Smart Money: Broker's success is measured in results

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DEAR BRUCE >> When using a broker, how do I know he or she has my best interest in mind when they make recommendations? Vanguard charges 0.33 percent to manage money and there is no conflict of interest.

— G.l.

DEAR G.L. >> If you have a straight brokerage account, then yes, the broker makes commission every time the client buys or sells. You mentioned a company that charges 0.33 percent to manage your account and there is no conflict since they're getting paid whether you make money or not. I think if they are charging that amount, it's a very good deal.

On the other side of that, I have no problem with my broker, who does sell a portion of my holdings from time to time. My arrangement with my broker is she can go ahead and do this without consulting with me beforehand, as long as at the end of the year there's a decent profit. If you feel that a broker is selling and buying just to create commission, then it's time to take a good look at that relationship, and you may want to terminate it.

DEAR BRUCE >> I have a friend who has not paid income tax for 20 years. He was self-employed. He is getting closer to his retirement age of 65 and will need Medicare. How does he go back into the system without getting in trouble? I told him to call a tax lawyer, but he is afraid.

— Terry

DEAR TERRY >> Clearly, there is no absolute certainty about what will happen. The first question is how much income tax (if any) did he avoid? Maybe he didn't make much money. The fact that he didn't file wouldn't be held against him, or not as closely against him. If a lot of taxes were withheld, then he is simply going to owe a lot of money, as long as he goes to the IRS first. In almost every instance, even though he will fined, he will not go to jail.

By all means, he should use a tax attorney who practices specifically against the IRS. Please tell him this situation is not going to get any better or easier by avoiding it.

DEAR BRUCE >> I want to take a life insurance policy out on my 4-year-old child. He is in great health and has never had any problems. How do I know how much to pay for the policy?

— Reader

DEAR READER >> Why do you feel you need a life insurance policy on a healthy 4-year-old child? As I have said many times, life insurance for a young child is inexpensive, but the only argument for buying it is that you want to be covered in case he develops some type of disease or ailment that might prevent him from getting insurance later. As to how much you should spend on the policy, I would shop around carefully. For a 4-year-old, I would say a $10,000 to $20,000 whole life policy is reasonable.

Send questions to bruce@brucewilliams.com.


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