. Financial advisors earn commissions from managing wealth.

ETFs and index funds like those in the S&P 500, such as Vanguard, have historically given returns of 10-12%, consistently outperforming actively managed portfolios.

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Your age does play a role in this. You are right that these investment options—like fixed income, dividends, and money markets—seem suited for someone who is retired. It might be a good idea to consult another investment professional with all your documents for a thorough review.

Remember, you don’t have to invest your IRA in all these things. There’s no need to frequently change investments or pay high maintenance fees. You could just buy an Index ETF and leave it as is.