Wednesday, October 29, 2014

Digital Wealth Management

Online investing is heating up.

Wealthfront just grabbed another $70 million in financing. Personal Capital raised another $50 million. Charles Schwab announced its own robo-advisory service.

Will the Boomers children be the generation that abandons face-to-face investment services?

Monday, October 20, 2014

“The Father of Estate Planning"

Give a birthday shout-out to Charles Ives, the American composer born 140 years ago, October 20, 1874. Life insurance was Ives' day job, and when the federal estate tax came along, he realized there was a better way to sell insurance than to ask, "How much do you love your wife?"

The photo below shows Ives in 1913, the year the federal income tax was introduced. The federal estate tax followed in 1916, and two years later his most noted nonmusical work appeared: "“Life Insurance with Relation to Inheritance Tax."


Friday, October 17, 2014

Paying Death Tax With Art

A beach scene by Winston Churchill
Winston Churchill's daughter Mary Soames died last June at age 91. To help pay her death duty, the estate has offered 38 paintings by her father.

Should our estate tax include a similar AIL (Acceptance in Lieu) scheme?

Wednesday, October 15, 2014

Mobile Video, Live-Banker Mortgages, Gunless Hunting


Fifty years is only yesterday or ancient history, depending on which ads from 1964 you look at.

Video on the run. In the 1950's Texas Instruments and an Indiana company developed a popular novelty: a little transistor radio. Sony took the idea and ran with it. Now Sony was taking the next step, a portable TV. (You thought mobile viewers didn't start falling off curbs until iPhones came along?)


Live-Banker Mortgages. Five decades ago, private banking aspired to meet the requirements of elite borrowers who didn't always fit the standard mold. Their needs would be evaluated and perhaps met by actual bankers wearing suits. Those days must seem long, long ago to Ben Bernanke, who couldn't talk a computer into refinancing his mortgage.


Gunless hunting. Men with guns were a staple of Chase Manhattan's nest egg ads. But times were changing. Wildlife needed conserving, some said. Chase responded by offering this new age hunter.

Friday, October 10, 2014

Slicing Up Art to Save Estate or Gift Tax

If a painting is worth, say, $4 million, what is a one-quarter interest in the painting worth?

$1 million? Not necessarily, at least not for transfer tax purposes. The Elkins case could prove a game changer, reports Paul Sullivan.

Taking advantage of deep valuation discounts for fractional interests isn't always easy. If you give each of your three children a quarter interest in your Van Gogh, each will be expected to take possession of the painting for one quarter of the year. An alternative method – spotlighted by Christies – might be to gift the art and rent back.
Big wins by taxpayers in estate or gift tax cases have a potential down side. Pressure mounts to "close the loopholes." Senator Sander's bill calling for a 65% estate tax also takes aim at minority discounts.

Wednesday, October 08, 2014

"Treat customers like humans, not as transactions. "

Seems obvious, but it's being cast as the key take-away from the Comcast debacle last summer.  Does the need to become accessible to customers across all communication platforms apply to wealth managers?

I was interested to learn that no one likes 1-800 numbers any more, due to their association with telephone trees and long wait times.

Tuesday, October 07, 2014

Estate Surtax Spreads to Non-Billionaire Estates

That proposed 65% tax plus surtax on billionaire estates seems to have trickled down. The bill Senator Sanders has introduced in the Senate calls for the 10% surtax to apply to estates over $500 million.

Half a billion here, a quarter billion there , , ,

Monday, October 06, 2014

Art As Toxic Investment

Damien Hirst, “Moxisylyte” (2011)
Hundreds of dot paintings from Damien Hirst's workshop are are now on sale at galleries worldwide. (You may remember Hirst's shark.)

Peter Schjeldahl, The New Yorker's art critic, offers potential investors a cautionary comparison:
Just as no law forbids the sale of bundled credit-default swaps on bundled subprime mortgages, no agreed-on aesthetic principle invalidates paintings that are churned out by proxy and then bid up at auction as fungible commodities.
Before their clients plunge into Damien's dots, wealth managers may want to suggest a nice conservative hedge fund.

Saturday, September 27, 2014

Thursday, September 25, 2014

A 65% Estate Tax For Billionaires?

While Republicans work to again reduce the top federal estate tax rate to zero, Senator Bernie Saunders counters with an even more unlikely proposal: an estate tax with rates ranging from 40% (for estates of $3.5-$10 million) to 65% (for estates over $1 billion).

Joseph B. Thorndike comments, "It’s one thing to ask rich people to pay more of the cost of government. It’s another thing entirely to tell those rich people that they are just too damn rich."

The estate-tax charitable deduction now allows wealth to stay in the family by flowing tax free into family foundations. To redistribute billionaire estates through taxation, the deduction would have to go. Can you see that happening?

Wednesday, September 24, 2014

University Endowments Record Double-Digit Returns

Yale's endowment recorded a 20.2% investment return for the fiscal year ending June 30, keeping up with the torrid pace set by the S&P 500.

Reported results from other university endowments:

Dartmouth, 19.2%

MIT, 19.2%

Penn, 17.5%

Harvard, 15.4%

Originally this post erroneously credited Dartmouth's results to Brown.

Friday, September 12, 2014

Background on the inversion mania

From the Tax Analysts blog, which I believe is open to the public. Key takeaway:

Here is the ultimate irony in the story: Investment bankers hired by a foreign multinational confronting acquisition by a U.S. corporation alerted the administration, the politicians, and the country to the imperatives of “economic patriotism.”
It was all part of AstraZeneca's defense against a hostile takeover.

Wednesday, September 10, 2014

It's Not Easy Being Fiduciary

The NY Times reports on the plight of two Deutsche Bank private bankers who were forced out because they balked at pushing DB products – notably, a fund of funds. (Funds of funds answer the perceived demand for investment products that carry even higher annual expenses than regular hedge funds.)

According to this petition to the Supreme Court of the State of New York – we don't have DB's side of the story – the two found "staying fiduciary" was a losing battle.

As big banks try to grow bigger, sales tends to overwhelm service. One result: a marketing opportunity for smaller, fiduciary-minded institutions. 

Thursday, September 04, 2014

Perils of Going Public, Performed Way Off Broadway

"Trading Practices," a participatory production performed in an old building on New York's Governors Island, dramatizes the rise and fall of a family business. The NY Times finds the show "resourceful, whimsical and wearing."

Too bad the production had to open this summer, just after the upheaval at a New England supermarket chain demonstrated that truth trumps fiction. (Rumors that a top tunesmith-lyricist duo has started work on "Market Basket, The Musical," could not immediately be confirmed.)

Monday, September 01, 2014

1954: So Near And Yet . . .

Sixty years ago Container Corp. was running ads featuring contemporary artworks. Some still look pretty cool. This one, for instance, with a portrait of Teddy Roosevelt by Joseph Hirsch.


By contrast, this 1954 Bankers Trust ad shows every one of its 60 years. A married woman with business judgment? Tax savvy? Foresight? Financial literacy? How unthinkable!

Give BT a little credit, though. It was willing to settle for a co-executorship.


Thursday, August 28, 2014

Market Basket: Main Street Beats Wall Street

A multibillion-dollar company fires its CEO, replacing him with two outsiders clearly less qualified.

Reason? a bitter, seemingly endless family feud.

Result? Astonishingly, a revolution, an upheaval that drew nationwide attention.

Market Basket's employees refused to work and took to the streets to demonstrate. Loyal shoppers boycotted the stores. Day after day and week after week, the company hemorrhaged millions.

Last night the revolt succeeded.  The fired CEO, Arthur T. Demoulas, is back on the job and will buy the 50.5% of the company that his side of the Demoulas family does not already own.

Arthur T. did a great job of building a debt-free company. Now we'll see if he can revive an indebted one.

The financial planning lesson
Back in Estate Planning 101, we learned the expected progression of a successful business: A small company grows, attracts outside capital and eventually goes public. Once the company's shares are publicly traded, family members who wish to liquidate their holdings can do so at a price set by the market. With luck, family members remaining active in the business retain a large enough minority interest to maintain effective control.

Maybe that's how it worked in the 20th century. These days, a company such as Market Basket could not long survive if its shares were publicly traded. Corporate raiders (sorry, "activist investors") would swoop in swiftly to maximize shareholder value.

A few businesses have managed to go public while maintaining family control, although Wall Street tends to resent the strategy. Why invest in, say, The New York Times Company, when shares available to the public have insignificant voting power compared to shares held by the family?

For the private investor, the answer may be that it's smart to own part of a company whose management is free to work toward long-term goals.  Mark Zuckerberg certainly values that freedom.

Related post: The Family Business Fight That Just Won't Stop

Wednesday, August 27, 2014

Good Advice From a 108-Year-Old Investor

Selling short helped Irving Kahn prosper in 1929. In the Thirties Benjamin Graham converted him to value investing.

 Here Kahn, age 108 and still investing, is interviewed by The Telegraph.

Tuesday, August 26, 2014

Is Investment Advice Too Expensive?

 After WWII, when the wealthier members of the Greatest Generation opened investment management accounts at a bank or trust, their annual expense was probably about 1.5% to 2% – half a percent as a management fee plus one percent or more in "full-service" brokerage commissions.

These days, investment management fees tend to be higher but, with luck, transaction costs are lower. Total annual running costs probably are about the same.

Could change be coming at last? Will relatively low-cost online services lead to a price war? As we suggested recently, not necessarily – at least not in the high-net-worth segment of the market. The sums multimillionaires pay for investment services don't seem so extravagant when you consider the cascade of fees they face when traveling.

This year, hotels will collect more than $2 billion from fees they tack on to their room rates. My favorite: a $25 fee for putting your own can of Coke to cool in the minibar.

By the time a high-net-worth investor returns home, he or she may see wealth management as a bargain.

Monday, August 25, 2014

What Does It Cost to Invest?

Someone has $100,000 to invest. What will it cost? Peter Dunn dares to tackle that complicated question here.

For more on investors' expenses, see An Emerging Price War.

Will the cost of investment advice actually decline? There's room for doubt. Like mental health therapists. investment therapists aren't selected on the basis of cost alone.

Saturday, August 23, 2014

A Plug For Revocable Trusts

Two morals may be drawn from this Wealth Matters column:

1. If you want to change your name, do it right. Otherwise your ability to exercise a power of attorney may be compromised.

2. Despite –and also because of – the popularity of durable powers of attorney, creating a revocable trust may be the more prudent way to go.

Thursday, August 21, 2014

Warren Buffett, Investment Marketer of the Year?

In his letter to shareholders last spring, Warren Buffett revealed that he had instructed his trustee to invest mostly in a very low cost S&P index fund. He recommended Vanguard's.

"in the five months that followed," the WSJ reports, "investors poured $5.5 billion into the Vanguard fund, or about three times more than during the same period the previous year."

Has indexing finally reached the tipping point and become the default way to invest?

Saturday, August 16, 2014

Better Wealth, Better Health

If you're willing to improve your financial future by contributing to a 401(k) plan, most likely you'll also take steps to improve your future health. See Your 401(k) is Healthy, So Maybe You Are, Too in the NY Times.

Michael Waraksa, a collage freak, put together this apt illustration for the Times story.

Monday, August 11, 2014

Private Bankers Are Not Fiduciaries

J.P. Morgan's investment specialists are held to fiduciary standards. Morgan's private bankers are not. Do private bankers push the bank's own funds when cheaper or better alternatives might be available? In recent months both the Office of the Comptroller of the Currency and the Securities and Exchange Commission have been investigating.

The WSJ story notes that Morgan's funds most often outperform their Lipper averages. And because the bank charges an extra 0.5% annually for holding outside funds, Private Bank clients may find Morgan's own funds less expensive.
See the SEC's page of advice for mutual fund investors here.

Thursday, August 07, 2014

Active Investing: The Happiness Quotient

On average, passive investing produces better returns than active investing. In a rational world, shouldn't active investors become extinct?

No. The economic benefits of active investing aren't limited to the net returns after fees, trading costs and taxes. While passive investing is as exciting as watching grass grow, picking stocks is interesting, challenging and sometimes even fun.

Thus, the benefits of active investing include the net return plus a happiness quotient.

A happiness quotient? The economic concept emerges in a cost-benefit analysis of smoking tobacco. Smoking's costs include increased risk of lung cancer and a shortened life expectancy. However, the estimated happiness benefit – the pleasure of smoking – offsets an estimated 70 percent of the cost. (Critics argue that the percentage is too high.)

In the context of investing, the economic value of the happiness quotient should be easier to compute. If hedge-fund investors settle for  an average return of 9 percent during a period when the S&P is returning 12 percent, the economic value of their happiness quotient must be at least 3 percent.

IRS targeting, by the numbers

NPR has reported on a tabulation by the House Ways and Means Committee staff of the excess scrutiny given to conservative groups by the IRS.  It's pretty damning.  The report is restricted to the "be on the lookout" identifiers that the IRS used.  Because the IRS had only one BOLO that might identify a liberal group ("progressive") the results might not be fully accurate. Liberal groups that avoided the term "progressive" in their names may or may not have been scrutinized closely, we have no information on that. However, 100% of the "progressive" groups sailed through, and no liberal groups complained.  In contrast, conservative groups were asked three times more questions, and fewer than half were approved.  Fifteen times more conservative groups were identified via the BOLOs than the liberal groups.

This affair has been referred to elsewhere as the "weaponization" of the IRS.  It is not a good development, and it's unfortunate that the IRS is stonewalling the investigation.

Monday, August 04, 2014

Cracking the Mystery of Modern Wealth

Say you're seriously rich, perhaps sublimely rich. Have you lost track of exactly what you own and what it's worth? Are you prepared to pay $50,000 or more to find out?

See Wealth Managers Enlist Spy Tools to Map Portfolios.

Note: when it comes to derivatives, private equity, venture capital, collectibles and other alternative assets, "exactly" can be a relative term.

Tuesday, July 29, 2014

Recommended Reading


How well do you understand financial talk? In this elite dialect . . .

"Credit" means debt

"Bail out" means putting money in

"Synergy" means sacking people

"Noncore assets" means garbage.

Monday, July 28, 2014

You're No Apple, You're a Bank

Happened on Heather Landy's last column for American Banker. Financial-services folks, she notes, seem fixated on emulating the success of Apple and Amazon.  That's not easy.
For example, while a focus on cross-selling makes perfectly good sense as a general business strategy, it doesn't hold up very well in an Apple business model context. Notice how when you visit an Apple store, nobody ever says, "Well, sir/ma'am, I see you have one of our phones. Have you considered trying one of our tablets?" There's no need to push products on us because we already know that we want them. We'll even line up around the block to get them. (Whereas a line around the block is never a good sign for a bank.)
Can banks develop a cross-buying culture? Can they give us new conveniences even more welcome than those smart credit cards the Europeans enjoy?

Can they create true wealth-management centers, units so innovative and quality-obsessed that customers clamor for the privilege of a referral?

We'll see.
Landy is leaving her post as editor in chief of American Banker Magazine to join Quartz as global news editor.

Friday, July 25, 2014

Repeal the Estate Tax, Again?

Republicans in the House may vote to eliminate the federal estate tax this fall, it says here. (Curiously, the bill would keep the gift tax.) Purpose: to position repeal as an issue with heft when the subject of serious tax reform finally comes up. 2017, maybe?

Who would benefit from repeal 2.0, other than techie billionaires and hedge fund managers? Farmers. 

"[W]e’ve seen farmers in Iowa or Illinois get $15,000 an acre for their farm," says Paul Neiffer, The Farm CPA. "If the farm is 1,000 acres, they are looking at owing taxes."

Thursday, July 24, 2014

From Ladies of Leisure to Women CEO’s

Sallie Krawcheck, in partnership with Pax World Management, is launching a fund to invest in enterprises with a better-than-average proportion of women in key positions.

What a difference half a century makes. Ladies of leisure like the ones depicted in these 1964 ads certainly didn't expect their daughters or granddaughters to be CEOs of major companies.